10-K 1 MCDONALD'S 10-K REPORT YEAR ENDED 12/31/94 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (fee required) for the fiscal year ended December 31, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (no fee required) for the transition period from to Commission File Number 1-5231 McDONALD'S CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2361282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) McDonald's Plaza Oak Brook, Illinois 60521 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (708) 575-3000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered -------------------------- ----------------------- Common stock, no par value New York Stock Exchange Chicago Stock Exchange Preferred Share Purchase Rights New York Stock Exchange 9-3/4% Notes due 1999 New York Stock Exchange 9-3/8% Notes due 1997 New York Stock Exchange 8-7/8% Debentures due 2011 New York Stock Exchange 7-3/8% Notes due 2002 New York Stock Exchange Depositary Shares representing 7.72% Cumulative Preferred Stock, Series E New York Stock Exchange 6-3/4% Notes due 2003 New York Stock Exchange 7-3/8% Notes due 2033 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ----- (Title of Class) 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 --- --- 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of voting stock held by nonaffiliates of the registrant is $22,868,486,192 and the number of shares of common stock outstanding is 694,054,537 as of January 31, 1995. Documents incorporated by reference. Part III of this 10-K incorporates information by reference from the registrant's definitive proxy statement which will be filed no later than 120 days after December 31, 1994. 3 PART I Item 1. Business McDonald's Corporation, the registrant, together with its subsidiaries, is referred to herein as the "Company". (a) General development of business There have been no significant changes to the Company's corporate structure during 1994, nor material changes in the Company's method of conducting business. (b) Financial information about industry segments Industry segment data for the years ended December 31, 1994, 1993 and 1992 is included in Part II, item 8, page 42 of this Form 10-K. (c) Narrative description of business General The Company develops, operates, franchises and services a worldwide system of restaurants which prepare, assemble, package and sell a limited menu of value-priced foods. These restaurants are operated by the Company or, under the terms of franchise arrangements, by franchisees who are independent third parties, or by affiliates operating under joint-venture agreements between the Company and local businesspeople. The Company's franchising program assures consistency and quality. The Company is selective in granting franchises and is not in the practice of franchising to investor groups or passive investors. Under the conventional franchise arrangement, franchisees supply capital - initially, by purchasing equipment, signs, seating, and decor, and over the long term, by reinvesting in the business. The Company shares the investment by owning or leasing the land and building; franchisees then contribute to the Company's revenues through payment of rent and service fees based upon a percent of sales, with specified minimum payments. Generally, the conventional franchise arrangement lasts 20 years and franchising practices are consistent throughout the world. Further discussion regarding site selection is included in Part 1, item 2, page 6 of this Form 10-K. Training begins at the restaurant with one-on-one instruction and videotapes. Aspiring restaurant managers progress through a development program of classes in basic and intermediate operations, management and equipment. Assistant managers are eligible to attend the advanced operations and management class at one of the five Hamburger University (H.U.) campuses in the U.S., Germany, England, Japan or Australia. The curriculum at H.U. concentrates on skills and practices essential to delivering customer satisfaction and running a restaurant business. 4 The Company's global brand is well-known. Marketing and promotional activities are designed to nurture this brand image and differentiate the Company from competitors by focusing on value, taste and customer satisfaction. Funding for promotions is handled at the local restaurant level; funding for regional and national efforts is handled through advertising cooperatives. Franchised, Company- operated and affiliated restaurants throughout the world make voluntary contributions to cooperatives which purchase media. Production costs for certain advertising efforts are borne by the Company. Products McDonald's restaurants offer a substantially uniform menu consisting of hamburgers and cheeseburgers, including the Big Mac and Quarter Pounder with Cheese sandwiches, the Filet-O-Fish, McGrilled Chicken and McChicken sandwiches, french fries, Chicken McNuggets, salads, shakes, sundaes and cones made with low fat frozen yogurt, pies, cookies and a limited number of soft drinks and other beverages. In addition, the restaurants sell a variety of products during limited promotional time periods. McDonald's restaurants operating in the United States are open during breakfast hours and offer a full breakfast menu including the Egg McMuffin and the Sausage McMuffin with Egg sandwiches, hotcakes and sausage; three varieties of biscuit sandwiches; Apple-Bran muffins; and cereals. McDonald's restaurants in many countries around the world offer many of these same products as well as other products and limited breakfast menus. The Company tests new products on an ongoing basis. The Company, its franchisees and affiliates purchase food products and packaging from numerous independent suppliers. Quality specifications for both raw and cooked food products are established and strictly enforced. Alternative sources of these items are generally available. Quality assurance labs in the U.S., Europe and the Pacific work to ensure that the Company's high standards are consistently met. The quality assurance process involves ongoing testing and on-site inspections of suppliers' facilities. Independently owned and operated distribution centers distribute products and supplies to most McDonald's restaurants. The restaurants then prepare, assemble and package these products using specially designed production techniques and equipment to obtain uniform standards of quality. Trademarks and patents The Company has registered trademarks and service marks, some of which, including "McDonald's", "Ronald McDonald" and other related marks, are of material importance to the Company's business. The Company also has certain patents on restaurant equipment which, while valuable, are not material to its business. Seasonal operations The Company does not consider its operations to be seasonal to any material degree. 5 Working capital practices Information about the Company's working capital practices is incorporated herein by reference to Management's Discussion and Analysis of the Company's financial position and the consolidated statement of cash flows for the years ended December 31, 1994, 1993 and 1992 in Part II, item 7, pages 26 through 29, and Part II, item 8 page 35 of this Form 10-K. Customers The Company's business is not dependent upon a single customer or small group of customers. Backlog Company-operated restaurants have no backlog orders. Government contracts No material portion of the business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government. Competition McDonald's restaurants compete with international, national, regional, and local retailers of food products. The Company competes on the basis of price and service and by offering quality food products. The Company's competition in the broadest perspective includes restaurants, quick-service eating establishments, pizza parlors, coffee shops, street vendors, convenience food stores, delicatessens, and supermarket freezers. In the U.S., about 378,000 restaurants generate nearly $224 billion in annual sales. McDonald's accounts for about 2.6% of those restaurants and approximately 6.7% of those sales. No reasonable estimate can be made of the number of competitors outside of the U.S.; however, the Company's business in foreign markets continues to grow. Research and development The Company operates research and development facilities in Illinois. While research and development activities are important to the Company's business, these expenditures are not material. Independent suppliers also conduct research activities for the benefit of the McDonald's System, which includes franchisees and suppliers, as well as McDonald's, its subsidiaries and joint ventures. 6 Environmental matters The Company is not aware of any federal, state or local environmental laws or regulations which will materially affect its earnings or competitive position, or result in material capital expenditures; however, the Company cannot predict the effect on its operations of possible future environmental legislation or regulations. During 1994, there were no material capital expenditures for environmental control facilities and no such material expenditures are anticipated. Number of employees During 1994, the Company's average number of employees worldwide was approximately 183,000. (d) Financial information about foreign and domestic operations Financial information about foreign and domestic markets is incorporated herein by reference from Selected Financial Data, Management's Discussion and Analysis and Segment and Geographic Information in Part II, item 6, page 10, Part II, item 7, pages 11 through 29 and Part II, item 8, page 42, respectively, of this Form 10-K. Item 2. Properties The Company identifies and develops sites that offer convenience to customers and provide for long-term sales and profit potential. To assess potential, the Company analyzes traffic and walking patterns, census data, school enrollments and other relevant data. The Company's experience and access to advanced technology aids in evaluating this information. In order to control occupancy costs and rights, the Company owns restaurant sites and buildings where feasible and where it is not practical, secures long-term leases. Restaurant profitability for both the Company and franchisees is important; therefore, ongoing efforts are made to lower average development costs through construction and design efficiencies, standardization and by leveraging the Company's global sourcing system. Additional information about the Company's properties is included in Management's Discussion and Analysis and the related financial statements with footnotes in Part II, item 7, pages 11 through 29 and Part II, item 8, pages 34, 35, 37, 39, 43, 48 and 49, respectively, of this Form 10-K. Item 3. Legal Proceedings The Company has pending a number of lawsuits which have been filed from time to time in various jurisdictions. These lawsuits cover a broad variety of allegations spanning the Company's entire business. The following is a brief description of the more significant of these categories of lawsuits and government regulations. The Company does not believe that any such claims or lawsuits will have a material adverse affect on its financial condition or results of operations. 7 Franchising A substantial number of McDonald's restaurants are franchised to independent businesspeople operating under arrangements with the Company. In the course of the franchise relationship, occasional disputes arise between the Company and its franchisees relating to a broad range of subjects including, without limitation, quality, service and cleanliness issues, contentions regarding grants or terminations of franchises, franchisee claims for additional franchises or rewrites of franchises, and delinquent payments. Suppliers The Company and its affiliates and subsidiaries do not supply, with minor exceptions outside of the United States, food, paper, or related items to any McDonald's restaurants. The Company relies upon independent suppliers which are required to meet and maintain the Company's standards and specifications. There are a number of such suppliers worldwide and on occasion disputes arise between the Company and its suppliers on a number of issues including, by way of example, compliance with product specifications and McDonald's business relationship with suppliers. Employees Thousands of persons are employed by the Company and in restaurants owned and operated by subsidiaries of the Company. In addition, thousands of persons, from time to time, seek employment in such restaurants. In the ordinary course of business, disputes arise regarding hiring, firing and promotion practices. Customers McDonald's restaurants serve a large cross-section of the public and in the course of serving so many people, disputes arise as to products, service, accidents and other matters typical of an extensive restaurant business such as that of the Company. Trademarks McDonald's has registered trademarks and service marks, some of which are of material importance to the Company's business. From time to time, the Company may become involved in litigation to defend and protect its use of such registered marks. Government Regulations Local, state and federal governments have adopted laws and regulations involving various aspects of the restaurant business, including, but not limited to, franchising, health, environment, zoning and employment. The Company does not believe that it is in violation of any existing statutory or administrative rules, but it cannot predict the effect on its operations from promulgation of additional requirements in the future. 8 Item 4. Submission of Matters to a Vote of Shareholders None. Executive Officers of the Registrant All of the executive officers of McDonald's Corporation as of March 1, 1995 are shown below. Each of the executive officers has been continuously employed by the Company for at least five years and has a term of office until the May 1995 Board of Directors' meeting.
Number Number of of years years in Date of with present Name Office Birth Company position --------------------- --------------------- -------- ------- -------- Robert M. Beavers, Jr. Senior Vice President 01/27/44 31 1 James R. Cantalupo President and 11/14/43 20 3 Chief Executive Officer-International Michael L. Conley Senior Vice President, 03/28/48 21 4 Controller Thomas S. Dentice Executive Vice President 01/12/39 29 10 Patrick J. Flynn Executive Vice President 05/01/42 33 7 Thomas W. Glasgow, Jr. Executive Vice President, 02/17/47 26 3 Chief Operations Officer Jack M. Greenberg Vice Chairman, Chief 09/28/42 13 3 Financial Officer Michael R. Quinlan Chairman, Chief 12/09/44 31 5 Executive Officer Edward H. Rensi President and Chief 08/15/44 29 3 Executive Officer-U.S.A. Paul D. Schrage Senior Executive Vice 02/25/35 27 10 President, Chief Marketing Officer Fred L. Turner Senior Chairman 01/06/33 38 5 /TABLE 9 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters The Company's common stock trades under the symbol MCD and is listed on the following stock exchanges in the United States: New York and Chicago. The following table sets forth the common stock price range on the New York Stock Exchange composite tape and dividends declared per common share. Prices and dividends have been adjusted to reflect the two-for-one common stock split effected in the form of a stock dividend in June, 1994. ------------------------------------------------------------------------- Quarter 1994 1993 ------------------------------------------------------------------------- Dividend Per Dividend Per High Low Common Share High Low Common Share ------------------------------------------------------------------------- First 31 1/4 27 1/4 .0538 27 1/8 23 3/8 .0500 Second 31 3/8 27 5/8 .0600 26 3/4 22 3/4 .0538 Third 29 3/4 25 5/8 .0600 27 3/4 24 1/8 .0538 Fourth 29 7/8 25 7/8 .0600 29 l/2 25 5/8 .0538 ------------------------------------------------------------------------- Year 31 3/8 25 5/8 .2338 29 1/2 22 3/4 .2114 ------------------------------------------------------------------------- The approximate number of shareholders of record and beneficial owners of the Company's common stock as of January 31, 1995 was estimated to be 537,000. Given the Company's returns on equity and assets, the Company's management believes it is prudent to reinvest a significant portion of earnings back into the business. The Company has paid 76 consecutive quarterly dividends on common stock through March 29, 1995, has increased the per share amount 20 times since the first dividend was paid in 1976, and has increased the dividend amount every year. Additional dividend increases will be considered after reviewing returns to shareholders, profitability expectations and financing needs. 10 Item 6. Selected Financial Data 11-YEAR SUMMARY
(Dollars rounded to millions, except per common share data and average restaurant sales) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 ------------------------------------------------------------------------------------------------------------------------------ Systemwide sales $25,987 23,587 21,885 19,928 18,759 17,333 16,064 14,330 12,432 11,001 10,007 U.S. $14,941 14,186 13,243 12,519 12,252 12,012 11,380 10,576 9,534 8,843 8,071 Outside of the U.S. $11,046 9,401 8,642 7,409 6,507 5,321 4,684 3,754 2,898 2,158 1,936 Systemwide sales by type Operated by franchisees $17,146 15,756 14,474 12,959 12,017 11,219 10,424 9,452 8,422 7,612 6,914 Operated by the Company $ 5,793 5,157 5,103 4,908 5,019 4,601 4,196 3,667 3,106 2,770 2,538 Operated by affiliates $ 3,048 2,674 2,308 2,061 1,723 1,513 1,444 1,211 904 619 555 Average sales by restaurants open at least one year, in thousands $ 1,800 1,768 1,733 1,658 1,649 1,621 1,596 1,502 1,369 1,296 1,264 Revenues from franchised restaurants $ 2,528 2,251 2,031 1,787 1,621 1,465 1,325 1,186 1,037 924 828 Total revenues $ 8,321 7,408 7,133 6,695 6,640 6,066 5,521 4,853 4,143 3,694 3,366 Operating income $ 2,241 1,984 1,862 1,679 1,596 1,438 1,288 1,160 983 905 812 Income before provision for income taxes $ 1,887 1,676 1,448 1,299 1,246 1,157 1,046 959 848 782 707 Net income $ 1,224 1,083 959 860 802 727 646 549 * 480 433 389 Cash provided by operations $ 1,926 1,680 1,426 1,423 1,301 1,246 1,177 1,051 852 813 701 Financial position at year end Net property and equipment $11,328 10,081 9,597 9,559 9,047 7,758 6,800 5,820 4,878 4,164 3,521 Total assets $13,592 12,035 11,681 11,349 10,668 9,175 8,159 6,982 5,969 5,043 4,230 Long-term debt $ 2,935 3,489 3,176 4,267 4,429 3,902 3,111 2,685 2,131 1,638 1,268 Total shareholders' equity $ 6,885 6,274 5,892 4,835 4,182 3,550 3,413 2,917 2,506 2,245 2,009 Per common share** Net income $ 1.68 1.45 1.30 1.17 1.10 .97 .86 .72 * .62 .55 .49 Dividends declared $ .23 .21 .20 .18 .17 .15 .14 .12 .11 .10 .08 Total shareholders' equity at year end $ 9.20 8.12 7.39 6.73 5.82 4.90 4.55 3.86 3.22 2.84 2.47 Market price at year end $29 1/4 28 1/2 24 3/8 19 14 1/2 17 1/4 12 11 10 1/8 9 5 3/4 Systemwide restaurants at year end 15,205 13,993 13,093 12,418 11,803 11,162 10,513 9,911 9,410 8,901 8,304 Operated by franchisees 10,458 9,832 9,237 8,735 8,131 7,573 7,110 6,760 6,406 6,150 5,724 Operated by the Company 3,083 2,699 2,551 2,547 2,643 2,691 2,600 2,399 2,301 2,165 2,053 Operated by affiliates 1,664 1,462 1,305 1,136 1,029 898 803 752 703 586 527 U.S. 9,744 9,283 8,959 8,764 8,576 8,270 7,907 7,567 7,272 6,972 6,595 Outside of the U.S. 5,461 4,710 4,134 3,654 3,227 2,892 2,606 2,344 2,138 1,929 1,709 Number of countries at year end 79 70 65 59 53 51 50 47 46 42 36 * Before the cumulative prior years' benefit from the change in accounting for income taxes. **Restated for two-for-one common stock split in June 1994. /TABLE 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations CONSOLIDATED OPERATING RESULTS ----------------------------------------------------------------------- INCREASES (DECREASES) IN OPERATING RESULTS OVER PRIOR YEAR ----------------------------------------------------------------------- (Dollars rounded to millions, 1994 1993 except per common share data) Amount % Amount % ----------------------------------------------------------------------- SYSTEMWIDE SALES $2,401 10% $1,702 8% ----------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $ 636 12 $ 55 1 Revenues from franchised restaurants 277 12 220 11 ----------------------------------------------------------------------- TOTAL REVENUES 913 12 275 4 ----------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 481 12 38 1 Franchised restaurants 55 14 32 9 General, administrative and selling expenses 142 15 81 9 Other operating (income) expense--net (22) 35 2 (3) ----------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 656 12 153 3 ----------------------------------------------------------------------- OPERATING INCOME 257 13 122 7 ----------------------------------------------------------------------- Interest expense (10) (3) (58) (15) Nonoperating income (expense)--net (56) NM 48 NM ----------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 211 13 228 16 ----------------------------------------------------------------------- Provision for income taxes 69 12 104 21 ----------------------------------------------------------------------- NET INCOME $ 142 13 $ 124 13 ======================================================================= NET INCOME PER COMMON SHARE* $ .23 16 $ .16 12 ----------------------------------------------------------------------- NM - Not Meaningful * Restated for two-for-one common stock split in June 1994. 12 SYSTEMWIDE SALES AND RESTAURANTS Systemwide sales are comprised of sales by restaurants operated by the Company, franchisees and affiliates operating under joint-venture agreements between McDonald's and local businesspeople. The 1994 increase was due to expansion, higher sales at existing restaurants and stronger foreign currencies, negatively affected in part by severe weather conditions worldwide in early 1994. The 1993 increase was due to expansion and higher sales at existing restaurants, offset in part by weaker foreign currencies and one less day in 1993 since 1992 was a leap year. Sales by Company-operated restaurants grew at a faster rate than Systemwide sales in 1994 because Company-operated expansion advanced at a faster rate than Systemwide expansion. Sales by Company- operated restaurants grew at a slower rate than Systemwide sales in 1993 because weaker foreign currencies had a greater impact on sales by Company-operated restaurants than on Systemwide sales, and because of a greater number of franchised restaurants resulting from expansion. Average sales by restaurants open at least one year (excluding satellites) were $1,800,000 in 1994, $32,000 above 1993. Average sales in both the U.S. and outside of the U.S. improved through the emphasis on value and customer satisfaction. Expansion continued at an accelerated pace as 1,212 restaurants (excluding satellites) were added in 1994, compared with 900 in 1993 and 675 in 1992. Restaurants opened during the year (excluding satellites) contributed $799 million to Systemwide sales in 1994, $572 million in 1993 and $478 million in 1992. McDonald's plans to add between 1,200 and 1,500 restaurants (excluding satellites) around the world in 1995 and in each of the next several years. The mix of net additions remains at one-third in the U.S. and two-thirds outside of the U.S. Our global expansion plan also includes satellites -- foodservice facilities that leverage the infrastructure of existing restaurants by using their storage capability and inventory, and by drawing on their management talent and labor pool. During 1994, 575 satellites were added around the world; we expect to open approximately 1,000 satellites in 1995. The consolidated financial statements reflect the operating results of satellites on the same basis as traditional restaurants; the results of satellites operated by the Company are included in sales by and costs of Company-operated restaurants, while those operated by franchisees are included in revenues from and costs of franchised restaurants. Satellites in operation contributed $150 million to Systemwide sales in 1994. The operating results of satellites were immaterial to consolidated operating results. TOTAL REVENUES Total revenues consist of sales by Company-operated restaurants, and fees from restaurants operated by franchisees and affiliates based upon a percent of sales with specified minimum payments. The minimum fee is comprised of both a rent and service fee amount at a combined rate of approximately 12.5% of sales for new U.S. franchise arrangements. Prior to 1994 and since 1987, the minimum fee generally was a combined 12.0% for both rent and service fees. Higher fees are charged for sites that require a higher investment on the part of the Company. Fees paid by franchisees outside of the U.S. vary according 13 to local business conditions. These fees, together with occupancy and operating rights, are stipulated in franchise arrangements that generally have 20-year terms, and provide a stable, predictable revenue flow to the Company. Revenues grow as locations are added and as sales build in existing locations. Menu price adjustments affect revenues as well as sales; however, due to different pricing structures, new products, promotions, and product mix variations among markets, it is impractical to quantify the impact of menu price adjustments for the System as a whole. The rate of increase in total revenues in 1994 was greater than the rate of increase in Systemwide sales due to strong global operating results and an increase in the Company-operated restaurant base through expansion and changes in ownership. The rate of increase in total revenues in 1993 was lower than the rate of increase in Systemwide sales due to weaker foreign currencies which had a greater impact on revenues than on Systemwide sales, and because of a greater number of franchised restaurants resulting from expansion. Growth rates in sales by Company-operated restaurants and revenues from franchised restaurants varied in 1993 because of expansion and changes in ownership and because sales by Company-operated restaurants were impacted to a greater degree by changing foreign currencies than were revenues. In 1994, about 56% of sales by Company-operated restaurants and 37% of revenues from franchised restaurants were outside of the U.S., compared with 53% and 33%, respectively, in 1993. RESTAURANT MARGINS Company-operated margins were 19.8% of sales in 1994, compared with 19.2% in 1993 and 19.1% in 1992. In 1994, as a percent of sales, food and paper, and occupancy and other operating costs declined, while payroll costs increased. In 1993, as a percent of sales, food and paper costs rose, while occupancy, other operating and payroll costs declined. Franchised margins comprised about two-thirds of the combined operating margins. Consolidated franchised margins were 82.8% of applicable revenues in 1994, compared with 83.1% in 1993 and 82.8% in 1992. The 1994 decrease reflected a higher proportion of leased sites resulting from accelerated expansion and satellite development, as financing costs embedded in operating leases were included in rent expense which does not occur if a site is owned. Franchised margins include revenues and expenses associated with restaurants operating under business facilities lease arrangements. Under these arrangements, the Company leases the businesses -- including equipment -- to franchisees who have options to purchase the businesses. While higher fees are charged under these arrangements, margins are generally lower because of equipment depreciation. When these purchase options are exercised, resulting gains compensate the Company for lower margins prior to exercise and are included in other operating (income) expense--net. At year-end 1994, 476 restaurants were operating under such arrangements, compared with 544 and 583 at year-end 1993 and 1992, respectively. 14 GENERAL, ADMINISTRATIVE AND SELLING EXPENSES The 1994 increase was primarily due to strategic global investment spending to support expansion and value, and a one-time, noncash $15 million charge related to the early implementation of a new accounting rule regarding the timing of expensing advertising production costs. The 1993 increase was primarily due to higher employee costs associated with expansion and key priorities, partially offset by weaker foreign currencies. These expenses as a percent of Systemwide sales have remained relatively constant over the past five years, and were 4.2% in 1994 and 4.0% in 1993. OTHER OPERATING (INCOME) EXPENSE--NET This category is comprised of transactions which relate to franchising and the foodservice business such as gains on sales of restaurant businesses, equity in earnings of unconsolidated affiliates, and net gains or losses from property dispositions. The 1994 income increase reflected higher gains on sales of restaurant businesses and higher income from affiliates, offset in part by higher losses on property dispositions. The 1993 and 1992 amounts were relatively constant, reflecting greater income from affiliates and gains on sales of restaurant businesses in 1993, and by the favorable settlement of a sales tax case in Brazil in 1992. Gains on sales of restaurant businesses include gains from exercises of purchase options by franchisees operating under business facilities lease arrangements and from sales of Company-operated restaurants. As a franchisor, McDonald's purchases and sells businesses in transactions with franchisees and affiliates in an ongoing effort to achieve the optimal ownership mix in each market. These transactions and resulting gains are integral to franchising and as such, are appropriately recorded in operating income. Equity in earnings of unconsolidated affiliates is reported after interest expense and income taxes, except for U.S. partnerships which are reported before income taxes. The Company actively participates in, but does not control, these businesses. Net gains or losses from property dispositions result from disposals of excess properties through closings, relocations and other transactions. OPERATING INCOME The 1994 and 1993 increases reflected higher combined operating margins, partially offset by higher general, administrative and selling expenses. Additionally, 1994 was positively impacted by higher other operating income and stronger foreign currencies, while 1993 was negatively impacted by weaker foreign currencies. INTEREST EXPENSE The 1994 decrease was primarily due to lower average interest rates, partially offset by higher debt levels and stronger foreign currencies. The 1993 decrease was primarily due to lower average debt balances, lower average interest rates and weaker foreign currencies. 15 NONOPERATING INCOME (EXPENSE)--NET This category includes interest income, gains and losses related to investments and financings, as well as miscellaneous income and expense. Higher translation losses, principally from Mexico and Brazil, losses on investments and higher minority interest charges impacted 1994. Also contributing to the year-over-year change were gains on debt extinguishments and higher interest income in 1993. The 1993 increase reflected $9 million in gains related to debt extinguishments in 1993 and $29 million in charges related to various early redemptions of high-coupon, U.S. Dollar debt in 1992. PROVISION FOR INCOME TAXES The effective tax rate was 35.1% in 1994, compared with 35.4% in 1993 and 33.8% in 1992. The 1993 increase was primarily the result of new U.S. tax legislation enacted that year, which negatively impacted the provision by approximately $20 million. Of this amount, nearly $14 million was attributable to a one-time, noncash revaluation of deferred tax liabilities. The Company expects its 1995 effective income tax rate to be between 35.0% and 35.5%. Consolidated net deferred tax liabilities included tax assets of $233 million in 1994, net of valuation allowance, and $148 million in 1993. Substantially all of the tax assets arose in the U.S. and other profitable markets, the majority of which is expected to be realized in future U.S. income tax returns. NET INCOME AND NET INCOME PER COMMON SHARE Net income and net income per common share increased 13% and 16%, respectively, in 1994. The spreads between the percent increases in net income and net income per common share reflected the impact of share repurchase. Net income and net income per common share increased 13% and 12%, respectively, in 1993. These increases were negatively affected by weaker foreign currencies and new U.S. tax legislation. 16 IMPACT OF CHANGING FOREIGN CURRENCIES Changing foreign currencies affect reported results. McDonald's lessens short-term cash exposures principally by purchasing goods and services in local currencies, financing in local currencies and hedging foreign-denominated cash flows. In 1994, stronger foreign currencies positively contributed to operating income, but their impact on interest expense and higher translation losses in Latin America more than offset this benefit, resulting in a reduction in net income. Weaker foreign currencies had a significant negative impact on 1993 results. Further discussion of our management of changing foreign currencies is on pages 26 through 29 in the commentary on financings and total shareholders' equity. ----------------------------------------------------------------------- (Dollars in millions) As reported As adjusted* ----------------------------------------------------------------------- 1994 ----------------------------------------------------------------------- Systemwide sales $25,987 10% $25,715 9% Revenues 8,321 12 8,268 12 Operating income 2,241 13 2,226 12 Net income 1,224 13 1,233 14 ----------------------------------------------------------------------- 1993 ----------------------------------------------------------------------- Systemwide sales 23,587 8 23,993 10 Revenues 7,408 4 7,721 8 Operating income 1,984 7 2,051 10 Net income 1,083 13 1,114 16 ----------------------------------------------------------------------- *If exchange rates remained constant year-over-year. 17 ------------------------------------------------------------------------ U.S. OPERATIONS ------------------------------------------------------------------------ SALES The 1994 and 1993 increases were due to expansion and higher sales at existing restaurants. Positive comparable sales were achieved in 1994 through an emphasis on value and customer satisfaction in the form of Extra Value Meals, Happy Meals and the three-tier value program; as well as through promotions run during the year in the form of the NBA cup highlighting large sandwiches, the Flintstones movie tie-in featuring the McRib Grand Poobah Meal and a set of four Bedrock mugs, the Dream Team II collector cup, the Music Event offering four artist collections with the purchase of a large sandwich or Extra Value Meal, and the Holiday Video offering of four videotapes. ------------------------------------------------------------------------ Five Ten years years (In millions of dollars) 1994 1993 1992 ago ago ------------------------------------------------------------------------ Operated by franchisees $11,965 $11,435 $10,615 $ 9,077 $6,166 Operated by the Company 2,550 2,420 2,353 2,728 1,856 Operated by affiliates 426 331 275 207 49 ------------------------------------------------------------------------ U.S. sales $14,941 $14,186 $13,243 $12,012 $8,071 ======================================================================== RESTAURANTS There were 461 restaurants added in the U.S. in 1994, representing 38% of Systemwide additions, compared with 324 and 36% in 1993, and 363 and 56% five years ago. In addition, 494 U.S. satellites were operating at year-end 1994, compared with 114 at year-end 1993. McDonald's expects to maintain the current level of U.S. expansion in 1995 and in each of the next several years by adding between 400 and 500 restaurants each year, exclusive of satellites. ------------------------------------------------------------------------ Five Ten years years 1994 1993 1992 ago ago ------------------------------------------------------------------------ Operated by franchisees 7,849 7,628 7,375 6,374 5,073 Operated by the Company 1,546 1,433 1,395 1,751 1,481 Operated by affiliates 349 222 189 145 41 ------------------------------------------------------------------------ U.S. restaurants 9,744 9,283 8,959 8,270 6,595 ======================================================================== 18 Restaurants operated by franchisees and affiliates represented 84% of U.S. restaurants at year-end 1994, compared with 85% at year-end 1993 and 79% five years ago. During the period 1989 through 1991, the Company franchised certain restaurants it previously operated because entrepreneurial owners with an equity stake in the business improved operations, sales and profits as well as consolidated profits. Since 1990, we have continued to make operational improvements and reduce operating and development costs; as a result, over the past several years, our base of restaurants has grown at a faster rate. OPERATING RESULTS ------------------------------------------------------------------------ (In millions of dollars) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------ REVENUES Sales by Company- operated restaurants $2,550 $2,420 $2,353 $2,410 $2,655 Revenues from franchised restaurants 1,606 1,511 1,396 1,300 1,216 ------------------------------------------------------------------------ TOTAL REVENUES 4,156 3,931 3,749 3,710 3,871 ------------------------------------------------------------------------ OPERATING COSTS AND EXPENSES Company-operated restaurants 2,066 1,977 1,920 2,000 2,221 Franchised restaurants 270 247 235 217 202 General, administrative and selling expenses 714 638 566 549 511 Other operating (income) expense--net (25) (18) (13) (56) (49) ------------------------------------------------------------------------ TOTAL OPERATING COSTS AND EXPENSES 3,025 2,844 2,708 2,710 2,885 ------------------------------------------------------------------------ U.S. OPERATING INCOME $1,131 $1,087 $1,041 $1,000 $ 986 ======================================================================== U.S. revenues were positively impacted by strong sales and expansion in 1994 and 1993, and negatively affected in 1992, 1991 and 1990 by the franchising of certain Company-operated restaurant businesses. U.S. Company-operated margins increased $42 million or 9% in 1994, reflecting sales improvement and growth in the number of Company- operated restaurants. These margins were 19.0% of sales in 1994, compared with 18.3% in 1993 and 18.4% in 1992. In 1994, the margin benefited from lower commodity costs and improvements in processing for beef. U.S. franchised margins rose $71 million or 6% in 1994. These margins were 83.2% of applicable revenues in 1994, compared with 83.6% in 1993 and 83.2% in 1992. Franchised margins as a percent of revenues decreased in 1994 because rent expense grew at a faster rate than revenues, resulting from a higher proportion of leased openings. While it is difficult to assess potential effects of federal and state legislation in the U.S. that may impact the industry, the Company believes it can maintain operating margins within the historical range of the past ten years by continuing to build sales and reduce costs. 19 U.S. operating income rose $43 million or 4% in 1994, and was 50% of consolidated operating income, compared with 55% in 1993. The 1994 and 1993 increases resulted primarily from higher combined operating margins, partially offset by higher general, administrative and selling expenses in the form of higher employee costs, other expenditures to support our global strategies and a one-time $12 million charge related to the implementation of the new accounting rule for advertising costs in 1994. Without this charge, U.S. operating income would have grown by 5% in 1994. Operating income included $366 million of depreciation and amortization in 1994, compared with $348 million in 1993 and $330 million in 1992. While the U.S. market remains highly competitive, McDonald's is confident of continued growth through a greater emphasis on value and customer satisfaction, and through expansion. ASSETS AND CAPITAL EXPENDITURES ------------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------- New restaurants $ 472 $ 332 $ 196 $ 214 $ 446 Existing restaurants 125 122 125 151 249 Other properties 113 130 76 45 51 ------------------------------------------------------------------------- U.S. capital expenditures $ 710 $ 584 $ 397 $ 410 $ 746 ========================================================================= U.S. assets $6,683 $6,385 $6,410 $6,154 $6,060 ------------------------------------------------------------------------- U.S. assets increased $297 million or 5% in 1994, driven by higher expenditures for restaurant property and buildings resulting from expansion. At year-end 1994, 49% of consolidated assets were located in the U.S., compared with 53% at year-end 1993. Capital expenditures rose $126 million or 22% in 1994, and represented 46% of consolidated capital expenditures, compared with 55% five years ago. These amounts excluded expenditures made by franchisees such as their initial investments in equipment, signs, seating and decor, as well as long- term, ongoing reinvestment in their businesses. New restaurant expenditures grew $140 million or 42% because of accelerated expansion, tempered by lower average development costs, and included $41 million related to satellite development. Expenditures for existing restaurants included modifications to achieve higher levels of customer satisfaction and implementation of technology to improve service and food quality. The decline since 1990 reflected cost reduction efforts and aggressive reinvestment in prior years. Rebuilding and relocating restaurants has generated additional sales, reflecting our ability to adjust to changing demographics, traffic patterns and market opportunities. More than $40 million were spent for these investments in 1994, and $249 million over the past five years. 20 ------------------------------------------------------------------------- (In thousands of dollars) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------- Land $ 317 $ 328 $ 361 $ 433 $ 433 Building 483 482 515 608 720 Equipment 295 317 361 362 403 ------------------------------------------------------------------------- U.S. average development costs $1,095 $1,127 $1,237 $1,403 $1,556 ========================================================================= Average development costs have steadily decreased since 1990 due to efforts to optimize building designs and standardize development. Average land costs declined as a result of the increase in low-cost building designs, which utilize smaller land parcels. Average building costs remained relatively flat reflecting the benefits of these building designs and construction efficiencies. Low-cost building designs comprised nearly 83% of 1994 openings compared with 80% in 1993. Average equipment costs decreased due to standardization and global sourcing. McDonald's intends to pursue ongoing development cost reductions by taking further advantage of standardization, global sourcing and economies of scale. These lower-cost, lower-volume building designs allow us to profitably expand into more locations. This is consistent with McDonald's goal of increasing market share with greater marketwide presence around the world. The Company continues to emphasize restaurant property ownership, because real estate ownership yields long-term benefits, including the ability to fix occupancy costs. However, most satellites are leased locations. In addition to purchasing new properties, the Company acquires previously leased properties and owned 69% of U.S. sites at year-end 1994, the same as five years ago. 21 ---------------------------------------------------------------------- OPERATIONS OUTSIDE OF THE U.S. ---------------------------------------------------------------------- SALES Sales outside of the U.S. rose 18% in 1994 due to expansion, higher sales at existing restaurants as comparable sales on a local currency basis were positive, and stronger foreign currencies. The 1993 increase was negatively impacted by weaker foreign currencies, most notably the European currencies, as well as the Canadian and Australian Dollars. Strong operating results have been achieved in the past several years despite weak economies in several countries, particularly Canada, England and Japan. ---------------------------------------------------------------------- Five Ten years years (In millions of dollars) 1994 1993 1992 ago ago ---------------------------------------------------------------------- Operated by franchisees $ 5,182 $4,321 $3,859 $2,142 $ 748 Operated by the Company 3,242 2,737 2,750 1,873 682 Operated by affiliates 2,622 2,343 2,033 1,306 506 ---------------------------------------------------------------------- Sales outside of the U.S. $11,046 $9,401 $8,642 $5,321 $1,936 ====================================================================== Although many European economies were weak over the past 18 months, McDonald's markets generally performed well. Throughout 1994, comparable sales in France and Germany were not as strong as in prior years because of the economy, unusually hot weather in the summer, and World Cup Soccer. Yet, growth and profitability in both markets were very good. Pacific sales were strong with the exception of our joint venture in Japan, which has been affected by a weak economy. Transaction counts and profits were up in Japan, but sales trends had not fundamentally improved. Business in Canada continued to improve, despite a weak economy. Latin American economies have been weak, but our business there has been quite good, particularly in Brazil, since the mid-year economic reforms. Results in Mexico in 1994 were impacted by the continuing sluggish economy and in December, by the devaluation of the Mexican peso. We expect this impact to continue into 1995. In 1994, many markets delivered excellent sales growth on a local currency basis: Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, England, Finland, France, Germany, Hong Kong, Hungary, Ireland, Italy, Malaysia, Netherlands, New Zealand, Norway, Panama, Philippines, Puerto Rico, Scotland, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey and Wales. RESTAURANTS During the past five years, 66% of Systemwide additions have been outside of the U.S. Of the 751 restaurants added in 1994, 51% were in the six largest markets, compared with 54% in 1993 and 57% in 1992. This continued relative decline is indicative of the growing importance of emerging markets. McDonald's expects to boost expansion outside of the U.S. in 1995 and in each of the next several years by adding between 800 and 1,000 restaurants, exclusive of satellites. 22 ---------------------------------------------------------------------- Five Ten years years 1994 1993 1992 ago ago ---------------------------------------------------------------------- Operated by franchisees 2,609 2,204 1,862 1,199 651 Operated by the Company 1,537 1,266 1,156 940 572 Operated by affiliates 1,315 1,240 1,116 753 486 ---------------------------------------------------------------------- Restaurants outside of the U.S. 5,461 4,710 4,134 2,892 1,709 ====================================================================== About 79% of Company-operated restaurants outside of the U.S. were in England, Canada, Germany, Australia, Taiwan, Hong Kong and France. About 68% of franchised restaurants outside of the U.S. were in Canada, Germany, Australia, France, Japan and the Netherlands. About 65% of the restaurants operated by affiliates were located in Japan. OPERATING RESULTS ----------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 1991 1990 ----------------------------------------------------------------------- REVENUES Sales by Company- operated restaurants $3,242 $2,737 $2,750 $2,499 $2,364 Revenues from franchised restaurants 923 740 634 486 405 ----------------------------------------------------------------------- TOTAL REVENUES 4,165 3,477 3,384 2,985 2,769 ----------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 2,579 2,188 2,206 2,029 1,915 Franchised restaurants 165 133 114 90 77 General, administrative and selling expenses 369 303 295 246 213 Other operating (income) expense--net (59) (44) (51) (58) (46) ----------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 3,054 2,580 2,564 2,307 2,159 ----------------------------------------------------------------------- OPERATING INCOME OUTSIDE OF THE U.S. $1,111 $ 897 $ 820 $ 678 $ 610 ======================================================================= The 1994 and 1993 revenue and operating income increases reflected expansion and higher combined operating margins, partially offset by higher general, administrative and selling expenses. Changing foreign currencies had a positive effect in 1994 and a negative effect in 1993; higher other operating income helped 1994. Company-operated margins remained strong, increasing $114 million or 21% in 1994. These margins improved to 20.5% of sales in 1994, compared with 20.1% in 1993 and 19.8% in 1992. Franchised margins grew $151 million or 25% in 1994. These margins were 82.1% of applicable revenues in 1994, compared with 82.0% in 1993 and 82.1% in 1992. 23 The 1994 and 1993 increases in general, administrative and selling expenses were primarily due to higher employee costs associated with expansion. The 1994 increase in other operating income was primarily due to gains on sales of restaurant businesses, greater affiliate earnings from Japan and other markets, and gains resulting from property dispositions. Other operating income decreased in 1993 due to the favorable settlement of a sales tax case in Brazil in 1992, offset somewhat by 1993 increases in gains on sales of restaurant businesses and greater affiliate earnings. Operations outside of the U.S. continued to contribute greater amounts to consolidated results as shown below: --------------------------------------------------------------------- (As a percent of consolidated) 1994 1993 1992 1991 1990 --------------------------------------------------------------------- Systemwide sales 43 40 39 37 35 Total revenues 50 47 47 45 42 Operating income 50 45 44 40 38 Operating margins Company-operated 58 55 56 53 51 Franchised 36 32 31 27 24 Systemwide restaurants 36 34 32 29 27 Assets 51 47 45 46 43 --------------------------------------------------------------------- The Europe/Africa/Middle East segment accounted for 63% of revenues and 61% of operating income outside of the U.S. in 1994, growing $369 and $124 million, respectively. Germany, England and France accounted for 82% of this segment's operating income, compared with 85% in 1993. The 1994 increases were primarily due to strong operating results in these countries, as well as many emerging markets. The 1993 increases were primarily due to strong operating results in Germany and France, as well as many emerging markets, offset by weaker foreign currencies; England's operating income was significantly impacted by the weaker currency. Asia/Pacific revenues grew $236 million and operating income increased $52 million in 1994; 87% of operating income was contributed by Australia, Japan, Hong Kong and Taiwan. The 1994 and 1993 increases were attributable to expansion and developing economies in many markets, with the exception of our affiliate in Japan which continued to suffer from a weak economy. The change in ownership of Taiwan from an affiliate to a wholly-owned subsidiary was also a benefit in 1994. 24 Canadian revenues decreased $12 million in 1994 due to the negative impact of the weaker currency; revenues would have increased $21 million in 1994 if the exchange rate had remained at its 1993 level. Operating income increased $6 million because of lower operating costs and higher gains on sales of restaurant businesses, partially offset by the weaker currency. Latin American revenues grew $95 million, while operating income increased $32 million in 1994. The 1994 increases in revenues and operating income were primarily a function of expansion, as well as a strengthening of the Brazilian market since the mid-year economic reforms. However, operating income in Mexico was down because of the economy and peso devaluation. The 1993 increase in revenues was primarily a function of expansion, while the decrease in operating income reflected the favorable settlement of a sales tax case in Brazil in 1992, partially offset by better results in Argentina in 1993. Brazil was also affected by a weak economy in 1993 and 1992. ASSETS AND CAPITAL EXPENDITURES Assets outside of the U.S. rose $1.3 billion or 22% in 1994 due to expansion and stronger foreign currencies. At year-end 1994, about 51% of consolidated assets were located outside of the U.S.; 60% of these assets were located in England, Germany, France, Australia and Canada. ----------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 1991 1990 ----------------------------------------------------------------------- New restaurants $ 723 $ 609 $ 603 $ 612 $ 639 Existing restaurants 87 94 91 94 126 Other properties 34 55 47 39 74 ----------------------------------------------------------------------- Capital expenditures outside of the U.S. $ 844 $ 758 $ 741 $ 745 $ 839 ======================================================================= Assets outside of the U.S. $6,909 $5,650 $5,271 $5,195 $4,608 ----------------------------------------------------------------------- In the past five years, nearly $3.9 billion were invested outside of the U.S.; in 1994, capital expenditures rose in all geographic segments. Approximately 70% of capital expenditures outside of the U.S. were invested in Europe -- principally in Germany, France and England. In general, average development costs for new restaurants for the five largest, majority-owned markets -- Australia, Canada, England, France and Germany -- were nearly double the U.S. average; such costs accommodate higher sales volumes and transaction counts. Since 1991, average development costs have decreased due to construction and design efficiencies, standardization, global sourcing and changes in the mix of openings. These lower-cost, lower-volume building designs allow us to profitably expand into more locations. This is consistent with McDonald's goal of increasing market share with greater marketwide presence around the world. 25 Expenditures for existing restaurants included seating and decor upgrades, and equipment required for new products and operating efficiencies. The majority of these expenditures were in Europe. Expenditures for other properties were principally for office facilities. As in the U.S., business outside of the U.S. emphasizes restaurant property ownership. However, various laws and regulations make property acquisition and ownership much more difficult than in the U.S. Ownership is obtained when practical; otherwise, long-term leases are a viable alternative. In addition, certain markets have laws and customs that offer stronger tenancy rights than are available in the U.S. The Company and affiliates owned 36% of sites outside of the U.S. at year-end 1994, compared with 35% five years ago. Capital expenditures made by affiliates -- which were not included in consolidated amounts -- were $203 million in 1994, compared with $207 million in 1993. The majority of 1994 expenditures were for development in Japan, Argentina, Sweden and Singapore. 26 ----------------------------------------------------------------------- FINANCIAL POSITION ----------------------------------------------------------------------- TOTAL ASSETS AND CAPITAL EXPENDITURES Total assets grew approximately $1.6 billion or 13% in 1994; net property and equipment represented 83% of total assets and rose $1.2 billion. Capital expenditures increased $213 million or 16%, reflecting higher expansion, partially offset by lower average development costs and stronger foreign currencies. CASH PROVIDED BY OPERATIONS Cash provided by operations increased $246 million or 15% in 1994. Together with other sources of cash such as borrowings, cash provided by operations was used principally for capital expenditures, debt repayments, share repurchase and dividends. For the fourth straight year, cash provided by operations exceeded capital expenditures. While cash generated is significant relative to cash required, the Company also has the ability to meet short-term needs through commercial paper borrowings and line of credit agreements. Accordingly, a relatively low current ratio has been purposefully maintained; it was .30 at year-end 1994. The Company believes that cash flow measures are meaningful indicators of growth and financial strength, when evaluated in the context of absolute dollars, uses and consistency. Over the past five years, cash flow coverage has improved significantly. Cash provided by operations is expected to cover capital expenditures over the next several years, even as expansion continues to accelerate. ----------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 1991 1990 ----------------------------------------------------------------------- Cash provided by operations $1,926 $1,680 $1,426 $1,423 $1,301 Cash provided by operations less capital expenditures $ 388 $ 363 $ 339 $ 294 $ (270) Cash provided by operations as a percent of capital expenditures 125 128 131 126 83 Cash provided by operations as a percent of average total debt 48 44 33 31 29 ----------------------------------------------------------------------- FINANCINGS The Company strives to minimize interest expense and the impact of changing foreign currencies while maintaining the capacity to meet increasing growth requirements. To accomplish these objectives, McDonald's generally finances long-term assets with long-term debt in the currencies in which the assets are denominated, while remaining flexible to take advantage of changing foreign currencies and interest rates. 27 Over the years, major capital markets and various techniques have been utilized to meet financing requirements and reduce interest expense. Currency exchange agreements have been employed in conjunction with borrowings to obtain desired currencies at attractive rates. Interest-rate exchange agreements have been used to effectively convert fixed-rate to floating-rate debt, or vice versa. Foreign- denominated debt has been used to lessen the impact of changing foreign currencies on net income and shareholders' equity. Total foreign-denominated debt, including the effects of currency exchange agreements, was $4.0 and $3.1 billion at year-end 1994 and 1993, respectively. ----------------------------------------------------------------------- 1994 1993 1992 1991 1990 ----------------------------------------------------------------------- Fixed-rate debt as a percent of total debt at year end 64 77 75 78 78 Weighted average annual interest rate 8.4 9.1 9.3 9.4 9.4 Foreign-denominated debt as a percent of total debt at year end 92 86 72 61 60 Total debt as a percent of total capitalization (total debt and total shareholders' equity) 39 37 40 49 53 ----------------------------------------------------------------------- The Company manages its debt portfolio in order to respond to changes in interest rates and foreign currencies and accordingly, periodically retires, redeems, and repurchases debt; terminates exchange agreements; and uses derivatives. While changing foreign currencies affect reported results, the Company actively hedges seven foreign currencies -- Japanese Yen, Deutsche Mark, French Franc, British Pound Sterling, Australian Dollar, Canadian Dollar and Swiss Franc -- to minimize the cash exposure of royalty and other payments received in the U.S. in local currencies. 28 The Company does not use derivatives with a level of complexity or with a risk higher than the exposures to be hedged and does not hold or issue financial instruments for trading purposes; all exchange agreements are over-the-counter instruments. McDonald's restaurants also primarily purchase goods and services in local currencies resulting in natural hedges. McDonald's typically finances in local currencies creating economic hedges; and the Company's exposure is diversified within a basket of currencies, as opposed to one or several. The Company's largest net asset exposures (defined as total assets less foreign-denominated liabilities) by foreign currency were as follows: ---------------------------------------------------------------------- (In millions of dollars) December 31, 1994 1993 ---------------------------------------------------------------------- British Pounds Sterling $330 $324 Canadian Dollars 311 276 Australian Dollars 212 152 French Francs 99 81 Austrian Schillings 84 63 ---------------------------------------------------------------------- Moody's and Standard & Poor's have rated McDonald's debt Aa2 and AA, respectively, since 1982. Duff & Phelps began rating the debt in 1990, and currently rates it AA+. At the present time, these strong ratings are important to us in the context of our global development plans. The Company has not experienced, nor does it expect to experience, difficulty in obtaining financing or in refinancing existing debt. At year-end 1994, the Company and its subsidiaries had $1.7 billion available under line of credit agreements and $585 million under previously filed shelf registrations available for future debt issuance. Although McDonald's prefers to own real estate, leases are an alternative financing method. As in the past, some new properties will be leased. Such leases frequently include renewal and/or purchase options. In the past five years, McDonald's has leased properties related to 40% of U.S. openings (excluding satellites) and 64% of openings outside of the U.S. (excluding satellites). Since 1990, the Company has improved its balance sheet by reducing leverage while simultaneously increasing expansion and repurchasing shares. TOTAL SHAREHOLDERS' EQUITY Total shareholders' equity rose $611 million or 10% in 1994, representing 51% of total assets at year-end 1994. One technique used to enhance common shareholder value is to repurchase shares with our excess cash flow or debt capacity, while maintaining a strong equity base for future expansion. At year-end 1994, the market value of shares repurchased and recorded as common stock in treasury was $4.0 billion, compared to their cost of $2.4 billion. 29 In conjunction with efforts to enhance common shareholder value, the Company repurchased about $500 million of its common stock in 1994, representing half of the three-year $1.0 billion program announced in January 1994. In 1993, the Company completed a $700 million common share repurchase program begun in 1992. In 1992, in order to lower the cost of equity capital, the Company issued $500 million of Series E 7.72% Cumulative Preferred Stock; at the same time, the Board of Directors authorized a $500 million common share repurchase program. Subsequently, the Board authorized an additional $200 million expenditure for share repurchase in 1993. Stronger foreign currencies added $77 million to shareholders' equity in 1994. At year-end 1994, foreign-denominated assets not entirely financed with related foreign-denominated debt were principally located in England, Canada, Australia, France and Austria. At year-end 1994, assets in hyperinflationary markets and in Mexico were principally financed in U.S. Dollars. RETURNS Return on average assets is computed using operating income. Net income, less preferred stock dividends (net of tax in 1994, 1993 and 1992), is used to calculate return on average common equity. Month-end balances are used to compute both average assets and average common equity. ---------------------------------------------------------------------- 1994 1993 1992 1991 1990 ---------------------------------------------------------------------- Return on average assets 17.6 17.0 16.4 15.7 16.3 Return on average common equity 19.4 19.0 18.2 19.1 20.7 ---------------------------------------------------------------------- The improvements in return on average assets since 1991 reflected better global operating results and a slower rate of asset growth. The 1994 and 1993 improvements in return on average common equity reflected higher levels of share repurchase, whereas declines in 1992 and 1991 resulted from lower levels of share repurchase as excess cash flow was used to reduce debt. EFFECTS OF CHANGING PRICES--INFLATION McDonald's has demonstrated an ability to manage inflationary cost increases effectively. Rapid inventory turnover, ability to adjust prices, cost controls and substantial property holdings -- many of which are at fixed costs and partially financed by debt made cheaper by inflation -- have enabled McDonald's to mitigate the effects of inflation. In hyperinflationary markets, menu board prices typically are adjusted to keep pace, thereby mitigating the effect on reported results. 30 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reference --------- Management's report 31 Report of independent auditors 32 Consolidated statement of income for each of the three years in the period ended December 31, 1994 33 Consolidated balance sheet at December 31, 1994 and 1993 34 Consolidated statement of cash flows for each of the three years in the period ended December 31, 1994 35 Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 1994 36 Notes to consolidated financial statements (Financial comments) 37-54 Quarterly results (unaudited) 55 31 MANAGEMENT'S REPORT Management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements and Financial Comments appearing in this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and include certain amounts based on management's judgment and best estimates. Other financial information presented in the annual report is consistent with the financial statements. The Company maintains a system of internal control over financial reporting including safeguarding of assets against unauthorized acquisition, use or disposition, which is designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation of reliable published financial statements and such asset safeguarding. The system includes a documented organizational structure and appropriate division of responsibilities; established policies and procedures which are communicated throughout the Company; careful selection, training, and development of our people; and utilization of an internal audit program. Policies and procedures prescribe that the Company and all employees are to maintain the highest ethical standards and that business practices throughout the world are to be conducted in a manner which is above reproach. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation and safeguarding of assets. Furthermore, the effectiveness of an internal control system can change with circumstances. The Company believes that at December 31, 1994, it maintained an effective system of internal control over financial reporting and safeguarding of assets against unauthorized acquisition, use or disposition. The consolidated financial statements have been audited by independent auditors, Ernst & Young LLP, who were given unrestricted access to all financial records and related data. The audit report of Ernst & Young LLP is presented herein. The Board of Directors, operating through its Audit Committee composed entirely of outside Directors, provides oversight to the financial reporting process. Ernst & Young LLP has independent access to the Audit Committee and periodically meets with the Committee to discuss accounting, auditing and financial reporting matters. McDONALD'S CORPORATION Oak Brook, Illinois January 26, 1995 32 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders McDonald's Corporation Oak Brook, Illinois We have audited the accompanying consolidated balance sheet of McDonald's Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of McDonald's Corporation management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of McDonald's Corporation and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois January 26, 1995 33 McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF INCOME --------------------------------------------------------------------------
(In millions of dollars, except per common share data) Years ended December 31, 1994 1993 1992 -------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $5,792.6 $5,157.2 $5,102.5 Revenues from franchised restaurants 2,528.2 2,250.9 2,030.8 -------------------------------------------------------------------------- TOTAL REVENUES 8,320.8 7,408.1 7,133.3 -------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants Food and packaging 1,934.2 1,735.1 1,688.8 Payroll and other employee benefits 1,459.1 1,291.2 1,281.4 Occupancy and other operating expenses 1,251.7 1,138.3 1,156.3 -------------------------------------------------------------------------- 4,645.0 4,164.6 4,126.5 -------------------------------------------------------------------------- Franchised restaurants--occupancy expenses 435.5 380.4 348.6 General, administrative and selling expenses 1,083.0 941.1 860.6 Other operating (income) expense--net (83.9) (62.0) (64.0) -------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 6,079.6 5,424.1 5,271.7 -------------------------------------------------------------------------- OPERATING INCOME 2,241.2 1,984.0 1,861.6 -------------------------------------------------------------------------- Interest expense--net of capitalized interest of $20.6, $20.0 and $19.5 305.7 316.1 373.6 Nonoperating income (expense)--net (48.9) 7.8 (39.9) -------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,886.6 1,675.7 1,448.1 -------------------------------------------------------------------------- Provision for income taxes 662.2 593.2 489.5 -------------------------------------------------------------------------- NET INCOME $1,224.4 $1,082.5 $ 958.6 ========================================================================== NET INCOME PER COMMON SHARE $ 1.68 $ 1.45 $ 1.30 -------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .23 $ .21 $ .20 -------------------------------------------------------------------------- The accompanying Financial Comments are an integral part of the consolidated financial statements. /TABLE 34 McDONALD'S CORPORATION CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------- (In millions of dollars) December 31, 1994 1993 -------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and equivalents $179.9 $185.8 Accounts receivable 348.1 287.0 Notes receivable 31.2 27.6 Inventories, at cost, not in excess of market 50.5 43.5 Prepaid expenses and other current assets 131.0 118.9 -------------------------------------------------------------------- TOTAL CURRENT ASSETS 740.7 662.8 -------------------------------------------------------------------- OTHER ASSETS AND DEFERRED CHARGES Notes receivable due after one year 80.0 90.0 Investments in and advances to affiliates 579.3 446.7 Miscellaneous 380.4 338.6 -------------------------------------------------------------------- TOTAL OTHER ASSETS AND DEFERRED CHARGES 1,039.7 875.3 -------------------------------------------------------------------- PROPERTY AND EQUIPMENT Property and equipment, at cost 15,184.6 13,459.0 Accumulated depreciation and amortization (3,856.2) (3,377.6) -------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 11,328.4 10,081.4 -------------------------------------------------------------------- INTANGIBLE ASSETS--NET 483.1 415.7 -------------------------------------------------------------------- TOTAL ASSETS $13,591.9 $12,035.2 ==================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $1,046.9 $193.3 Accounts payable 509.4 395.7 Income taxes 25.0 56.0 Other taxes 102.1 90.2 Accrued interest 107.7 132.9 Other accrued liabilities 291.9 203.9 Current maturities of long-term debt 368.3 30.0 -------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 2,451.3 1,102.0 -------------------------------------------------------------------- LONG-TERM DEBT 2,935.4 3,489.4 OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 422.8 334.4 DEFERRED INCOME TAXES 840.8 835.3 COMMON EQUITY PUT OPTIONS 56.2 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized--165.0 million shares; issued--11.2 and 11.4 million 674.2 677.3 Common stock, no par value; authorized--1.25 billion shares; issued--830.3 million 92.3 92.3 Additional paid-in capital 286.0 256.7 Guarantee of ESOP Notes (234.4) (253.6) Retained earnings 8,625.9 7,612.6 Foreign currency translation adjustment (114.9) (192.2) -------------------------------------------------------------------- 9,329.1 8,193.1 -------------------------------------------------------------------- Common stock in treasury, at cost; 136.6 and 123.0 million shares (2,443.7) (1,919.0) -------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 6,885.4 6,274.1 -------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,591.9 $12,035.2 ==================================================================== The accompanying Financial Comments are an integral part of the consolidated financial statements. /TABLE 35 McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------------------------------------- (In millions of dollars) Years ended December 31, 1994 1993 1992 -------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $1,224.4 $1,082.5 $958.6 Adjustments to reconcile to cash provided by operations Depreciation and amortization 628.6 568.4 554.9 Deferred income taxes (5.6) 52.4 22.4 Changes in operating working capital items Accounts receivable increase (51.6) (48.3) (29.1) Inventories, prepaid expenses and other current assets (increase) decrease (15.0) (9.6) 2.2 Accounts payable increase 105.4 45.4 .8 Accrued interest decrease (25.5) (5.1) (27.4) Taxes and other liabilities increase (decrease) 95.2 26.5 (68.2) Other--net (29.7) (32.4) 11.7 -------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS 1,926.2 1,679.8 1,425.9 -------------------------------------------------------------------------- INVESTING ACTIVITIES Property and equipment expenditures (1,538.6) (1,316.9) (1,086.9) Sales of restaurant businesses 151.5 114.2 124.5 Purchases of restaurant businesses (133.8) (64.2) (64.1) Notes receivable additions (15.1) (33.1) (31.8) Property sales 66.0 61.6 52.2 Notes receivable reductions 56.7 75.7 78.5 Other (92.6) (55.3) (71.1) -------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (1,505.9) (1,218.0) (998.7) -------------------------------------------------------------------------- FINANCING ACTIVITIES Net short-term borrowings 521.7 (8.9) 17.0 Long-term financing issuances 260.9 1,241.0 509.5 Long-term financing repayments (536.9) (1,185.9) (1,041.5) Treasury stock purchases (495.6) (620.1) (79.7) Preferred stock issuances 484.9 Common and preferred stock dividends (215.7) (201.2) (160.5) Other 39.4 62.6 59.4 -------------------------------------------------------------------------- CASH USED FOR FINANCING ACTIVITIES (426.2) (712.5) (210.9) -------------------------------------------------------------------------- CASH AND EQUIVALENTS INCREASE (DECREASE) (5.9) (250.7) 216.3 -------------------------------------------------------------------------- Cash and equivalents at beginning of year 185.8 436.5 220.2 -------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF YEAR $179.9 $185.8 $436.5 ========================================================================== SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid $323.9 $312.2 $395.7 Income taxes paid $621.8 $521.7 $531.6 -------------------------------------------------------------------------- The accompanying Financial Comments are an integral part of the consolidated financial statements. /TABLE 36 McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars and shares in millions, except per share data) Foreign Preferred Common Additional Guarantee currency Common stock stock issued stock issued paid-in of Retained translation in treasury Shares Amount Shares Amount capital ESOP Notes earnings adjustment Shares Amount ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1991 19.8 $298.2 830.3 $92.3 $155.8 $(286.7) $5,925.2 $32.3 (113.1) $(1,382.0) ---------------------------------------------------------------------------------------------------------------------------------- Net income 958.6 Common stock cash dividends ($.20 per share) (141.8) Preferred stock cash dividends ($1.01 for Series B, $1.16 for Series C and $.16 for Series E depositary share), (net of tax benefits of $6.4) (14.7) Preferred stock issuance 500.0 (15.1) Preferred stock conversion (8.2) (118.0) 22.9 6.4 95.1 ESOP Notes payment 12.6 Treasury stock acquisitions (3.8) (92.3) Translation adjustments (including taxes of $21.2) (159.7) Common equity put options issuance (91.5) Stock option exercises and other (including tax benefits of $29.7) 50.5 2.8 7.2 47.9 ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 11.6 680.2 830.3 92.3 214.1 (271.3) 6,727.3 (127.4) (103.3) (1,422.8) ---------------------------------------------------------------------------------------------------------------------------------- Net income 1,082.5 Common stock cash dividends ($.21 per share) (150.3) Preferred stock cash dividends ($1.01 for Series B, $1.16 for Series C and $1.93 for Series E depositary share), (net of tax benefits of $4.1) (46.9) Preferred stock conversion (.2) (2.9) .5 .2 2.4 ESOP Notes payment 15.5 Treasury stock acquisitions (25.0) (627.7) Translation adjustments (including taxes of $1.6) (64.8) Common equity put options expiration 94.0 Stock option exercises and other (including tax benefits of $23.0) 42.1 2.2 5.1 35.1 ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 11.4 677.3 830.3 92.3 256.7 (253.6) 7,612.6 (192.2) (123.0) (1,919.0) ---------------------------------------------------------------------------------------------------------------------------------- Net income 1,224.4 Common stock cash dividends ($.23 per share) (163.9) Preferred stock cash dividends ($1.01 for Series B, $1.16 for Series C and $1.93 for Series E depositary share), (net of tax benefits of $3.7) (47.2) Preferred stock conversion (.2) (3.1) .5 .2 2.6 ESOP Notes payment 17.5 Treasury stock acquisitions (17.6) (499.8) Translation adjustments (including taxes of $50.8) 77.3 Common equity put options issuance (54.6) Stock option exercises and other (including tax benefits of $20.3) 28.8 1.7 3.8 27.1 ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 11.2 $674.2 830.3 $92.3 $286.0 $(234.4) $8,625.9 $(114.9) (136.6) $(2,443.7) ================================================================================================================================== The accompanying Financial Comments are an integral part of the consolidated financial statements. /TABLE 37 MCDONALD'S CORPORATION FINANCIAL COMMENTS -------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------------------------------- CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in 50% or less owned affiliates are carried at equity in the companies' net assets. FOREIGN CURRENCY TRANSLATION The functional currency of each operation outside of the U.S. is the respective local currency, except for hyperinflationary countries where it is the U.S. Dollar. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, with depreciation and amortization provided on the straight-line method over the following estimated useful lives: buildings--up to 40 years; leasehold improvements--lesser of useful lives of assets or lease terms including option periods; and equipment--3 to 12 years. INTANGIBLE ASSETS Intangible assets consist primarily of franchise rights reacquired from franchisees and affiliates, and are amortized on the straight- line method over an average life of 30 years. ADVERTISING COSTS In the fourth quarter of 1994, the Company adopted the American Institute of Certified Public Accountants' Statement of Position 93-7, Reporting on Advertising Costs. Under its provisions, the Company expenses production costs of radio and television ads as of the date the commercials are initially aired. As a result, the Company recorded a one-time, noncash $15.0 million charge to general, administrative and selling expenses in the fourth quarter. Advertising expenses included in costs of Company-operated restaurants and general, administrative and selling expenses were (in millions): 1994--$385.6; 1993--$353.8; 1992--$355.7. 38 FINANCIAL INSTRUMENTS The Company utilizes derivatives in managing risk, but not for trading purposes. Non-U.S. Dollar financing transactions generally are effective as hedges of long-term investments or intercompany loans in the corresponding currency. Foreign currency gains and losses on the hedges of long-term investments are recorded as foreign currency translation adjustment included in shareholders' equity. Gains and losses related to hedges of intercompany loans offset the gains and losses on intercompany loans and are recorded in nonoperating income (expense). Interest-rate exchange agreements are designated and effective to modify the Company's interest-rate exposures. Net interest is accrued as either interest receivable or payable with the offset recorded in interest expense. The Company also uses short-term forward foreign exchange contracts to hedge future foreign-denominated royalty cash flows and other payments received in the U.S. from foreign subsidiaries and affiliates. Gains and losses associated with these contracts are deferred and amortized over the twelve-month period being hedged. The carrying amounts for cash and equivalents and notes receivable approximated fair value. For noninterest-bearing security deposits by franchisees, no fair value was provided as these deposits are an integral part of the overall franchise arrangements. STATEMENT OF CASH FLOWS The Company considers all highly liquid investments with short-term maturity dates to be cash equivalents. The impact of changing foreign currencies on cash and equivalents was not material. 39 ---------------------------------------------------------------------- NUMBER OF LOCATIONS IN OPERATION ---------------------------------------------------------------------- December 31, 1994 1993 1992 1991 ---------------------------------------------------------------------- Operated by franchisees 9,982 9,288 8,654 8,151 Operated under business facilities lease arrangements 476 544 583 584 Operated by the Company 3,083 2,699 2,551 2,547 Operated by 50% or less owned affiliates 1,664 1,462 1,305 1,136 ---------------------------------------------------------------------- Systemwide restaurants (excluding satellites) 15,205 13,993 13,093 12,418 ====================================================================== Franchisees operating under business facilities lease arrangements have options to purchase the businesses. The results of operations of restaurant businesses purchased and sold in transactions with franchisees and affiliates were not material to the consolidated financial statements for periods prior to purchase and sale. In 1994, due to increased ownership, the Company consolidated affiliates in Taiwan, South Korea, Turkey and China, which increased total assets and liabilities by approximately $205.0 million. ---------------------------------------------------------------------- December 31, 1994 1993 ---------------------------------------------------------------------- U.S. 494 114 Outside of the U.S. 251 56 ---------------------------------------------------------------------- Systemwide satellites 745 170 ====================================================================== Satellite foodservice facilities are points of distribution which leverage the infrastructure of existing restaurants by using their storage capability and inventory, and by drawing on their management talent and labor pool. ---------------------------------------------------------------------- OTHER OPERATING (INCOME) EXPENSE--NET ---------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 ---------------------------------------------------------------------- Gains on sales of restaurant businesses $(67.1) $(48.2) $(43.1) Equity in earnings of unconsolidated affiliates (47.0) (34.6) (29.5) Net losses from property dispositions 20.0 15.5 18.1 Other--net 10.2 5.3 (9.5) ---------------------------------------------------------------------- Other operating (income) expense--net $(83.9) $(62.0) $(64.0) ====================================================================== Gains on sales of restaurant businesses are recognized as income when the sales are consummated and other stipulated conditions are met. Proceeds from certain sales of restaurant businesses and property include notes receivable. 40 --------------------------------------------------------------------- INCOME TAXES --------------------------------------------------------------------- Income before provision for income taxes and the provision for income taxes, classified by source of income, were as follows: --------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 --------------------------------------------------------------------- U.S. $1,046.4 $ 986.0 $ 873.3 Outside of the U.S. 840.2 689.7 574.8 --------------------------------------------------------------------- Income before provision for income taxes $1,886.6 $1,675.7 $1,448.1 ===================================================================== U.S. $ 396.2 $ 391.9 $ 316.8 Outside of the U.S. 266.0 201.3 172.7 --------------------------------------------------------------------- Provision for income taxes $ 662.2 $ 593.2 $ 489.5 ===================================================================== Income before provision for income taxes outside of the U.S. and the related provision for income taxes reflect fees received in the U.S. from operations outside of the U.S. Income before provision for income taxes in the U.S. and the related provision for income taxes reflect interest received in the U.S. from operations outside of the U.S. The provision for income taxes, classified by the timing and location of payment, consisted of: --------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 --------------------------------------------------------------------- Current U.S. federal $379.3 $331.6 $256.8 U.S. state 71.1 62.0 56.3 Outside of the U.S. 217.4 147.2 154.0 --------------------------------------------------------------------- 667.8 540.8 467.1 --------------------------------------------------------------------- Deferred U.S. federal (21.2) 21.9 (10.3) U.S. state (3.0) 3.4 4.0 Outside of the U.S. 18.6 27.1 28.7 --------------------------------------------------------------------- (5.6) 52.4 22.4 --------------------------------------------------------------------- Provision for income taxes $662.2 $593.2 $489.5 ===================================================================== 41 Included in the 1993 deferred tax provision were $14.0 million attributable to a one-time, noncash revaluation of deferred tax liabilities resulting from the increase in the statutory U.S. federal income tax rate. Net deferred tax liabilities consisted of: ------------------------------------------------------------------------- (In millions of dollars) December 31, 1994 1993 ------------------------------------------------------------------------- Property and equipment basis differences $ 852.8 $ 786.1 Other 178.3 175.4 ------------------------------------------------------------------------- Total deferred tax liabilities 1,031.1 961.5 ------------------------------------------------------------------------- Deferred tax assets before valuation allowance (1) (274.7) (192.8) Valuation allowance 41.4 44.5 ------------------------------------------------------------------------- Net deferred tax liabilities (2) $ 797.8 $ 813.2 ========================================================================= (1) Includes loss carryforwards (in millions): 1994--$45.1; 1993-- $46.7. (2) Net of assets recorded in current income taxes (in millions): 1994--$43.0; 1993--$22.1. Reconciliations of the statutory U.S. federal income tax rates to the effective income tax rates were as follows: ------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------- Statutory U.S. federal income tax rates 35.0% 35.0% 34.0% State income taxes, net of related federal income tax benefit 2.3 2.5 2.7 Other (2.2) (2.1) (2.9) ------------------------------------------------------------------------- Effective income tax rates 35.1% 35.4% 33.8% ========================================================================= Deferred U.S. income taxes have not been provided on basis differences related to investments in certain foreign subsidiaries and affiliates. These basis differences were approximately $675.0 million at December 31, 1994, and consisted primarily of undistributed earnings which are considered to be permanently invested in the businesses. If these earnings were not considered permanently invested, no additional taxes would be provided due to the overall higher tax rates in markets outside of the U.S. and the ability to recover withholding taxes as foreign tax credits in the U.S. 42 ---------------------------------------------------------------------- SEGMENT AND GEOGRAPHIC INFORMATION ---------------------------------------------------------------------- The Company operates exclusively in the foodservice industry. Substantially all revenues result from the sale of menu products at restaurants operated by the Company, franchisees or affiliates. Operating income includes the Company's share of operating results of affiliates. All intercompany revenues and expenses are eliminated in computing revenues and operating income. Fees received in the U.S. from subsidiaries outside of the U.S. were (in millions): 1994-- $268.9; 1993--$202.8; 1992--$187.8. ---------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 ---------------------------------------------------------------------- U.S. $ 4,155.5 $ 3,931.2 $ 3,749.4 Europe/Africa/Middle East 2,604.7 2,235.9 2,187.0 Asia/Pacific 730.7 494.4 434.6 Canada 546.1 557.8 595.1 Latin America 283.8 188.8 167.2 ---------------------------------------------------------------------- Total revenues $ 8,320.8 $ 7,408.1 $ 7,133.3 ====================================================================== U.S. $ 1,130.5 $ 1,087.1 $ 1,041.6 Europe/Africa/Middle East 671.9 547.5 484.0 Asia/Pacific 242.9 190.6 163.2 Canada 116.8 111.2 113.5 Latin America 79.1 47.6 59.3 ---------------------------------------------------------------------- Operating income $ 2,241.2 $ 1,984.0 $ 1,861.6 ====================================================================== U.S. $ 6,682.7 $ 6,385.4 $ 6,410.6 Europe/Africa/Middle East 4,257.5 3,473.2 3,290.9 Asia/Pacific 1,547.7 1,103.2 980.3 Canada 487.6 562.5 587.4 Latin America 616.4 510.9 412.0 ---------------------------------------------------------------------- Total assets $13,591.9 $12,035.2 $11,681.2 ====================================================================== 43 ------------------------------------------------------------------------ PROPERTY AND EQUIPMENT ------------------------------------------------------------------------ (In millions of dollars) December 31, 1994 1993 ------------------------------------------------------------------------ Land $ 2,950.1 $ 2,587.2 Buildings and improvements on owned land 5,814.7 5,209.4 Buildings and improvements on leased land 4,211.2 3,673.0 Equipment, signs and seating 1,727.8 1,545.4 Other 480.8 444.0 ------------------------------------------------------------------------ 15,184.6 13,459.0 ------------------------------------------------------------------------ Accumulated depreciation and amortization (3,856.2) (3,377.6) ------------------------------------------------------------------------ Net property and equipment $11,328.4 $10,081.4 ======================================================================== Depreciation and amortization were (in millions): 1994--$550.5; 1993-- $492.8; 1992--$492.9. Contractual obligations for the acquisition and construction of property amounted to $241.2 million at December 31, 1994. ------------------------------------------------------------------------ DEBT FINANCING ------------------------------------------------------------------------ LINE OF CREDIT AGREEMENTS The Company has a line of credit agreement for $700.0 million, which remained unused at December 31, 1994, and which may be renewed on an annual basis unless the participating banks notify the Company four days prior to the renewal period. Prior to July 20, 1994, the agreement could not be terminated without 18 months notice and supported the classification of certain notes maturing within one year as long-term debt. Each borrowing under the current agreement bears interest at one of several specified floating rates to be selected by the Company at the time of borrowing. The agreement provides for fees of .07% per annum on the unused portion of the commitment. In addition, certain subsidiaries outside of the U.S. had unused lines of credit totaling $1.0 billion at December 31, 1994; these were principally short-term and denominated in various currencies at local market rates of interest. The weighted average interest rates of short-term borrowings, comprised of commercial paper and foreign- denominated bank line borrowings, were 6.8% and 8.1% at December 31, 1994, and 1993, respectively. 44 EXCHANGE AGREEMENTS The Company has entered into agreements for the exchange of various currencies, certain of which also provide for the periodic exchange of interest payments. These agreements, as well as additional interest- rate exchange agreements, expire through 2003. The interest-rate exchange agreements had a notional amount with a U.S. Dollar equivalent of $1.3 billion at December 31, 1994, and were denominated primarily in U.S. Dollars, British Pounds Sterling, French Francs, Deutsche Marks and Japanese Yen. The net value of each exchange agreement was classified as an asset or liability based on its carrying amount, and any related interest income was netted against interest expense. The counterparties to these agreements consist of a diverse group of financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties, and adjusts positions as appropriate. The Company does not have a significant exposure to any individual counterparty, and has entered into master agreements that contain netting arrangements. The Company also had short-term forward foreign exchange contracts outstanding at December 31, 1994, with a U.S. Dollar equivalent of $65.2 million in various currencies, primarily payable in French Francs, Deutsche Marks, British Pounds Sterling and Japanese Yen. The deferred loss related to the short-term hedging program was $1.7 million at December 31, 1994. GUARANTEES Included in total debt at December 31, 1994, were $159.5 million of 7.5% ESOP Notes Series A and $83.3 million of 7.2% ESOP Notes Series B issued by the Leveraged Employee Stock Ownership Plan (LESOP), with payments through 2004 and 2006, respectively, which are guaranteed by the Company. Interest rates on the notes were adjusted in 1994 due to refinancing of certain sinking fund payments. The Company has agreed to repurchase the notes upon the occurrence of certain events. The Company also has guaranteed certain foreign affiliate loans totaling $66.9 million at December 31, 1994. The Company also was a general partner in 70 domestic partnerships with total assets of $287.0 million and total liabilities of $141.3 million at December 31, 1994. 45 FAIR VALUES ---------------------------------------------------------------------- December 31, 1994 (In millions of dollars) Carrying amount Fair value ---------------------------------------------------------------------- Liabilities Debt $3,116.8 $3,050.9 Notes payable 1,046.9 1,046.9 Foreign currency exchange agreements 186.9 225.5 Interest-rate exchange agreements 35.6 ---------------------------------------------------------------------- Total liabilities 4,350.6 4,358.9 ---------------------------------------------------------------------- Assets Foreign currency exchange agreements 37.5 18.5 ---------------------------------------------------------------------- Net debt $4,313.1 $4,340.4 ====================================================================== The carrying amounts for short-term forward foreign exchange contracts approximated fair value at December 31, 1994. The fair value of the debt obligations (excluding capital leases) and of the currency and interest-rate exchange agreements was estimated using quoted market prices, various pricing models or discounted cash flow analyses. The Company has no current plans to retire a significant amount of its debt prior to maturity. Given the market value of its common stock and its significant real estate holdings, the Company believes that the fair value of total assets was higher than their carrying value at December 31, 1994. DEBT OBLIGATIONS The Company has incurred debt obligations principally through various public and private offerings and bank loans. The terms of most debt obligations contain restrictions on Company and subsidiary mortgages and long-term debt of certain subsidiaries. Under certain agreements, the Company has the option to retire debt prior to maturity, either at par or at a premium over par. The following table summarizes these debt obligations, including the gross effects of currency and interest-rate exchange agreements: 46 DEBT OBLIGATIONS
Interest rates (1) Amounts outstanding Maturity December 31 December 31 Aggregate maturities by currency for 1994 balances dates 1994 1993 1994 1993 1995 1996 1997 1998 1999 Thereafter (In millions of U.S. Dollars) --------------------------------------------------------------------------------------------------------------------------------- Fixed-original issue 8.2% 8.5% $1,647.0 $1,790.6 Fixed-converted via exchange agreements (2) 5.7 5.6 (1,483.6) (1,449.0) Floating 4.5 3.0 167.3 163.2 --------------------------------------------------------------------------------------------------------------------------------- Total U.S. Dollars 1995-2033 330.7 504.8 $644.9 $(363.1) $(72.4) $(400.4) $9.9 $511.8 --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.3 8.9 527.2 447.1 Floating 6.0 6.7 292.3 168.6 --------------------------------------------------------------------------------------------------------------------------------- Total French Francs 1995-2003 819.5 615.7 150.3 59.6 56.6 93.8 138.6` 320.6 --------------------------------------------------------------------------------------------------------------------------------- Fixed 6.4 6.3 440.7 423.1 Floating 5.4 6.9 339.5 116.7 --------------------------------------------------------------------------------------------------------------------------------- Total Deutsche Marks 1995-2007 780.2 539.8 168.0 138.5 116.2 259.6 32.3 65.6 --------------------------------------------------------------------------------------------------------------------------------- Fixed 10.4 9.8 464.9 498.6 Floating 6.1 5.4 197.2 178.0 --------------------------------------------------------------------------------------------------------------------------------- Total British Pounds Sterling 1995-2003 662.1 676.6 32.0 170.7 15.6 77.6 31.3 334.9 --------------------------------------------------------------------------------------------------------------------------------- Fixed 4.3 4.3 375.8 357.7 Floating 2.0 135.5 --------------------------------------------------------------------------------------------------------------------------------- Total Japanese Yen 1996-2023 511.3 357.7 210.8 100.4 200.1 --------------------------------------------------------------------------------------------------------------------------------- Fixed 11.1 12.0 113.3 117.3 Floating 7.4 5.0 106.3 61.0 --------------------------------------------------------------------------------------------------------------------------------- Total Australian Dollars 1995-2000 219.6 178.3 84.1 65.9 1.0 67.2 .9 .5 --------------------------------------------------------------------------------------------------------------------------------- Fixed 6.4 7.7 149.9 71.7 Floating 5.7 6.2 26.6 22.6 --------------------------------------------------------------------------------------------------------------------------------- Total Netherland Guilders 1995-1999 176.5 94.3 49.6 77.8 49.1 --------------------------------------------------------------------------------------------------------------------------------- Fixed 11.8 11.6 114.5 166.9 Floating 6.0 4.5 39.3 50.3 --------------------------------------------------------------------------------------------------------------------------------- Total Canadian Dollars 1995-2021 153.8 217.2 80.6 71.5 .2 .2 .3 1.0 --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.1 8.6 97.0 118.4 Floating 6.4 4.1 37.6 21.0 --------------------------------------------------------------------------------------------------------------------------------- Total Hong Kong Dollars 1995-2008 134.6 139.4 44.1 6.5 25.9 12.9 6.4 38.8 --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.0 41.0 Floating 8.2 69.6 --------------------------------------------------------------------------------------------------------------------------------- Total New Taiwan Dollars (3) 1995-2001 110.6 22.4 26.6 17.0 13.2 8.6 22.8 --------------------------------------------------------------------------------------------------------------------------------- Fixed 7.5 8.0 289.5 231.6 Floating 12.1 13.6 124.7 48.5 --------------------------------------------------------------------------------------------------------------------------------- Total other currencies 1995-2016 414.2 280.1 135.5 47.6 4.8 99.3 48.5 78.5 --------------------------------------------------------------------------------------------------------------------------------- Debt obligations including the net effects of currency and interest- rate exchange agreements 4,313.1 3,603.9 1,411.5 434.6 265.3 301.2 325.9 1,574.6 --------------------------------------------------------------------------------------------------------------------------------- Net asset positions of currency exchange agreements (included in miscellaneous other assets) 37.5 108.8 3.7 12.5 .1 7.1 2.5 11.6 --------------------------------------------------------------------------------------------------------------------------------- Total debt obligations $4,350.6 $3,712.7 $1,415.2 $447.1 $265.4 $308.3 $328.4 $1,586.2 ================================================================================================================================= (1) Weighted average effective rate, computed on a semi-annual basis. (2) A portion of U.S. Dollar fixed-rate debt effectively has been converted into other currencies and/or into floating-rate debt through the use of exchange agreements. The rates shown reflected the fixed rate on the receivable portion of the exchange agreements. All other obligations in this table reflected the gross effects of these and other exchange agreements. (3) In 1994, due to an increase in ownership, the Company consolidated its Taiwan affiliate. /TABLE 47 ------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS ------------------------------------------------------------------- (In millions of dollars) December 31, 1994 1993 ------------------------------------------------------------------- Security deposits by franchisees $141.2 $121.4 Preferred interests in consolidated subsidiaries 162.4 106.7 Minority interests in consolidated subsidiaries 50.3 38.2 Other 68.9 68.1 ------------------------------------------------------------------- Other long-term liabilities and minority interests $422.8 $334.4 =================================================================== A Company subsidiary issued 25 million British Pounds Sterling of 5.42% Series B Preferred Stock in 1994, and 50 million British Pounds Sterling of 5.91% Series A Preferred Stock in 1993. Unless redeemed at the Company's option, each series of preferred stock must be redeemed five years from the date of issuance. These combined preferred interests were valued at U.S. $117.4 million at December 31, 1994. Also, another subsidiary issued additional preferred stock in 1994 and 1993. All of the preferred stock of this subsidiary has a dividend rate adjusted annually (7.5% at December 31, 1994) and is redeemable at the option of the holder at a current redemption price totaling $45.0 million. Each of these issues was reflected in preferred interests in consolidated subsidiaries. Included in other was the $100.00 per share redemption value of 181,868 shares of 5% Series D Preferred Stock. This stock, which carries one vote per share, must be redeemed on the occurrence of specified events. 48 --------------------------------------------------------------------- LEASING ARRANGEMENTS --------------------------------------------------------------------- At December 31, 1994, the Company was lessee at 2,553 locations under ground leases (the Company leases land and constructs and owns buildings) and at 3,268 locations under improved leases (lessor owns land and buildings). Land and building lease terms for most traditional restaurants are generally for 20 to 25 years and, in many cases, provide for rent escalations and one or more five-year renewal options with certain leases providing purchase options. Most satellites operate under improved leases which are generally of a shorter term and include primarily percentage rent payments only. For most locations, the Company is obligated for the related occupancy costs which include property taxes, insurance and maintenance. In addition, the Company is lessee under noncancelable leases covering offices and vehicles. Future minimum payments required under operating leases with initial terms of one year or more after December 31, 1994, are: --------------------------------------------------------------------- (In millions of dollars) Restaurant Other Total --------------------------------------------------------------------- 1995 $ 335.3 $ 39.8 $ 375.1 1996 330.6 36.5 367.1 1997 318.7 32.9 351.6 1998 301.7 28.6 330.3 1999 283.9 24.3 308.2 Thereafter 2,776.8 171.2 2,948.0 --------------------------------------------------------------------- Total minimum payments $4,347.0 $333.3 $4,680.3 ===================================================================== Rent expense was (in millions): 1994--$394.4; 1993--$339.0; 1992-- $320.2. Included in these amounts were percentage rents based on sales by the related restaurants in excess of minimum rents stipulated in certain lease agreements (in millions): 1994 $40.3; 1993--$29.0; 1992--$26.1. 49 ---------------------------------------------------------------------- FRANCHISE ARRANGEMENTS ---------------------------------------------------------------------- Franchise arrangements, with franchisees who operate throughout the U.S. and in most countries around the world, generally provide for initial fees and continuing payments to the Company based upon a percentage of sales, with minimum rent payments. Among other things, franchisees are provided the use of restaurant facilities, generally for a period of 20 years. They are required to pay related occupancy costs which include property taxes, insurance, maintenance and a refundable, noninterest-bearing security deposit. On a limited basis, the Company accepts notes from franchisees, which generally are secured by interests in restaurant equipment and franchises. ---------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 ---------------------------------------------------------------------- Minimum rents Owned sites $ 633.4 $ 573.6 $ 538.7 Leased sites 446.0 381.7 353.3 ---------------------------------------------------------------------- 1,079.4 955.3 892.0 ---------------------------------------------------------------------- Percentage fees 1,411.8 1,272.1 1,120.6 Initial fees 37.0 23.5 18.2 ---------------------------------------------------------------------- Revenues from franchised restaurants $2,528.2 $2,250.9 $2,030.8 ====================================================================== Future minimum payments to the Company, based on minimum rents specified under franchise arrangements, after December 31, 1994, are: ---------------------------------------------------------------------- Owned Leased (In millions of dollars) sites sites Total ---------------------------------------------------------------------- 1995 $ 721.7 $ 410.4 $ 1,132.1 1996 708.6 446.5 1,155.1 1997 693.0 444.8 1,137.8 1998 677.0 432.7 1,109.7 1999 662.3 421.0 1,083.3 Thereafter 6,368.1 4,029.9 10,398.0 ---------------------------------------------------------------------- Total minimum payments $9,830.7 $6,185.3 $16,016.0 ====================================================================== At December 31, 1994, net property and equipment under franchise arrangements totaled $6.6 billion (including land of $2.0 billion), after deducting accumulated depreciation and amortization of $1.9 billion. 50 ------------------------------------------------------------------------- PROFIT SHARING PROGRAM ------------------------------------------------------------------------- The Company has a program for U.S. employees which includes profit sharing, 401(k) (McDESOP), and leveraged employee stock ownership features. Profit sharing assets can be invested in McDonald's common stock or among several other investment alternatives. McDESOP allows employees to invest in McDonald's common stock by making contributions which are partially matched by the Company. LESOP is invested in both McDonald's convertible preferred and common stock. Staff, executives and restaurant managers share in profit sharing contributions; shares are released under the LESOP based on participants' compensation. The profit sharing contribution is discretionary, and the amount is determined by the Company each year. The LESOP contribution is based on the loan payments necessary to amortize the debt initially incurred to acquire the convertible preferred stock, some of which has been converted to common stock. Shares held by the LESOP are allocated to participants as the loan is repaid. Dividends on shares held by the LESOP are used to service the debt, and shares are released to participants in order to replace the dividends on shares that have been allocated to them. LESOP costs shown in the following table were based upon the cash paid for loan payments less these dividends. ------------------------------------------------------------------------- (In millions of dollars) 1994 1993 1992 ------------------------------------------------------------------------- Profit sharing $16.1 $13.5 $14.3 LESOP 26.3 25.5 19.6 McDESOP 10.1 8.1 4.9 ------------------------------------------------------------------------- U.S. program costs $52.5 $47.1 $38.8 ========================================================================= Assuming conversion of the preferred stock to common stock, at December 31, 1994, 4.4 million and 10.7 million shares would have been allocated and unallocated, respectively; no shares were committed to be released. Certain subsidiaries outside of the U.S. also offer profit sharing, stock purchase or other similar benefit plans. Total plan costs outside of the U.S. were (in millions): 1994--$15.7; 1993--$13.0; 1992--$14.0. The Company does not provide any other postretirement benefits, and postemployment benefits were immaterial. 51 ------------------------------------------------------------------------- STOCK OPTIONS ------------------------------------------------------------------------- Under the 1992 Stock Ownership Incentive and the 1975 Stock Ownership Option Plans, options to purchase common stock are granted at prices not less than fair market value of the stock on date of grant. Substantially all of these options become exercisable in four equal biennial installments, commencing one year from date of grant, and expiring ten years from date of grant. At December 31, 1994, 79.0 million shares of common stock were reserved for issuance under both plans. ------------------------------------------------------------------------- (In millions, except per common share data) 1994 1993 1992 ------------------------------------------------------------------------- Options outstanding at January 1 55.1 50.3 47.4 Options granted 13.6 12.0 11.6 Options exercised (4.1) (5.3) (7.5) Options forfeited (2.3) (1.9) (1.2) ------------------------------------------------------------------------- Options outstanding at December 31 62.3 55.1 50.3 ========================================================================= Options exercisable at December 31 21.4 17.6 15.4 Common shares reserved for future grants at December 31 16.7 28.0 38.2 Option prices per common share Exercised during the year $5 TO $26 $4 to $24 $4 to $22 Outstanding at year end $7 TO $30 $5 to $28 $4 to $24 ------------------------------------------------------------------------- During the past several years, the Financial Accounting Standards Board has been considering the appropriate accounting for stock options, and in December 1994, decided to work towards improving disclosures about stock-based awards. Pending the resolution of this issue, the following table provides additional information regarding the Company's option program. The Company surveyed its institutional investors regarding the appropriate disclosures for stock-based awards, and the content contained herein reflects the information which they considered to be of value. The potential dilution of common shares outstanding upon exercise of stock options represents the number of common shares issuable upon exercise less the number of common shares that could be repurchased with proceeds from the exercise based upon the respective December 31 prices of the Company's common stock. As such, this potential dilution was 1.6%, 1.8% and 1.7% at year-end 1994, 1993 and 1992, respectively. Options outstanding at December 31, 1994, had an average life of 7.4 years if held to their expiration date; options are generally exercised prior to their expiration date. 52 ------------------------------------------------------------------------- (Shares in millions) 1994 1993 1992 ------------------------------------------------------------------------- Common shares outstanding at year end 693.7 707.3 727.0 Potential dilution of common shares outstanding from option exercises 11.4 12.6 12.2 Average option exercise price $12.14 $11.01 $ 9.68 Average cost of treasury stock issued for option exercises $ 7.05 $ 6.65 $ 6.55 ------------------------------------------------------------------------- As shown above, the average option exercise price has consistently exceeded the average cost of treasury stock issued for option exercises because of the Company's practice of prefunding the program through share repurchase. As a result, stock option exercises have generated additional capital, as cash received from employees has exceeded the Company's average acquisition cost of treasury stock. Options granted during each year were 1.9%, 1.7% and 1.6% of average common shares outstanding for 1994, 1993 and 1992, respectively. Stock options were granted to approximately 6,600, 5,800 and 5,700 employees in 1994, 1993 and 1992, respectively. Shares are issued from treasury stock to employees upon exercise of stock options. 53 ---------------------------------------------------------------------- CAPITAL STOCK ---------------------------------------------------------------------- STOCK SPLITS On May 27, 1994, the Board of Directors approved two-for-one stock splits to be effected in the form of stock dividends to be distributed on June 24, 1994, to common and Series B and C Preferred shareholders of record as of June 7, 1994. All common and Series B and C ESOP Convertible Preferred Stock information appearing in the accompanying consolidated financial statements and Financial Comments has been restated to give retroactive effect to the stock splits, including the transfer of an appropriate amount to common stock from additional paid-in capital. PER COMMON SHARE INFORMATION Income used in the computation of per common share information was reduced by preferred stock cash dividends (net of tax) and divided by the weighted average shares of common stock outstanding during each year (in millions): 1994--701.8; 1993--711.8; 1992--726.5. The effect of potentially dilutive securities was not material. PREFERRED STOCK In December 1992, the Company issued $500.0 million of Series E 7.72% Cumulative Preferred Stock; 10,000 preferred shares are equivalent to 20.0 million depositary shares having a liquidation preference of $25.00 per depositary share. Each preferred share is entitled to one vote under certain circumstances and is redeemable at the option of the Company beginning on December 3, 1997, at its liquidation preference plus accrued and unpaid dividends. In September 1989 and April 1991, the Company sold $200.0 million of Series B and $100.0 million of Series C ESOP Convertible Preferred Stock to the LESOP. The LESOP financed the purchase by issuing notes which are guaranteed by the Company and are included in long-term debt, with an offsetting reduction in shareholders' equity. Each preferred share has a liquidation preference of $14.375 and $16.5625, respectively, and is convertible into a minimum of .7692 and .8 common share (conversion rate), respectively. Upon termination of employment, employees are guaranteed a minimum value payable in common shares equal to the greater of the conversion rate; the fair market value of their preferred shares; or the liquidation preference plus accrued dividends, not to exceed one common share. Each preferred share is entitled to one vote and currently is redeemable at the option of the Company. In 1992, 8.2 million Series B shares were converted into 6.4 million common shares. 54 COMMON EQUITY PUT OPTIONS In June 1994, the Company sold 2.0 million common equity put options which were exercised in November 1994. During November and December 1994, the Company sold an additional 2.0 million common equity put options which expired unexercised in the first quarter of 1995. At December 31, 1994, the $56.2 million exercise price of these options was classified in common equity put options, and the related offset was recorded in common stock in treasury, net of premiums received. In April 1993, the Company sold 1.0 million common equity put options which expired unexercised in July 1993. In December 1992, the Company sold 2.0 million common equity put options which expired unexercised in April 1993. At December 31, 1992, the $94.0 million exercise price of these options was classified in common equity put options and the related offset was recorded in common stock in treasury, net of premiums received. SHAREHOLDER RIGHTS PLAN In December 1988, the Company declared a dividend of one Preferred Share Purchase Right (Right) on each outstanding share of common stock. Under certain conditions, each Right may be exercised to purchase one four-hundredth of a share of Series A Junior Participating Preferred Stock (the economic equivalent of one common share) at an exercise price of $62.50 (which may be adjusted under certain circumstances), and is transferable apart from the common stock ten days following a public announcement that a person or group has acquired beneficial ownership of 20% or more of the outstanding common shares (which threshold may be reduced by the Board of Directors to as low as 10%), or ten business days following the commencement or announcement of an intention to make a tender or exchange offer resulting in beneficial ownership by a person or group exceeding the threshold. Once the threshold has been exceeded, or if the Company is acquired in a merger or other business combination transaction, each Right will entitle the holder, other than such person or group, to purchase at the then current exercise price, stock of the Company or the acquiring company having a market value of twice the exercise price. Each Right is nonvoting and expires on December 28, 1998, unless redeemed by the Company, at a price of $.0025, at any time prior to the public announcement that a person or group has exceeded the threshold. At December 31, 1994, 2.1 million shares of the Series A Junior Participating Preferred Stock were reserved for issuance under this plan. 55 QUARTERLY RESULTS (UNAUDITED)
(In millions of dollars, except per common share data) --------------------------------------------------------------------------------------------------------------------------------- Quarters ended December 31 September 30 June 30 March 31 1994 1993 1994 1993 1994 1993 1994 1993 --------------------------------------------------------------------------------------------------------------------------------- SYSTEMWIDE SALES $6,964.0 $6,145.7 $6,944.0 $6,247.2 $6,370.2 $5,958.9 $5,709.2 $5,235.1 REVENUES Sales by Company-operated restaurants $1,586.8 $1,345.2 $1,551.8 $1,351.1 $1,409.3 $1,307.6 $1,244.7 $1,153.3 Revenues from franchised restaurants 683.3 586.7 673.6 593.2 620.0 570.2 551.3 500.8 --------------------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 2,270.1 1,931.9 2,225.4 1,944.3 2,029.3 1,877.8 1,796.0 1,654.1 --------------------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 1,267.7 1,085.3 1,231.3 1,076.9 1,128.6 1,049.5 1,017.4 952.9 Franchised restaurants 117.8 100.3 111.7 95.7 105.6 93.6 100.4 90.8 General, administrative and selling expenses 309.4 256.2 277.1 234.6 257.0 232.5 239.5 217.8 Other operating (income) expense--net (0.6) 3.5 (32.6) (31.1) (30.3) (15.6) (20.4) (18.8) --------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 1,694.3 1,445.3 1,587.5 1,376.1 1,460.9 1,360.0 1,336.9 1,242.7 --------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 575.8 486.6 637.9 568.2 568.4 517.8 459.1 411.4 --------------------------------------------------------------------------------------------------------------------------------- Interest expense 80.1 78.7 80.2 75.7 73.6 82.4 71.8 79.3 Nonoperating income (expense)--net (24.1) (4.9) (16.6) 7.2 1.7 4.3 (9.9) 1.2 --------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 471.6 403.0 541.1 499.7 496.5 439.7 377.4 333.3 --------------------------------------------------------------------------------------------------------------------------------- Provision for income taxes 162.7 138.5 191.3 188.8 174.2 150.9 134.0 115.0 --------------------------------------------------------------------------------------------------------------------------------- NET INCOME $308.9 $264.5 $349.8 $310.9 $322.3 $288.8 $243.4 $218.3 ================================================================================================================================= NET INCOME PER COMMON SHARE $ .43 $ .36 $ .48 $ .42 $ .44 $ .39 $ .33 $ .29 --------------------------------------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .06 $ .05 3/8 $ .06 $ .05 3/8 $ .06 $ .05 3/8 $ .05 3/8 $ .05 --------------------------------------------------------------------------------------------------------------------------------- /TABLE 56 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information regarding directors is incorporated herein by reference from the Company's definitive proxy statement which will be filed no later than 120 days after December 31, 1994. Information regarding all of the Company's executive officers is included in Part I. Item 11. Executive Compensation Incorporated herein by reference from the Company's definitive proxy statement which will be filed no later than 120 days after December 31, 1994. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference from the Company's definitive proxy statement which will be filed no later than 120 days after December 31, 1994. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference from the Company's definitive proxy statement which will be filed no later than 120 days after December 31, 1994. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial statements: Consolidated financial statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K. 2. Financial statement schedules: No additional schedules are required because either the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits: The exhibits listed in the accompanying index are filed as part of this report. 57 McDonald's Corporation Exhibit Index (Item 14) Exhibit Number Description -------------- ----------- (3) Restated Certificate of Incorporation and By-Laws, dated as of November 15, 1994, attached hereto as an Exhibit. (4) Instruments defining the rights of security holders, including indentures (A): (a) Debt Securities. Indenture dated as of March 1, 1987 incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement, SEC file no. 33-12364. (i) Supplemental Indenture No. 5 incorporated herein by reference from Exhibit (4) of Form 8-K dated January 23, 1989. (ii) 9-3/4% Notes due 1999. Supplemental Indenture No. 6 incorporated herein by reference from Exhibit (4) of Form 8-K dated January 23, 1989. (iii) Medium-Term Notes, Series B, due from nine months to 30 years from Date of Issue. Supplemental Indenture No. 12 incorporated herein by reference from Exhibit (4) of Form 8-K dated August 18, 1989 and Forms of Medium-Term Notes, Series B, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated September 14, 1989. (iv) 9-3/8% Notes due 1997. Form of Supplemental Indenture No. 14 incorporated herein by reference from Exhibit (4) of Form 10-K for the year ended December 31, 1989. (v) Medium-Term Notes, Series C, due from nine months to 30 years from Date of Issue. Form of Supplemental Indenture No. 15 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement, SEC file no. 33-34762 dated May 14, 1990. (vi) Medium-Term Notes, Series C, due from nine months (U.S. Issue)/184 days (Euro Issue) to 30 years from Date of Issue. Amended and restated Supplemental Indenture No. 16 incorporated herein by reference from Exhibit (4) of Form 10-Q for the period ended March 31, 1991. (vii) 8-7/8% Debentures due 2011. Supplemental Indenture No. 17 incorporated herein by reference from Exhibit (4) of Form 8-K dated April 22, 1991. 58 (viii)Medium-Term Notes, Series D, due from nine months (U.S. Issue)/184 days (Euro Issue) to 60 years from Date of Issue. Supplemental Indenture No. 18 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement, SEC file no. 33-42642 dated September 10, 1991. (ix) 7-3/8% Notes due July 15, 2002. Form of Supplemental Indenture No. 19 incorporated herein by reference from Exhibit (4) of Form 8-K dated July 10, 1992. (x) 6-3/4% Notes due February 15, 2003. Form of Supplemental Indenture No. 20 incorporated herein by reference from Exhibit (4) of Form 8-K dated March 1, 1993. (xi) 7-3/8% Debentures due July 15, 2033. Form of Supplemental Indenture No. 21 incorporated herein by reference from Exhibit (4)(a)of Form 8-K dated July 15, 1993. (b) Form of Deposit Agreement dated as of November 25, 1992 by and between McDonald's Corporation, First Chicago Trust Company of New York, as Depositary, and the Holders from time to time of the Depositary Receipts. (c) Rights Agreement dated as of December 13, 1988 between McDonald's Corporation and The First National Bank of Chicago, incorporated herein by reference from Exhibit 1 of Form 8-K dated December 23, 1988. (i) Amendment No. 1 to Rights Agreement incorporated herein by reference from Exhibit 1 of Form 8-K dated May 25, 1989. (ii) Amendment No. 2 to Rights Agreement incorporated herein by reference from Exhibit 1 of Form 8-K dated July 25, 1990. (d) Indenture and Supplemental Indenture No. 1 dated as of September 8, 1989, between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated September 14, 1989. (e) Form of Supplemental Indenture No. 2 dated as of April 1, 1991, supplemental to the Indenture between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(c) of Form 8-K dated March 22, 1991. 59 Exhibit Number Description -------------- ----------- (10) Material Contracts (a) Directors' Stock Plan, as amended and restated, attached hereto as an Exhibit.* (b) Profit Sharing Program, as amended and restated, attached hereto as an Exhibit.* (c) McDonald's Supplemental Employee Benefit Equalization Plan, McDonald's Profit Sharing Program Equalization Plan and McDonald's 1989 Equalization Plan, incorporated by reference from Form 10-K/A dated May 4, 1993, Amendment No. 1 to Form 10-K for the year ended December 31, 1992*. (i) Amendment No. 1 to McDonald's 1989 Equalization Plan, incorporated herein by reference from Form 10-Q for the period ended June 30, 1993. (ii) Amendment No. 2 to McDonald's 1989 Equalization Plan, incorporated herein by reference from Form 10-K for the year ended December 31, 1993. (iii)Amendment No. 1 to McDonald's Supplemental Employee Benefit Equalization Plan, incorporated herein by reference from Form 10-K for the year ended December 31, 1993. (iv) Amendment No. 2 to McDonald's Supplemental Employee Equalization Plan, incorporated herein by reference from Form 10-K for the year ended December 31, 1993. (d) 1975 Stock Ownership Option Plan, incorporated herein by reference from Exhibit (10)(d) of Form 10-K for the year ended December 31, 1992*. (e) Stock Sharing Plan, as amended and restated, attached hereto as an Exhibit.* (f) 1992 Stock Ownership Incentive Plan, incorporated herein by reference from exhibit pages 20-34 of McDonald's 1992 Proxy Statement and Notice of 1992 Annual Meeting of Shareholders dated April 10, 1992*. (g) McDonald's Corporation Deferred Incentive Plan, as amended and restated, attached hereto as an Exhibit.* 60 Exhibit Number Description -------------- ----------- (11) Statement re: Computation of per share earnings. (12) Statement re: Computation of ratios. (21) Subsidiaries of the registrant. (23) Consent of independent auditors. (27) Financial Data Schedule -------------------- * Denotes compensatory plan. (A) Other instruments defining the rights of holders of long-term debt of the registrant and all of its subsidiaries for which consolidated financial statements are required to be filed and which are not required to be registered with the Securities and Exchange Commission, are not included herein as the securities authorized under these instruments, individually, do not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. An agreement to furnish a copy of any such instruments to the Securities and Exchange Commission upon request has been filed with the Commission. (b) Reports on Form 8-K There were no reports on Form 8-K filed for the last quarter covered by this report, and subsequently up to March 29, 1995. 61 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. McDONALD'S CORPORATION (Registrant) By Jack M. Greenberg ---------------------- Jack M. Greenberg Vice Chairman, Chief Financial Officer Date March 29, 1995 ---------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- Hall Adams, Jr. ------------------------- Director March 29, 1995 Hall Adams, Jr. Robert M. Beavers, Jr. ------------------------- Senior Vice President March 29, 1995 Robert M. Beavers, Jr. and Director James R. Cantalupo ------------------------- President and Chief Executive March 29, 1995 James R. Cantalupo Officer-International and Director Michael L. Conley ------------------------- Senior Vice President, March 29, 1995 Michael L. Conley Controller Gordon C. Gray ------------------------- Director March 29, 1995 Gordon C. Gray Jack M. Greenberg ------------------------- Vice Chairman, March 29, 1995 Jack M. Greenberg Chief Financial Officer and Director 62 Signature Title Date --------- ----- ---- Donald R. Keough ------------------------- Director March 29, 1995 Donald R. Keough Donald G. Lubin ------------------------- Director March 29, 1995 Donald G. Lubin Andrew J. McKenna ------------------------- Director March 29, 1995 Andrew J. McKenna Michael R. Quinlan ------------------------- Chairman, Chief Executive March 22, 1995 Michael R. Quinlan Officer and Director Edward H. Rensi ------------------------- President and Chief Executive March 22, 1995 Edward H. Rensi Officer-U.S.A. and Director Terry L. Savage ------------------------- Director March 29, 1995 Terry L. Savage Paul D. Schrage ------------------------- Senior Executive Vice March 25, 1995 Paul D. Schrage President, Chief Marketing Officer and Director Ballard F. Smith ------------------------- Director March 22, 1995 Ballard F. Smith ------------------------- Director Roger W. Stone Robert N. Thurston ------------------------- Director March 29, 1995 Robert N. Thurston Fred L. Turner ------------------------- Senior Chairman and Director March 29, 1995 Fred L. Turner B. Blair Vedder, Jr. ------------------------- Director March 29, 1995 B. Blair Vedder, Jr. EX-3 2 ARTICLES OF INCORPORATION Exhibit 3(A) RESTATED CERTIFICATE OF INCORPORATION OF McDONALD'S CORPORATION (originally incorporated on December 21, 1964 under the name "Regrub, Inc.") FIRST: The name of the corporation is McDONALD'S CORPORATION. SECOND: Its registered office in the State of Delaware is located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The name and address of its registered agent is The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L- 100, Dover, Delaware 19901. THIRD: The nature of the business of the Corporation and the objects and purposes to be transacted, promoted or carried on are as follows: 1. To obtain by license or otherwise and to grant to others by license or otherwise the right to the use of drive-in food establishment systems and food service systems of every kind and character, and to manage and operate drive-in and other restaurants and eating places of all kinds. 2. To manufacture, construct, lease, purchase and otherwise acquire; to hold, own, repair, maintain, operate and invest, trade and deal in; to lien, mortgage, pledge and otherwise encumber, and to let, assign, transfer, sell and otherwise dispose of goods, wares and merchandise and personal property of every kind and description and wherever situated. 3. To the same extent as natural persons might or could do, to purchase or otherwise acquire, hold, own, maintain, work, develop, sell, lease, sublease, exchange, hire, convey, mortgage or otherwise dispose of and turn to account and deal in, lands, leaseholds, any interests, estates and rights in real property, any personal or mixed property, and franchises, rights, licenses, permits or privileges of every character. 4. To acquire by purchase, exchange or otherwise, all, or any part of, or any interest in, the properties, assets, business and good will of any one or more persons, firms, associations, corporations or syndicates engaged in any business which the Corporation is authorized to engage in; to pay for the same in cash, property or its own or other securities; to hold, operate, reorganize, liquidate, sell or in any manner dispose of the whole or any part thereof; and in connection therewith, to assume or guarantee performance of any liabilities, obligations or contracts of such persons, firms, associations, corporations or syndicates, and to conduct in any lawful manner the whole or any part of any business thus acquired. 5. To acquire by purchase, subscription, contract or otherwise, and to hold for investment or otherwise, sell, exchange, mortgage, pledge or otherwise dispose of, or turn to account or realize upon, and generally to deal in and with, any and all kinds of securities issued or created by, or interests in, corporations, associations, partnerships, firms, trustees, syndicates, individuals, municipalities or other political or governmental divisions or subdivisions, or any thereof, or by any combinations, organizations or entities whatsoever, irrespective of their form or the name by which they may be described; and to exercise any and all rights, powers, and privileges of individual ownership or interest in respect of any and all such securities and interests, including the right to vote thereon and to consent and otherwise act with respect thereto; to do any and all acts and things for the preservation, protection, improvement and enhancement in value of any and all such securities or interests, and to aid by loan, subsidy, guaranty or in any other manner permitted by law those issuing, creating, or responsible for any such securities or interests. 6. To develop, apply for, obtain, register, purchase, lease, take licenses in respect of or otherwise acquire, and to hold, own, use, operate, enjoy, turn to account, grant licenses in respect of, manufacture under, introduce, sell, assign, mortgage, pledge or otherwise dispose of any and all inventions, devices, formulae, processes, improvements and modifications thereof, letters patent and all rights connected therewith or appertaining thereunto, copyrights, trademarks, trade names, trade symbols and other indications of origin and ownership, franchises, licenses, grants and concessions granted by or recognized under the laws of the United States of America or of any state or subdivision thereof or of any other country or subdivision thereof. 7. To loan money upon the security of real and/or personal property of whatsoever name, nature or description, or without security. 8. To borrow money for any of the purposes of the Corporation, from time to time, and without limit as to amount; to issue and sell its own securities in such amounts, on such terms and conditions, for such purposes and for such prices, as the Board of Directors shall determine; and to secure such securities, by mortgage upon, or the pledge of, or the conveyance or assignment in trust of, the whole or any part of the properties, assets, business and good will of the Corporation, then owned or thereafter acquired. It is the intention that the objects and purposes set forth in the foregoing clauses of this Article Third shall not, unless otherwise specified herein, be in any wise limited or restricted by reference to, or inference from, the terms of any other clause of this or any other article in this Certificate, but that the objects and purposes specified in each of said clauses shall be regarded as independent objects and purposes. It is also the intention that the foregoing clauses shall be construed as powers as well as objects and purposes; that the Corporation shall be authorized to conduct its business or hold property in any part of the United States and its possessions, and foreign countries; that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general powers of the Corporation; and that generally the Corporation shall be authorized to exercise and enjoy all other powers conferred on corporations by the laws of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is One Billion Four Hundred Fifteen Million (1,415,000,000), consisting of One Billion Two Hundred Fifty Million (1,250,000,000) shares of Common Stock without par value and One Hundred Sixty-Five Million (165,000,000) shares of Preferred Stock without par value. A. COMMON STOCK Each share of Common Stock shall be equal to every other share of Common Stock in every respect. Subject to any exclusive voting rights which may vest in holders of Preferred Stock under the provisions of any series of the Preferred Stock established by the Board of Directors pursuant to authority herein provided, the shares of Common Stock shall entitle the holders thereof to one vote for each share upon all matters upon which stockholders have the right to vote. B. PREFERRED STOCK (1) Preferred Stock may be issued from time to time in one or more series, each of such series to have such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as are stated and expressed in this Article and in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors as hereinafter provided. (2) Authority is hereby expressly granted to the Board of Directors subject to the provisions of this Article to authorize the issuance of one or more series of Preferred Stock and, with respect to each series, to fix by resolution or resolutions providing for the issuance of such series: (a) The number of shares to constitute such series and the distinctive designations thereof; (b) The dividend rate or rates to which such shares shall be entitled and the restrictions, limitations and conditions upon the payment of such dividends, whether dividends shall be cumulative or non-cumulative and, if cumulative, the date or dates from which dividends shall accumulate, the dates on which dividends, if declared, shall be payable, and the preferences or relations to the dividends payable on any other series of Preferred Stock; (c) Whether or not all or any part of the shares of such series shall be redeemable, and if so, the limitations and restrictions with respect to such redemptions, the manner of selecting shares of such series for redemption if less than all shares are to be redeemed, and the amount, if any, in addition to any accrued dividends thereon, which the holder of shares of such series shall be entitled to receive upon the redemption thereof, which amount may vary at different redemption dates and may be different with respect to shares redeemed through the operation of any retirement or sinking fund and with respect to shares otherwise redeemed; (d) The amount in addition to any accrued dividends thereon which the holders of shares of such series shall be entitled to receive upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, which amount may vary depending on whether such liquidation, dissolution or winding up is voluntary or involuntary and, if voluntary, may vary at different dates; (e) Whether or not the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether such purchase, retirement or sinking fund shall be cumulative or non-cumulative, the extent and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof; (f) Whether or not the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes, or of any other series of the same class, and if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same; (g) The voting powers, if any, of such series in addition to the voting powers provided by law; except that such powers shall not include the right to have more than one vote per share; (h) Any other preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as shall not be inconsistent with law or with this Article. Notwithstanding the fixing of the number of shares constituting a particular series upon the issuance thereof, the Board of Directors may at any time thereafter authorize the issuance of additional shares of the same series, or decrease the number of shares constituting such series (but not below the number of shares of such series then outstanding). (3) All shares of any one series of Preferred Stock shall be identical with all other shares of the same series except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative; and all series shall rank equally and be identical in all respects, except as permitted by the foregoing provisions of paragraph B. (2). (4) (a) The holders of Preferred Stock shall be entitled to receive cash dividends when and as declared by the Board of Directors at such rate per share per annum, cumulatively if so provided, and with such preferences, as shall have been fixed by the Board of Directors, before any dividends shall be paid upon or declared and set apart for the Common Stock or any other class of stock ranking junior to the Preferred Stock, and such dividends on each series of the Preferred Stock shall cumulate, if at all, from and after the dates fixed by the Board of Directors with respect to such cumulation. Accrued dividends shall bear no interest. (b) If dividends on the Preferred Stock are not declared in full then dividends shall be declared ratably on all shares of stock of each series of equal preference in proportion to the respective unpaid cumulative dividends, if any, to the end of the then current dividend period. No ratable distribution shall be declared or set apart for payment with respect to any series until accumulated dividends in arrears in full have been declared and paid on any series senior in preference. (c) Unless dividends on all outstanding shares of series of the Preferred Stock having cumulative dividend rights shall have been fully paid for all past dividend periods, and unless all required sinking fund payments, if any, shall have been made or provided for, no dividend (except a dividend payable in Common Stock or in any other class of stock ranking junior to the Preferred Stock) shall be paid upon or declared and set apart for the Common Stock or any other class of stock ranking junior to the Preferred Stock. (d) Subject to the foregoing provisions, the Board of Directors may declare and pay dividends on the Common Stock and on any class of stock ranking junior to the Preferred Stock, to the extent permitted by law. After full dividends for the current dividend period, and, in the case of Preferred Stock having cumulative dividend rights after all prior dividends have been paid or declared and set apart for payment, the holders of the Common Stock shall be entitled, to the exclusion of the holders of the Preferred Stock, to all further dividends declared and paid in such current dividend period. (5) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, before any payment or distribution of the assets of the Corporation shall be made to or set apart for the holders of shares of any class or classes of stock of the Corporation ranking junior to the Preferred Stock, the holders of the shares of each series of the Preferred Stock shall be entitled to receive payment of the amount per share fixed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of the shares of such series, plus an amount equal to all dividends accrued thereon to the date of final distribution to such holders; but they shall be entitled to no further payment. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of the shares of the Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid, then such assets, or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amount which would be payable on such shares if all amounts payable thereon were paid in full. For the purposes of this paragraph B. (5), the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation or a consolidation or merger of the Corporation with one or more corporations shall not be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary. (6) Shares of any series of Preferred Stock which have been issued and reacquired in any manner by the Company (excluding shares purchased and retired, whether through the operation of a retirement or sinking fund or otherwise, and shares which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes) shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preferred Stock or as part of any other series of Preferred Stock, all subject to the conditions or restrictions on issuance fixed by the Board of Directors with respect to the shares of any other series of Preferred Stock. (7) Except as otherwise specifically provided herein or in the authorizing resolutions, none of the shares of any series of Preferred Stock shall be entitled to any voting rights and the Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes. So long as any shares of any series of Preferred Stock are outstanding, the Corporation shall not, without the consent of the holders of a majority of the then outstanding shares of Preferred Stock, irrespective of series, either expressed in writing (to the extent permitted by law) or by their affirmative vote at a meeting called for that purpose: (i) adopt any amendment to this Restated Certificate of Incorporation or take any other action which in any material respect adversely affects any preference, power, special right, or other term of the Preferred Stock or the holders thereof, (ii) create or issue any class of stock entitled to any preference over the Preferred Stock as to the payment of dividends, or the distribution of capital assets, (iii) increase the aggregate number of shares constituting the authorized Preferred Stock or (iv) create or issue any other class of stock entitled to any preference on a parity with the Preferred Stock as to the payment of dividends or the distribution of capital assets. (8) If in any case the amounts payable with respect to any obligations to retire shares of the Preferred Stock are not paid in full in the case of all series with respect to which such obligations exist, the number of shares of each of such series to be retired pursuant to any such obligations shall be in proportion to the respective amounts which would be payable on account of such obligations if all amounts payable in respect of such series were discharged in full. (9) The shares of Preferred Stock may be issued by the Corporation from time to time for such consideration as may be fixed from time to time by the Board of Directors. Any and all shares for which the consideration so fixed shall have been paid or delivered shall be deemed fully paid and nonassessable. (10) For the purpose of the provisions of this Article dealing with Preferred Stock or of any resolution of the Board of Directors providing for the issuance of any series of Preferred Stock or of any certificate filed with the Secretary of State of the State of Delaware pursuant to any such resolution (unless otherwise provided in any such resolution or certificate): (a) The term "outstanding", when used in reference to shares of stock, shall mean issued shares, excluding shares held by the Corporation and shares called for redemption, funds for the redemption of which shall have been set aside or deposited in trust; (b) The amount of dividends "accrued" on any share of Preferred Stock as at any dividend date shall be deemed to be the amount of any unpaid dividends accumulated thereon to and including such dividend date, whether or not earned or declared, and the amount of dividends "accrued" on any share of Preferred Stock as at any date other than a dividend date shall be calculated as the amount of any unpaid dividends accumulated thereon to and including the last preceding dividend date, whether or not earned or declared, plus an amount equivalent to interest on the involuntary liquidation value of such share at the annual dividend rate fixed for the shares of such series for the period after such last preceding dividend date to and including the date as of which the calculation is made; (c) The term "class or classes of stock of the corporation ranking junior to the Preferred Stock" shall mean the Common Stock of the Corporation and any other class or classes of stock of the Corporation hereafter authorized which shall rank junior to the Preferred Stock as to dividends or upon liquidation. C. PROVISIONS APPLICABLE TO ALL CAPITAL STOCK No holder of any share or shares of any class of stock of the Corporation shall have any preemptive or preferential right to subscribe for or purchase any shares of stock of any class of the Corporation now or hereafter authorized or any securities convertible into or carrying any rights to purchase any shares of stock of any class of the Corporation now or hereafter authorized, other than such rights, if any, as the Board of Directors in its discretion from time to time may grant, and at such prices and upon such other terms and conditions as the Board of Directors in its discretion may fix. D. SERIES OF PREFERRED STOCK Following are the statements of the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations and restrictions thereof, of the series of Preferred Stock that have been designated by the Board of Directors as authorized herein: 1. Series A Junior Participating Preferred Stock. RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, without par value (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: Series A Junior Participating Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 2,050,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, without par value (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event, provided that in no event shall a share of Series A Preferred Stock be entitled to more than one vote. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Restated Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two- thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. 2. Series B ESOP Convertible Preferred Stock. RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board"), in accordance with the provisions of the Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, without par value (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof as follows: Series B ESOP Convertible Preferred Stock: Section 1. Designation and Amount; Special Purpose Restricted Transfer Issue. (A) The shares of such series shall be designated as "Series B ESOP Convertible Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting the Series B Preferred Stock shall be 5,413,434. Such number may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series B Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants issued by, or upon the conversion of any outstanding securities issued by, the Corporation convertible into Series B Preferred Stock. (B) Shares of Series B Preferred Stock shall be issued (whether upon original issuance or upon transfer) only to a trustee or trustees (or to any successor trustee or trustees) (collectively, a "Trustee") acting under a trust agreement for the benefit of participants in one or more employee stock ownership plans or other employee benefit plans of the Corporation or of any subsidiary of the Corporation (any such plan, a "Plan"). In the event of a sale, distribution or other transfer (any such sale, distribution or other transfer, a "Transfer") of any shares of Series B Preferred Stock to any person or entity other than the Corporation or a Trustee, but excluding a distribution of such shares to participants or beneficiaries in a Plan pursuant to the terms thereof, the shares of Series B Preferred Stock which are the subject of a Transfer (the "Transferred Shares") shall be automatically converted into shares of the Corporation's Common Stock, without par value ("Common Stock") at the conversion rate provided in Section 5(A) hereof; provided, however, that in the event of a foreclosure or other realization upon shares of Series B Preferred Stock pledged as collateral by or pursuant to any credit agreement, indenture or other document or instrument for the financing or refinancing of the initial purchase of the Series B Preferred Stock by a Plan, the Transferred Shares shall be automatically converted into shares of Common Stock at the conversion rate provided in Section 5(B) hereof. In the event of a Transfer of any shares of Series B Preferred Stock to any person or entity other than the Corporation or a Trustee in connection with a distribution of such shares to participants or beneficiaries in a Plan pursuant to the terms thereof, the Transferred Shares shall automatically be converted into Common Stock at the conversion rate provided in Section 5(B) hereof. In each such case conversion will occur immediately upon such Transfer and without any further action by the Corporation or the holder of the Transferred Shares and thereafter (i) any certificates for Transferred Shares shall be deemed to represent the shares of Common Stock into which such Transferred Shares have been so converted, (ii) no holder of such Transferred Shares shall have any of the voting powers, preferences and relative, participating, optional or special rights of a holder of shares of Series B Preferred Stock, but, rather, only the powers and rights of a holder of the Common Stock into which such shares of Series B Preferred Stock shall be so converted and (iii) the holder of such Transferred Shares shall be treated for all purposes as the holder of the shares of Common Stock into which such shares of Series B Preferred Stock have been automatically converted as of the date of such Transfer. The pledge of Series B Preferred Stock as collateral by or pursuant to any credit agreement, indenture or other document or instrument for the financing or refinancing of the initial purchase of the Series B Preferred Stock by a Plan shall not constitute a Transfer for purposes of this Section 1(B), but the foreclosure or other realization upon such pledged shares shall constitute a Transfer. Certificates representing shares of Series B Preferred Stock shall be legended to reflect the restrictions on transfer set forth in this Section 1(B). Notwithstanding the foregoing provisions of this Section 1(B), shares of Series B Preferred Stock (i) may be converted into shares of Common Stock pursuant to Section 5 or 6 hereof at any time prior to a Transfer and the shares of Common Stock issued upon such conversion will not be subject to any of the restrictions of this Section 1(B) and (ii) shall be redeemable by the Corporation upon the terms and conditions provided by Sections 7 and 8 hereof. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders of Common Stock and of any other Junior Stock (as defined in Section 2(D) hereof), shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the purpose, cumulative cash dividends payable in an amount per share equal to $.2515 per quarter and no more (such amount being referred to herein as the "Dividend Amount"), payable in arrears on the first day of March, June, September and December in each year (each such date being referred to herein as "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share of Series B Preferred Stock. In the event that any Dividend Payment Date shall occur on any day other than a "Business Day" (as defined in Section 9(F) hereof), the dividend payment due on such Dividend Payment Date shall be paid on the Business Day immediately preceding such Dividend Payment Date. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. (B) Dividends shall begin to accrue on outstanding shares of Series B Preferred Stock from the date of issue of such shares and shall accrue on a daily basis whether or not declared and whether or not the Corporation shall have earnings or surplus out of which such dividends could be paid at the time. Dividends accrued on the shares of Series B Preferred Stock for any period less than a full quarterly period between Dividend Payment Dates shall be computed on the basis of a 360-day year of 30-day months. Accrued but unpaid dividends shall cumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on accrued or accumulated but unpaid dividends. (C) Dividends paid on the shares of Series B Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. (D) So long as any Series B Preferred Stock shall be outstanding, no dividend shall be declared and paid or set apart for payment on any other series of stock ranking on a parity with the Series B Preferred Stock as to dividends ("Parity Stock"), unless there shall also be or have been declared and paid or set apart for payment on the Series B Preferred Stock dividends for all dividend payment periods of the Series B Preferred Stock ending on or before the dividend payment date of such Parity Stock, ratably in proportion to the respective amounts of dividends on the Series B Preferred Stock accumulated and unpaid through the most recent such dividend payment period, and accumulated and unpaid on such Parity Stock through the dividend payment period on such Parity Stock ending on such dividend payment date or such dividend payment date immediately preceding such dividend payment period. So long as any Series B Preferred Stock shall be outstanding, in the event that full cumulative dividends on the Series B Preferred Stock have not been declared and paid or set apart for payment when due, the Corporation shall not declare and pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or other retirement of, Common Stock or any other class of stock or series thereof of the Corporation ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding up of the Corporation, junior to the Series B Preferred Stock (collectively, "Junior Stock") until full cumulative and unpaid dividends on the Series B Preferred Stock shall have been paid or declared and set apart for payment; provided, however, that the foregoing shall not apply to (i) any dividend payable solely in any shares of any Junior Stock, or (ii) the acquisition of shares of any Junior Stock either (x) pursuant to any employee or director incentive or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted or (y) in exchange solely for shares of any other Junior Stock. Subject to the foregoing provisions of this Section 2(D), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any other Junior Stock or Parity Stock, and may purchase or otherwise redeem or retire any of the Junior Stock or Parity Stock or any warrants, rights, or options or other securities exercisable for or convertible into any of the Junior Stock or Parity Stock and the holders of shares of the Series B Preferred Stock shall not be entitled to share therein. Section 3. Voting Rights. The holders of shares of Series B Preferred Stock shall have the following voting rights: (A) Each share of Series B Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation; it being understood that whenever the "Conversion Ratio" (as defined in Section 5(A) hereof) is adjusted as provided in Section 9 hereof, the number of votes per share of Series B Preferred Stock shall also be similarly adjusted. Notwithstanding the foregoing, the number of votes per share of Series B Preferred Stock shall at no time exceed the highest number then permitted by the Restated Certificate of Incorporation of the Corporation as then in effect or by applicable rules and regulations of the Securities and Exchange Commission or the New York Stock Exchange. In the event that the number of votes per share of Series B Preferred Stock is not adjusted upon an adjustment to the Conversion Ratio as a result of the immediately preceding sentence, then the Board of Directors shall promptly take such action as may be necessary to equitably adjust for such adjustment to the Conversion Ratio, including without limitation, subdividing outstanding shares of Series B Preferred Stock (by declaring a stock dividend or otherwise) to the extent the Corporation has authorized shares of Series B Preferred Stock which are not then outstanding, or designating and issuing additional shares of Series B Preferred Stock to the extent the Corporation has authorized shares of Preferred Stock which are not then outstanding and are undesignated as to series; provided, however, no such action on the part of the Board of Directors shall adjust or change the aggregate economic terms assigned to the outstanding shares of Series B Preferred Shares. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series B Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Any increase or decrease in the authorized class of Preferred Stock (but not below the number of shares thereof then outstanding) shall not be deemed to alter or change the powers, preferences, or special rights of the shares of Series B Preferred Stock so as to affect them adversely within the meaning of the General Corporation Law of the State of Delaware and no class vote shall be required to authorize such increase or decrease. (D) If at any time dividends payable on the Series B Preferred Stock, or on any one or more other series of Preferred Stock of the Corporation entitled to receive cumulative preferred dividends, are in arrears and unpaid in an amount equal to or exceeding the amount of dividends payable on such Series B Preferred Stock and/or other series of Preferred Stock entitled to receive cumulative dividends for six quarterly dividend periods, whether or not consecutive, the holders of all outstanding shares of Preferred Stock entitled to receive cumulative preferred dividends will have the exclusive right, voting separately as a class, to elect two directors to the Board of Directors of the Corporation at the next annual meeting of stockholders of the Corporation, the authorized number of Directors not to be increased for this purpose. Such voting right will continue for such Preferred Stock until all dividends on the Series B Preferred Stock and on such other series have been paid in full, at which time such voting right of the holders of such Preferred Stock will terminate, subject to re-vesting in the event of a subsequent arrearage. Upon any termination of the aforesaid voting right, the term of office of those directors elected by holders of Preferred Stock voting separately as a class will terminate. Section 4. Liquidation, Dissolution. (A) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior with respect to rights to receive distributions upon liquidation, dissolution or winding up to the Series B Preferred Stock unless, prior thereto, the holders of shares of Series B Preferred Stock shall have received an amount in cash of $14.375 per share (such amount being referred to herein as the "Liquidation Preference"), plus an amount in cash equal to accrued and unpaid dividends thereon, whether or not declared, up to the date of such payment, or (ii) to the holders of shares of stock ranking on a parity with respect to the right to receive distributions upon liquidation, dissolution or winding up with the Series B Preferred Stock, except distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this Section 4(A), the holders of shares of Series B Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Corporation. (B) Neither the merger or consolidation of the Corporation with or into any other corporation or other entity, nor the merger or consolidation of any other corporation or other entity with or into the Corporation, nor the sale, transfer or lease of all or any portion of the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4, and the holders of Series B Preferred Stock shall nevertheless be entitled in the event of any such merger or consolidation to the rights provided by Section 8 hereof. (C) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable to holders of Series B Preferred Stock in such circumstances shall be payable, shall be given by hand delivery, by courier, by any standard form of telecommunication or by first-class mail, postage prepaid, delivered, sent or mailed (as the case may be) not less than twenty (20) days prior to any payment date stated therein, to the holders of Series B Preferred Stock, at their respective addresses shown on the books of the Corporation or any transfer agent for the Series B Preferred Stock; provided, however, that a failure to give notice as provided above or any defect therein shall not affect the Corporation's ability to consummate a voluntary or involuntary liquidation, dissolution or winding up of the Corporation. Section 5. Conversion into Common Stock. (A) A holder of shares of Series B Preferred Stock shall be entitled, at any time prior to the close of business on the date fixed for redemption of such shares pursuant to Section 7 hereof, to cause any or all of such shares to be converted into validly issued, fully paid and nonassessable shares of Common Stock, initially at a conversion rate equal to the ratio of .7692 share of Common Stock for each one share of Series B Preferred Stock, which conversion rate shall be adjusted as hereinafter provided (and, as so adjusted, rounded to the nearest ten-thousandth, is hereinafter sometimes referred to as the "Conversion Ratio"); provided, however, that, if the shares of Common Stock have a par value, in no event shall the Conversion Ratio be greater than the Liquidation Preference divided by the par value of one share of Common Stock. (B) Notwithstanding Section 5(A), in the event of an automatic conversion pursuant to Section 1(B) hereof due to a distribution of Series B Preferred Stock to participants or beneficiaries in a Plan or foreclosure or other realization upon shares of Series B Preferred Stock pledged as collateral by or pursuant to any credit agreement, indenture or other document or instrument for the financing or refinancing of the initial purchase of the Series B Preferred Stock by a Plan, shares of Series B Preferred Stock shall be converted into validly issued, fully paid and nonassessable shares of Common Stock at a conversion rate, expressed as a ratio of shares of Common Stock per share of Series B Preferred Stock, equal to the greatest of: (i) the Conversion Ratio, (ii) a fraction, the numerator of which shall be the Fair Market Value (as defined in Section 9(F) hereof) of one share of Series B Preferred Stock (plus an amount equal to accrued and unpaid dividends thereon, if such dividends have not already been taken into account in determining the Fair Market Value) and the denominator of which shall be the Fair Market Value of one share of Common Stock, both computed as of the date of conversion, or (iii) the lesser of: (A) one share of Common Stock per share of Series B Preferred Stock, adjusted accordingly with adjustments in the Conversion Ratio pursuant to Section 9 hereof, or (B) a fraction, the numerator of which shall be the Liquidation Preference plus an amount equal to accrued and unpaid dividends thereon and the denominator of which shall be the Fair Market Value of one share of Common Stock on the date of conversion. (C) Any holder of shares of Series B Preferred Stock desiring to convert such shares into shares of Common Stock shall surrender the certificate or certificates representing the shares of Series B Preferred Stock being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Series B Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Series B Preferred Stock by the Corporation or the transfer agent for the Series B Preferred Stock, accompanied by written notice of conversion. Such notice of conversion shall specify (i) the number of shares of Series B Preferred Stock to be converted and the name or names in which such holder wishes the certificate or certificates for Common Stock to be issued and for any shares of Series B Preferred Stock not to be so converted to be issued (subject to compliance with applicable legal requirements if any of said certificates are to be issued in a name other than the name of the holder), and (ii) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion. (D) Upon surrender of a certificate representing a share or shares of Series B Preferred Stock for conversion, the Corporation or the transfer agent for the Common Stock shall, as promptly as practicable after such surrender, issue and deliver to the holder thereof or to such holder's designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion, together with any cash adjustment of any fraction of a share as hereinafter provided. In the event that there shall have been surrendered a certificate or certificates representing shares of Series B Preferred Stock, only part of which are to be converted, the Corporation shall issue and deliver to such holder or such holder's designee a new certificate or certificates representing the number of shares of Series B Preferred Stock which shall not have been converted. (E) A conversion of shares of Series B Preferred Stock into shares of Common Stock shall be effective (i) if made at the option of the holder thereof, as of the close of business on the day on which the Corporation receives written notice of conversion pursuant to Section 5(C) or (ii) if made pursuant to Section 1(B) hereof, at the time of Transfer. On and after the effective date of conversion, the shares of Series B Preferred so converted shall no longer be deemed to be outstanding for any purpose, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock of record on any date prior to such effective date. The Corporation shall not be obligated to pay any dividends which shall have been declared and shall be payable to holders of shares of Series B Preferred Stock on a Dividend Payment Date if such Dividend Payment Date for such dividend shall be on or subsequent to the effective date of conversion of such shares, unless such declared dividends have been set aside for payment prior to the effective date of conversion of such shares, which dividends shall be paid on the applicable Dividend Payment Date. (F) Whenever the Corporation shall issue shares of Common Stock upon conversion of shares of Series B Preferred Stock as contemplated by this Section 5, the Corporation shall issue together with each such share of Common Stock one right to purchase Series A Junior Participating Preferred Stock of the Corporation (or other securities in lieu thereof) pursuant to the Rights Agreement dated as of December 13, 1988 between the Corporation and The First National Bank of Chicago, as Rights Agent, as such agreement may from time to time be amended (such Agreement, as so amended, is hereinafter referred to as the "Rights Agreement"), or any rights issued to holders of Common Stock in addition thereto or in replacement therefor, whether or not such rights shall be exercisable at such time, but only if such rights are issued and outstanding and held by other holders of Common Stock at such time and have not expired. Section 6. Other Conversion Rights. In addition to the conversion rights provided in Section 5(A) and 5(B) hereof, shares of Series B Preferred Stock may be converted into shares of Common Stock at the option of the holder at any time and from time to time upon notice to the Corporation given not less than five (5) Business Days prior to the date fixed by the holder in such notice for such conversion, (A) when and to the extent necessary for such holder to provide for distributions required to be made under, or to satisfy an investment election provided to participants in accordance with, a Plan to participants in such Plan at a conversion rate, expressed as a ratio of shares of Common Stock per share of Series B Preferred Stock, equal to the greater of (i) the Conversion Ratio or (ii) a fraction, the numerator of which shall be the Fair Market Value of one share of Series B Preferred Stock (plus accrued and unpaid dividends thereon to the date of conversion if such dividends have not already been taken into account in determining Fair Market Value) and the denominator of which shall be the Fair Market Value of one share of Common Stock, both computed as of the date of conversion, or (B) in the event that the Plan is determined by the Internal Revenue Service not to be qualified within the meaning of Sections 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the "Code") at a conversion rate, expressed as a ratio of shares of Common Stock per share of Series B Preferred Stock, equal to the greatest of (i) a fraction, the numerator of which shall be the Fair Market Value of one share of Series B Preferred Stock plus an amount equal to accrued and unpaid dividends thereon (if such dividends have not already been taken into account in determining the Fair Market Value) and the denominator of which shall be the Fair Market Value of one share of Common Stock, both computed as of the date of conversion, (ii) a fraction, the numerator of which shall be the Liquidation Preference plus accrued but unpaid dividends thereon to the date of conversion and the denominator of which shall be the Fair Market Value of one share of Common Stock on the date of conversion or (iii) the Conversion Ratio. Section 7. Redemption At the Option of the Corporation. (A) The Series B Preferred Stock shall be redeemable, in whole or in part, at the option of the Corporation, out of funds legally available therefor, at any time after September 8, 1992, at the following redemption prices: Redemption Price As During the Twelve-Month A Percentage of Period Beginning September 8 Liquidation Preference ---------------------------- ---------------------- 1989 107.0 1990 106.3 1991 105.6 1992 104.9 1993 104.2 1994 103.5 1995 102.8 1996 102.1 1997 101.4 1998 100.7 and thereafter at the Liquidation Preference, plus, in each case, an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption. Payment of the redemption price shall be made by the Corporation in cash or shares of Common Stock, or a combination thereof, as permitted by Section 7(E). From and after the close of business on the date fixed for redemption, dividends on shares of Series B Preferred Stock called for redemption will cease to accrue, such shares will no longer be deemed to be outstanding and all rights in respect of such shares of the Corporation shall cease, except the right to receive the redemption price; provided that shares of Series B Preferred Stock may be converted pursuant to Section 5 or, if applicable, Section 6 hereof at any time prior to the close of business on the date fixed for redemption of such shares pursuant to Section 7 or 8 hereof. No interest shall accrue on the redemption price after the date fixed for redemption. If less than all of the outstanding shares of Series B Preferred Stock are to be redeemed, the Corporation shall select the shares to be redeemed in the manner determined by the Board of Directors of the Corporation. (B) Unless otherwise required by law, notice of redemption with respect to a redemption pursuant to paragraphs (A), (C) or (D) of this Section 7 will be sent to the holders of Series B Preferred Stock at the address shown on the books of the Corporation or any transfer agent for the Series B Preferred Stock by hand delivery, by courier, by any standard form of telecommunication or by first class mail, postage prepaid, delivered, sent or mailed (as the case may be) not less than twenty (20) days nor more than sixty (60) days prior to the redemption date. Each such notice shall state: (i) the redemption date; (ii) the total number of shares of the Series B Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price and method of payment therefor; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vi) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised, and the Conversion Ratio in effect at the time. Upon surrender of the certificates for any shares called for redemption pursuant to the provisions of this Section 7 or the provisions of Section 8 hereof, which shares have not previously been converted, such shares shall be redeemed by the Corporation at the date fixed for redemption and at the applicable redemption price set forth in this Section 7 or in Section 8 hereof. (C) In the event (i) of a change in the federal tax law of the United States of America or a determination by a court of competent jurisdiction, which, in either case, has the effect of precluding the Corporation from claiming any of the tax deductions for dividends paid on the Series B Preferred Stock when such dividends are used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended (the "Code") and in effect on the date shares of Series B Preferred Stock are initially issued, or (ii) that shares of Series B Preferred Stock are held by an employee benefit plan intended to qualify as an employee stock ownership plan within the meaning of Section 4975 of the Code, as amended, and such plan is determined by the Internal Revenue Service not to qualify, the Corporation may, in its sole discretion and notwithstanding anything to the contrary in Section 7(A), elect to redeem such shares, out of funds legally available therefor, at a redemption price equal to the greater of (i) the Liquidation Preference plus an amount equal to accrued and unpaid dividends or (ii) the Fair Market Value of a share of Series B Preferred Stock, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption if such dividends have not already been taken into account in determining Fair Market Value, and otherwise on the terms and conditions set forth in Sections 7(A) and 7(B). (D) Notwithstanding anything to the contrary in Section 7(A), the Corporation may elect to redeem any or all of the shares of Series B Preferred Stock at any time on or prior to September 8, 1992, out of funds legally available therefor, at a redemption price equal to the greater of (i) the applicable redemption price specified in Section 7(A) hereof plus an amount equal to accrued and unpaid dividends, or (ii) the Fair Market Value of a share of Series B Preferred Stock, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption if such dividends have not already been taken into account in determining Fair Market Value, and otherwise on the terms and conditions set forth in Sections 7(A) and 7(B), if the Corporation terminates an employee stock ownership plan or employee benefit plan pursuant to which shares of Series B Preferred Stock are then held by a Trustee (in which case only the shares held pursuant to such plan may be so redeemed). (E) The Corporation, at its option, may make payment of the redemption price required upon redemption of shares of Series B Preferred Stock in cash or in shares of Common Stock, or in a combination of such shares and cash, any such shares to be valued for such purpose at their Fair Market Value as of the date of redemption. Section 8. Consolidation, Combination, Merger, etc. (A) In the event that the Corporation shall consummate any exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or other transaction pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into, stock of any successor or resulting company (including the Corporation) that constitutes "qualifying employer securities" with respect to a holder of Series B Preferred Stock within the meaning of Section 409(a) of the Code and Section 407 (d) (5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law (together, if applicable, with a cash payment in lieu of fractional shares), the shares of Series B Preferred Stock of such holder shall in connection therewith be assumed by and shall become preferred stock of such successor or resulting company, having in respect of such company insofar as possible the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 6, 7 and 8 hereof), and the qualifications, limitations or restrictions thereon, that the Series B Preferred Stock had immediately prior to such transaction, except that after such transaction each share of the Series B Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 5 or 6 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted pursuant to Section 5(A) hereof immediately prior to such transaction or, if Section 5(B) or 6 hereof is thereafter applicable, into the kind of qualifying employer securities so receivable by a holder of one share of Common Stock and the number of such shares determined pursuant to Section 5(B) or 6; provided, however, that if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transac- tion, which election cannot practicably be made by the holders of the Series B Preferred Stock, then such election shall be deemed to be solely for "qualifying employer securities" (together, if applicable, with a cash payment in lieu of fractional shares) with the effect provided above on the basis of the number and kind of qualifying employer securities receivable by a holder of the number of shares of Common Stock into which the shares of Series B Preferred Stock could have been converted pursuant to Section 5(A) hereof immediately prior to such transaction or if Section 5(B) or 6 hereof is thereafter applicable, into the kind of qualifying employer securities receivable by a holder of one share of Common Stock and the number of such shares determined pursuant to Section 5(B) or 6 (it being understood that if the kind or amount of qualifying employer securities receivable in respect of each share of Common Stock upon such transaction is not the same for each such share, then the kind and amount of qualifying employer securities deemed to be receivable in respect of each share of Common Stock for purposes of this proviso shall be the kind and amount so receivable per share of Common Stock by a plurality of such shares). The rights of the Series B Preferred Stock as preferred stock of such successor or resulting company shall successively be subject to adjustments pursuant to Section 9 hereof after any such transaction as nearly equivalent as practicable to the adjustments provided for by such Section prior to such transaction. The Corporation shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of the Series B Preferred Stock shall be assumed and authorized by the successor or resulting company pursuant to this Section 8(A). (B) In the event that the Corporation shall consummate any exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or other transaction, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in Section 8(A)) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of Series B Preferred Stock shall, without any action on the part of the Corporation or any holder thereof (but subject to Section 8(C)), be automatically converted by virtue of such merger, consolidation, combination or similar business combination transaction immediately prior to its consummation into the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted at such time so that each share of Series B Preferred Stock, shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted pursuant to Section 5(A) hereof immediately prior to such transaction; provided, however, that if by virtue of the structure of such transaction a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the Series B Preferred Stock, then the shares of Series B Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of such stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock had elected to receive the maximum amount of qualifying employer securities offered (it being understood that if the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each share which so elected the maximum amount of qualifying employer securities, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each such share shall be the kind and amount so receivable per share by a plurality of the shares which so elected the maximum amount of qualifying employer securities). (C) In the event the Corporation shall enter into any agreement providing for any exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or other transaction, described in Section 8(B), then the Corporation shall as soon as practicable thereafter (and in any event at least ten (10) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of Series B Preferred Stock and each such holder shall have the right to elect, by written notice to the Corporation, to receive, upon consummation of such transaction (if and when such transaction is consummated), out of funds legally available therefor, from the Corporation or the successor of the Corporation, in redemption and retirement of such Series B Preferred Stock, a cash payment equal to the redemption price specified in Section 7(A) hereof in effect on the date set for redemption plus an amount equal to all accrued and unpaid dividends. No such notice of redemption shall be effective unless given to the Corporation prior to the close of business on the Business Day prior to consummation of such transaction, unless the Corporation or the successor of the Corporation shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Corporation prior to the close of business on the Business Day prior to consummation of such transaction. Section 9. Anti-Dilution Adjustments. (A) (i) Subject to the provisions of Sections 9(D) and 9(E) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of the Series B Preferred Stock are outstanding, (x) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock or (y) subdivide the outstanding shares of Common Stock into a greater number of shares, in each case whether by reclassification of shares, recapitalization of the Corporation, a recapitalization or reclassification effected by a merger, consolidation or other transaction to which Section 8 hereof applies or otherwise, then, in such event, the Board of Directors shall, to the extent legally permissible, declare a dividend in respect of the Series B Preferred Stock in shares of Series B Preferred Stock (a "Special Dividend") in such a manner that a holder of Series B Preferred Stock will become the holder of that number of shares of Series B Preferred Stock equal to the product of the number of such shares held prior to such event times a fraction (the "Sec. 9(A) Non-Dilutive Share Fraction"), the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. A Special Dividend declared pursuant to this Section 9(A)(i) shall be effective upon payment of such dividend or distribution in respect of the Common Stock and in the case of a subdivision shall become effective immediately as of the effective date thereof. Concurrently with the declaration of the Special Dividend pursuant to this paragraph 9(A)(i), the Liquidation Preference and the Dividend Amount of all shares of Series B Preferred Stock shall be adjusted by dividing the Liquidation Preference and the Dividend Amount, respectively, in effect immediately before such event by the Sec. 9(A) Non-Dilutive Share Fraction. (ii) The Corporation and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are reasonably necessary or appropriate for declaration of the Special Dividend provided in paragraph 9(A)(i) but shall not be required to call a special meeting of stockholders in order to implement the provisions thereof. If for any reason the Board of Directors is precluded from giving full effect to the Special Dividend provided in paragraph 9(A)(i), then no such Special Dividend shall be declared, but instead the Conversion Ratio shall automatically be adjusted by multiplying the Conversion Ratio in effect immediately before the event by the Sec. 9(A) Non-Dilutive Share Fraction, and the Liquidation Preference and the Dividend Amount will not be adjusted. An adjustment to the Conversion Ratio made pursuant to this paragraph 9(A)(ii) shall be given effect upon payment of such a dividend or distribution as of the record date for the determination of holders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision shall become effective immediately as of the effective date thereof. If subsequently the Board of Directors is able to give full effect to the Special Dividend as provided in paragraph 9(A)(i), then such Special Dividend will be declared in accordance with the provisions of paragraph 9(A)(i) and the adjustment in the Conversion Ratio as provided in this paragraph 9 (A)(ii) will automatically be reversed and nullified prospectively. (iii) Subject to the provisions of Sections 9(D) and 9(E) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of the Series B Preferred Stock are outstanding, combine the outstanding shares of Common Stock into a lesser number of shares, whether by reclassification of shares, recapitalization of the Corporation, a recapitalization or reclassification effected by a merger, consolidation or other transaction to which Section 8 hereof applies or otherwise, then, in such event, the Conversion Ratio shall automatically be adjusted by multiplying the Conversion Ratio in effect immediately before such event by the Sec. 9(A) Non-Dilutive Share Fraction, and the Liquidation Preference and the Dividend Amount will not be adjusted. An adjustment to the Conversion Ratio made pursuant to this paragraph 9(A)(iii) shall be given effect immediately as of the effective date of such combination. (B) (i) Subject to the provisions of Sections 9(D) and (E) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of Series B Preferred Stock are outstanding, issue, sell or exchange shares of Common Stock (other than pursuant to (x) any right or warrant to purchase or acquire shares of Common Stock (including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock), (y) the Rights Agreement or (z) any employee or director incentive, compensation or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted) for a consideration having a Fair Market Value on the date of issuance, sale or exchange less than the Fair Market Value of such shares on the date of issuance, sale or exchange, then, in such event, the Board of Directors shall, to the extent legally permissible, declare a Special Dividend in such a manner that a holder of Series B Preferred Stock will become the holder of that number of shares of Series B Preferred Stock equal to the product of the number of such shares held prior to such event times a fraction (the "Sec. 9(B)(i) Non-Dilutive Share Fraction"), the numerator of which is the number of shares of Common Stock outstanding immediately before the public announcement of such issuance, sale or exchange plus the number of shares of Common Stock so issued, sold or exchanged by the Corporation and the denominator of which is the number of shares of Common Stock outstanding immediately before the public announcement of such issuance, sale or exchange plus the number of shares of Common Stock which could be purchased at the Fair Market Value of the consideration received by the Corporation in respect of such issuance, sale or exchange. A Special Dividend declared pursuant to this Section 9(B)(i) shall be effective upon such issuance, sale or exchange. Concurrently with the declaration of the Special Dividend pursuant to this Section 9(B)(i), the Liquidation Preference and the Dividend Amount of all shares of Series B Preferred Stock shall be adjusted by dividing the Liquidation Preference and the Dividend Amount, respectively, in effect immediately before such issuance, sale or exchange by the Sec. 9(B)(i) Non-Dilutive Share Fraction. (ii) Subject to the provisions of Sections 9(D) and 9(E) hereof, in the event the Corporation shall, at any time or from time to time while any shares of Series B Preferred Stock are outstanding issue, sell or exchange any right or warrant to purchase or acquire shares of Common Stock (including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock and rights issued under the Rights Agreement), other than any such issuance to holders of shares of Common Stock as a dividend or distribution (including by way of a reclassification of shares or a recapitalization of the Corporation) and other than pursuant to any employee or director incentive, compensation or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted, exercisable for a consideration having a Fair Market Value per share of Common Stock on the date of such issuance, sale or exchange less than the Sec. 9(F) Non-Dilutive Amount (as defined in Section 9(F) (vi)), then in such event, the Board of Directors shall, to the extent legally permissible, declare a Special Dividend in such a manner that a holder of Series B Preferred Stock will become the holder of that number of shares of Series B Preferred Stock equal to the product of the number of such shares held prior to such event times a fraction (the "Sec. 9 (B)(ii) Non-Dilutive Share Fraction"), the numerator of which is the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock that could be acquired upon exercise in full of all such rights and warrants and the denominator of which is the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such issuance for the maximum aggregate consideration payable upon exercise in full of all such rights or warrants and any other amounts paid in connection with such issuance of rights or warrants. A Special Dividend declared pursuant to this Section 9(B)(ii) shall be effective upon such issuance, sale or exchange. Concurrently with the declaration of the Special Dividend pursuant to this Section 9(B)(ii), the Liquidation Preference and the Dividend Amount of all shares of Series B Preferred Stock shall be adjusted by dividing the Liquidation Preference and the Dividend Amount, respectively, in effect immediately before such issuance of rights or warrants by the Section 9(B)(ii) Non-Dilutive Share Fraction. (iii) The Corporation and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are reasonably necessary or appropriate for declaration of the Special Dividend provided in Sections 9(B)(i) and (ii) but shall not be required to call a special meeting of stockholders in order to implement the provisions hereof. In the event for any reason the Board of Directors is precluded from giving full effect to the Special Dividend provided in Section 9(B)(i) or 9(B)(ii), then no such Special Dividend shall be declared, but instead the Conversion Ratio shall automatically be adjusted by multiplying the Conversion Ratio in effect immediately before such issuance of shares, rights or warrants by the Sec. 9(B)(i) or 9(B)(ii) Non-Dilutive Share Fraction, as the case may be, and the Liquidation Preference and Dividend Amount will not be adjusted. If subsequently the Board of Directors is able to give full effect to the Special Dividend as provided in Section 9(B)(i) or 9(B)(ii), then such Special Dividend will be declared in accordance with the provisions of Section 9(B)(i) or 9(B)(ii), as the case may be, and the adjustment in the Conversion Ratio as provided in this Section 9(B)(iii) will automatically be reversed and nullified prospectively. (C) (i) Subject to the provisions of Sections 9(D) and 9(E) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of Series B Preferred Stock are outstanding, make an Extraordinary Distribution (as hereinafter defined) in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Corporation (including a recapitalization or reclassification effected by a transaction to which Section 8 hereof does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common Stock, then, in such event, the Board of Directors shall, to the extent legally permissible, declare a Special Dividend in such a manner that a holder of Series B Preferred Stock will become the holder of that number of shares of Series B Preferred Stock equal to the product of the number of such shares held prior to such event times a fraction (the "Sec. 9(C) Non-Dilutive Share Fraction"), the numerator of which is the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the Corporation multiplied by (y) the Fair Market Value of a share of Common Stock on the Valuation Date (as defined in Section 9(F) (viii)) with respect to an Extraordinary Distribution or on the expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, and the denominator of which is (x) the product of (I) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase multiplied by (II) the Fair Market Value of a share of Common Stock on the Valuation Date with respect to an Extraordinary Distribution, or on the expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, minus (y) the Fair Market Value of the Extraordinary Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the case may be. The Corporation shall send each holder of Series B Preferred Stock (x) notice of its intent to make any Extraordinary Distribution and (y) notice of any offer by the Corporation to make a Pro Rata Repurchase, in each case at the same time as, or as soon as practicable after, such offer is first communicated to holders of Common Stock or the record date for such dividend is announced in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading, as the case may be. Such notice shall indicate the intended record date and the amount and nature of such dividend or distribution, or the number of shares subject to such offer for a Pro Rata Repurchase and the purchase price payable by the Corporation pursuant to such offer, as well as the Conversion Ratio. A Special Dividend declared pursuant to this Section 9(C)(i) shall be effective upon payment of any Extraordinary Distribution, the expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be. Concurrently with the declaration of the Special Dividend pursuant to this Section 9(C)(i), the Liquidation Preference and the Dividend Amount of all shares of Series B Preferred Stock shall be adjusted by dividing the Liquidation Preference and the Dividend Amount, respectively, in effect immediately before such Extraordinary Distribution or Pro Rata Repurchase by the Sec. 9(C) Non-Dilutive Share Fraction. (ii) The Corporation and the Board of Directors shall each use its best efforts to take all reasonably necessary steps or to take all actions as are necessary or appropriate for the declaration of the Special Dividend provided in Section 9(C)(i) but shall not be required to call a special meeting of stockholders in order to implement the provisions hereof. In the event for any reason the Board of Directors is precluded from giving full effect to the Special Dividend provided in Section 9(C)(i), then no such Special Dividend shall be declared, but instead the Conversion Ratio shall automatically be adjusted by multiplying the Conversion Ratio in effect immediately before such Extraordinary Distribution or Pro Rata Repurchase by the Sec. 9(C) Non-Dilutive Share Fraction, and the Liquidation Preference and the Dividend Amount will not be adjusted. If subsequently the Board of Directors is able to give full effect to the Special Dividend as provided in Section 9(C)(i), then such Special Dividend will be declared in accordance with the provisions of Section 9(C)(i) and the adjustment in the Conversion Price as provided in this Section 9(C)(ii) will automatically be reversed and nullified prospectively. (D) Notwithstanding any other provisions of this Section 9, the Corporation shall not be required to make any adjustment of the Conversion Ratio unless such adjustment would require an increase or decrease equal to at least one percent (1%) in the Conversion Ratio prior to such adjustment. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) in the Conversion Ratio. All calculations under this Section 9 shall be made to the nearest one-hundredth of a cent or the nearest one-ten thousandth of a share, as the case may be. (E) If the Corporation shall make any dividend or distribution of the Common Stock or issue any Common Stock, other capital stock or other equity security of the Corporation or any rights or warrants to purchase or acquire any such security or any other transaction related to or having an impact upon its Common Stock or the Series B Preferred Stock, which transaction does not result in an adjustment to the Conversion Ratio pursuant to the foregoing provisions of this Section 9, the Board of Directors of the Corporation shall consider whether such action is of such a nature that it adversely affects the holders of the Series B Preferred Stock and that an adjustment to the Conversion Ratio, the provisions of Section 5(B) or 6, or a subdivision or combination of the outstanding shares of Series B Preferred Stock into a greater or lesser number of such shares should equitably be made in respect of such transaction. If in such case the Board of Directors of the Corporation in its sole discretion determines that an adjustment to the Conversion Ratio, the provisions of Section 5(B) or 6, or a subdivision or combination of the outstanding shares of Series B Preferred Stock into a greater or lesser number of such shares should be made, such adjustment, subdivision or combination shall be made effective as of such date as determined by the Board of Directors of the Corporation. The determination of the Board of Directors of the Corporation as to whether an adjustment to the Conversion Ratio, the provisions of Section 5(B) or a subdivision or combination of the outstanding shares of Series B Preferred Stock into a greater or lesser number of such shares should be made pursuant to the foregoing provisions of this Section 9(E), and, if so, as to what adjustment, subdivision or combination should be made, and when, shall be final and binding on the Corporation and all stockholders of the Corporation. The Corporation shall be entitled to make such additional adjustment in the Conversion Ratio and the provisions of Section 5(B), in addition to those required by the foregoing provisions of this Section 9, as shall be necessary in order that any dividend or distribution in shares of capital stock of the Corporation, subdivision, reclassification or combination of shares of stock of the Corporation or any recapitalization of the Corporation shall not be taxable to holders of the Common Stock. (F) For purposes of this resolution, the following definitions shall apply: (i) "Business Day" shall mean each day that is not a Saturday, Sunday or a date on which federally or state chartered banking institutions in Chicago, Illinois or New York, New York are required or authorized to be closed. (ii) "Extraordinary Distribution" shall mean any dividend or other distribution (effected while any of the shares of Series B Preferred Stock are outstanding) of (x) cash, where the aggregate amount of such cash dividend or distribution together with the amount of all cash dividends and distributions made during the preceding 12 months, when combined with the aggregate amount of all Pro Rata Repurchases (for this purpose, including only that portion of the aggregate purchase price of each such Pro Rata Repurchase which is in excess of the Fair Market Value of the Common Stock repurchased as determined in accordance with Section 9(C)(i)), exceeds ten percent (10%) of the aggregate Fair Market Value of all shares of Common Stock outstanding on the record date for determining the shareholders entitled to receive such Extraordinary Distribution and/or (y) any shares of capital stock of the Corporation (other than shares of Common Stock), other securities of the Corporation, evidences of indebtedness of the Corporation or any other person or any other property (including shares of any subsidiary of the Corporation), or any combination thereof. The Fair Market Value of an Extraordinary Distribution for purposes of Section 9(C) shall be equal to the sum of the Fair Market Value of such Extraordinary Distribution as of the date made. (iii) "Fair Market Value" shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Corporation or any other issuer which are publicly traded, the average of the "Current Market Prices" of such shares or such securities for each day of the Adjustment Period. The "Fair Market Value" of any security which is not publicly traded or of any other property shall mean the fair value thereof as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board of Directors of the Corporation or a committee thereof (which may be the independent appraiser engaged by any Plan) based on principles consistently applied, or, if no such investment banking or appraisal firm is in the good faith judgment of the Board of Directors or such committee available to make such determination, as determined in good faith by the Board of Directors of the Corporation or such committee. (iv) "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer for any day shall mean the last reported sales price, regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape, or, if such security is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which such security is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System, or, if such security is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors or a committee thereof for such purpose, in each case, on each trading day during the Adjustment Period. (v) "Adjustment Period" shall mean the period of five (5) consecutive trading days preceding, and including, the date as of which the Fair Market Value of a security is to be determined. (vi) "Sec. 9(F) Non-Dilutive Amount" in respect of an issuance, sale or exchange by the Corporation of any right or warrant to purchase or acquire shares of Common Stock (including any security convertible into or exchangeable for shares of Common Stock) shall mean (x) the product of (I) the Fair Market Value of a share of Common Stock on the trading day immediately preceding the first public announcement of such issuance, sale or exchange and (II) the maximum number of shares of Common Stock which could be acquired on such date upon the exercise in full of such rights and warrants (including upon the conversion or exchange of all such convertible or exchangeable securities), whether or not exercisable (or convertible or exchangeable) at such date, minus (y) the aggregate amount payable pursuant to such right or warrant to purchase or acquire such maximum number of shares of Common Stock; provided, however, that in no event shall the Sec. 9(F) Non-Dilutive Amount be less than zero. For purposes of the foregoing sentence, in the case of a security convertible into or exchangeable for shares of Common Stock, the amount payable pursuant to a right or warrant to purchase or acquire shares of Common Stock shall be the Fair Market Value of such security on the date of the issuance, sale or exchange of such security by the Corporation. (vii) "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by the Corporation or any subsidiary thereof, whether for cash, shares of capital stock of the Corporation, other securities of the Corporation, evidences of indebtedness of the Corporation or any other person or any other property (including shares of a subsidiary of the Corporation), or any combination thereof, effected while any of the shares of Series B Preferred Stock are outstanding, pursuant to any tender offer or exchange offer subject to Section 13(e) of the Exchange Act, or any successor provision of law, or pursuant to any other offer available to substantially all holders of Common Stock; provided, however, that no purchase of shares by the Corporation or any subsidiary thereof made in open market transactions shall be deemed a Pro Rata Repurchase. For purposes of this Section 9(F) (vii), shares shall be deemed to have been purchased by the Corporation or any subsidiary thereof "in open market transactions" if they have been purchased substantially in accordance with the requirements of Rule 10b-18 as in effect under the Exchange Act, on the date shares of Series B Preferred Stock are initially issued by the Corporation or on such other terms and conditions as the Board of Directors of the Corporation or a committee thereof shall have determined are reasonably designed to prevent such purchases from having a material effect on the trading market for the Common Stock. (viii) "Valuation Date" with respect to an Extraordi- nary Distribution shall mean the day immediately preceding (i) the ex- dividend date for such Extraordinary Distribution with respect to a security listed on a national securities exchange or (ii) the record date for such Extraordinary Distribution with respect to a security which is not listed on a national securities exchange. Section 10. Retirement of Shares. Any shares of Series B Preferred Stock acquired by the Corporation by reason of the conversion or redemption of such shares as provided hereby, or otherwise so acquired, shall be cancelled as shares of Series B Preferred Stock and restored to the status of authorized but unissued shares of Preferred Stock of the Corporation, undesignated as to series, and may thereafter be reissued as part of a new series of Preferred Stock as permitted by law. Section 11. Miscellaneous. (A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) Business Days after the mailing thereof if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate) with postage prepaid, addressed: (i) if to the Corporation, to its office at McDonald's Plaza, Oak Brook, Illinois 60521 (Attention: Secretary) or to the transfer agent for the Series B Preferred Stock, or other agent of the Corporation designated as permitted by this Certificate or (ii) if to any holder of the Series B Preferred Stock or Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series B Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Corporation or any such holder, as the case may be, shall have designated by notice similarly given. (B) In the event that, at any time as a result of an adjustment made pursuant to Section 9, the holder of any share of the Series B Preferred Stock upon surrendering such shares for conversion shall become entitled to receive any shares or other securities of the Corporation other than shares of Common Stock, the Conversion Ratio in respect of such other shares or securities so receivable upon conversion of shares of Series B Preferred Stock shall thereafter be adjusted, and shall be subject to further adjustment from time to time, in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in Section 9 hereof, and the provisions of each of the other Sections hereof with respect to the Common Stock shall apply on like or similar terms to any such other shares or securities. (C) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series B Preferred Stock or shares of Common Stock or other securities issued on account of Series B Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Series B Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series B Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable. (D) In the event that a holder of shares of Series B Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Series B Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Series B Preferred Stock as shown on the records of the Corporation and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation. (E) Unless otherwise provided in this Certificate of Designation, as the same may be amended, all payments in the form of dividends, distributions on voluntary or involuntary dissolution, liquidation or winding-up or otherwise made upon the shares of Series B Preferred Stock and any other stock ranking on a parity with the Series B Preferred Stock with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on the Series B Preferred Stock and such other stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, then payable per share on the shares of the Series B Preferred Stock and such other stock bear to each other. (F) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Series B Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof by first-class mail, postage prepaid, to each holder of record of Series B Preferred Stock. 3. Series C ESOP Convertible Preferred Stock. RESOLVED, that the issue of a new series of Preferred Stock (the "Preferred Stock") without par value of the Corporation is hereby authorized and the designation, number of shares, relative rights, preferences and powers, and the qualifications, limitations and restrictions thereof, are hereby fixed as follows: Section 1. Designation and Amount; Special Purpose Restricted Transfer Issue. (A) The shares of such series shall be designated as "Series C ESOP Convertible Preferred Stock" (the "Series C Preferred Stock") and the number of shares constituting the Series C Preferred Stock shall be 5,936,054. Such number may be increased or decreased by resolution of the Board of Directors (hereinafter called the "Board of Directors" or the "Board"); provided, that no decrease shall reduce the number of shares of Series C Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants issued by, or upon the conversion of any outstanding securities issued by, the Corporation convertible into Series C Preferred Stock. (B) Shares of Series C Preferred Stock shall be issued (whether upon original issuance or upon transfer) only to a trustee or trustees (or to any successor trustee or trustees) (collectively, a "Trustee") acting under a trust agreement for the benefit of participants in one or more employee stock ownership plans or other employee benefit plans of the Corporation or of any subsidiary of the Corporation (any such plan, a "Plan"). In the event of a sale, distribution or other transfer (any such sale, distribution or other transfer, a "Transfer") of any shares of Series C Preferred Stock to any person or entity other than the Corporation or a Trustee, but excluding a distribution of such shares to participants or beneficiaries in a Plan pursuant to the terms thereof, the shares of Series C Preferred Stock which are the subject of a Transfer (the "Transferred Shares") shall be automatically converted into shares of the Corporation's Common Stock, without par value ("Common Stock") at the conversion rate provided in Section 5(A) hereof; provided, however, that in the event of a foreclosure or other realization upon shares of Series C Preferred Stock pledged as collateral by or pursuant to any credit agreement, indenture or other document or instrument for the financing or refinancing of the initial purchase of the Series C Preferred Stock by a Plan, the Transferred Shares shall be automatically converted into shares of Common Stock at the conversion rate provided in Section 5(B) hereof. In the event of a Transfer of any shares of Series C Preferred Stock to any person or entity other than the Corporation or a Trustee in connection with a distribution of such shares to participants or beneficiaries in a Plan pursuant to the terms thereof, the Transferred Shares shall automatically be converted into Common Stock at the conversion rate provided in Section 5(B) hereof. In each such case conversion will occur immediately upon such Transfer and without any further action by the Corporation or the holder of the Transferred Shares and thereafter (i) any certificates for Transferred Shares shall be deemed to represent the shares of Common Stock into which such Transferred Shares have been so converted, (ii) no holder of such Transferred Shares shall have any of the voting powers, preferences and relative, participating, optional or special rights of a holder of shares of Series C Preferred Stock, but, rather, only the powers and rights of a holder of the Common Stock into which such shares of Series C Preferred Stock shall be so converted and (iii) the holder of such Transferred Shares shall be treated for all purposes as the holder of the shares of Common Stock into which such shares of Series C Preferred Stock have been automatically converted as of the date of such Transfer. The pledge of Series C Preferred Stock as collateral by or pursuant to any credit agreement, indenture or other document or instrument for the financing or refinancing of the initial purchase of the Series C Preferred Stock by a Plan shall not constitute a Transfer for purposes of this Section 1(B), but the foreclosure or other realization upon such pledged shares shall constitute a Transfer. Certificates representing shares of Series C Preferred Stock shall be legended to reflect the restrictions on transfer set forth in this Section 1(B). Notwithstanding the foregoing provisions of this Section 1(B), shares of Series C Preferred Stock (i) may be converted into shares of Common Stock pursuant to Section 5 or 6 hereof at any time prior to a Transfer and the shares of Common Stock issued upon such conversion will not be subject to any of the restrictions of this Section 1(B) and (ii) shall be redeemable by the Corporation upon the terms and conditions provided by Sections 7 and 8 hereof. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series C Preferred Stock with respect to dividends, the holders of shares of Series C Preferred Stock, in preference to the holders of Common Stock and of any other Junior Stock (as defined in Section 2(D) hereof), shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the purpose, cumulative cash dividends payable in an amount per share equal to $.2898 per quarter and no more (such amount being referred to herein as the "Dividend Amount"), payable in arrears on the first day of March, June, September and December in each year (each such date being referred to herein as "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share of Series C Preferred Stock. In the event that any Dividend Payment Date shall occur on any day other than a "Business Day" (as defined in Section 9(F) hereof), the dividend payment due on such Dividend Payment Date shall be paid on the Business Day immediately preceding such Dividend Payment Date. The Board of Directors may fix a record date for the determination of holders of shares of Series C Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. (B) Dividends shall begin to accrue on outstanding shares of Series C Preferred Stock from the date of issue of such shares and shall accrue on a daily basis whether or not declared and whether or not the Company shall have earnings or surplus out of which such dividends could be paid at the time. Dividends accrued on the shares of Series C Preferred Stock for any period less than a full quarterly period between Dividend Payment Dates shall be computed on the basis of a 360-day year of 30-day months. Accrued but unpaid dividends shall cumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on accrued or accumulated but unpaid dividends. (C) Dividends paid on the shares of Series C Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. (D) So long as any Series C Preferred Stock shall be outstanding, no dividend shall be declared and paid or set apart for payment on any other series of stock ranking on a parity with the Series C Preferred Stock as to dividends ("Parity Stock"), unless there shall also be or have been declared and paid or set apart for payment on the Series C Preferred Stock dividends for all dividend payment periods of the Series C Preferred Stock ending on or before the dividend payment date of such Parity Stock, ratably in proportion to the respective amounts of dividends on the Series C Preferred Stock accumulated and unpaid through the most recent such dividend payment period, and accumulated and unpaid on such Parity Stock through the dividend payment period on such Parity Stock ending on such dividend payment date or such dividend payment date immediately preceding such dividend payment period. So long as any Series C Preferred Stock shall be outstanding, in the event that full cumulative dividends on the Series C Preferred Stock have not been declared and paid or set apart for payment when due, the Corporation shall not declare and pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or other retirement of, Common Stock or any other class of stock or series thereof of the Corporation ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding-up of the Corporation, junior to the Series C Preferred Stock (collectively, "Junior Stock") until full cumulative and unpaid dividends on the Series C Preferred Stock shall have been paid or declared and set apart for payment; provided, however, that the foregoing shall not apply to (i) any dividend payable solely in any shares of any Junior Stock, or (ii) the acquisition of shares of any Junior Stock either (x) pursuant to any employee or director incentive or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted or (y) in exchange solely for shares of any other Junior Stock. Subject to the foregoing provisions of this Section 2(D), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any other Junior Stock or Parity Stock, and may purchase or otherwise redeem or retire any of the Junior Stock or Parity Stock or any warrants, rights, or options or other securities exercisable for or convertible into any of the Junior Stock or Parity Stock and the holders of shares of the Series C Preferred Stock shall not be entitled to share therein. Section 3. Voting Rights. The holders of shares of Series C Preferred Stock shall have the following voting rights: (A) Each share of Series C Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation; it being understood that whenever the "Conversion Ratio" (as defined in Section 5(A) hereof) is adjusted as provided in Section 9 hereof, the number of votes per share of Series C Preferred Stock shall also be similarly adjusted. Notwithstanding the foregoing, the number of votes per share of Series C Preferred Stock shall at no time exceed the highest number then permitted by the Restated Certificate of Incorporation of the Corporation as then in effect or by applicable rules and regulations of the Securities and Exchange Commission or the New York Stock Exchange. In the event that the number of votes per share of Series C Preferred Stock is not adjusted upon an adjustment to the Conversion Ratio as a result of the immediately preceding sentence, then the Board of Directors shall promptly take such action as may be necessary to equitably adjust for such adjustment to the Conversion Ratio, including without limitation, subdividing outstanding shares of Series C Preferred Stock (by declaring a stock dividend or otherwise) to the extent the Corporation has authorized shares of Series C Preferred Stock which are not then outstanding, or designating and issuing additional shares of Series C Preferred Stock to the extent the Corporation has authorized shares of Preferred Stock which are not then outstanding and are undesignated as to series; provided, however, no such action on the part of the Board of Directors shall adjust or change the aggregate economic terms assigned to the outstanding shares of Series C Preferred Stock. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series C Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Any increase or decrease in the authorized class of Preferred Stock (but not below the number of shares thereof then outstanding) shall not be deemed to alter or change the powers, preferences, or special rights of the shares of Series C Preferred Stock so as to affect them adversely within the meaning of the General Corporation Law of the State of Delaware and no class vote shall be required to authorize such increase or decrease. (D) If at any time dividends payable on the Series C Preferred Stock, or on any one or more other series of Preferred Stock of the Corporation entitled to receive cumulative preferred dividends, are in arrears and unpaid in an amount equal to or exceeding the amount of dividends payable on such Series C Preferred Stock and/or other series of Preferred Stock entitled to receive cumulative dividends for six quarterly dividend periods, whether or not consecutive, the holders of all outstanding shares of Preferred Stock entitled to receive cumulative preferred dividends will have the exclusive right, voting separately as a class, to elect two directors to the Board of Directors of the Corporation at the next annual meeting of stockholders of the Corporation, the authorized number of Directors not to be increased for this purpose. Such voting right will continue for such Preferred Stock until all dividends on the Series C Preferred Stock and on such other series have been paid in full, at which time such voting right of the holders of such Preferred Stock will terminate, subject to re-vesting in the event of a subsequent arrearage. Upon any termination of the aforesaid voting right, the term of office of those directors elected by holders of Preferred Stock voting separately as a class will terminate. Section 4. Liquidation, Dissolution. (A) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior with respect to rights to receive distributions upon liquidation, dissolution or winding up of the Corporation to the Series C Preferred Stock unless, prior thereto, the holders of shares of Series C Preferred Stock shall have received an amount in cash of $16.5625 per share (such amount being referred to herein as the "Liquidation Preference"), plus an amount in cash equal to accrued and unpaid dividends thereon, whether or not declared, up to the date of such payment, or (ii) to the holders of shares of stock ranking on a parity with respect to the right to receive distributions upon liquidation, dissolution or winding up of the Corporation with the Series C Preferred Stock, except distributions made ratably on the Series C Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this Section 4(A), the holders of shares of Series C Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Corporation. (B) Neither the merger or consolidation of the Corporation with or into any other corporation or other entity, nor the merger or consolidation of any other corporation or other entity with or into the Corporation, nor the sale, transfer or lease of all or any portion of the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4, and the holders of Series C Preferred Stock shall nevertheless be entitled in the event of any such merger or consolidation to the rights provided by Section 8 hereof. (C) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable to holders of Series C Preferred Stock in such circumstances shall be payable, shall be given by hand delivery, by courier, by any standard form of telecommunication or by first-class mail, postage prepaid, delivered, sent or mailed (as the case may be) not less than twenty (20) days prior to any payment date stated therein, to the holders of Series C Preferred Stock, at their respective addresses shown on the books of the Corporation or any transfer agent for the Series C Preferred Stock; provided, however, that a failure to give notice as provided above or any defect therein shall not affect the Corporation's ability to consummate a voluntary or involuntary liquidation, dissolution or winding up of the Corporation. Section 5. Conversion into Common Stock. (A) A holder of shares of Series C Preferred Stock shall be entitled, at any time prior to the close of business on the date fixed for redemption of such shares pursuant to Section 7 hereof, to cause any or all of such shares to be converted into validly issued, fully paid and nonassessable shares of Common Stock, initially at a conversion rate equal to the ratio of .8000 share of Common Stock for each one share of Series C Preferred Stock, which conversion rate shall be adjusted as hereinafter provided (and, as so adjusted, rounded to the nearest ten-thousandth, is hereinafter sometimes referred to as the "Conversion Ratio"); provided, however, that, if the shares of Common Stock have a par value, in no event shall the Conversion Ratio be greater than the Liquidation Preference divided by the par value of one share of Common Stock. (B) Notwithstanding Section 5(A), in the event of an automatic conversion pursuant to Section 1(B) hereof due to a distribution of Series C Preferred Stock to participants or beneficiaries in a Plan or foreclosure or other realization upon shares of Series C Preferred Stock pledged as collateral by or pursuant to any credit agreement, indenture or other document or instrument for the financing or refinancing of the initial purchase of the Series C Preferred Stock by a Plan, shares of Series C Preferred Stock shall be converted into validly issued, fully paid and nonassessable shares of Common Stock at a conversion rate, expressed as a ratio of shares of Common Stock per share of Series C Preferred Stock, equal to the greatest of: (i) the Conversion Ratio, (ii) a fraction, the numerator of which shall be the Fair Market value (as defined in Section 9(F) hereof) of one share of Series C Preferred Stock (plus an amount equal to accrued and unpaid dividends thereon, if such dividends have not already been taken into account in determining the Fair Market Value) and the denominator of which shall be the Fair Market Value of one share of Common Stock, both computed as of the date of conversion, or (iii) the lesser of: (A) one share of Common Stock per share of Series C Preferred Stock, adjusted accordingly with adjustments in the Conversion Ratio pursuant to Section 9 hereof, or (B) a fraction, the numerator of which shall be the Liquidation Preference plus an amount equal to accrued and unpaid dividends thereon and the denominator of which shall be the Fair Market Value of one share of Common Stock on the date of conversion. (C) Any holder of shares of Series C Preferred Stock desiring to convert such shares into shares of Common Stock shall surrender the certificate or certificates representing the shares of Series C Preferred Stock being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Series C Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Series C Preferred Stock by the Corporation or the transfer agent for the Series C Preferred Stock, accompanied by written notice of conversion. Such notice of conversion shall specify (i) the number of shares of Series C Preferred Stock to be converted and the name or names in which such holder wishes the certificate or certificates for Common Stock to be issued and for any shares of Series C Preferred Stock not to be so converted to be issued (subject to compliance with applicable legal requirements if any of said certificates are to be issued in a name other than the name of the holder), and (ii) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion. (D) Upon surrender of a certificate representing a share or shares of Series C Preferred Stock for conversion, the Corporation or the transfer agent for the Common Stock shall, as promptly as practicable after such surrender, issue and deliver to the holder thereof or to such holder's designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion, together with any cash adjustment of any fraction of a share as hereinafter provided. In the event that there shall have been surrendered a certificate or certificates representing shares of Series C Preferred Stock, only part of which are to be converted, the Corporation shall issue and deliver to such holder or such holder's designee a new certificate or certificates representing the number of shares of Series C Preferred Stock which shall not have been converted. (E) A conversion of shares of Series C Preferred Stock into shares of Common Stock shall be effective (i) if made at the option of the holder thereof, as of the close of business on the day on which the Corporation receives written notice of conversion pursuant to Section 5(C) or (ii) if made pursuant to Section 1(B) hereof, at the time of Transfer. On and after the effective date of conversion, the shares of Series C Preferred so converted shall no longer be deemed to be outstanding for any purpose, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock of record on any date prior to such effective date. The Corporation shall not be obligated to pay any dividends which shall have been declared and shall be payable to holders of shares of Series C Preferred Stock on a Dividend Payment Date if such Dividend Payment Date for such dividend shall be on or subsequent to the effective date of conversion of such shares, unless such declared dividends have been set aside for payment prior to the effective date of conversion of such shares, which dividends shall be paid on the applicable Dividend Payment Date. (F) Whenever the Corporation shall issue shares of Common Stock upon conversion of shares of Series C Preferred Stock as contemplated by this Section 5, the Corporation shall issue together with each such share of Common Stock one right to purchase Series A Junior Participating Preferred Stock of the Corporation (or other securities in lieu thereof) pursuant to the Rights Agreement dated as of December 13, 1988 between the Corporation and The First National Bank of Chicago, as Rights Agent, as such agreement has been, and may from time to time be, amended (such Agreement, as so amended, is hereinafter referred to as the "Rights Agreement"), or any rights issued to holders of Common Stock in addition thereto or in replacement therefor, whether or not such rights shall be exercisable at such time, but only if such rights are issued and outstanding and held by other holders of Common Stock at such time and have not expired. Section 6. Other Conversion Rights. In addition to the conversion rights provided in Section 5(A) and 5(B) hereof, shares of Series C Preferred Stock may be converted into shares of Common Stock at the option of the holder at any time and from time to time upon notice to the Corporation given not less than five (5) Business Days prior to the date fixed by the holder in such notice for such conversion, (A) when and to the extent necessary for such holder to provide for distributions required to be made under, or to satisfy an investment election provided to participants in accordance with, a Plan, to participants in such Plan at a conversion rate, expressed as a ratio of shares of Common Stock per share of Series C Preferred Stock, equal to the greater of (i) the Conversion Ratio or (ii) a fraction, the numerator of which shall be the Fair Market Value of one share of Series C Preferred Stock (plus accrued and unpaid dividends thereon to the date of conversion if such dividends have not already been taken into account in determining Fair Market Value) and the denominator of which shall be the Fair Market Value of one share of Common Stock, both computed as of the date of conversion, or (B) in the event that the Plan is determined by the Internal Revenue Service not to be qualified within the meaning of Sections 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the "Code"), at a conversion rate, expressed as a ratio of shares of Common Stock per share of Series C Preferred Stock, equal to the greatest of (i) a fraction, the numerator of which shall be the Fair Market Value of one share of Series C Preferred Stock plus an amount equal to accrued and unpaid dividends thereon (if such dividends have not already been taken into account in determining the Fair Market Value) and the denominator of which shall be the Fair Market Value of one share of Common Stock, both computed as of the date of conversion, (ii) a fraction, the numerator of which shall be the Liquidation Preference plus accrued but unpaid dividends thereon to the date of conversion and the denominator of which shall be the Fair Market Value of one share of Common Stock on the date of conversion or (iii) the Conversion Ratio. Section 7. Redemption at the Option of the Corporation. (A) The Series C Preferred Stock shall be redeemable, in whole or in part, at the option of the Corporation, out of funds legally available therefor, at any time after April 1, 1994, at the following redemption prices: Redemption Price As During the Twelve-Month A Percentage of Period Beginning April 1 Liquidation Preference ------------------------ ---------------------- 1991 107.0 1992 106.3 1993 105.6 1994 104.9 1995 104.2 1996 103.5 1997 102.8 1998 102.1 1999 101.4 2000 100.7 and thereafter at the Liquidation Preference, plus in each case, an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption. Payment of the redemption price shall be made by the Corporation in cash or shares of Common Stock, or a combination thereof, as permitted by Section 7(E). From and after the close of business on the date fixed for redemption, dividends on shares of Series C Preferred Stock called for redemption will cease to accrue, such shares will no longer be deemed to be outstanding and all rights in respect of such shares of the Corporation shall cease, except the right to receive the redemption price; provided that shares of Series C Preferred Stock may be converted pursuant to Section 5 or, if applicable, Section 6 hereof at any time prior to the close of business on the date fixed for redemption of such shares pursuant to Section 7 or 8 hereof. No interest shall accrue on the redemption price after the date fixed for redemption. If less than all of the outstanding shares of Series C Preferred Stock are to be redeemed, the Corporation shall select the shares to be redeemed in the manner determined by the Board of Directors of the Corporation. (B) Unless otherwise required by law, notice of redemption with respect to a redemption pursuant to paragraphs (A), (C) or (D) of this Section 7 will be sent to the holders of Series C Preferred Stock at the address shown on the books of the Corporation or any transfer agent for the Series C Preferred Stock by hand delivery, by courier, by any standard form of telecommunication or by first class mail, postage prepaid, delivered, sent or mailed (as the case may be) not less than twenty (20) days nor more than sixty (60) days prior to the redemption date. Each such notice shall state: (i) the redemption date; (ii) the total number of shares of the Series C Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price and method of payment therefor; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vi) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised, and the Conversion Ratio in effect at the time. Upon surrender of the certificates for any shares called for redemption pursuant to the provisions of this Section 7 or the provisions of Section 8 hereof, which shares have not previously been converted, such shares shall be redeemed by the Corporation at the date fixed for redemption and at the applicable redemption price set forth in this Section 7 or in Section 8 hereof. (C) In the event (i) of a change in the federal tax law of the United States of America or a determination by a court of competent jurisdiction, which, in either case, has the effect of precluding the Corporation from claiming any of the tax deductions for dividends paid on the Series C Preferred Stock when such dividends are used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended (the "Code") and in effect on the date shares of Series C Preferred Stock are initially issued, or (ii) that shares of Series C Preferred Stock are held by an employee benefit plan intended to qualify as an employee stock ownership plan within the meaning of Section 4975 of the Code, as amended, and such plan is determined by the Internal Revenue Service not to qualify, the Corporation may, in its sole discretion and notwithstanding anything to the contrary in Section 7(A), elect to redeem such shares, out of funds legally available therefor, at a redemption price equal to the greater of (i) the Liquidation Preference plus an amount equal to accrued and unpaid dividends or (ii) the Fair Market Value of a share of Series C Preferred Stock, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption if such dividends have not already been taken into account in determining Fair Market Value, and otherwise on the terms and conditions set forth in Sections 7(A) and 7(B). (D) Notwithstanding anything to the contrary in Section 7(A), the Corporation may elect to redeem any or all of the shares of Series C Preferred Stock at any time on or prior to April 1, 1994, out of funds legally available therefor, at a redemption price equal to the greater of (i) the applicable redemption price specified in Section 7(A) hereof plus an amount equal to accrued and unpaid dividends, or (ii) the Fair Market Value of a share of Series C Preferred Stock, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption if such dividends have not already been taken into account in determining Fair Market Value, and otherwise on the terms and conditions set forth in Sections 7(A) and 7(B), if the Corporation terminates an employee stock ownership plan or employee benefit plan pursuant to which shares of Series C Preferred Stock are then held by a Trustee (in which case only the shares held pursuant to such plan may be so redeemed). (E) The Corporation, at its option, may make payment of the redemption price required upon redemption of shares of Series C Preferred Stock in cash or in shares of Common Stock, or in a combination of such shares and cash, any such shares to be valued for such purpose at their Fair Market Value as of the date of redemption. Section 8. Consolidation, Combination, Merger, etc. (A) In the event that the Corporation shall consummate any exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or other transaction pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into, stock of any successor or resulting company (including the Corporation) that constitutes "qualifying employer securities" with respect to a holder of Series C Preferred Stock within the meaning of Section 409(a) of the Code and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law (together, if applicable, with a cash payment in lieu of fractional shares), the shares of Series C Preferred Stock of such holder shall in connection therewith be assumed by and shall become preferred stock of such successor or resulting company, having in respect of such company insofar as possible the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 6, 7 and 8 hereof), and the qualifications, limitations or restrictions thereon, that the Series C Preferred Stock had immediately prior to such transaction, except that after such transaction each share of the Series C Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 5 or 6 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of Series C Preferred Stock could have been converted pursuant to Section 5(A) hereof immediately prior to such transaction or, if Section 5(B) or 6 hereof is thereafter applicable, into the kind of qualifying employer securities so receivable by a holder of one share of Common Stock and the number of such shares determined pursuant to Section 5(B) or 6; provided, however, that if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transac- tion, which election cannot practicably be made by the holders of the Series C Preferred Stock, then such election shall be deemed to be solely for "qualifying employer securities" (together, if applicable, with a cash payment in lieu of fractional shares) with the effect provided above on the basis of the number and kind of qualifying employer securities receivable by a holder of the number of shares of Common Stock into which the shares of Series C Preferred Stock could have been converted pursuant to Section 5(A) hereof immediately prior to such transaction or if Section 5(B) or 6 hereof is thereafter applicable, into the kind of qualifying employer securities receivable by a holder of one share of Common Stock and the number of such shares determined pursuant to Section 5(B) or 6 (it being understood that if the kind or amount of qualifying employer securities receivable in respect of each share of Common Stock upon such transaction is not the same for each such share, then the kind and amount of qualifying employer securities deemed to be receivable in respect of each share of Common Stock for purposes of this proviso shall be the kind and amount so receivable per share of Common Stock by a plurality of such shares). The rights of the Series C Preferred Stock as preferred stock of such successor or resulting company shall successively be subject to adjustments pursuant to Section 9 hereof after any such transaction as nearly equivalent as practicable to the adjustments provided for by such Section prior to such transaction. The Corporation shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of the Series C Preferred Stock shall be assumed and authorized by the successor or resulting company pursuant to this Section 8(A). (B) In the event that the Corporation shall consummate any exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or other transaction, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in Section 8(A)) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of Series C Preferred Stock shall, without any action on the part of the Corporation or any holder thereof (but subject to Section 8(C)), be automatically converted by virtue of such merger, consolidation, combination or similar business combination transaction immediately prior to its consummation into the number of shares of Common Stock into which such shares of Series C Preferred Stock could have been converted at such time so that each share of Series C Preferred Stock, shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series C Preferred Stock could have been converted pursuant to Section 5(A) hereof immediately prior to such transaction; provided, however, that if by virtue of the structure of such transaction a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the Series C Preferred Stock, then the shares of Series C Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of such stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series C Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock had elected to receive the maximum amount of qualifying employer securities offered (it being understood that if the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each share which so elected the maximum amount of qualifying employer securities, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each such share shall be the kind and amount so receivable per share by a plurality of the shares which so elected the maximum amount of qualifying employer securities). (C) In the event the Corporation shall enter into any agreement providing for any exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or other transaction, described in Section 8(B), then the Corporation shall as soon as practicable thereafter (and in any event at least ten (10) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of Series C Preferred Stock and each such holder shall have the right to elect, by written notice to the Corporation, to receive, upon consummation of such transaction (if and when such transaction is consummated), out of funds legally available therefor, from the Corporation or the successor of the Corporation, in redemption and retirement of such Series C Preferred Stock, a cash payment equal to the redemption price specified in Section 7(A) hereof in effect on the date set for redemption plus an amount equal to all accrued and unpaid dividends. No such notice of redemption shall be effective unless given to the Corporation prior to the close of business on the Business Day prior to consummation of such transaction, unless the Corporation or the successor of the Corporation shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Corporation prior to the close of business on the Business Day prior to consummation of such transaction. Section 9. Anti-Dilution Adjustments. (A) (i) Subject to the provisions of Sections 9(D) and 9(E) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of the Series C Preferred Stock are outstanding, (x) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock or (y) subdivide the outstanding shares of Common Stock into a greater number of shares, in each case whether by reclassification of shares, recapitalization of the Corporation, a recapitalization or reclassification effected by a merger, consolidation or other transaction to which Section 8 hereof applies or otherwise, then, in such event, the Board of Directors shall, to the extent legally permissible, declare a dividend in respect of the Series C Preferred Stock in shares of Series C Preferred Stock (a "Special Dividend") in such a manner that a holder of Series C Preferred Stock will become the holder of that number of shares of Series C Preferred Stock equal to the product of the number of such shares held prior to such event times a fraction (the "Sec. 9(A) Non-Dilutive Share Fraction"), the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. A Special Dividend declared pursuant to this paragraph 9(A)(i) shall be effective upon payment of such dividend or distribution in respect of the Common Stock and in the case of a subdivision shall become effective immediately as of the effective date thereof. Concurrently with the declaration of the Special Dividend pursuant to this paragraph 9(A)(i), the Liquidation Preference and the Dividend Amount of all shares of Series C Preferred Stock shall be adjusted by dividing the Liquidation Preference and the Dividend Amount, respectively, in effect immediately before such event by the Sec. 9(A) Non-Dilutive Share Fraction. (ii) The Corporation and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are reasonably necessary or appropriate for declaration of the Special Dividend provided in paragraph 9(A)(i) but shall not be required to call a special meeting of stockholders in order to implement the provisions thereof. If for any reason the Board of Directors is precluded from giving full effect to the Special Dividend provided in paragraph 9(A)(i), then no such Special Dividend shall be declared, but instead the Conversion Ratio shall automatically be adjusted by multiplying the Conversion Ratio in effect immediately before the event by the Sec. 9(A) Non-Dilutive Share Fraction, and the Liquidation Preference and the Dividend Amount will not be adjusted. An adjustment to the Conversion Ratio made pursuant to this paragraph 9(A)(ii) shall be given effect upon payment of such a dividend or distribution as of the record date for the determination of holders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision shall become effective immediately as of the effective date thereof. If subsequently the Board of Directors is able to give full effect to the Special Dividend as provided in paragraph 9(A)(i), then such Special Dividend will be declared in accordance with the provisions of paragraph 9(A)(i) and the adjustment in the Conversion Ratio as provided in this paragraph 9(A)(ii) will automatically be reversed and nullified prospectively. (iii) Subject to the provisions of Sections 9(D) and 9(E) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of the Series C Preferred Stock are outstanding, combine the outstanding shares of Common Stock into a lesser number of shares, whether by reclassification of shares, recapitalization of the Corporation, a recapitalization or reclassification effected by a merger, consolidation or other transaction to which Section 8 hereof applies or otherwise, then, in such event, the Conversion Ratio shall automatically be adjusted by multiplying the Conversion Ratio in effect immediately before such event by the Sec. 9(A) Non-Dilutive Share Fraction, and the Liquidation Preference and the Dividend Amount will not be adjusted. An adjustment to the Conversion Ratio made pursuant to this paragraph 9(A)(iii) shall be given effect immediately as of the effective date of such combination. (B) (i) Subject to the provisions of Sections 9(D) and (E) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of Series C Preferred Stock are outstanding, issue, sell or exchange shares of Common Stock (other than pursuant to (x) any right or warrant to purchase or acquire shares of Common Stock (including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock), (y) the Rights Agreement or (z) any employee or director incentive, compensation or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted) for a consideration having a Fair Market Value on the date of issuance, sale or exchange less than the Fair Market Value of such shares on the date of issuance, sale or exchange, then, in such event, the Board of Directors shall, to the extent legally permissible, declare a Special Dividend in such a manner that a holder of Series C Preferred Stock will become the holder of that number of shares of Series C Preferred Stock equal to the product of the number of such shares held prior to such event times a fraction (the "Sec. 9(B)(i) Non-Dilutive Share Fraction"), the numerator of which is the number of shares of Common Stock outstanding immediately before the public announcement of such issuance, sale or exchange plus the number of shares of Common Stock so issued, sold or exchanged by the Corporation and the denominator of which is the number of shares of Common Stock outstanding immediately before the public announcement of such issuance, sale or exchange plus the number of shares of Common Stock which could be purchased at the Fair Market Value of the consideration received by the Corporation in respect of such issuance, sale or exchange. A Special Dividend declared pursuant to this paragraph 9(B)(i) shall be effective upon such issuance, sale or exchange. Concurrently with the declaration of the Special Dividend pursuant to this paragraph 9(B)(i), the Liquidation Preference and the Dividend Amount of all shares of Series C Preferred Stock shall be adjusted by dividing the Liquidation Preference and the Dividend Amount, respectively, in effect immediately before such issuance, sale or exchange by the Sec. 9(B)(i) Non-Dilutive Share Fraction. (ii) Subject to the provisions of Sections 9(D) and 9(E) hereof, in the event the Corporation shall, at any time or from time to time while any shares of Series C Preferred Stock are outstanding issue, sell or exchange any right or warrant to purchase or acquire shares of Common Stock (including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock and rights issued under the Rights Agreement), other than any such issuance to holders of shares of Common Stock as a dividend or distribution (including by way of a reclassification of shares or a recapitalization of the Corporation) and other than pursuant to any employee or director incentive, compensation or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted, exercisable for a consideration having a Fair Market Value per share of Common Stock on the date of such issuance, sale or exchange less than the Sec. 9(F) Non-Dilutive Amount (as defined in paragraph 9(F)(vi)), then in such event, the Board of Directors shall, to the extent legally permissible, declare a Special Dividend in such a manner that a holder of Series C Preferred Stock will become the holder of that number of shares of Series C Preferred Stock equal to the product of the number of such shares held prior to such event times a fraction (the "Sec. 9(B)(ii) Non-Dilutive Share Fraction"), the numerator of which is the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock that could be acquired upon exercise in full of all such rights and warrants and the denominator of which is the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such issuance for the maximum aggregate consideration payable upon exercise in full of all such rights or warrants and any other amounts paid in connection with such issuance of rights or warrants. A Special Dividend declared pursuant to this paragraph 9(B)(ii) shall be effective upon such issuance, sale or exchange. Concurrently with the declaration of the Special Dividend pursuant to this paragraph 9(B)(ii), the Liquidation Preference and the Dividend Amount of all shares of Series C Preferred Stock shall be adjusted by dividing the Liquidation Preference and the Dividend Amount, respectively, in effect immediately before such issuance of rights or warrants by the Sec. 9(B)(ii) Non-Dilutive Share Fraction. (iii) The Corporation and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are reasonably necessary or appropriate for declaration of the Special Dividend provided in paragraphs 9(B)(i) and 9(B)(ii) but shall not be required to call a special meeting of stockholders in order to implement the provisions hereof. In the event for any reason the Board of Directors is precluded from giving full effect to the Special Dividend provided in paragraphs 9(B)(i) or 9(B)(ii), then no such Special Dividend shall be declared, but instead the Conversion Ratio shall automatically be adjusted by multiplying the Conversion Ratio in effect immediately before such issuance of shares, rights or warrants by the Sec. 9(B)(i) or 9(B)(ii) Non-Dilutive Share Fraction, as the case may be, and the Liquidation Preference and Dividend Amount will not be adjusted. If subsequently the Board of Directors is able to give full effect to the Special Dividend as provided in paragraphs 9(B)(i) or 9(B)(ii), then such Special Dividend will be declared in accordance with the provisions of paragraphs 9(B)(i) or 9(B)(ii), as the case may be, and the adjustment in the Conversion Ratio as provided in this paragraph 9(B)(iii) will automatically be reversed and nullified prospectively. (C) (i) Subject to the provisions of Sections 9(D) and 9(E) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of Series C Preferred Stock are outstanding, make an Extraordinary Distribution (as hereinafter defined) in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Corporation (including a recapitalization or reclassification effected by a transaction to which Section 8 hereof does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common Stock, then, in such event, the Board of Directors shall, to the extent legally permissible, declare a Special Dividend in such a manner that a holder of Series C Preferred Stock will become the holder of that number of shares of Series C Preferred Stock equal to the product of the number of such shares held prior to such event times a fraction (the "Sec. 9(C) Non-Dilutive Share Fraction"), the numerator of which is the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the Corporation multiplied by (y) the Fair Market Value of a share of Common Stock on the Valuation Date (as defined in paragraph 9(F)(viii)) with respect to an Extraordinary Distribution or on the expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, and the denominator of which is (x) the product of (I) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase multiplied by (II) the Fair Market Value of a share of Common Stock on the Valuation Date with respect to an Extraordinary Distribution, or on the expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, minus (y) the Fair Market Value of the Extraordinary Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the case may be. The Corporation shall send each holder of Series C Preferred Stock (x) notice of its intent to make any Extraordinary Distribution and (y) notice of any offer by the Corporation to make a Pro Rata Repurchase, in each case at the same time as, or as soon as practicable after, such offer is first communicated to holders of Common Stock or the record date for such dividend is announced in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading, as the case may be. Such notice shall indicate the intended record date and the amount and nature of such dividend or distribution, or the number of shares subject to such offer for a Pro Rata Repurchase and the purchase price payable by the Corporation pursuant to such offer, as well as the Conversion Ratio. A Special Dividend declared pursuant to this paragraph 9(C)(i) shall be effective upon payment of any Extraordinary Distribution, the expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be. Concurrently with the declaration of the Special Dividend pursuant to this paragraph 9(C)(i), the Liquidation Preference and the Dividend Amount of all shares of Series C Preferred Stock shall be adjusted by dividing the Liquidation Preference and the Dividend Amount, respectively, in effect immediately before such Extraordinary Distribution or Pro Rata Repurchase by the Sec. 9(C) Non-Dilutive Share Fraction. (ii) The Corporation and the Board of Directors shall each use its best efforts to take all reasonably necessary steps or to take all actions as are necessary or appropriate for the declaration of the Special Dividend provided in paragraph 9(C)(i) but shall not be required to call a special meeting of stockholders in order to implement the provisions hereof. In the event for any reason the Board of Directors is precluded from giving full effect to the Special Dividend provided in paragraph 9(C)(i), then no such Special Dividend shall be declared, but instead the Conversion Ratio shall automatically be adjusted by multiplying the Conversion Ratio in effect immediately before such Extraordinary Distribution or Pro Rata Repurchase by the Sec. 9(C) Non-Dilutive Share Fraction, and the Liquidation Preference and the Dividend Amount will not be adjusted. If subsequently the Board of Directors is able to give full effect to the Special Dividend as provided in paragraph 9(C)(i), then such Special Dividend will be declared in accordance with the provisions of paragraph 9(C)(i) and the adjustment in the Conversion Price as provided in this paragraph 9(C)(ii) will automatically be reversed and nullified prospectively. (D) Notwithstanding any other provisions of this Section 9, the Corporation shall not be required to make any adjustment of the Conversion Ratio unless such adjustment would require an increase or decrease equal to at least one percent (1%) in the Conversion Ratio prior to such adjustment. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) in the Conversion Ratio. All calculations under this Section 9 shall be made to the nearest one-hundredth of a cent or the nearest one-ten thousandth of a share, as the case may be. (E) If the Corporation shall make any dividend or distribution of the Common Stock or issue any Common Stock, other capital stock or other equity security of the Corporation or any rights or warrants to purchase or acquire any such security or any other transaction related to or having an impact upon its Common Stock or the Series C Preferred Stock, which transaction does not result in an adjustment to the Conversion Ratio pursuant to the foregoing provisions of this Section 9, the Board of Directors of the Corporation shall consider whether such action is of such a nature that it adversely affects the holders of the Series C Preferred Stock and that an adjustment to the Conversion Ratio, the provisions of Sections 5(B) or 6, or a subdivision or combination of the outstanding shares of Series C Preferred Stock into a greater or lesser number of such shares should equitably be made in respect of such transaction. If in such case the Board of Directors of the Corporation in its sole discretion determines that an adjustment to the Conversion Ratio, the provisions of Sections 5(B) or 6, or a subdivision or combination of the outstanding shares of Series C Preferred Stock into a greater or lesser number of such shares should be made, such adjustment, subdivision or combination shall be made effective as of such date as determined by the Board of Directors of the Corporation. The determination of the Board of Directors of the Corporation as to whether an adjustment to the Conversion Ratio, the provisions of Section 5(B) or 6, or a subdivision or combination of the outstanding shares of Series C Preferred Stock into a greater or lesser number of such shares should be made pursuant to the foregoing provisions of this Section 9(E), and, if so as to what adjustment, subdivision or combination should be made and when, shall be final and binding on the Corporation and all stockholders of the Corporation. The Corporation shall be entitled to make such additional adjustment in the Conversion Ratio and the provisions of Section 5(B) or 6, in addition to those required by the foregoing provisions of this Section 9, as shall be necessary in order that any dividend or distribution in shares of capital stock of the Corporation, subdivision, reclassification or combination of shares of stock of the Corporation or any recapitalization of the Corporation shall not be taxable to holders of the Common Stock. (F) For purposes of this resolution, the following definitions shall apply: (i) "Business Day" shall mean each day that is not a Saturday, Sunday or a date on which federally or state chartered banking institutions in Chicago, Illinois or New York, New York are required or authorized to be closed. (ii) "Extraordinary Distribution" shall mean any dividend or other distribution (effected while any of the shares of Series C Preferred Stock are outstanding) of (x) cash, where the aggregate amount of such cash dividend or distribution together with the amount of all cash dividends and distributions made during the preceding 12 months, when combined with the aggregate amount of all Pro Rata Repurchases (for this purpose, including only that portion of the aggregate purchase price of each such Pro Rata Repurchase which is in excess of the Fair Market Value of the Common Stock repurchased as determined in accordance with paragraph 9(C)(i)), exceeds ten percent (10%) of the aggregate Fair Market Value of all shares of Common Stock outstanding on the record date for determining the shareholders entitled to receive such Extraordinary Distribution and/or (y) any shares of capital stock of the Corporation (other than shares of Common Stock), other securities of the Corporation, evidences of indebtedness of the Corporation or any other person or any other property (including shares of any subsidiary of the Corporation), or any combination thereof. The Fair Market Value of an Extraordinary Distribution for purposes of Section 9(C) shall be equal to the sum of the Fair Market Value of such Extraordinary Distribution as of the date made. (iii) "Fair Market Value" shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Corporation or any other issuer which are publicly traded, the average of the "Current Market Prices" of such shares or such securities for each day of the Adjustment Period. The "Fair Market Value" of any security which is not publicly traded or of any other property shall mean the fair value thereof as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board of Directors of the Corporation or a committee thereof (which may be the independent appraiser engaged by any Plan) based on principles consistently applied, or, if no such investment banking or appraisal firm is in the good faith judgment of the Board of Directors or such committee available to make such determination, as determined in good faith by the Board of Directors of the Corporation or such committee. (iv) "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer for any day shall mean the last reported sales price, regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape, or, if such security is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which such security is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System, or, if such security is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors or a committee thereof for such purpose, in each case, on each trading day during the Adjustment Period. (v) "Adjustment Period" shall mean the period of five (5) consecutive trading days preceding, and including, the date as of which the Fair Market Value of a security is to be determined. (vi) "Sec. 9(F) Non-Dilutive Amount" in respect of an issuance, sale or exchange by the Corporation of any right or warrant to purchase or acquire shares of Common Stock (including any security convertible into or exchangeable for shares of Common Stock) shall mean (x) the product of (I) the Fair Market Value of a share of Common Stock on the trading day immediately preceding the first public announcement of such issuance, sale or exchange and (II) the maximum number of shares of Common Stock which could be acquired on such date upon the exercise in full of such rights and warrants (including upon the conversion or exchange of all such convertible or exchangeable securities), whether or not exercisable (or convertible or exchangeable) at such date, minus (y) the aggregate amount payable pursuant to such right or warrant to purchase or acquire such maximum number of shares of Common Stock; provided, however, that in no event shall the Sec. 9(F) Non-Dilutive Amount be less than zero. For purposes of the foregoing sentence, in the case of a security convertible into or exchangeable for shares of Common Stock, the amount payable pursuant to a right or warrant to purchase or acquire shares of Common Stock shall be the Fair Market Value of such security on the date of the issuance, sale or exchange of such security by the Corporation. (vii) "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by the Corporation or any subsidiary thereof, whether for cash, shares of capital stock of the Corporation, other securities of the Corporation, evidences of indebtedness of the Corporation or any other person or any other property (including shares of a subsidiary of the Corporation), or any combination thereof, effected while any of the shares of Series C Preferred Stock are outstanding, pursuant to any tender offer or exchange offer subject to Section 13(e) of the Exchange Act, or any successor provision of law, or pursuant to any other offer available to substantially all holders of Common Stock; provided, however, that no purchase of shares by the Corporation or any subsidiary thereof made in open market transactions shall be deemed a Pro Rata Repurchase. For purposes of this paragraph 9(F)(vii), shares shall be deemed to have been purchased by the Corporation or any subsidiary thereof "in open market transactions" if they have been purchased substantially in accordance with the requirements of Rule 10b-18 as in effect under the Exchange Act, on the date shares of Series C Preferred Stock are initially issued by the Corporation or on such other terms and conditions as the Board of Directors of the Corporation or a committee thereof shall have determined are reasonably designed to prevent such purchases from having a material effect on the trading market for the Common Stock. (viii) "Valuation Date" with respect to an Extraordi- nary Distribution shall mean the day immediately preceding (i) the ex- dividend date for such Extraordinary Distribution with respect to a security listed on a national securities exchange or (ii) the record date for such Extraordinary Distribution with respect to a security which is not listed on a national securities exchange. Section 10. Retirement of Shares. Any shares of Series C Preferred Stock acquired by the Corporation by reason of the conversion or redemption of such shares as provided hereby, or otherwise so acquired, shall be cancelled as shares of Series C Preferred Stock and restored to the status of authorized but unissued shares of Preferred Stock of the Corporation, undesignated as to series, and may thereafter be reissued as part of a new series of Preferred Stock as permitted by law. Section 11. Miscellaneous. (A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) Business Days after the mailing thereof if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Designations) with postage prepaid, addressed: (i) if to the Corporation, to its office at McDonald's Plaza, Oak Brook, Illinois 60521 (Attention: Secretary) or to the transfer agent for the Series C Preferred Stock, or other agent of the Corporation designated as permitted by this Certificate or (ii) if to any holder of the Series C Preferred Stock or Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series C Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Corporation or any such holder, as the case may be, shall have designated by notice similarly given. (B) In the event that, at any time as a result of an adjustment made pursuant to Section 9 hereof, the holder of any share of the Series C Preferred Stock upon surrendering such shares for conversion shall become entitled to receive any shares or other securities of the Corporation other than shares of Common Stock, the Conversion Ratio in respect of such other shares or securities so receivable upon conversion of shares of Series C Preferred Stock shall thereafter be adjusted, and shall be subject to further adjustment from time to time, in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in Section 9 hereof, and the provisions of each of the other Sections hereof with respect to the Common Stock shall apply on like or similar terms to any such other shares or securities. (C) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series C Preferred Stock or shares of Common Stock or other securities issued on account of Series C Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Series C Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series C Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable. (D) In the event that a holder of shares of Series C Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Series C Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Series C Preferred Stock as shown on the records of the Corporation and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation. (E) Unless otherwise provided in this Certificate of Designations, as the same may be amended, all payments in the form of dividends, distributions on voluntary or involuntary dissolution, liquidation or winding-up or otherwise made upon the shares of Series C Preferred Stock and any other stock ranking on a parity with the Series C Preferred Stock with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on the Series C Preferred Stock and such other stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, then payable per share on the shares of the Series C Preferred Stock and such other stock bear to each other. (F) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Series C Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof by first-class mail, postage prepaid, to each holder of record of Series C Preferred Stock. 4. Series D Preferred Stock. FURTHER RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, without par value (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof as follows: Series D Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as Series D Preferred Stock (the "Series D Preferred Stock") and the number of shares constituting the Series D Preferred Stock shall be three hundred thousand (300,000). Shares of Series D Preferred Stock shall have a stated value of $100 per share. Such number may be increased or decreased by resolution of the Board of Directors; provided, however that no decrease shall reduce the number of shares of Series D Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants issued by or upon the conversion of any outstanding securities issued by the Corporation convertible into Series D Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series D Preferred Stock with respect to dividends, the holders of shares of Series D Preferred Stock, in preference to the holders of Common Stock and of any other Junior Stock (as hereinafter defined in Section 4(B)), shall be entitled to receive a cash dividend payable in an amount per share equal to $1.25 per quarter and no more (such amount being referred to herein as the "Dividend Amount"), which dividend shall be payable when and as declared by the Board of Directors, out of funds legally available for the purpose, payable quarterly in arrears on the first day of March, June, September and December in each year (each such date being referred to herein as "Dividend Payment Date"), subject to Section 2(B) below, commencing on the first Dividend Payment Date after the first issuance of a share of Series D Preferred Stock. In the event that any Dividend Payment Date shall occur on any day other than a "Business Day" (as hereinafter defined), the dividend payment due on such Dividend Payment Date shall be paid on the Business Day immediately preceding such Dividend Payment Date. The Board of Directors may fix a record date for the determination of holders of shares of Series D Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. For purposes of these resolutions, "Business Day" shall mean each day that is not a Saturday, Sunday or a date on which federally or state chartered banking institutions in Chicago, Illinois or New York, New York are required or authorized to be closed. (B) Dividends shall begin to accrue and be cumulative on outstanding shares of Series D Preferred Stock from the date of issue of such shares and shall accrue on a daily basis whether or not declared and whether or not the Corporation shall have earnings or surplus out of which such dividends could be paid at the time. Dividends accrued on the shares of Series D Preferred Stock for any period less than a full quarterly period between Dividend Payment Dates shall be computed on the basis of a 360-day year of 30-day months and in lieu of the initial quarterly dividend, such a proportional dividend shall accrue for the period from the date of issue until the first Dividend Payment Date after the issuance of any such shares. Accrued but unpaid dividends shall not bear interest. Accumulated but unpaid dividends shall cumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on accumulated but unpaid dividends. (C) Dividends paid on the shares of Series D Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. Section 3. Voting Rights. The holders of shares of Series D Preferred Stock shall have the following voting rights: (A) Each share of Series D Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation. (B) Except as otherwise provided by law or in the Restated Certificate of Incorporation, the holders of shares of Series D Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law or in the Restated Certificate of Incorporation, holders of Series D Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common stock as set forth herein) for taking any corporate action. Any increase or decrease in the authorized class of Preferred Stock shall not be deemed to alter or change the powers, preferences, or special rights of the shares of Series D Preferred Stock so as to affect them adversely within the meaning of the General Corporation Law of the State of Delaware and no class vote shall be required to authorize such increase or decrease. Section 4. Certain Restrictions. (A) So long as any Series D Preferred Stock shall be outstanding, no dividend shall be declared and paid or set apart for payment on any other series of stock ranking on a parity with the Series D Preferred Stock as to dividends ("Parity Stock"), unless there shall also be or have been declared and paid or set apart for payment on the Series D Preferred Stock dividends for all dividend payment periods of the Series D Preferred Stock ending on or before the dividend payment date of such Parity Stock, ratably in proportion to the respective amounts of dividends on the Series D Preferred Stock accumulated and unpaid through the most recent such dividend payment period, and accumulated and unpaid on such Parity Stock through the dividend payment period on such Parity Stock ending on such dividend payment date or such dividend payment date immediately preceding such dividend payment period. (B) So long as any Series D Preferred Stock shall be outstanding, in the event that full cumulative dividends on the Series D Preferred Stock have not been declared and paid or set apart for payment, the Corporation shall not declare and pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or other retirement of, Common Stock or any other class of stock or series thereof of the Corporation ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding up of the Corporation, junior to the Series D Preferred Stock (collectively, "Junior Stock") until full cumulative and unpaid dividends on the Series D Preferred Stock shall have been paid or declared and set apart for payment; provided, however, that the foregoing shall not apply to (i) any dividend payable solely in any shares of Junior Stock, or (ii) the acquisition of shares of Junior Stock either (x) pursuant to any employee or director incentive or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted or (y) in exchange solely for shares of any other Junior Stock. Subject to the foregoing provisions of this Section 4, the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any Junior Stock or Parity Stock; and may purchase or otherwise redeem or retire any of the Junior Stock or Parity Stock or any warrants, rights, or options or other securities exercisable for or convertible into any of the Junior Stock or Parity Stock and the holders of shares of the Series D Preferred Stock shall not be entitled to share therein. Section 5. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of Junior Stock unless, prior thereto, the holders of shares of Series D Preferred Stock shall have received $100 per share (such amount being referred to herein as the "Liquidation Preference"), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, as to the date of such payment, or (ii) to the holders of shares of Parity Stock, except distributions made ratably on the Series D Preferred Stock and all such Parity Stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this Section 5(A), the holders of shares of Series D Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Corporation. (B) Neither the merger or consolidation of the Corporation with or into any other corporation or other entity, nor the merger or consolidation of any other corporation or other entity with or into the Corporation, nor the sale, transfer or lease of all or any portion of the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 5. (C) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable to holders of Series D Preferred Stock in such circumstances shall be payable, shall be made in accordance with Section 8 below not less than 20 days prior to any payment date stated therein, to the holders of Series D Preferred Stock, at their respective addresses shown on the books of the Corporation or any transfer agent for the Series D Preferred Stock; provided, however, that a failure to give notice as provided herein or any defect therein shall not affect the Corporation's ability to consummate a voluntary or involuntary liquidation, dissolution or winding up of the Corporation. Section 6. Redemption. All of the outstanding Series D Preferred Stock shall be redeemed, by the Corporation, out of funds legally available therefor, on the later of (i) February 1, 1997 and (ii) the death of Maurice J. Sullivan, an individual residing in the State of Hawaii, to whom the initial shares of Series D Preferred Stock will initially be issued (the "Redemption Date"). The shares shall be redeemed at a price of $100 per share, plus an amount equal to accrued and unpaid dividends thereon, to the Redemption Date (the "Redemption Price"). On or subsequent to the Redemption Date, upon surrender of the certificates for any shares to be redeemed pursuant to the provisions of this Section 6, the Redemption Price of such shares shall be paid in cash. In the event that the Redemption Price is either paid or made available for payment, then, notwithstanding that the certificate or certificates evidencing any of the shares of the Series D Preferred Stock shall not have been surrendered, all rights with respect to such shares shall terminate, effective on the Redemption Date, and any such certificate shall represent only the right to receive the Redemption Price, without interest, upon surrender. No interest shall accrue on the Redemption Price after the Redemption Date. Section 7. Reacquired Shares. Any shares of Series D Preferred Stock acquired by the Corporation by reason of the redemption of such shares as provided hereby, or otherwise so acquired, shall be retired and the Corporation shall take all actions necessary to restore such shares to the status of authorized but unissued shares of Preferred Stock, without par value, of the Corporation, which shares may thereafter be reissued as part of a new series of such Preferred Stock or as Series D Preferred Stock, as permitted by law. Section 8. Miscellaneous. (A) All notices referred to herein shall be in writing, and delivered personally, sent by courier, or by registered or certified mail (postage prepaid, return receipt requested) addressed: (i) if to the Corporation, to its office at McDonald's Plaza, Oak Brook, Illinois 60521 (Attention: Secretary) or to the transfer agent designated by the Corporation or (ii) if to any holder of the Series D Preferred Stock, to such holder at the address of such holder as listed in the stock records books of the Corporation (which may include the records of any transfer agent for the Series D Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Corporation or any such holder, as the case may be, shall have designated by notice similarly given. (B) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery or shares of Series D Preferred Stock or certificates representing such shares. The Corporation shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Series D Preferred Stock in a name other than the name in which the shares of Series D Preferred Stock with respect to which such shares are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable. (C) Unless otherwise provided in the Certificate of Designations as the same may be amended, all payments in the form of dividends, distributions on voluntary or involuntary dissolution, liquidation or winding-up otherwise made upon the shares of Series D Preferred Stock and any other stock ranking on a parity with the Series D Preferred Stock with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on the Series D Preferred Stock and such other stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, then payable per share on the shares of the Series D Preferred Stock and such other stock bear to each other. (D) The Corporation may appoint and from time to time discharge and change, a transfer agent for the Series D Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof in accordance with Section 8(A) to each holder of record of Series D Preferred Stock. 5. Series E Preferred Stock. RESOLVED, That the issuance of a series of Preferred Stock, without par value, of the Corporation is hereby authorized and the designations, preferences and privileges, relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Corporation, are hereby fixed as follows: 7.72% Cumulative Preferred Stock, Series E Section 1. Designation and Amount. The shares of such series shall be designated as 7.72% Cumulative Preferred Stock, Series E (the "Series E Preferred Stock"), and the number of shares constituting the Series E Preferred Stock shall be 10,000. Shares of Series E Preferred Stock shall have a liquidation preference of $50,000 per share. The number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series E Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants issued by or upon the conversion of any outstanding securities issued by the Corporation convertible into Series E Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to Series E Preferred Stock with respect to dividends, the holders of shares of Series E Preferred Stock, in preference to the holders of Common Stock and of any other Junior Stock (as hereinafter defined in Section 4(B)), shall be entitled to receive a cash dividend payable in an amount per share equal to $965.00 per quarter and no more (such amount being referred to herein as the "Dividend Amount"), which dividend shall be payable when, as and if declared by the Board of Directors, out of funds legally available for that purpose, quarterly in arrears on the first day of March, June, September and December in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on March 1, 1993. In the event that any Dividend Payment Date shall occur on any day other than a "Business Day" (as hereinafter defined), the dividend payment due on such Dividend Payment Date shall be paid on the Business Day immediately preceding such Dividend Payment Date. The Board of Directors may fix a record date for the determination of holders of shares of Series E Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. For purposes of these resolutions, "Business Day" shall mean each day that is not a Saturday, Sunday or a date on which federally or state chartered banking institutions in Chicago, Illinois or New York, New York are required or authorized to be closed. (B) Dividends shall begin to accrue on outstanding shares of Series E Preferred Stock from the date of original issuance of such shares and shall accrue on a daily basis whether or not declared and whether or not the Corporation shall have earnings or surplus out of which such dividends could be paid at the time. Dividends accrued on the shares of Series E Preferred Stock for any period greater or less than a full quarterly period between Dividend Payment Dates shall be computed on the basis of a 360-day year of twelve 30-day months. Accrued but unpaid dividends shall not bear interest. Accrued but unpaid dividends shall cumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on such accumulated but unpaid dividends. (C) Dividends paid on the shares of Series E Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. Section 3. Voting Rights. (A) Except as set forth herein, or as otherwise provided by law or in the Restated Certificate of Incorporation, holders of Series E Preferred Stock shall have no special voting rights and their consent shall not be required for taking any corporate action. On those matters where voting rights are conferred herein, by law or in the Restated Certificate of Incorporation, each share of Series E Preferred Stock shall entitle the voter thereof to one vote. Any increase or decrease in the authorized class of Preferred Stock shall not be deemed to alter or change the powers, preferences, or special rights of the shares of Series E Preferred Stock so as to affect them adversely within the meaning of the General Corporation Law of the State of Delaware and no class vote shall be required to authorize such increase or decrease. (B) If at any time dividends payable on Series E Preferred Stock, or on any one or more other series of Preferred Stock of the Corporation entitled to receive cumulative preferred dividends, are in arrears and unpaid in an amount equal to or exceeding the amount of dividends payable on such Series E Preferred Stock and/or other series of Preferred Stock entitled to receive cumulative dividends for six quarterly dividend periods, whether or not consecutive, the holders of all outstanding shares of Preferred Stock entitled to receive cumulative preferred dividends will have the exclusive right, voting separately as a class, to elect two directors to the Board of Directors of the Corporation at the next annual meeting of stockholders of the Corporation. The authorized number of Directors shall not be increased for this purpose. Such voting right will continue for such Preferred Stock until all dividends on Series E Preferred Stock and on such other series have been paid in full, at which time such voting right of the holders of such Preferred Stock will terminate, subject to re-vesting in the event of a subsequent arrearage. Upon any termination of the aforesaid voting right, the term of office of those directors elected by holders of Preferred Stock voting separately as a class will terminate. Section 4. Certain Restrictions. (A) So long as any Series E Preferred Stock shall be outstanding, no dividend shall be declared and paid or set apart for payment on any other series of stock ranking on a parity with Series E Preferred Stock as to dividends ("Parity Stock"), unless there shall also be or have been declared and paid or set apart for payment on Series E Preferred Stock dividends for all dividend payment periods of Series E Preferred Stock ending on or before the dividend payment date of such Parity Stock, ratably in proportion to the respective amounts of dividends on the Series E Preferred Stock accrued and unpaid through the most recent such dividend payment period, and accrued and unpaid on such Parity Stock through the dividend payment period on such Parity Stock ending on such dividend payment date or such dividend payment date immediately preceding such dividend payment period. (B) So long as any Series E Preferred Stock shall be outstanding, in the event that full cumulative dividends on the Series E Preferred Stock have not been declared and paid or set apart for payment when due, the Corporation shall not declare and pay or set apart for payment any dividends on Common Stock or any other class of stock or series thereof of the Corporation ranking as to dividends junior to Series E Preferred Stock (collectively, "Junior Stock") until full cumulative and unpaid dividends on Series E Preferred Stock shall have been paid or declared and set apart for payment; provided, however, that the foregoing shall not apply to any dividend payable solely in any shares of Junior Stock. Subject to the foregoing provisions of this Section 4, the Board of Directors may declare and the Corporation may pay or set apart for payment dividends on any Junior Stock or Parity Stock and the holders of shares of Series E Preferred Stock shall not be entitled to share therein. Section 5. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, no distribution shall be made (i) to the holders of shares of stock ranking junior to the Series E Preferred Stock as to distributions in the event of any liquidation, dissolution or winding up of the Corporation unless, prior thereto, the holders of shares of Series E Preferred Stock shall have received $50,000 per share (such amount being referred to herein as the "Liquidation Preference"), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, as to the date of such payment, or (ii) to the holders of shares of stock ranking on a parity with the Series E Preferred Stock as to distributions in the event of any liquidation, dissolution or winding up of the Corporation ("Parity Liquidation Stock"), except distributions made ratably on Series E Preferred Stock and all such Parity Liquidation Stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this Section 5(A), the holders of shares of Series E Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Corporation. (B) Neither the merger or consolidation of the Corporation with or into any other corporation or other entity, nor the merger or consolidation of any other corporation or other entity with or into the Corporation, nor the sale, lease, exchange or other transfer of all or any portion of the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 5. (C) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable to holders of Series E Preferred Stock in such circumstances shall be payable, shall be made in accordance with Section 9 below not less than 20 days prior to any payment date stated therein, to the holders of Series E Preferred Stock, at their respective addresses shown on the books of the Corporation or any transfer agent for the Series E Preferred Stock; provided, however, that a failure to give notice as provided herein or any defect therein shall not affect the Corporation's ability to consummate a voluntary or involuntary liquidation, dissolution or winding up of the Corporation. Section 6. Redemption. The Series E Preferred Stock will not be redeemable prior to December 3, 1997. The Series E Preferred Stock will be redeemable, at the option of the Corporation, in whole or in part, out of funds legally available therefor, at any time, on or after December 3, 1997, upon not less than 30 nor more than 90 days' notice, at a redemption price per share of Series E Preferred Stock equal to the Liquidation Preference, plus an amount equal to accrued and unpaid dividends to the redemption date. On or subsequent to the redemption date, upon surrender of the certificates for any shares to be redeemed pursuant to the provisions of this Section 6, the redemption price of such shares shall be paid in cash. In the event that the redemption price is either paid or made available for payment, then, notwithstanding that the certificate or certificates evidencing any of the shares of the Series E Preferred Stock shall not have been surrendered, all rights with respect to such shares shall terminate, effective on the redemption date, and any such certificate shall represent only the right to receive the redemption price, without interest, upon surrender. No interest shall accrue on the redemption price after the redemption date. Section 7. Reacquired Shares. Any shares of Series E Preferred Stock acquired by the Corporation by reason of the redemption of such shares as provided hereby, or otherwise acquired, shall be retired and the Corporation shall take all actions necessary to restore such shares to the status of authorized but unissued shares of Preferred Stock, without par value, of the Corporation, which shares may thereafter be reissued as part of a new series of such Preferred Stock or as Series E Preferred Stock, as permitted by law. Section 8. Ranking. The Series E Preferred Stock will rank on a parity as to payment of dividends and distribution of assets upon liquidation, dissolution or winding up, whether voluntary or involuntary, of the Corporation with the Corporation's Series B ESOP Convertible Preferred Stock, Series C ESOP Convertible Preferred Stock and Series D Preferred Stock (which are the only series of Preferred Stock currently outstanding) and prior to the Corporation's Common Stock. The Series E Preferred Stock will rank prior to the Corporation's Series A Junior Participating Preferred Stock (the "Series A Preferred Stock") as to the payment of dividends and on a parity with the Series A Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up, whether voluntary or involuntary, if such Series A Preferred Stock is issued. Section 9. Miscellaneous. (A) All notices referred to herein shall be in writing, and delivered personally, sent by courier, or by registered or certified mail (postage prepaid, return receipt requested) addressed: (i) if to the Corporation, to its office at One McDonald's Plaza, Oak Brook, Illinois 60521 (Attention: Secretary) or to the transfer agent designated by the Corporation or (ii) if to any holder of Series E Preferred Stock, to such holder at the address of such holder as listed in the stock record books of the Corporation or (iii) to such other address as the Corporation or any such holder, as the case may be, shall have designated by notice similarly given. (B) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series E Preferred Stock or certificates representing such shares. The Corporation shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Series E Preferred Stock in a name other than the name in which such shares of Series E Preferred Stock were registered, or in respect of any payment to any person with respect to any such shares other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable. (C) Unless otherwise provided in the Certificate of Designations, Preferences and Rights, as the same may be amended, all payments in the form of dividends, distributions on voluntary or involuntary dissolution, liquidation or winding-up otherwise made upon the shares of Series E Preferred Stock and any other stock ranking on a parity with Series E Preferred Stock with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on Series E Preferred Stock and such other stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, then payable per share on the shares of the Series E Preferred Stock and such other stock bear to each other. (D) The Corporation may appoint, and from time to time discharge and change, a transfer agent for Series E Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof in accordance with Section 9(A) to each holder of record of Series E Preferred Stock. FIFTH: The minimum amount of capital with which the Corporation will commence business is One Thousand Dollars ($1,000). SIXTH: The Corporation is to have perpetual existence. SEVENTH: The private property of the stockholders of the Corporation shall not be subject to the payment of corporate debts to any extent whatsoever. EIGHTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware the Board of Directors is expressly authorized and empowered: (a) In the manner provided in the by-laws of the Corporation to make, alter, amend and repeal the by-laws of the Corporation in any respect not inconsistent with the laws of the State of Delaware or with the Restated Certificate of Incorporation of the Corporation; (b) By a resolution or resolutions passed by a majority of the whole Board, to designate one or more committees, each committee to consist of two or more of the directors of the Corporation which, to the extent provided in said resolution or resolutions or in the by- laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in the by-laws of the Corporation or as may be determined from time to time by resolution adopted by the Board of Directors; (c) Subject to any applicable provisions of the by-laws of the Corporation then in effect, to determine from time to time, whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the Corporation; (d) To fix from time to time the amount of the surplus or profits of the Corporation to be reserved as working capital or for any other lawful purpose; (e) Without any action by the stockholders, to authorize the borrowing of moneys for any of the purposes of the Corporation and, from time to time without limit as to amount, to authorize and cause the making, execution, issuance, sale or other disposition of promissory notes, drafts, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and the securing of the same by mortgage, pledge, deed of trust or otherwise. In addition to the powers and authorities hereinbefore or by statute expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised, or done by the Corporation, subject, nevertheless, to the provisions of the laws of the State of Delaware, this Restated Certificate of Incorporation and the by-laws of the Corporation. Any contract, transaction or act of the Corporation or of the directors or of any committee, which shall be ratified by the holders of a majority of the shares of stock of the Corporation present in person or by proxy and voting at any annual meeting, or at any special meeting called for such purpose, shall, insofar as permitted by law or by this Restated Certificate of Incorporation, be as valid and as binding as though ratified by every stockholder of the Corporation. The Corporation may enter into contracts or transact business with one or more of its directors, or with any firm of which one or more of its directors are members or with any trust, firm, corporation or association in which any one or more of its directors is a stockholder, director or officer or otherwise interested, and any such contract or transaction shall not be invalidated in the absence of fraud because such director or directors have or may have interests therein which are or might be adverse to the interest of the Corporation, even though the presence and/or vote of the director or directors having such adverse interest shall have been necessary to constitute a quorum and/or to obligate the Corporation upon such contract or transaction, provided that such interests shall have been disclosed to the other directors and a majority of the directors voting shall have approved such contract or transaction; and no director having such adverse interest shall be liable to this Corporation or to any stockholder or creditor thereof, or to any other person for any loss incurred by it under or by reason of any such contract or transaction; nor shall any such director or directors be accountable for any gains or profits realized thereon. The Corporation shall have power to indemnify any and all of its directors or officers or former directors or officers or any person who may have served at its request as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor against liabilities and expenses actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding in which they, or any of them, are made parties, or a party, by reason of being or having been directors or officers or a director or officer of the Corporation, or of such other corporation, except in relation to matters as to which any such director or officer or former director or officer or person shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty. Such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled, under any by-law, agreement, vote of stockholders or otherwise. NINTH: Meetings of stockholders may be held outside the State of Delaware, if the by-laws so provide. The books of the Corporation may be kept (subject to the laws of the State of Delaware) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by- laws of the Corporation. Elections of directors need not be by ballot unless the by-laws of the Corporation shall so provide. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, to the extent and in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH: It is hereby declared to be a proper corporate purpose, reasonably calculated to benefit stockholders, for the Board of Directors to base the response of the Corporation to any 'Acquisition Proposal' on the Board of Directors' evaluation of what is in the best interests of the Corporation and for the Board of Directors, in evaluating what is in the best interests of the Corporation, to consider: (i) the best interest of the stockholders; for this purpose the Board shall consider, among other factors, not only the consideration being offered in the Acquisition Proposal, in relation to the then current market price, but also in relation to the then current value of the Corporation in a freely negotiated transaction and in relation to the Board of Directors' then estimate of the future value of the Corporation as an independent entity; and (ii) such other factors as the Board of Directors deter- mines to be relevant, including, among other factors, the social, legal and economic effects upon franchisees, employees, suppliers, customers and business. "Acquisition Proposal" means any proposal of any person (a) for a tender offer or exchange offer for any equity security of the Corporation, (b) to merge or consolidate the Corporation with another corporation, or (c) to purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation. TWELFTH: Subject to all other applicable provisions of this Restated Certificate of Incorporation and to all applicable provisions of the law of Delaware, relating, inter alia, to stockholder approval, the Board of Directors shall have the power to merge or consolidate the Corporation with another corporation or to sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may be in whole or in part shares of stock in, and/or other securities of, any corporation or corporations, as the Board of Directors shall deem expedient and for the best interests of the Corporation, but, regardless of any other provision of this Restated Certificate of Incorporation, if any party to any such transaction shall be a person or entity owning, immediately prior to the consummation of such transaction, of record or beneficially, 2% or more of the stock of the Corporation issued and outstanding having voting power, such power of the Board of Directors shall be exercisable only when and as duly authorized by the affirmative vote of the holders of not less than 66- 2/3% of the stock of the Corporation issued and outstanding having voting power given at a stockholders' meeting duly called for that purpose; provided, however, that the Board of Directors shall have the power to merge the Corporation with another corporation without action by the stockholders to the extent and in the manner permitted from time to time by the law of Delaware. In determining whether or not any person or entity (the 'Primary Holder') owns, of record or beneficially, 2% or more of the stock of the Corporation issued and outstanding having voting power, there shall be aggregated with all shares of such stock owned of record or beneficially by the Primary Holder (a) all shares of such stock owned of record or beneficially by any person or entity who or which would be deemed to be controlling, controlled by or under common control with the Primary Holder under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, any federal statute enacted to take the place of either or both such statutes or any regulation promulgated under either of such statutes or such successor statutes (an 'Affiliate') and (b) all shares of such stock owned of record or beneficially by any person or entity acting in concert with the Primary Holder and/or with an Affiliate of the Primary Holder. This Article Twelfth shall not be altered, amended or repealed except by the affirmative vote of the holders of not less than 66-2/3% of the stock of the Corporation issued and outstanding having voting power, given at a stockholders' meeting duly called for that purpose, upon a proposal adopted by the Board of Directors. THIRTEENTH: Board of Directors. (a) Number, Election and Terms. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than 11 nor more than 24 persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. At the 1983 Annual Meeting of Stockholders, the directors shall be divided into three classes, as nearly equal in number as possible, with the term of office of the first class to expire at the 1984 annual meeting of stockholders, the term of office of the second class to expire at the 1985 annual meeting of stockholders and the term of office of the third class to expire at the 1986 annual meeting of stockholders. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those whose terms then expire shall be elected for a term of office expiring at the third succeeding annual meeting of stockholders after their election. (b) Newly Created Directorships and Vacancies. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a majority vote of the directors then in office. Directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (c) Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative votes of the holders of at least 80% of the voting power of all the shares of the Corporation entitled to vote for the election of directors. (d) Amendment, Repeal, Etc. Notwithstanding anything to the contrary contained in this Restated Certificate of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the shares of the Corporation entitled to vote for the election of directors shall be required to amend, alter or repeal, or to adopt any provision inconsistent with, this Article Thirteenth. FOURTEENTH: Stockholder Action. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Special meetings of stockholders of the Corporation may be called upon not less than 10 nor more than 60 days' written notice only by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors. Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all of the shares of the Corporation entitled to vote for the election of directors shall be required to amend, alter or repeal, or to adopt any provision inconsistent with, this Article Fourteenth. FIFTEENTH: Elimination of Certain Liability of Directors. To the fullest extent that the general corporate law of the State of Delaware, as it exists on the date hereof or as it may hereafter be amended, permits the limitation or elimination of the liability of directors, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. No amendment to or repeal of this Article Fifteenth shall apply to or have any effect on liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which restates and integrates but does not further amend the Restated Certificate of Incorporation of McDonald's Corporation, as heretofore amended or supplemented, there being no discrepancy between such Restated Certificate of Incorporation, as so amended and supplemented, and the provisions hereof, and having been adopted in accordance with Section 245 of the Delaware General Corporation Law, has been executed by its Senior Vice President and attested by its Assistant Secretary, as of this 15th day of November, 1994. McDONALD'S CORPORATION By: /s/ Shelby Yastrow ------------------------ Shelby Yastrow Senior Vice President ATTEST: /s/ Gloria Santona ------------------------ Gloria Santona Assistant Secretary EX-3 3 BY-LAWS Exhibit 3(B) BY-LAWS OF McDONALD'S CORPORATION ARTICLE I - OFFICES Section l - Principal Office - The registered office shall be established and maintained at the office of The Prentice Hall Corporation System Inc., in the City of Dover, in the County of New Castle, in the State of Delaware; and said Corporation shall be the resident agent of this Corporation in charge thereof. Section 2 - Other Offices - The Corporation may also have an office in the Village of Oak Brook, State of Illinois, and may also have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require. ARTICLE II - MEETINGS OF STOCKHOLDERS Section l - Place of Meetings - The Annual Meeting of Stockholders and any other meetings of stockholders shall be held at such place as may from time to time be determined by the Board of Directors and set forth in a notice thereof. Section 2 - Annual Election of Directors - The Annual Meeting of Stockholders for the election of Directors and the transaction of other business shall be held each year on the date determined by the Board of Directors. If this date shall fall upon a legal holiday, the meeting shall be held on the next succeeding business day. At each annual meeting, the stockholders entitled to vote shall elect Directors to succeed those whose terms then expire and may transact any other proper business. Any previously scheduled meeting of the stockholders may be postponed by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. Section 3 - Voting - Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-Laws shall be entitled to one vote (or such lesser number of votes as may be provided with respect to holders of any series of Preferred Stock in a resolution of the Board of Directors adopted pursuant to the Certificate of Incorporation), in person or by proxy, for each share of stock entitled to vote held by such stockholder but no proxy shall be voted after three (3) years from its date unless such proxy provides for a longer period. Any motion brought before a stockholder meeting must be seconded before a vote will be taken. All votes by stockholders on proposed amendments to the Certificate of Incorporation and all elections of Directors, shall be by written ballot. All elections for Directors shall be decided by a plurality of the votes of the shares present at the meeting, in person or by proxy, and entitled to vote on the election of directors; all other questions shall be decided by majority vote of the shares entitled to vote on the subject matter and present, in person or by proxy, at the meeting, except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware; and where a separate vote by class is required, the affirmative vote of the majority of shares of such class present in person or represented by proxy at the meeting shall be the act of such class. Section 4 - Quorum - At all meetings of stockholders, except as otherwise required by law, by the Certificate of Incorporation, or by these By-Laws, a majority of the shares entitled to vote, whether present in person or represented by proxy, shall constitute a quorum. Whether or not there is such a quorum present at any meeting, the chairman of the meeting or a majority of the shares so present or represented, shall have power to adjourn the meeting from time to time. No notice of the time and place of adjourned meetings need be given except as required by law. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be repre- sented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 5 - Special Meetings - Special meetings of the stockholders for any purpose or purposes may be called only by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors and shall be called by the Secretary in accordance with any such resolution. Section 6 - Notice of Meetings - Written or printed notice stating the place, date, and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given by the Secretary to each stockholder entitled to vote thereat at his address as it appears on the records of the Corporation not less than ten (l0) nor more than sixty (60) days before the date of the meeting. Business transacted at any special meeting shall be confined to the purpose or purposes stated in the notice of such special meeting. Section 7 - No Action Without Meeting - Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Section 8 - Nomination and Stockholder Business - (A) Annual Meetings of Stockholders - (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders at an annual meeting of stockholders may be made (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 8, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 8. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this Section 8, such business, as determined by the Chairman of the meeting, must be a proper subject for stockholder consideration under Delaware corporate law, and the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth (10th) day following the date on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (Including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corpora- tion's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 8 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for Directors or specifying the size of the increased Board of Directors made by the Corporation at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 8 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. (B) Special Meetings of Stockholders - Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting of stockholders pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 8, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 8. Nominations by stockholders of such persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by paragraph (A)(2) of this Section 8 shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (C) General - (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 8 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 8. The Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 8 and, if any proposed nomination or business is not in compliance with this Section 8, to declare that such defective proposal shall be disregarded. (2) For purposes of this Section 8, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 8, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 8. Nothing in this Section 8 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE III - DIRECTORS Section l - Number and Term - The number of Directors who shall constitute the whole Board of Directors shall be the number fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation and shall in no event be less than eleven (11) nor more than twenty-four (24). At the 1983 Annual Meeting of Stockholders, the Directors were divided into three (3) classes, as nearly equal in number as possible with the term of office of the first class to expire at the 1984 Annual Meeting of Stockholders, the term of office of the second class to expire at the 1985 Annual Meeting of Stockholders, and the term of office of the third class to expire at the 1986 Annual Meeting of Stockholders. At each Annual Meeting of Stockholders following such initial classification and election, Directors elected to succeed those whose terms then expire shall be elected for a term of office expiring at the third succeeding Annual Meeting of Stockholders after their election and until their successors shall be elected and shall qualify. Section 2 - Resignations - Any Director or member of a committee of the Board of Directors may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective. Section 3 - Newly-Created Directorships and Vacancies - Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly-created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a majority vote of the Directors then in office, though less than a quorum. Directors so chosen shall hold office for a term expiring at the Annual Meeting of Stockholders at which the term of the class to which they have been elected expires and until their successors shall be elected and shall qualify. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. Section 4 - Removal - Subject to the rights of the holders of any series of Preferred Stock then outstanding, any Director, or the entire Board of Directors, may be removed from office at any time but only for cause and only by the affirmative vote of the holders of eighty percent (80%) of the voting power of all of the shares of the Corporation entitled to vote for the election of Directors. Section 5 - Powers - The Board of Directors shall exercise all of the powers of the Corporation, except such as are by law or by the Certificate of Incorporation of the Corporation or by these By-Laws conferred upon or reserved to the stockholders. Section 6 - Committees - (A) Executive Committee - There shall be an Executive Committee of the Board of Directors selected from time to time by the Board of Directors from among its own membership. Except as hereinafter provided, the Executive Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. The Executive Committee is expressly granted the power and authority to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law ("DGCL"), and to declare dividends, provided that with respect to common stock dividends declared for any quarter, the rate per share does not exceed the rate per share paid in the previous quarter. (B) Other Committees of the Board - The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more other committees, each committee to consist of two or more of the Directors of the Corporation which, to the extent provided in said resolution or resolutions or in these By-Laws shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. (C) Limitation on Committee Authority - No committee shall have the power or authority of the Board of Directors in reference to (i) adopting an agreement of merger or consolidation under Sections 25l or 252 of the DGCL; (ii) recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets; (iii) recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution; (iv) amending the By-Laws of the Corporation; (v) except as otherwise specified in a resolution of the Board of Directors, issuing stock; (vi) appointing or removing an officer or Director of the Corporation; (vii) submitting any proposition to the stockholders of the Corporation; or (viii) amending the Certificate of Incorporation (except that a committee may, to the extent authorized in a resolution or resolutions adopted by the Board of Directors, as provided in Subsection (a) of Section 151 of the DGCL, fix the designations and any of the preferences or rights of shares relating to dividends, redemption, dissolution any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series). (D) Procedural Provisions - A majority of the members of a committee shall constitute a quorum for the transaction of business, and the act of a majority of such members present at any meeting at which there is a quorum shall be the act of such committee. If at any meeting of a committee there shall be less than a quorum present, a majority of those members present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. Notwithstanding the foregoing, (i) any action of the Executive Committee shall be taken only with the unanimous approval of all its members; and (ii) at the request of any member of the Executive Committee, consideration of any action proposed to be taken by the Committee shall be deferred to the Board of Directors. The Board of Directors may designate one or more Directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be stated in these By-Laws or as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its proceedings and report its acts and proceedings to the Board. Section 7 - Meetings - The newly-elected Directors may hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the Annual Meeting of the Stockholders, or the time and place of such meeting may be fixed by consent in writing of all the Directors. Commencing in 1984, the Board of Directors may, without notice, hold its first meeting subsequent to the election of a class of Directors for the purpose of organization and the transaction of business, if a quorum be present, immediately after the Annual Meeting of the Stockholders, or the time and place of such meeting may be fixed by consent in writing of all the Directors. Regular meetings of the Board of Directors may be held without notice at such places, within or without the State of Delaware, and times as shall be determined from time to time by resolution of the Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Secretary at the direction of the Chairman of the Board or the President or on the written request of any two (2) Directors on notice to each Director sent at least twenty-four (24) hours prior to each such meeting. Notice of each such meeting shall be delivered personally to each Director or sent by telegram, telex, or electronic mail to such a place as designated from time to time by each Director or, in the absence of any such designation, to the Director's last known place of business or residence. Any such meeting shall be held at such place or places, within or without the State of Delaware, and times as may be determined by the Directors or as shall be stated in the notice. Section 8 - Quorum - A majority of the Directors shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the Certificate of Incorporation, the laws of the State of Delaware, or these By-Laws. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. Section 9 - Compensation - No employee of the Company shall receive any additional compensation or remuneration for serving as a member of the Board of Directors. By resolution of the Board of Directors, those members of the Board of Directors who are not otherwise employed by the Company may receive a fixed fee, payable quarterly, together with a fee for attendance at each meeting. For purposes of this Section, members of the Board of Directors who serve the Company in capacities, such as outside consultants, attorneys, or business advisors, shall not be considered by virtue of such service as being employed by the Company. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity as an officer, agent, or otherwise and receiving compensation therefor. Section l0 - Action Without Meeting - Unless otherwise restricted by the Certificate of Incorporation or the By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof, may be taken without a meeting if all members of the Board of Directors, or of such committee, as the case may be, consent thereto in writing and such written consent is filed with the minutes of proceedings of the Board of Directors or committee. ARTICLE IV - OFFICES Section l - Officers - The Corporation shall have such officers with such titles and duties as shall be stated in these By-Laws or in a resolution of the Board of Directors which is not inconsistent with the By-Laws. All of such officers shall be elected by the Board of Directors. None of the officers, except the Senior Chairman and the Chairman of the Board and Chief Executive Officer need be Directors. No person shall hold the office of Secretary who at that time also holds either the office of Senior Chairman or Chairman of the Board and Chief Executive Officer. Section 2 - Other Officers - The Board of Directors may elect or appoint such other officers as it shall deem necessary who shall hold their offices for such terms and shall exercise such power and perform such duties as shall be determined from time to time by the Board of Directors. Section 3 - Salaries - The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 4 - Term of Office - Each officer of the Corporation shall hold his office until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. Section 5 - Senior Chairman - The Senior Chairman shall consult with the Chairman of the Board and Chief Executive Officer, the President and Chief Executive Officer - U.S.A., and the President and Chief Executive Officer - International on the management of the Corporation and shall assist and cooperate with the other officers of the Corporation in carrying out all orders, resolutions, duties, and policies adopted or established by the Board of Directors of the Corporation. Section 6 - Chairman of the Board and Chief Executive Officer - The Chairman of the Board shall be the Chief Executive Officer of the Corporation; he shall preside at all meetings of the stockholders of the Corporation, of the Board of Directors and, in the absence of the Chairman of the Executive Committee of the Board of Directors, shall preside at meetings of the Executive Committee; he shall have responsibility for the general and active management of the business of the Corporation; he shall consult with the Senior Chairman, the President and Chief Executive Officer - U.S.A., and the President and Chief Executive Officer - International, and the other officers of the Corporation on the management of the Corporation; he shall see that all orders, resolutions, and policies adopted or established by the Board of Directors are carried into effect; he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors; and he shall be authorized to execute contracts and stock certificates on behalf of the Corporation and to cause the seal to be affixed on any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer. Section 7 - Chairman of the Executive Committee - The Chairman of the Executive Committee shall preside at all meetings of the Executive Committee of the Board of Directors; he shall, in the absence of the Chairman of the Board and Chief Executive Officer, preside at all meetings of the stockholders of the Corporation and of the Board of Directors; he shall be authorized to execute contracts and stock certificates on behalf of the Corporation and to cause the seal to be affixed on any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer. Section 8 - Vice Chairman of the Board and Chief Financial Officer - The Vice Chairman of the Board shall be the Chief Financial Officer of the Corporation; he shall direct all of the financial activities of the Corporation and such other activities of the Corporation as may be designated by the Chairman of the Board and Chief Executive Officer; he shall report to the Chairman of the Board and Chief Executive Officer and consult with such other officers of the Corporation as may be appropriate; he shall be responsible for the implementation of orders, resolutions, and policies adopted or established by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation; and he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation. In addition, in the event of the inability to act of the Chairman of the Board and the Chairman of the Executive Committee, he shall preside at all meetings of the stockholders of the Corporation and the Board of Directors. Section 9 - President and Chief Executive Officer - U.S.A. - The President and Chief Executive Officer - U.S.A. shall direct United States operations; he shall report to the Chairman of the Board and the Chief Executive Officer and consult with such other officers of the Corporation as may be appropriate; he shall be responsible for the day-to-day activities of the corporation in the United States and for the implementation of orders, resolutions, and policies adopted or established by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation; and he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation. Section 10 - President and Chief Executive Officer - International - The President and Chief Executive Officer - International shall direct international operations; he shall report to the Chairman of the Board and the Chief Executive Officer and consult with such other officers of the Corporation as may be appropriate; he shall be responsible for the day-to-day activities of the Corporation in international markets; he shall be responsible for the implementation of orders, resolutions, and policies adopted or established by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation; and he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation. Section 11 - Chief Operations Officer - The Chief Operations Officer shall supervise the day-to-day operations activities of the Corporation and consult with such other officers of the Corporation as may be appropriate; he shall report to the Chairman of the Board and Chief Executive Officer; he shall be responsible for the operations activities of the Corporation and for the implementation of orders, resolutions, and policies adopted or established by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation; and he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation, and the Presidents of the Corporation. Section 12 - Senior Executive Vice President and Chief Accounting Officer - A Senior Executive Vice President shall act as the Chief Accounting Officer of the Corporation; he shall report to such person as the Chairman of the Board and Chief Executive Officer may designate and consult such officers of the Corporation as may be appropriate; he shall supervise the accounting activities of the Corporation; he shall be responsible for the implementation of orders, resolutions, and policies adopted or established by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation; and he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation. Section 13 - (A) Senior Executive Vice President; Executive Vice President - Each Senior Executive Vice President and each Executive Vice President shall have such powers and shall perform such duties as shall be assigned to him by the Board of Directors and shall report to such person as the Chairman of the Board and Chief Executive Officer may designate; he shall be responsible for the implementation of orders, resolutions, and policies adopted or established by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation; and he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation. (B) Senior Vice President, Vice President - Each Senior Vice President and each Vice President shall have such powers and shall perform such duties as shall be assigned to him by the Board of Directors and shall report to such person as the Chairman of the Board and Chief Executive Officer may designate; he shall be responsible for the implementation of orders, resolutions, and policies adopted or established by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation; and he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation. (C) Assistant Vice President - Each Assistant Vice President shall have such powers and perform such duties as shall be assigned to him by the Board of Directors and shall report to such person as the Chairman of the Board and Chief Executive Officer may designate; he shall be responsible for the implementation of orders, resolutions, and policies adopted or established by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation; and he shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Corporation. Section 14 - Treasurer - The Treasurer shall report to such person as the Chairman of the Board and Chief Executive Officer may designate. He shall have the custody of the Corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation. He shall deposit all monies and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors or the Chairman of the Board and Chief Executive Officer, taking proper vouchers for such disbursements. He shall render to the Chairman of the Board and Chief Executive Officer and the Board of Directors, at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 15 - Assistant Treasurer - The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 16 - Secretary - The Secretary shall give, or cause to be given, notice of all meetings of stockholders and Directors and all other notices required by law or by these By-Laws; and in the case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the Chairman of the Board and Chief Executive Officer, or by the Board of Directors or stockholders upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform such other duties as may be assigned to him by the Board of Directors and the Chairman of the Board and Chief Executive Officer. He shall have the custody of the seal of the Corporation and shall affix the same to all instruments requiring it when authorized by the Board of Directors and the Chairman of the Board and Chief Executive Officer and attest the same. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by his signature. Section 17 - Assistant Secretary - The Assistant Secretary or, if there be more than one, the Assistant Secretaries, shall have the authority to affix the seal of the Corporation to all instruments requiring it and attest the same. In addition, the Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE V - INDEMNIFICATION AND INSURANCE Section 1 - Right to Indemnification - (A) Indemnified Persons - Each person who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any Proceeding because he or she is an Indemnified Person, shall be indemnified and held harmless by the Corporation to the fullest extent permitted under the Delaware General Corporation Law (the "DGCL"), as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment). Such indemnification shall cover all expenses incurred by an Indemnified Person (including, but not limited to, attorneys' fees and other expenses of litigation) and all liabilities and losses (including, but not limited to, judgments, fines, ERISA or other excise taxes or penalties and amounts paid or to be paid in settlement) incurred by such person in connection therewith. (B) Additional Indemnified Persons - (1) Each Additional Indemnified Person who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any Proceeding (other than an action by or in the right of the Corporation) because he or she is an Additional Indemnified Person shall be indemnified and held harmless by the Corporation against expenses (including, but not limited to, attorneys' fees and other expenses of litigation) and all liabilities and losses (including, but not limited to, judgments, fines, ERISA or other excise taxes or penalties and amounts paid or to be paid in settlement) incurred by such person in connection therewith if such Additional Indemnified Person acted in Good Faith. The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that an Additional Indemnified Person did not act in Good Faith. (2) Each Additional Indemnified Person who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any Proceeding brought by or in the right of the Corporation to procure a judgment in its favor because he or she is an Additional Indemnified Person shall be indemnified and held harmless by the Corporation against expenses (including, but not limited to, attorneys' fees and other expenses of litigation) incurred by such person in connection therewith if such Additional Indemnified Person acted in Good Faith, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such Proceeding shall have been brought or is pending shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such Additional Indemnified Person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (3) Any indemnification under paragraphs (B)(1) or (B)(2) of this Section 1 (unless ordered by a court) shall be made by the Corporation unless it is determined that indemnification of the Additional Indemnified Person is not proper in the circumstances because such person has not met the applicable standard of conduct set forth in either paragraph (B)(1) or (B)(2) of this Section 1. Such determination shall be made: (a) by the Board of Directors of the Corporation by a majority vote of a quorum consisting of Directors who are not parties to such Proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable if a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion. Such determination shall be made within one hundred twenty (120) days (or such longer period established as set forth in the next sentence) after receipt by the Board of Directors of written notice from the Additional Indemnified Person seeking indemnification setting forth in reasonable detail the facts known to such person concerning the Proceeding. The period during which the Board of Directors may determine that indemnification is not proper may be extended to a period established by the Board of Directors by written notice to the Additional Indemnified Person delivered to such person within one hundred twenty (120) days after receipt by the Board of Directors of such person's written notice seeking indemnification. (C) Denial of Authorization for Certain Proceedings - Notwithstanding anything to the contrary in this Article V, except with respect to indemnification of Indemnified Persons specified in Section 3 of this Article V, the Corporation shall indemnify an Indemnified Person or Additional Indemnified Person in connection with a Proceeding (or part thereof) initiated by such person only if (i) authorization for such Proceeding (or part thereof) was not denied by the Board of Directors of the Corporation prior to the earlier of (x) sixty (60) days after receipt of notice thereof from such Indemnified Person or one hundred twenty (120) days after receipt of notice thereof from such Additional Indemnified Person, as the case may be, or (y) a Change of Control, and (ii) in the case of a Proceeding initiated by an Additional Indemnified Person, it is not a Proceeding to enforce rights under this Article V. (D) Certain Defined Terms - For purposes of this Article V, the following terms shall have the following means (such meanings to be equally applicable to both the singular and plural forms of the terms defined): (i) a "Proceeding" is any investigation, action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom; (ii) an "Indemnified Person" is a person who is, was, or had agreed to become (A) a Director of the Corporation (including, in the case of such person seeking indemnification while serving as a Director who is or was an officer of the Corporation, such person in his capacity as an officer) or (B) an officer, employee or a Delegate, as defined herein, of the Corporation (but, except as included within clause (A), with respect to such officers, employees and Delegates and persons agreeing to become officers, employees or Delegates only as to Proceedings occurring after a Change of Control, as defined herein, arising out of acts, events or omissions occurring prior or subsequent to, or simultaneously with, such Change of Control), or the legal representative or any of the foregoing; (iii) a "Delegate" is (A) any employee of the Corporation serving as a director or officer (or in a substan- tially similar capacity) of an entity or enterprise (x) in which the Corporation owns a l0% or greater equity interest or (y) the principal function of which is to service or benefit the Corporation or its licensees; (B) any employee of the Corporation serving as a trustee or fiduciary of an employee benefit plan of the Corporation or any entity or enterprise referred to in clause (A); and (C) any employee serving at the request of the Corporation in any capacity with any entity or enterprise other than the Corporation; (iv) a "Change of Control" shall be deemed to have occurred if (A) any "Person" (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes (except in a transaction approved in advance by the Board of Directors of the Corporation) the beneficial owner (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities, or (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election of each Director who was not a Director at the beginning of the period was approved by a vote of at least two-thirds of the Directors then still in office who were Directors at the beginning of the period; (v) an "Additional Indemnified Person" is a person who is, was, or had agreed to become an officer, Delegate or employee of the Corporation and who is not an Indemnified Person; and (vi) "Good Faith" shall mean with respect to any Additional Indemnified Person that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal Proceeding, such person had no reasonable cause to believe such conduct was unlawful. Section 2 - Expenses - Expenses, including attorneys' fees, incurred by a person indemnified pursuant to Section 1 of this Article V in defending or otherwise being involved in a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding, including any appeal therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation; provided, that (A) if a Change of Control has occurred, such person shall be required to deliver to the Corporation the Undertaking only if such an undertaking is required under the DGCL then in effect, and (B) in connection with a Proceeding (or part thereof) initiated by such person, except a Proceeding authorized by Section 3 of this Article V, the Corporation shall pay said expenses in advance of final disposition only if authorization for such Proceeding (or part thereof) was not denied by the Board of Directors of the Corporation prior to the earlier of (i) sixty (60) days in the case of an Indemnified Person, or one hundred twenty (120) days in the case of an Additional Indemnified Person, after receipt of a request for such advancement accompanied by the Undertaking or (ii) a Change of Control. A person to whom expenses are advanced pursuant hereto shall not be obligated to repay pursuant to the Undertaking until the final determination of any pending Proceeding in a court of competent jurisdiction concerning the right of such person to be indemnified or the obligation of such person to repay such expenses. Section 3 - Protection of Rights - If a claim by an Indemnified Person under Section 1 of this Article V is not promptly paid in full by the Corporation after a written claim has been received by the Corporation or if expenses pursuant to Section 2 of this Article V have not been promptly advanced after a written request for such advancement by an Indemnified Person (accompanied by the Undertaking if required by Section 2 of this Article V) has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. If successful, in whole or in part, in such suit, such claimant shall also be entitled to be paid the reasonable expense thereof. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the Undertaking has been tendered to the Corporation (or, if a Change of Control has occurred, the Undertaking is not required to be tendered to the Corporation under the DGCL) that indemnification of the claimant is prohibited by law, but the burden of proving such defense shall be on the Corporation. If a Change of Control has occurred, a claimant making a claim under Section 1 of this Article V or seeking to avoid repayment to the Corporation of expenses advanced pursuant to Section 2 of this Article V shall have (i) the right, but not the obligation, to have a determination made by independent legal counsel, at the expense of the Corporation, as to whether indemnification of the claimant is prohibited by law; and (ii) shall have the right (A) to select as independent legal counsel to make such determination any legal counsel designated for such purpose in a resolution adopted by the Board of Directors that is in full force and effect immediately prior to the Change of Control or (B), if the Board of Directors has failed to designate any such legal counsel or all such counsel refuse to make such a determination, to request the American Arbitration Association, at the expense of the Corporation, to select an independent legal counsel familiar with matters of the type in dispute to make such a determination. If a determination has been made in accordance with the preceding sentence, no determination inconsistent therewith by other legal counsel, by the Board of Directors, or by stockholders shall be of any force or effect. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination, if required, prior to the commencement of such action that indemnification of the claimant is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that indemnification of the claimant is prohibited, shall be a defense to the action or create a presumption that indemnification of the claimant is prohibited. Section 4 - Miscellaneous - (A) Non-Exclusivity of Rights - The rights conferred on any person by this Article V shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested Directors or otherwise. The Board of Directors shall have the authority, by resolution, to provide for such indemnification of agents of the Corporation or others and for such other indemnification of Directors, officers, Delegates or employees, of the Corporation as it shall deem appropriate. (B) Insurance, contracts, and funding - The Corporation may maintain insurance, at its expense, to protect itself and any Director, officer, Delegate, employee, or agent of, the Corporation against any expenses, liabilities or losses, whether or not the Corporation would have the power to indemnify such person against such expenses, liabilities or losses under the DGCL. The Corporation hereby agrees that, for a period of six (6) years after any Change of Control, it shall cause to be maintained policies of directors' and officers' liability insurance providing coverage at least comparable to and in the same amounts as that provided by any such policies in effect immediately prior to such Change of Control. The Corporation may enter into contracts with any Director, officer, Delegate or employee of the Corporation in furtherance of the provisions of this Article V and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect the advancing of expenses and indemnification as provided in this Article V. (C) Contractual nature - The provisions of this Article V as amended effective December 17, 1990 shall be applicable with respect to events, acts and omissions occurring prior to or subsequent to such Amendment, and shall continue as to a person who has ceased to be a Director, officer, Delegate or employee and shall inure to the benefit of the heirs, executors and administrators of such person. This Article V shall be deemed to be a contract between the Corporation and each person who, at any time that this Article V as so amended is in effect, serves or agrees to serve in any capacity which entitles him to indemnification hereunder and any repeal or other modification of this Article V or any repeal or modification of the DGCL or any other applicable law shall not limit any rights of indemnification for Proceedings then existing or arising out of events, acts or omissions occurring prior to such repeal or modification, including, without limitation, the right to indemnification for Proceedings commenced after such repeal or modification to enforce this Article V with regard to Proceedings arising out of acts, omissions or events arising prior to such repeal or modification. (D) Cooperation - Each Indemnified Person and Additional Indemnified Person shall cooperate with the person, persons or entity making the determination with respect to such Indemnified Person's or Additional Indemnified Person's entitlement to indemnification under this Article V, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to such Indemnified Person or Additional Indemnified Person and reasonably necessary to such determination. Any costs or expenses (including attorneys' fees and disbursements) incurred by such Indemnified Person or Additional Indemnified Person in so cooperating with the person, persons or entity making such determination shall be borne by the Corporation (irrespective of the determination as to such Indemnified Person's or Additional Indemnified Person's entitlement to indemnification) and the Corporation hereby indemnifies and agrees to hold such Indemnified Person or Additional Indemnified Person harmless therefrom. (E) Subrogation - In the event of any payment under this Article V to an Indemnified Person or Additional Indemnified Person, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of such Indemnified Person or Additional Indemnified Person, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. (F) Severability - If this Article V, or any portion hereof shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, this Article V shall be deemed to be modified to the minimum extent necessary to avoid a violation of law and, as so modified, this Article V and the remaining provisions hereof shall remain valid and enforceable in accordance with their terms to the fullest extent permitted by law. ARTICLE VI - MISCELLANEOUS Section l - Certificates of Stock - Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Senior Chairman of the Board or the Chairman of the Board and Chief Executive Officer or a President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If such certificate is countersigned (l) by a transfer agent or (2) by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 2 - Lost Certificates - A new certificate of stock may be issued in the place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed; and the Directors may, in their discretion, require the owner of the lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as they may direct not exceeding double the value of the stock to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate, or the issuance of any such new certificate. Section 3 - Transfer of Shares - The shares of stock of the Corporation shall be transferable upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives by the surrender of the old certificates duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, to the Corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers or to such other person as the Directors may designate, by whom they shall be canceled; and new certificates shall thereupon be issued. A record shall be made of each transfer and a duplicate thereof mailed to the Delaware office; and whenever a transfer shall be made for collateral security, and not absolutely, it shall be expressed in the entry of the transfer. Section 4 - Record Date - In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to Corporate action in writing without a meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty (60) nor less than ten (l0) days before the date of such meeting nor more than sixty (60) days prior to any other action. Section 5 - Registered Stockholders - The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner and to hold liable for calls and assessments a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Section 6 - Dividends - Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the Corporation as and when they deem expedient. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation; and in the case of a dividend paid in shares of theretofore unissued capital stock of the Corporation, the Board of Directors shall, by resolution, direct that there be designated as capital in respect of such shares an amount not less than the aggregate par value of such shares and, in the case of shares without par value, such amount as shall be fixed by the Board of Directors. Before declaring any dividend, there may be set apart out of any funds of the Corporation available for dividends, such sum or sums as the Directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the Directors shall deem conducive to the interests of the Corporation. Section 7 - Seal - The Corporate seal shall be circular in form and shall contain the name of the Corporation, the year of its creation, and the words, "CORPORATE SEAL DELAWARE." Said seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or reproduced or otherwise. Section 8 - Fiscal Year - The fiscal year of the Corporation shall begin on the first day of January in each year and shall end on the last day of December in each year. Section 9 - Checks - All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section l0 - Notice and Waiver of Notice - Whenever any notice is required by these By-Laws to be given, personal notice is not meant unless expressly so stated. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute. Whenever any notice whatever is required to be given under the provisions of any law or under the provisions of the Certificate of Incorporation of the Corporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Section 11 - Ratification by Stockholders - Any contract, transaction, or act of the Corporation or of the Directors or of any committee which shall be ratified by the holders of a majority of the shares of stock of the Corporation present in person or by proxy and voting at any annual meeting or at any special meeting called for such purpose, shall, insofar as permitted by law or under the provisions of the Certificate of Incorporation of the Corporation or these By-Laws, be as valid and binding as though ratified by every stockholder of the Corporation. Section l2 - Interested Directors - No contract or transaction between the Corporation and one or more of its Directors or officers or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason or solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction or solely because his or their votes are counted for such purpose if: (l) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved, or ratified by the Board of Directors, a committee thereof, or the shareholders. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE VII - AMENDMENTS The By-Laws of this Corporation may be made, altered, amended, or repealed by the affirmative vote of a majority of the Board of Directors at any regular meeting of the Board of Directors or at any special meeting of the Board of Directors if notice of the proposed making, alteration, amendment, or repeal to be made is contained in the Notice of such special meeting provided, however, that no By-Law shall be made, altered, amended, or repealed so as to make such By-Law inconsistent with or violative of any provision of the Certificate of Incorporation. As amended through November 15, 1994 EX-10 4 MATERIAL CONTRACT - DIRECTORS' STOCK PLAN Exhibit 10(a) McDONALD'S DIRECTORS' STOCK PLAN Section 1 Introduction 1.1 The Plan. McDonald's Corporation (the "Company") first established the McDonald's Directors' Deferred Compensation Plan (the "Plan") for the members of its Board of Directors who are not officers or employees of the Company ("Outside Directors") on July 1, 1984. The Plan was last amended and restated effective December 19, 1991, and is hereby amended and restated effective January 19, 1995. Effective January 19, 1995, in order to reflect the Plan's focus on creating an identity of interest between the Company's Outside Directors and its shareholders, the Plan is hereby renamed the "Directors' Stock Plan". 1.2 Purpose. The purposes of the Plan are: to advance the Company's interests by attracting and retaining well-qualified Outside Directors; to provide such individuals with incentives to put forth maximum efforts for the long term success of the Company's business; and to provide a vehicle to increase the identity of interest between Outside Directors and shareholders. Section 2 Benefits 2.1 Elected Deferred Benefits. Each Outside Director may elect in accordance with Section 2.7 to defer all or any part of the fees received by such Outside Director for service on the Board of Directors of the Company (including the annual retainer and Board and committee meeting fees) ("Elected Deferred Benefits"). 2.2 Deferred Fee Account. Elected Deferred Benefits shall be credited to an account ("Deferred Fee Account") of each Outside Director on a quarterly basis at such a time and in such a manner as is reasonably determined by the Controller of the Company and as of the date of any distribution pursuant to Section 2.5. Amounts credited to the Deferred Fee Account of each Outside Director shall be credited with income, gains and losses in the amounts and at the times such as would have occurred if amounts credited to an Outside Director's Deferred Fee Account were invested in shares (including fractional shares) of common stock of McDonald's Corporation ("McDonald's Stock") as of the dates such amounts (including income, gains and losses) were credited to the Outside Director's Deferred Fee Account. 2.3 Stock Equivalent Benefit. In addition to the benefits described in Sections 2.1 and 2.2, each Outside Director shall receive a stock equivalent benefit which shall be determined in the manner described in this Section 2.3 ("Stock Equivalent Benefit"). On January 19, 1995, an amount equal to $17,500 multiplied by the number of an Outside Director's full years of service (up to a maximum of ten years) shall be accrued for such Outside Director's Stock Equivalent Benefit. After January 19, 1995, for each Outside Director, an amount equal to $17,500 shall be accrued for such Outside Director's Stock Equivalent Benefit at the end of each full year of service (up to a maximum of ten years). In no event shall an Outside Director receive a Stock Equivalent Benefit pursuant to this Section 2.3 which exceeds $175,000 ($17,500 multiplied by 10 years of service). In measuring full years of service, Board service shall commence as of the first Board meeting or committee meeting for which the Outside Director received compensation and end with the last Board meeting or committee meeting for which the Outside Director received compensation. Amounts accrued for an Outside Director's Stock Equivalent Benefit shall be adjusted periodically (but no less than once each year), at such time or times and in such manner as is reasonably determined by the Controller of the Company and as of the date of any distribution pursuant to Section 2.5, in order to treat each such accrual as though it had been invested in shares of McDonald's Stock by reflecting income, gains and losses in the amounts and at the times as such would have occurred if an amount equal to such accrual were invested in shares (including fractional shares) of McDonald's Stock on the date such accrual was made. 2.4 Value of McDonald's Stock. The market value of McDonald's Stock for purposes hereof on any day shall be the closing price of McDonald's Stock on the New York Stock Exchange Composite Tape on such day (or, if quotations for McDonald's Stock are not reported on the New York Stock Exchange Composite Tape on that day, the closing price of McDonald's Stock on the New York Stock Exchange Composite Tape on the first day preceding such day on which such quotations are so reported). 2.5 Payment of Benefits. An Outside Director's Deferred Fee Account and Stock Equivalent Benefit shall be paid to the Outside Director or to such other person as he or she may designate by written notice to the Company (or in the event of his or her death to the beneficiaries designated by the Outside Director in writing to the Secretary of the Board of Directors, or, if the Outside Director fails to designate beneficiaries or if all such beneficiaries predecease the Outside Director, to the Outside Director's surviving spouse, and if none, then to the Outside Director's estate) promptly after the date the Outside Director ceases to be a member of the Board of Directors because of the expiration of such Outside Director's term, his or her resignation from the Board of Directors, or his or her death. Payment shall be made in cash in an amount equal to the total of: (a) the amount credited to the Outside Director's Deferred Fee Account on the day preceding the date payment is made, and (b) the Stock Equivalent Benefit determined in accordance with Section 2.3 hereof. To the extent that the amount so paid shall be used by such Outside Director to purchase shares of McDonald's Stock in the open market within seven months after the date such Outside Director ceases to be a member of the Board of Directors, the Company shall reimburse such Outside Director for all brokerage fees and other transaction costs incurred by such Outside Director in connection with such purchase upon presentation of reasonably satisfactory evidence thereof. 2.6 Funding. Benefits payable under the Plan to any person shall be paid directly by the Company. The Company shall not be required to fund or otherwise segregate assets to be used for payment of benefits under the Plan. While the Company may cause investments in shares of McDonald's Stock to be made through open market purchases in amounts equal or unequal to amounts payable hereunder, the Company shall not be under any obligation to make such investments and any such investment shall remain subject to the claims of its general creditors and the amounts payable to any Outside Directors under the Plan shall not be affected by any such investment. Notwithstanding the foregoing, the Company, in its discretion, may maintain one or more trusts to hold assets to be used for payment of benefits under the Plan; provided that the assets of such trust shall be subject to the creditors of the Company in the event that the Company becomes insolvent or is subject to bankruptcy or insolvency proceedings. Any payments by such a trust of benefits provided hereunder shall be considered payment by the Company and shall discharge the Company of any further liability for the payments made by such trust. 2.7 Deferral Elections. A person who becomes an Outside Director in a year may elect by a written notice delivered to McDonald's Corporation within 60 days after becoming an Outside Director to receive Elected Deferred Benefits as provided in Section 2.1 with respect to fees earned in the portion of such year following the delivery of such notice to McDonald's Corporation. Each other Outside Director may elect by filing a written election with McDonald's Corporation before the beginning of the year to receive Elected Deferred Benefits as provided in Section 2.1 for such calendar year. Any election made pursuant to this Section 2.7 shall be irrevocable. Section 3 General Provisions 3.1 Plan Administration. The Plan shall be administered by the Committee responsible for administration of the Company's Profit Sharing Program. The Committee shall have, to the extent appropriate, the same power, rights, duties and obligations with respect to the Plan as it has with respect to the Profit Sharing Program. 3.2 Retention Rights. Establishment of the Plan shall not be construed to give an Outside Director the right to be retained on the Board of Directors or to any benefits not specifically provided by the Plan. 3.3 Interests Not Transferable. Except as to withholding of any tax required under the laws of the United States or any state or locality and except with respect to designation of a beneficiary to receive benefits in the event of the death of an Outside Director, no benefit payable at any time under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, or other legal process, or encumbrance of any kind. Any attempt by an Outside Director to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefits whether current or thereafter payable, shall be void. No benefit shall, in any manner, be liable for or subject to the debts or liabilities of any person entitled to such benefits. If any person shall attempt to, or shall alienate, sell, transfer, assign, pledge or otherwise encumber his or her benefits under the Plan, or if by any reason of his or her bankruptcy or other event happening at any time, such benefits would devolve upon any other person or would not be enjoyed by the person entitled thereto under the Plan, then the Company in its discretion, may terminate the interest in any such benefits of the person entitled thereto under the Plan and hold or apply them to or for the benefit of such person entitled thereto under the Plan or his or her spouse, children or other dependents, or any of them, in such manner as the Company may deem proper. 3.4 Amendment and Termination. Subject to the provisions of Section 3.1, the Board intends the Plan to be permanent, but reserves the right at any time to modify, amend or terminate the Plan, provided, however, that benefits credited as provided herein shall constitute an irrevocable obligation of the Company. 3.5 Controlling Law. The law of Illinois, except its law with respect to choice of law, shall be controlling in all manners relating to the Plan. 3.6 Number. Words in the plural shall include the singular and the singular shall include the plural. Executed with effect as of the 19th day of January, 1995. McDONALD'S CORPORATION By:/s/ Jack M. Greenberg ------------------------------------ Vice Chairman and Chief Financial Officer ATTEST: /s/ Gloria Santona ------------------------ Assistant Secretary EX-10 5 MATERIAL CONTRACT - PROFIT SHARING PROGRAM Exhibit 10(b) McDONALD'S CORPORATION PROFIT SHARING PROGRAM As amended and restated effective July 1, 1992 McDONALD'S CORPORATION PROFIT SHARING PROGRAM Summary of Contents Page ARTICLE I - DEFINITIONS 1.1 "Account" ......................................... 2 1.2 "Active Participant" .............................. 4 1.3 "Affiliated Service Group" ........................ 5 1.4 "Authorized Leave of Absence" ..................... 6 1.5 "Auxiliary ESOP Suspense Account" ................. 7 1.6 "Beneficiary" ..................................... 7 1.7 "Board of Directors" .............................. 7 1.8 "Break in Service" ................................ 7 1.9 "Committee" ....................................... 7 1.10 "Commonly Controlled Corporation" ................. 7 1.11 "Commonly Controlled Entity" ...................... 7 1.12 "Company" ......................................... 7 1.13 "Company Stock" ................................... 7 1.14 "Considered Compensation" ......................... 8 1.15 "Credited Service" ................................ 11 1.16 "Disability" ...................................... 11 1.17 "Disqualified Person" ............................. 11 1.18 "Domestic Affiliate" .............................. 11 1.19 "Effective Date" .................................. 12 1.20 "Eligibility Computation Period" .................. 12 1.21 "Eligibility Service" ............................. 12 1.22 "Employee" ........................................ 12 1.23 "Employer" ........................................ 12 1.24 "Employer Contributions" .......................... 13 1.25 "Entry Date" ...................................... 13 1.26 "ERISA" ........................................... 13 1.27 "Five Percent Owner" .............................. 13 1.28 "Foreign Affiliate" ............................... 13 1.29 "Forfeiture" ...................................... 14 1.30 "Highly Compensated Employee" ..................... 14 1.31 "Hour of Service" ................................. 16 1.32 "Internal Revenue Code" ........................... 19 1.33 "Investment Fund" ................................. 19 1.34 "Leased Employee" ................................. 19 1.35 "Licensee" ........................................ 20 1.36 "McDESOP" ......................................... 20 1.37 "Non-highly Compensated Employee" ................. 20 1.38 "Parental Leave" .................................. 20 1.39 "Participant" ..................................... 21 1.40 "Participant Contributions" ....................... 21 1.41 "Participant Elected Contributions" ............... 21 1.42 "Party in Interest" ............................... 21 1.43 "Plan" ............................................ 21 1.44 "Plan Administrator" .............................. 21 1.45 "Plan Year" ....................................... 21 1.46 "Profit Sharing Plan" ............................. 21 1.47 "Qualified Preretirement Survivor Annuity" ........ 21 1.48 "Related Plan" .................................... 22 1.49 "Required Beginning Date" ......................... 22 1.50 "Rollover Contribution" ........................... 22 1.51 "Subsidiary" ...................................... 22 1.52 "Termination of Employment" ....................... 23 1.53 "Top Paid Group" .................................. 23 1.54 "Trust" ........................................... 23 1.55 "Trust Agreement" ................................. 23 1.56 "Trustee" ......................................... 23 1.57 "Trust Fund" ...................................... 23 1.58 "Valuation Date" .................................. 26 1.59 "Vesting Retirement Date" ......................... 26 1.60 "Year of Credited Service" ........................ 27 1.61 "Year of Eligibility Service" ..................... 27 ARTICLE II - PARTICIPATION 2.1 Participation ..................................... 28 2.2 Certification of Participation and Compensation to Committee ...................................... 28 2.3 Termination of Employment, Break in Service, Reemployment and Change in Employment Status ...... 28 2.4 Employees of Foreign or Domestic Affiliates ....... 29 2.5 Leased Employee ................................... 29 2.6 McDESOP Participation ............................. 29 ARTICLE III - PROFIT SHARING PLAN EMPLOYER CONTRIBUTIONS 3.1 Profit Sharing Contributions ...................... 30 3.2 Payment of Contributions Made Pursuant to Article III ....................................... 31 ARTICLE IV - McDESOP EMPLOYER CONTRIBUTIONS 4.1 Amount of Employer Matching Contributions ......... 32 4.2 Auxiliary ESOP Contributions ...................... 34 4.3 Annual Employer Contribution Elections ............ 36 4.4 Additional Employer Contributions ................. 38 4.5 Payment of Contributions Made Pursuant to Article IV ........................................ 38 4.6 Form of Contributions ............................. 39 ARTICLE V - PARTICIPANT ELECTED CONTRIBUTIONS 5.1 Participant Elected Contributions ................. 40 5.2 Restrictions on Participant Elected Contributions ..................................... 41 5.3 Allocation of Income to Certain Distributed Amounts ........................................... 44 5.4 Multiple Use of Alternative Limitations ........... 45 5.5 Excess Compensation Reduction Elections ........... 46 5.6 Deadline for Participant Elected Contributions .... 47 5.7 Application of the Limitations of Sections 5.2(c), 5.2(e), 4.1(c), 5.4 and 9.1 ...... 47 ARTICLE VI - AUXILIARY ESOP PROVISIONS 6.1 Power to Borrow ................................... 48 6.2 Accounting for Loan Proceeds and Employer Auxiliary ESOP Contributions ...................... 49 6.3 Release from Auxiliary ESOP Suspense Account ...... 49 6.4 Installment Payments on Exempt Loan ............... 51 6.5 Non-Terminable Rights and Protections ............. 52 6.6 Independent Appraisals Required ................... 54 ARTICLE VII - ALLOCATIONS OF CONTRIBUTIONS 7.1 Profit Sharing Contribution Allocation Formula .... 55 7.2 Employer Matching Contributions, Additional Employer Contributions and Special Section 401(k) Employer Contributions ..................... 56 7.3 Auxiliary ESOP Contributions ...................... 57 7.4 Participant Elected Contributions ................. 59 7.5 Timing of Allocations ............................. 59 ARTICLE VIII - ROLLOVER CONTRIBUTIONS AND TRUSTEE TRANSFERS 8.1 Participant Rollover Contributions ................ 60 8.2 Limited Participation ............................. 60 8.3 Withdrawal of Rollover Contributions .............. 60 8.4 Rollover Contributions Not Forfeitable ............ 60 ARTICLE IX - LIMITATIONS ON CONTRIBUTIONS BECAUSE OF FEDERAL LEGISLATION 9.1 Limitations on Contributions ...................... 61 9.2 Employer Contribution Reductions .................. 66 ARTICLE X - TRUSTEE AND TRUST FUNDS 10.1 Trust Agreements .................................. 68 10.2 Trustee's Duties .................................. 68 10.3 Trust Expenses .................................... 68 10.4 Trust Entity ...................................... 68 10.5 Right of the Employers to Trust Assets ............ 68 10.6 Trust Investment Funds ............................ 69 10.7 Investment of Participant's Employer Profit Sharing Contributions ............................. 73 10.8 Investment Election with Regard to a Participant's Profit Sharing Fund Account and Diversification Accounts .......................... 73 10.9 Investment Election with Regard to a Participant's Investment Savings Fund Account ..... 74 10.10 Investment Election with Regard to a Participant's Rollover Contribution Account ....... 74 10.11 Failure to Make an Investment Election ............ 75 10.12 Diversification of McDESOP Accounts and Contributions ..................................... 75 10.13 Effective Date of Participant's Investment and Diversification Elections ..................... 80 10.14 Trust Income ...................................... 80 10.15 Trust Sub-fund Income ............................. 81 10.16 Income Directly Credited to Trust Sub-funds ....... 82 10.17 Adjustment of Account Balances .................... 83 10.18 Allocation of Income of the Distribution Fund ..... 85 10.19 Separate Accounting in the Trust Fund ............. 85 10.20 Trust Investment .................................. 85 10.21 Separate Accounting for Auxiliary ESOP Suspense Account .................................. 85 10.22 Correction of Error ............................... 85 10.23 Statement of Accounts ............................. 86 10.24 Purchase or Sale of Company Stock ................. 86 10.25 Shareholder Rights in Company Stock ............... 86 10.26 Cash Distributions with Respect to Company Stock ..................................... 89 10.27 Distribution Fund ................................. 89 ARTICLE XI - DISTRIBUTION OF BENEFITS 11.1 Distributions, General ............................ 90 11.2 Payment of Net Balance Account on Disability, or on Retirement or Other Termination of Employment ........................................ 90 11.3 Payment of Net Balance Account on Death of Participant .......................................100 11.4 Vesting and Forfeitures ...........................104 11.5 Payment of Employer Profit Sharing Contribution for Year of Termination of Employment ........................................106 11.6 Designation of Beneficiary and Form of Beneficiary Benefit ...............................107 11.7 Incompetency, Distribution of Benefits ............108 11.8 Deduction of Taxes from Accounts Payable ..........108 11.9 Deadline for Payment of Benefits ..................108 11.10 Spousal Consent to a Beneficiary or a Waiver ......109 11.11 Single Sum Payment without Election ...............109 11.12 Installment Payments ..............................110 11.13 Required Minimum Distributions to Employed Participants ......................................112 11.14 Transitional Rules ................................112 11.15 Sale of Restaurant - Special Vesting Rules ........113 11.16 Withdrawal of Participant and Rollover Contributions Permitted ...........................113 11.17 Direct Rollovers ..................................114 ARTICLE XII - SUBSIDIARY PARTICIPATION 12.1 Adoption of Plan and Trust ........................117 12.2 Withdrawal from Plan by Participating Employer ..........................................117 ARTICLE XIII - ADMINISTRATION OF THE PLAN 13.1 Appointment and Removal of, and Resignation by, Trustee ...........................................119 13.2 Appointment of Committee; Tenure in Office ........119 13.3 Named Fiduciaries .................................119 13.4 Delegation of Responsibilities ....................120 13.5 Committee Duties ..................................120 13.6 Committee Action by Majority -- Authorization of Members to Execute Documents ...................121 13.7 Secretary .........................................122 13.8 Member as Participant .............................122 13.9 Rules and Decisions ...............................122 13.10 Agents and Counsel ................................122 13.11 Authorization of Benefit Distribution .............122 13.12 Claims Procedure ..................................122 13.13 Information to be Furnished to Committee ..........123 13.14 Plan Administrator ................................123 13.15 Fiduciary as Participant ..........................124 13.16 Fiduciary Responsibility ..........................124 ARTICLE XIV - AMENDMENT, TERMINATION, MERGER AND CONSOLIDATION OF PLAN 14.1 Amendment .........................................125 14.2 Termination of Plan By the Company ................125 14.3 Merger, Consolidation, or Transfer of Assets ......126 14.4 Transfer of Assets from Plans of Subsidiaries .....126 ARTICLE XV - TOP HEAVY PROVISIONS 15.1 Application .......................................128 15.2 Special Top Heavy Definitions .....................128 15.3 Special Top Heavy Provisions ......................136 ARTICLE XVI - MISCELLANEOUS PROVISIONS 16.1 Headings ..........................................139 16.2 Indemnification ...................................139 16.3 Employees' Trust ..................................139 16.4 Nonalienation of Benefits .........................139 16.5 Qualified Domestic Relations Order ................140 16.6 Unclaimed Amounts .................................142 16.7 Maximum Age Condition .............................143 16.8 Invalidity of Certain Provisions ..................143 16.9 Gender and Number .................................143 16.10 Law Governing .....................................144 MCDONALD'S CORPORATION PROFIT SHARING PROGRAM The McDonald's Corporation Savings and Profit Sharing Plan, as amended and restated effective January 1, 1987 ("Profit Sharing Plan") and subsequently amended from time to time and the McDonald's Matching and Deferred Stock Ownership Plan, as amended and restated effective January 1, 1984 ("McDESOP") and subsequently amended from time to time, were merged, effective December 31, 1988, amended and restated effective January 1, 1989, and renamed the "McDonald's Corporation Profit Sharing Program" (the "Plan"). The Plan as subsequently amended from time to time is hereby amended and restated effective July 1, 1992. The Plan has two component portions, the Profit Sharing Plan portion which is intended to be a profit sharing plan and to meet the requirements of Sections 401(a) of the Internal Revenue Code and the McDESOP portion which is intended to meet the requirements for a stock bonus plan and has two components, a cash or deferred arrangement under Sections 401(a) and 401(k) of the Internal Revenue Code and an employee stock ownership plan under Sections 401(a) and 4975(e)(7) of the Internal Revenue Code. Each portion of the Plan shall be interpreted in a manner consistent with it meeting the requirements of the respective Internal Revenue Code Sections applicable thereto. The assets of the employee stock ownership plan portion of the Plan shall be invested primarily in qualifying employer securities as defined in Section 409(l) of the Internal Revenue Code. The purposes of the McDonald's Corporation Profit Sharing Program are to permit Participants (1) to share in the success of the Company by receiving a portion of its profits, (2) to provide employees a convenient means to save for their own future retirement security through their participation in this Plan and (3) to provide Participants individually and as a group with a substantial ownership interest in the Company. Except as otherwise specifically provided herein, the Plan as amended and restated applies to persons who are Employees on and after July 1, 1992. Eligibility, benefits, payment of benefits and the amount of benefits, if any, of a person whose employment with an Employer terminated before July 1, 1992 and who is not rehired by an Employer on or after July 1, 1992 shall, except as otherwise specifically provided herein, be determined in accordance with the provisions of the Plan or of McDESOP and the Profit Sharing Plan as in effect on the date the person ceased to be an Employee of an Employer. ARTICLE I DEFINITIONS The following words and phrases, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings: 1.1 "Account" means a Participant's share of contributions and Forfeitures arising under the Plan, and the income, profits and increments thereon less all losses, expenses and distributions chargeable thereto. (a) Each Participant shall have the following Accounts in the Profit Sharing Plan which shall be held in the Trust Fund: (1) "Investment Savings Fund Account," to which shall be credited the Participant's Participant Contributions with respect to Plan Years commencing before January 1, 1987. A Participant's Investment Savings Fund Account shall be fully vested and non-forfeitable. (2) "Profit Sharing Fund Account," to which shall be credited each Participant's share of Employer Profit Sharing Contributions and Forfeitures with respect to the Profit Sharing Plan allocated in accordance with Section 7.1. A Participant's Profit Sharing Fund Account shall include his "Pre-Break Profit Sharing Fund Account" and his "Post-Break Profit Sharing Fund Account" pursuant to Section 11.4(e), if applicable. (3) "Rollover Contribution Account," to which shall be credited the balance of the Participant's Rollover Contribution Holding Account as of each Valuation Date. (4) "Rollover Contribution Holding Account," to which shall be credited the Participant's Rollover Contributions pursuant to Section 8.1 until such contributions are removed and credited to the Participant's Rollover Contribution Account at the next Valuation Date occurring at the end of a calendar month in which such contributions were made. (b) Each Participant shall have the following Accounts in McDESOP which shall be held in the Trust Fund: (1) A "Participant Elected Contribution Account", to which shall be credited Participant Elected Contributions made to the Plan on behalf of the Participant in accordance with Section 7.4; (2) An "Employer Matching Contribution Account" to which shall be credited Employer Matching Contributions (including any Employer Per Capita Matching Contributions), Additional Employer Contributions, Special Section 401(k) Employer Contributions and any Forfeitures allocated to the Participant in accordance with Section 7.2. (3) An "Employer Auxiliary ESOP Contribution Account" which shall include: (A) A "Per Capita Employer Auxiliary ESOP Contribution Account," to which shall be credited Company Stock released from the Auxiliary ESOP Suspense Account in accordance with Section 6.3, allocated in accordance with Section 7.3(a) and any Special Dividend Replacement Contributions credited to such account in accordance with Section 7.3(d); (B) A "Compensation Based Employer Auxiliary ESOP Contribution Account," to which shall be credited Company Stock released from the Auxiliary ESOP Suspense Account in accordance with Section 6.3, allocated in accordance with Section 7.3(b) and any Special Dividend Replacement Contributions credited to such account in accordance with Section 7.3(d); and (C) An "Additional Employer Auxiliary ESOP Contribution Account," to which shall be credited, in accordance with Section 7.3(c) a Participant's Per Capita Additional Auxiliary ESOP Contributions and Forfeitures therefrom and his Compensation Based Additional Auxiliary ESOP Contributions and Forfeitures therefrom. (c) Each Participant shall have the following Diversification Accounts, to which shall be credited the portions of a Participant's Employer Auxiliary ESOP Contribution Account, Participant Elected Contribution Account and Employer Matching Contribution Account, transferred to his Diversification Account pursuant to a Diversification Election made in accordance with Section 10.12. A Participant's Diversification Account shall be part of the McDESOP portion of the Plan but is held in the Profit Sharing Master Trust in order to implement Participant's diversification elections made in accordance with Section 10.12. Effective July 1, 1994, the Diversification Account shall consist of two-sub-accounts as follows: (A) "LESOP Diversification Account," to which shall be credited the portions of a Participant's Employer Auxiliary ESOP Contribution Account transferred to his LESOP Diversification Account pursuant to a Diversification Election made in accordance with Section 10.12; and (B) "McDESOP Diversification Account" to which shall be credited the portions of a Participant's Participant Elected Contribution Account and Employer Matching Contribution Account, transferred to his McDESOP Diversification Account pursuant to a Diversification Election made in accordance with Section 10.12. (d) "Net Balance Account," means a Participant's interest in the Trust composed of all of the Participant's Accounts. A Participant's accrued benefit at any time during any Plan Year (except on a Valuation Date) shall be the value of the number of full and fractional shares of Company Stock and any other value held in such Participant's Accounts as adjusted on the immediately preceding Valuation Date, and on a Valuation Date it shall be the number of full and fractional shares of Company Stock and other value held in such Participant's Accounts as adjusted to that Valuation Date. 1.2 "Active Participant" means (a) for purposes of receiving an allocation of the Profit Sharing Contributions pursuant to Section 7.1 for a Plan Year, a Participant (1) who (A) has accumulated one thousand (1,000) Hours of Service during the Plan Year; (B) has Considered Compensation during such Plan Year; and (C) is employed by an Employer on the last day of the Plan Year; or (2) who (A) is transferred during the Plan Year to a Domestic Affiliate or Foreign Affiliate; (B) has accumulated one thousand (1,000) Hours of Service during a Plan Year; (C) has Considered Compensation during such Plan Year; and (D) is employed on the last day of the Plan Year by an Employer, a Domestic Affiliate or a Foreign Affiliate; or (3) who (A) was a Participant on any day of a Plan Year; (B) has Considered Compensation during such Plan Year; and (C) prior to the last day of such Plan Year, died, retired on or after attaining age 55 or suffering a Disability, terminated his employment because of the sale or lease of a McDonald's restaurant operation and became an employee of the purchasing Licensee, or terminated his employment when he had at least 10 years of Credited Service under the Plan; and (b) for the purpose of being eligible to share in allocations of Company Stock released from an Auxiliary ESOP Suspense Account for a Plan Year, in accordance with Section 6.3(a), and of Additional Employer Auxiliary ESOP Contributions for a Plan Year, a Participant who is a staff or an executive employee or a store manager; and (1) who (A) has accumulated one thousand (1,000) Hours of Service during the Plan Year; (B) has Considered Compensation during such Plan Year; and (C) is employed by an Employer on the last day of the Plan Year; or (2) who (A) is transferred during the Plan Year to a Domestic Affiliate or Foreign Affiliate; (B) has accumulated one thousand (1,000) Hours of Service during a Plan Year; (C) has Considered Compensation during such Plan Year; and (D) is employed on the last day of the Plan Year by an Employer, a Domestic Affiliate or a Foreign Affiliate; or (3) who (A) was a Participant on any day of a Plan Year; (B) has Considered Compensation during such Plan Year; and (C) prior to the last day of such Plan Year, died, retired on or after attaining age 55 or suffering a Disability, terminated his employment because of the sale or lease of a McDonald's restaurant operation and became an employee of the purchasing Licensee, or terminated his employment when he had at least 10 years of Credited Service under the Plan; and (c) for purposes of the McDESOP portion of the Plan, except for the purpose of being eligible to share in allocations of Company Stock released from an Auxiliary ESOP Suspense Account for a Plan Year in accordance with Section 6.3(a), and of Additional Employer Auxiliary ESOP Contributions for a Plan Year, a Participant who is an Employee on any day of the Plan Year. 1.3 "Affiliated Service Group" means a group including an Employer which: (a) consists of an organization the principal business of which is the performance of services ("first service organization") and one or more of the organizations described in (1) or (2): (1) any other service organization which (A) is a shareholder or partner in the first service organization (as determined in accordance with applicable Treasury Regulations), and (B) regularly performs services for the first service organization or is regularly associated with the first service organization in performing services for third persons, or (2) any other organization if (A) a significant portion of the business of such organization is the performance of services for the first service organization or for one or more organizations identified in Section 1.3(a)(1) or for both, and the services are of a type historically performed in such service field by employees, and (B) 10 percent or more of the interests in such organization are held by persons who are highly compensated employees (within the meaning of section 414(q) of the Internal Revenue Code) of the first service organization or an organization described in Section 1.3(a)(1); or (b) consists of (1) an organization the principal business of which is to perform on a regular and continuing basis management functions for an organization identified in Section 1.3(b)(3), 1.3(b)(4) or 1.3(b)(5); (2) all organizations aggregated in accordance with Code Sections 414(b), 414(c), 414(m) or 414(o) with the organization identified in Section 1.3(b)(1); (3) an organization for which management functions are performed by the organization identified in Section 1.3(b)(1); (4) all organizations aggregated in accordance with Code Sections 414(b), 414(c), 414(m) or 414(o) with the organization identified in Section 1.3(b)(3); and (5) all organizations ("first organizations") related to any organization identified in Section 1.3(b)(3) or 1.3(b)(4) if the organization identified in Section 1.3(b)(3) or 1.3(b)(4) and the first organizations would be related persons pursuant to Code Section 144(a)(3) and the organization identified in Section 1.3(b)(3) or 1.3(b)(4) performs management functions for the first organizations; or (c) is required to be aggregated pursuant to regulations issued under Section 414(o) of the Internal Revenue Code. 1.4 "Authorized Leave of Absence" means any absence authorized by an Employer under such Employer's standard personnel practices. An absence due to service in the Armed Forces of the United States shall be considered an Authorized Leave of Absence provided that the Employee returns to employment with the Employer with reemployment rights provided by law. 1.5 "Auxiliary ESOP Suspense Account" means the separate accounts maintained by the Committee under Section 6.2. 1.6 "Beneficiary" means the person or persons designated by a Participant or the Plan, as applicable, in accordance with the provisions of Section 11.3 or 11.6 to receive any benefit which shall be distributable under the Plan on account of the Participant's death. Such a Beneficiary shall be deemed to be the Participant's "designated beneficiary" for purposes of Section 401(a)(9) of the Internal Revenue Code to the extent permitted therein. 1.7 "Board of Directors" means the board of directors of the Company. 1.8 "Break in Service" means, for purpose of determining Eligibility Service and Participant status, an Eligibility Computation Period, and for all other purposes, a Plan Year, within which an Employee has not completed more than five hundred (500) Hours of Service. 1.9 "Committee" means the Administrative Committee appointed pursuant to Section 13.2. 1.10 "Commonly Controlled Corporation" means the Company and any other corporation if it and the Company are members of a controlled group of corporations as defined in Section 409(1)(4) of the Internal Revenue Code. 1.11 "Commonly Controlled Entity" means a corporation, trade or business if it and an Employer are members of a controlled group of corporations as defined in Section 414(b) of the Internal Revenue Code or under common control as defined in Section 414(c) of the Internal Revenue Code; provided, however, that solely for purposes of Article IX including the definition of Related Plan when used in Article IX, the standard of control under Sections 414(b) and 414(c) of the Internal Revenue Code shall be deemed to be "more than 50%" rather than "at least 80%." 1.12 "Company" means McDonald's Corporation or any successor corporation by merger, consolidation, purchase or otherwise which elects to adopt the Plan and the Trust. 1.13 "Company Stock" means common or preferred stock of the Company which is a qualifying employer security as defined in Section 4975(e)(8) of the Internal Revenue Code and Section 407(d)(5) of ERISA, including, but not limited to, Series B ESOP Convertible Preferred Stock of McDonald's Corporation and Series C ESOP Convertible Preferred Stock of McDonald's Corporation, both as described in the Certificate of Designations annexed hereto, and any subsequently issued series of convertible preferred stock of McDonald's Corporation which is purchased with the proceeds of an Exempt Loan. 1.14 "Considered Compensation" of a Participant for a Plan Year means: (a) except as otherwise specified below, the Participant's total compensation paid during the Plan Year to such Participant by an Employer while an Active Participant in the Plan as reported in Box 10 of the Participant's Internal Revenue Service Form W-2 (or Box 1, as revised for 1993, or the equivalent box on any comparable form for subsequent years) for the Plan Year, increased by (i) any amounts by which the Participant's compensation is reduced by Participant Elected Contributions under the McDESOP portion of the Plan or any other portion of the Plan, and under any portion of any Related Plan which meets the requirements of Section 401(k) of the Internal Revenue Code; (ii) compensation reduction contributions for medical, dental or dependent care or other benefits under a cafeteria plan meeting the requirements of Section 125 of the Internal Revenue Code; and (iii) payments under the McDonald's Target Incentive Plan which the Participant received in April 1994; and excluding (I) provisions for life insurance; (II) reimbursement for or other payment for expenses related to, moving expenses (other than the relocation bonus, but effective January 1, 1994, including the relocation bonus); (III) any benefits under the Plan or any other qualified plan described in Section 401(a) of the Internal Revenue Code; (IV) distributions under McDonald's Profit Sharing Program Equalization Plan ("McEqual"), McDonald's 1989 Executive Equalization Plan ("McCAP I"), the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II") or, effective January 1, 1994, the McDonald's Corporation Deferred Incentive Plan; (V) income earned from stock options granted under the McDonald's 1975 Stock Ownership Option Plan; Stock Exchange Rights or Performance Units granted under the McDonald's Corporation 1978 Incentive Plan; effective January 1, 1993, options, restricted stock, stock appreciation rights, performance units and stock bonuses awarded under the McDonald's 1992 Stock Ownership Incentive Plan; (VI) payments to a Participant for foreign service in the form of tax gross-up benefits; (VII) allowances for cost of living, housing and education, and other similar payments; (VIII) effective January 1, 1994, any income attributable to personal use of an employer-provided vehicle, an allowance paid for the loss of an employer-provided vehicle, use of a company condo, participation in group trips, gift stock, spouse's travel and perquisites whether in cash or in kind and other similar items; and (IX) any severance pay and any special termination bonus paid pursuant to a termination agreement; (b) for purposes of Article XV (except for determining whether a Participant is a Key Employee pursuant to Section 15.2(d)) and for determining the limitations under Article IX, Considered Compensation means total compensation paid to the Participant by an Employer, a Commonly Controlled Entity or a member of an Affiliated Service Group for the Plan Year, (i) effective prior to January 1, 1993, excluding any benefits under the Plan or any other qualified plan described in Section 401(a) of the Internal Revenue Code, or the amount of any Participant Elected Contributions under the McDESOP portion of the Plan which are credited to the Participant's accounts under the Plan, the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II"), the McDonald's Profit Sharing Program Equalization Plan ("McEqual"), the McDonald's 1989 Executive Equalization Plan ("McCAP I") or any other non-qualified deferred compensation plans from time to time maintained by the Company, or other deferred compensation, stock options, and any other distribution which receives special tax benefit; (ii) effective on or after January 1, 1993, including distributions from any nonqualified deferred compensation plans maintained by an Employer, Commonly Controlled Entity or member of an Affiliated Service Group and amounts paid or reimbursed by the employer for moving expenses incurred by the Participant to the extent it is reasonable to believe that such amounts are not deductible by the Participant under Section 217 of the Internal Revenue Code and excluding any salary reduction contributions to a cafeteria plan meeting the requirements of Code Section 125 or to the Plan or any other qualified plan described in Section 401(a) of the Internal Revenue Code, or the amount of the Participant's Participant Elected Contributions under the McDESOP portion of the Plan or any other portion of the Plan or of any other plan which meets the requirements of Section 401(k) of the Internal Revenue Code, whether credited to the Participant's accounts under the Plan, the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II"), the McDonald's Profit Sharing Program Equalization Plan ("McEqual"), the McDonald's 1989 Executive Equalization Plan ("McCAP I") or any other non-qualified deferred compensation plans from time to time maintained by the Company, or other deferred compensation, stock options, and any other amounts which receive special tax benefits; (c) for the purpose of determining whether a Participant is (1) a Highly Compensated Employee or (2) a member of the Top Paid Group or (3) whether a Participant is a Key Employee pursuant to Section 15.2(d), Considered Compensation shall be the Participant's Considered Compensation as defined in Section 1.14(b) increased by the amount by which the Participant's compensation is reduced pursuant to a compensation reduction election under Section 5.1 or any other Related Plan which meets the requirements of Section 401(k) of the Internal Revenue Code or pursuant to other compensation reduction contributions for medical, dental or dependent care or other benefits under a cafeteria plan meeting the requirements of Section 125 of the Internal Revenue Code; (d) for the purpose of calculating (1) the actual contribution percentage in accordance with Section 4.1, (2) the actual deferral percentage in accordance with Section 5.2 or (3) the multiple use test in accordance with Section 5.4, Considered Compensation shall be the Participant's compensation for the portion of the Plan Year during which he or she was an Active Participant as defined in Section 1.2(c) (i) as reported in Box 10 of his Internal Revenue Service Form W-2 (or Box 1, as revised for 1993, or the equivalent box on any comparable form for subsequent years) plus (ii) any amounts by which the Participant's compensation is reduced by Participant Elected Contributions under the McDESOP portion of the Plan or any other portion of the Plan or any other plan which meets the requirements of Section 401(k) of the Internal Revenue Code or compensation reduction contributions for medical, dental or dependent care or other benefits under a cafeteria plan meeting the requirements of Section 125 of the Internal Revenue Code; (e) effective January 1, 1993, for the purpose of determining the amount of Participant Elected Contributions pursuant to Section 5.1, Considered Compensation means a Participant's Considered Compensation as defined in Section 1.14(a) increased by expatriate equalization differentials and reduced by all compensation not paid in cash, by cash perquisites and by any payments for referrals to the extent included in Considered Compensation as defined in Section 1.14(a). For purposes of Sections 1.14(a), (c), (d) and (e), Considered Compensation taken into account under the Plan shall not exceed $228,860 (in 1992, and as adjusted in subsequent years as provided by the Secretary of the Treasury) (the "dollar limit"). In determining whether a Participant's Considered Compensation for a Plan Year exceeds the dollar limit, if and only to the extent required by the Internal Revenue Code, the Considered Compensation of each Five Percent Owner and of each Participant who is one of the ten Highly Compensated Employees paid the greatest Considered Compensation (determined before the aggregation of the Considered Compensation of any family member) shall include the Considered Compensation of such Participant's spouse and lineal descendants who have not attained age 19 before the end of the Plan Year earned as employees of an Employer, a Commonly Controlled Entity or member of an Affiliated Service Group. For purposes of applying the dollar limit in the first sentence of this paragraph, if the Considered Compensation of a Five Percent Owner or of a Participant who is one of the ten Highly Compensated Employees paid the greatest compensation (determined before the aggregation of the compensation of any family member) is equal to or greater than the dollar limit ("Affected Participant"), the Considered Compensation of each of such Affected Participant, his spouse and lineal descendants who have not attained age 19 before the end of the Plan Year ("Affected Family Member") shall be equal to the dollar limit for the Plan Year multiplied by a fraction the numerator of which is such individual's Considered Compensation after application of the dollar limit and the denominator of which is the sum of such Considered Compensation for the Affected Participant and the Affected Family Members. Effective January 1, 1994, "$150,000" shall be substituted for "$228,860" in the above paragraph. Anything to the contrary herein notwithstanding, Considered Compensation for a Plan Year shall not be reduced by the pay for a period of short term disability which is repaid to an Employer in a subsequent Plan Year by a Participant who fails to complete the requirements to be eligible to retain such pay. 1.15 "Credited Service" shall mean an Employee's total Years of Credited Service excluding the following: (a) Years of Credited Service before January 1, 1964; (b) Years of Credited Service before January 1, 1976, which would have been disregarded under the McDonald's Corporation Savings and Profit Sharing Plan before January 1, 1976, with regard to the then existing rules on reemployment; (c) Years of Credited Service prior to a Break in Service, if the Participant had no vested interest in his Profit Sharing Fund Account prior to such Break in Service and (1) effective with respect to a Break in Service which occurred before January 1, 1985, if the Participant had no more than one year of Credited Service prior to such Break in Service and (2) effective with respect to one or more consecutive Breaks in Service none of which occurred before January 1, 1985, if the number of consecutive Breaks in Service equals or exceeds five consecutive Breaks in Service; (d) For purposes of determining a Participant's vested interest in his Profit Sharing Fund Account or his Employer Auxiliary ESOP Contribution Account accrued before (1) a Break in Service which occurred before January 1, 1985 and (2) five consecutive Breaks in Service if none of the Breaks in Service occurred before January 1, 1985, Years of Credited Service after such Break in Service. 1.16 "Disability" means a mental or physical condition which renders a Participant permanently unable or incompetent to carry out the job responsibilities he held or tasks to which he was assigned at the time the disability was incurred. Such determination shall be made by the Committee on the basis of such medical and other competent evidence as the Committee shall deem relevant. 1.17 "Disqualified Person" means a person defined in Section 4975(e)(2) of the Internal Revenue Code. 1.18 "Domestic Affiliate" means any domestic corporation, partnership or joint venture of which, in the case of a corporation, the Company owns, directly or indirectly, either twenty-five percent or more of the voting power of all classes of stock or twenty-five percent or more of the value of all stock, or of which, in the case of a partnership or joint venture, the Company owns, directly or indirectly, a twenty-five percent or more interest in both the capital and profits. 1.19 "Effective Date" means July 1, 1992. 1.20 "Eligibility Computation Period" means the twelve-month period commencing with the first day of the pay period in which an Employee first performs an Hour of Service following hire (or rehire after a Break in Service) and each subsequent twelve-month period commencing on an anniversary of that date. In addition, with respect to Hours of Service which are credited to an Employee pursuant to Section 1.31(b)(2) for service with a Licensee whose restaurant(s) are acquired by an Employer (the "Acquisition"), Eligibility Computation Period means (a) each full calendar year such individual was employed by the Licensee before the calendar year of such Acquisition commencing with the calendar year in which such Employee first performed an hour of service for the Licensee and continuing through the calendar year ending immediately before the date of such Acquisition and (b) if such Employee was employed by the Licensee on January 1 of the calendar year of the Acquisition, the calendar year of such Acquisition; provided that for the calendar year in which the Acquisition occurs both Hours of Service credited pursuant to Section 1.31(b)(2) and those credited pursuant to the remainder of Section 1.31 for service after the Acquisition shall both be counted in the Eligibility Computation Period in which the Acquisition occurred. 1.21 "Eligibility Service" means the number of Eligibility Computation Periods during which an Employee has completed not less than 1000 Hours of Service excluding any Eligibility Service earned before a Break in Service until the Employee has completed one Year of Eligibility Service following the Break in Service. 1.22 "Employee" means any person who is employed by the Company or another Employer (as that entity is defined for the Profit Sharing Plan portion or McDESOP portion of the Plan, respectively, with respect to contributions to such portions of the Plan with respect to which the term Employee is being used) including a person on an Authorized Leave of Absence. Such term does not include a consultant, an independent contractor or a Leased Employee. 1.23 "Employer" means, (a) for purposes of Article III, concerning contributions to the Profit Sharing Plan portion of the Plan and other provisions of the Plan as they relate to the Profit Sharing Plan portion of the Plan and for purposes of Section 4.1, 4.3 and Article V, concerning Employer Matching Contributions and Participant Elected Contributions, the Company and any Subsidiary, Commonly Controlled Entity, Domestic or Foreign Affiliate, or any other business in which the Company owns an interest which had adopted the McDonald's Corporation Savings and Profit Sharing Plan before the Effective Date or, pursuant to Section 12.1, elects to adopt the Profit Sharing Plan portion of the Plan on or after the Effective Date; and (b) for purposes of Section 4.2 and Article VI concerning the Auxiliary ESOP and other provisions of the Plan as they relate to the contributions and loans provided in the Auxiliary ESOP portion of the Plan, the Company and any Commonly Controlled Corporation which had adopted the McDonald's Matching and Deferred Stock Ownership Plan before the Effective Date or, pursuant to Section 12.1, elects to adopt the McDESOP portion of the Plan on or after the Effective Date. 1.24 "Employer Contributions" means the following payments made from time to time by an Employer to the Trustee: (a) "Employer Profit Sharing Contributions" made pursuant to Sections 3.1 or 15.3(a) hereof; (b) "Employer Matching Contributions" made pursuant to Section 4.1 hereof; (c) "Special Section 401(k) Employer Contributions" made pursuant to Section 4.3(b) hereof; (d) "Employer Auxiliary ESOP Contributions" made pursuant to Section 4.2 hereof; (e) "Additional Employer Contributions" made pursuant to Section 4.4 hereof; and (f) "Special Dividend Replacement Contributions" made pursuant to Section 4.2. 1.25 "Entry Date" means January 1 and July 1 of each Plan Year. 1.26 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.27 "Five Percent Owner" means a Participant who owns (or is considered as owning within the meaning of Section 318 of the Internal Revenue Code) more than five percent of an Employer, Commonly Controlled Entity or member of an Affiliated Service Group as provided in Section 416(i)(1)(B)(i) of the Internal Revenue Code. 1.28 "Foreign Affiliate" means any foreign corporation, partnership or joint venture of which, in the case of a corporation, the Company owns, directly or indirectly, either twenty-five percent or more of the voting power of all classes of stock or twenty-five percent or more of the value of all stock, or, of which, in the case of a partnership or a joint venture, the Company owns, directly or indirectly, a twenty-five or more percent interest in both the capital and profits. 1.29 "Forfeiture" means the portion of a Participant's Profit Sharing Fund Account which is forfeited as provided in Section 11.4, his Auxiliary ESOP Contribution Account which is forfeited as provided in Section 11.4 and unclaimed amounts which are forfeited under Section 16.6. 1.30 "Highly Compensated Employee" means, for a Plan Year, any Participant who performs services as an employee for an Employer, Commonly Controlled Entity or member of an Affiliated Service Group during such Plan Year and who: (a) (1) at any time during the Plan Year or the preceding Plan Year ("Preceding Plan Year"), was a Five Percent Owner; or (2) (A) received Considered Compensation in excess of $90,803 (for 1991, adjusted in subsequent years as provided by the Secretary of the Treasury) during the Preceding Plan Year or (B) received Considered Compensation in excess of $93,518 (for 1992, adjusted in subsequent years as provided by the Secretary of the Treasury) during the Plan Year and was one of the 100 employees of the group consisting of the Employers, Commonly Controlled Entities and members of an Affiliated Service Group who received the most Considered Compensation during the Plan Year; or (3) received Considered Compensation for the Preceding Plan Year in excess of $60,535 (for 1991, adjusted in subsequent years as provided by the Secretary of the Treasury) and is in the Top Paid Group for the Preceding Plan Year; or (4) (A) was an officer of (or performed the duties of an officer for) an Employer, a Commonly Controlled Entity or member of an Affiliated Service Group during the Preceding Plan Year or was an officer of such an entity (or performed the duties of an officer of such an entity) during the Plan Year and one of the 100 employees of the group consisting of the Employers, Commonly Controlled Entities and members of an Affiliated Service Group who received the most Considered Compensation during the Plan Year, and (B) received Considered Compensation in excess of fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Internal Revenue Code ($108,963 in 1991 and $112,221 in 1992, adjusted in subsequent years as determined in accordance with regulations prescribed by the Secretary of the Treasury or his delegate), provided that no more than fifty (50) persons shall be treated as officers hereunder for any Plan Year or Preceding Plan Year. (b) For purposes of this Section 1.30, the Considered Compensation of (1) any Highly Compensated Employee in the group consisting of the ten (10) Highly Compensated Employees paid the greatest Considered Compensation (without regard to this Section 1.30(b)) or, (2) any Five Percent Owner, shall include any Considered Compensation paid to a spouse, lineal ascendants or descendants, or any spouse of such lineal ascendants or descendants of such Highly Compensated Employee or such Five Percent Owner and such spouse, lineal ascendants or descendants, or any spouse of such lineal ascendants or descendants shall not be treated as an employee for purposes of this Section 1.30. (c) For purposes of this Section 1.30 and Section 1.53, employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) of the Internal Revenue Code) from an Employer, a Commonly Controlled Entity or member of an Affiliated Service Group which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Internal Revenue Code) shall not be treated as employees. (d) A former employee shall also be treated as a Highly Compensated Employee for a Plan Year if such former employee had a Termination of Employment prior to such Plan Year and was a Highly Compensated Employee (without regard to this Section 1.30(d)) for either the Plan Year in which he had a Termination of Employment or any Plan Year ending on or after his 55th birthday. (e) In lieu of determining which individuals are Highly Compensated Employees as provided in paragraphs (a)(1), (a)(2), (a)(3), and (a)(4) of this Section 1.30, the Plan Administrator may elect for any Plan Year to consider as a Highly Compensated Employee for such Plan Year each Participant who performs services as an employee for an Employer, Commonly Controlled Entity or member of an Affiliated Service Group during such Plan Year and who, during the Plan Year: (1) was at any time a Five Percent Owner; (2) received Considered Compensation in excess of $93,518 (for 1992, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate); (3) received Considered Compensation in excess of $62,345 (for 1992, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate) and was a member of the Top Paid Group; and (4) was an officer of (or performed the duties of an officer for) an Employer, a Commonly Controlled Entity or member of an Affiliated Service Group and received Considered Compensation in excess of fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Internal Revenue Code ($112,221 for 1992, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate). (f) The Committee may elect for any Plan Year to determine the Highly Compensated Employees for such year by substituting (1) "$62,345" (in 1992, adjusted in subsequent years provided by the Secretary of the Treasury or his delegate) for "$93,518" (in 1992, adjusted in subsequent years provided by the Secretary of the Treasury or his delegate) in Sections 1.30(a)(ii) or 1.30(e)(2) as applicable, and ignoring Sections 1.30(a)(iii) or 1.30(e)(3), respectively. (g) A Committee may make any of the elections permitted under Sections 1.30(e) and 1.30(f) for a Plan Year, may make different elections from Plan Year to Plan Year and may make different elections for different purposes under the Plan (e.g., which Participants are considered to be Highly Compensated Employees (1) for the purposes of calculating the limits described in Sections 4.1(c), 5.2(e) and 5.4 and (2) for other purposes under the Plan. 1.31 "Hour of Service" means: (a) Each hour for which an employee or a Leased Employee (determined without regard to Section 1.34(b)) is paid directly or indirectly, or entitled to payment, by an Employer, Commonly Controlled Entity or member of an Affiliated Service Group, (1) for performance of duties; (2) on account of a period of time during which no duties were performed, provided that, except as herein otherwise expressly provided, no more than 501 Hours of Service shall be credited for any single continuous period during which an Employee performs no duty, and provided that no Hours of Service shall be credited for payments made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws, or for reimbursement of medical expenses; and (3) for which back pay, irrespective of mitigation of damages, is awarded or agreed to by the Employer, provided that no more than 501 Hours of Service shall be credited for any single continuous period of time during which the Employee did not or would not have performed duties. (b) (1) The credit for Hours of Service shall be given for the following: (A) For Plan Years beginning before January 1, 1994, an Employee's prior or subsequent employment by a Foreign Affiliate or Domestic Affiliate; (B) For Plan years beginning after December 31, 1993, an Employee's prior or subsequent employment by a Domestic or Foreign Affiliate if the employee is transferred to or from such Domestic or Foreign Affiliate from or to, respectively, the employment of an Employer at the initiative of an Employer (a "Company Initiated Transfer"). In determining the number of such Hours of Service to be credited, the Plan Administrator shall make good faith estimates based upon the available information and records including the use of reasonable equivalencies similar to those permitted under DOL Reg. Section 2530.200b-3 or estimated average number of hours per week for employees in a given job category. (2) If a McDonald's Restaurant or a group of restaurants operated by a Licensee is acquired by the Company or another Employer in the first six months of a calendar year and if such restaurant or group of restaurants is designated as a permanent acquisition by the Company, the store managers who are employed by such Licensee either in a restaurant or in connection with the operation of one or more restaurants as of the date of such acquisition and who continue to be employed by the Company or other Employer until June 30 of the Plan Year in which the acquisition occurred shall be credited by the Employer with his Hours of Service with such Licensee. If a McDonald's Restaurant or group of restaurants operated by a Licensee is acquired by the Company or another Employer, during the Plan Year, each store manager who is employed by such Licensee either in a restaurant or in connection with the operation of one or more restaurants as of the date of acquisition and continues to be employed by the Company or other Employer until the last day of the Plan Year in which such acquisition occurred who has not already received credit for service with the Licensee under the preceding sentence shall as of the last day of such Plan Year be credited by the Company or other Employer with his Hours of Service with such Licensee. In determining the number of such Hours of Service to be credited, the Plan Administrator shall make good faith estimates based upon the available information and records including the estimated average number of hours per week for employees in a given job category. (3) To the extent an Employee is not otherwise credited with Hours of Service for each payroll period while on an Authorized Leave of Absence, an Employee shall be credited with the number of Hours of Service equal to the average number of Hours of Service per payroll period (not to exceed forty Hours of Service per week) of such Employee for the six calendar week period, or pertinent payroll period if such period is longer, ending immediately prior to the commencement of the Authorized Leave of Absence notwithstanding the limitations of Section 1.31(a)(2). If a Participant is on an Authorized Leave of Absence on the last day of a Plan Year, the Hours of Service credited pursuant to the preceding sentence shall be counted for the purpose of determining whether he is an Active Participant under Sections 1.2(a) and (b) for such Plan Year. Notwithstanding the foregoing, an Employee who fails either (A) to return to his employment within ninety (90) days after the expiration of an Authorized Leave of Absence, or (B) to remain in the employ of an Employer after the expiration of an Authorized Leave of Absence for the lesser of (i) a period equal to the period of his Authorized Leave of Absence or (ii) one year following his return to employment, unless such failure shall be due to death, Disability, illness, retirement on or after age 55 or the sale by the Company, one of its subsidiaries or affiliates of the McDonald's Restaurant in which such Employee is employed, shall be considered to have voluntarily terminated his employment as of the date the Leave of Absence commenced for purposes of determining Hours of Service for Eligibility Service and Credited Service. (4) A person who became an Employee on September 16, 1994, as a result of the acquisition of the Special Operations Division of Corporate Systems, Inc. and who immediately prior to that date was an employee of the Special Operations Division of Corporate Systems, Inc. shall be credited with Hours of Service pursuant to the foregoing provisions of this Section 1.31 as if service with Corporate Systems, Inc. were service with the Company. Such Hours of Service shall be credited using actual hours of service for hourly paid employees and using the service equivalencies provided in Section 1.31(e) for salaried employees. (c) To the extent not otherwise credited in Section 1.31, solely for purposes of avoiding a Break in Service, for periods of absence from work on account of Parental Leave, an Employee shall be credited with Hours of Service as defined below: (1) the Hours of Service which normally would have been credited to such individual but for the Parental Leave, or (2) eight (8) Hours of Service per day of such absence if the Plan is unable to determine the Hours of Service which would have been credited to such individual but for the Parental Leave. An Employee's Hours of Service for absence on account of Parental Leave shall not exceed the lesser of 501 Hours of Service or the number of Hours of Service needed to prevent a Break in Service and shall be credited to the Eligibility Computation Period (for purposes of crediting Eligibility Service) or the Plan Year (for purposes of crediting service other than Eligibility Service) in which absence because of a Parental Leave commenced; except that if such Hours of Service are not needed to prevent a Break in Service in the Eligibility Computation Period or Plan Year in which absence because of a Parental Leave commenced, and the Parental Leave continues into the next following Eligibility Computation Period or Plan Year then, if needed to prevent a Break in Service, such Hours of Service shall be credited to the Eligibility Computation Period or Plan Year following the year in which such absence commenced. (d) Hours of Service for reasons other than the performance of duties shall, except as provided in Section 1.31(b)(2), be determined in accordance with the provisions of Department of Labor Regulations Section 2530.200b-2(b), and Hours of Service shall be credited to computation periods in accordance with the provisions of Department of Labor Regulations Section 2530.200b-2(c). (e) Except as provided in Sections 1.31(b)(2) and 1.31(c) each Employee who is paid on a salaried basis shall be credited with 95 Hours of Service for each semimonthly payroll period during which such Employee has any Hours of Service. 1.32 "Internal Revenue Code" means the Internal Revenue Code of 1986, as from time to time amended and any subsequent Internal Revenue Code. References to any section of the Internal Revenue Code shall be deemed to include similar sections of the Internal Revenue Code as renumbered or amended. 1.33 "Investment Fund" As provided in Section 10.6 and excluding those assets held in the Distribution Fund pursuant to Section 10.27, (a) assets of the Profit Sharing Plan portion of the Trust Fund shall be held in the following Investment Funds: (1) the Diversified Stock Fund, (2) the Profit Sharing McDonald's Common Stock Fund, (3) the Money Market Fund, (4) the Insurance Contract Fund, and (5) the Multi-Asset Fund, and (b) assets of the McDESOP portion of the Trust Fund shall be held in the following two Investment Funds: (1) the McDESOP McDonald's Common Stock Fund and (2) the McDESOP McDonald's Preferred Stock Fund; provided, however, that shares of Company Stock held in the McDESOP McDonald's Common Stock Fund and McDESOP McDonald's Preferred Stock Fund shall be separately allocated to Participants' Participant Elected Contribution Accounts, Employer Matching Contribution Accounts and Employer Auxiliary ESOP Contribution Accounts which shall be denominated in shares of Company Stock. 1.34 "Leased Employee" means any person who is not an employee of an Employer, a Commonly Controlled Entity or a member of an Affiliated Service Group and who provides service to an Employer if: (a) such services are provided pursuant to an agreement between the recipient and any other person; (b) such person has performed such services for the Employer (or for the Employer, any Commonly Controlled Entity or member of an Affiliated Service Group) on a substantially full time basis for a period of at least 1 year; and (c) such services are of a type historically performed, in the business field of the Employer, Commonly Controlled Entity or Affiliated Service Group, by employees. 1.35 "Licensee" means any person, other than the Company or a Commonly Controlled Entity which operates a McDonald's Restaurant pursuant to lease and license agreements (or so-called "Business Facilities Lease") with the Company or affiliated companies. 1.36 "McDESOP" means the portion of the Plan consisting of Participants' Participant Elected Contribution Accounts, Employer Matching Contribution Accounts, Diversification Accounts, Employer Auxiliary ESOP Contribution Accounts and the Employer Auxiliary ESOP Suspense Accounts. 1.37 "Non-highly Compensated Employee" means, for a Plan Year, any Participant who performs services for an Employer, Commonly Controlled Entity or Affiliated Service Group during such Plan Year and who was not a Highly Compensated Employee for such Plan Year. 1.38 "Parental Leave" means a period during which an individual is absent from work for any period: (a) by reason of the pregnancy of the individual, (b) by reason of the birth of a child of the individual, (c) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. An absence from work shall not be a Parental Leave unless the individual furnishes the Committee such timely information as may reasonably be required to establish that the absence from work was for one of the reasons specified above and the number of days for which there was such an absence. Nothing contained herein shall be construed to establish an Employer policy of treating a Parental Leave as an Authorized Leave of Absence or to otherwise establish a parental leave policy for any Employer, except for the purpose of avoiding a Break in Service. 1.39 "Participant" means a person participating in the Plan in accordance with the provisions of Article II. 1.40 "Participant Contributions" means the voluntary contributions made by a Participant to the Trustee with respect to Plan Years commencing before January 1, 1987, and credited to his Investment Savings Fund Account. 1.41 "Participant Elected Contributions" means the contributions made by an Employer on behalf of an Active Participant attributable to reductions of the Participant's Considered Compensation determined under Section 5.1, including: (a) "Participant Elected Matched Contributions", which means the portion of Participant Elected Contributions for a Plan Year with respect to which the Company may elect, in accordance with Section 7.2, to make Employer Matching Contributions; and (b) "Participant Elected Unmatched Contributions", which means the portion of Participant Elected Contributions for a Plan Year with respect to which the Company may not, in accordance with Section 7.2, make Employer Matching Contributions. 1.42 "Party in Interest" means a person defined in Section 3(14) of ERISA. 1.43 "Plan" means the McDonald's Corporation Profit Sharing Program as herein set forth, and as hereafter amended from time to time, including its two components, the Profit Sharing Plan and McDESOP. 1.44 "Plan Administrator" means the Plan Administrator appointed under or by the provisions of Section 13.14. 1.45 "Plan Year" means the 12-month period commencing on January 1 and ending on December 31. 1.46 "Profit Sharing Plan" means the portion of the Plan consisting of Participants' Profit Sharing Fund Accounts, Rollover Contribution Accounts, Rollover Contribution Holding Accounts, Investment Savings Fund Accounts and of the Profit Sharing Contribution Holding Fund. 1.47 "Qualified Preretirement Survivor Annuity" means an immediate monthly pension payable in accordance with Section 11.2(e)(2) to the surviving spouse of a Participant who has elected to receive benefits in the form of a life annuity in an amount equal to an annuity for the life of the surviving spouse which can be purchased with fifty percent of the portion of the Participant's vested Net Balance Account which the Participant had elected to be paid in the form of a life annuity pursuant to Section 11.2(a). 1.48 "Related Plan" means any other qualified defined contribution plan or qualified defined benefit plan (as defined in Section 415(k) of the Internal Revenue Code) maintained by an Employer, a Commonly Controlled Entity or member of an Affiliated Service Group, respectively called a "Related Defined Contribution Plan" and "Related Defined Benefit Plan." 1.49 "Required Beginning Date" means April 1 (but not before April 1, 1990 for a Participant who is not a Five Percent Owner) of the calendar year following: (a) for a Participant who reaches age 70-1/2 before January 1, 1988, the later of: (1) the calendar year in which he reaches age 70-1/2, or (2) if the Participant is not a Five Percent Owner at any time during the Plan Year ending with or within the calendar year in which he attains age 70-1/2 or any of the four (4) prior Plan Years, the calendar year in which he has a Termination of Employment; provided that if any such Participant becomes a Five Percent Owner during any Plan Year after he attains age 70-1/2, the "Required Beginning Date" for such Participant shall be the April 1 of the calendar year following the calendar year in which such Plan Year ends, and (b) for a Participant who reaches age 70-1/2 on or after January 1, 1988, the calendar year in which the Participant reaches age 70-1/2. Notwithstanding the foregoing, the Required Beginning Date shall not be any date earlier than any date to which Required Beginning Date can be delayed in accordance with Section 11.14 and any applicable law, regulations, or rulings. 1.50 "Rollover Contribution" means a Participant's rollover contribution as described in Section 402(a)(5) (effective before January 1, 1993), Section 402(c) (effective on or after January 1, 1993), Section 403(a)(4) or Section 408(d)(3) of the Internal Revenue Code and credited to his Rollover Contribution Holding Fund Account, in accordance with Section 8.1. Effective January 1, 1993, Rollover contributions made in accordance with Section 402(c) or 403(a)(4) may be transfers of (a) distributions made to a Participant in accordance with one of the above referenced sections of the Internal Revenue Code or (b) direct rollover contributions made in compliance with Section 401(a)(31) of the Internal Revenue Code. 1.51 "Subsidiary" shall mean any corporation affiliated with the Company within the meaning of Section 1504 of the Internal Revenue Code. 1.52 "Termination of Employment" means (a) a resignation by an Employee for any reason, (b) a dismissal of an Employee for any reason, or (c) any other termination of the employee-employer relationship. Transfers of an Employee from an Employer, Commonly Controlled Entity, member of an Affiliated Service Group, Domestic Affiliate or Foreign Affiliate to another Employer, Commonly Controlled Entity, member of an Affiliated Service Group, Domestic Affiliate or Foreign Affiliate shall not be treated as a Termination of Employment. 1.53 "Top Paid Group" means, for a Plan Year, the group consisting of the top twenty percent of the total number of persons employed by all Employers, Commonly Controlled Entities and members of Affiliated Service Groups when ranked on the basis of Considered Compensation paid during the Plan Year; provided that for purposes of determining the total number of persons employed by such entities, the following employees shall be excluded: (a) employees who had not completed six (6) months of service, (b) employees who worked less than seventeen and one-half (17-1/2) hours per week, (c) employees who normally worked during not more than six (6) months during any Plan Year, and (d) employees who had not attained age 21. 1.54 "Trust" means the legal entity or entities resulting from the Trust Agreement between the Company and the Trustee, and any amendments thereto, by which Employer Contributions, Participant Contributions, Rollover Contributions, Participant Elected Contributions, the proceeds of any loan made pursuant to Article VI, Employer Auxiliary ESOP Account, the Employer Auxiliary ESOP Suspense Account and any Company Stock purchased therewith shall be received, held, invested and distributed to or for the benefit of the Participants and Beneficiaries. 1.55 "Trust Agreement" means any agreement between the Company and a Trustee, establishing the McDonald's Corporation Savings and Profit Sharing Master Trust and the McDonald's Matching and Deferred Stock Ownership Trust ("Trust"), as amended from time to time and such additional trust agreements as the Company and the Trustee shall establish under the Plan. 1.56 "Trustee" means any corporation, individual or individuals who shall accept the appointment to execute the duties of Trustee as set forth in a Trust Agreement. 1.57 "Trust Fund" means all property received and held by a Trustee pursuant to a Trust Agreement for the Plan. The Trust Fund shall be composed of the sub-funds ("Trust Sub-funds") which shall be part of the Profit Sharing Plan and McDESOP portions of the Plan as follows: (a) The Profit Sharing Plan portion of the Plan shall be held in the following Trust Sub-funds. (1) "Investment Savings Fund" which means the portion of the Trust Fund established by segregating Participants' Contributions to the Trust with respect to Plan Years commencing before January 1, 1987, together with all income, profits and increments thereon less all losses, expenses and distributions chargeable thereto. (2) "Profit Sharing Fund" which means the portion of the Trust Fund established by segregating the Employer Profit Sharing Contributions to the Trust and any Forfeitures (for Plan Years beginning before January 1, 1992) which have been allocated to Participants' Profit Sharing Contribution Fund Accounts in accordance with Section 7.1 for all Plan Years, together with all income, profits, and increments thereon less all losses, expenses and distributions chargeable thereto. (3) "Rollover Contribution Fund" which means the portion of the Trust Fund established by segregating the amounts contributed to the Trust by Employees pursuant to Section 8.1 for all preceding valuation periods, together with all income, profits and increments thereon less all losses, expenses and distributions chargeable thereto. (4) "Rollover Contribution Holding Fund" which means the portion of the Trust Fund established by segregating Rollover Contributions to the Trust received since the immediately preceding Valuation Date, together with all income, profits and increments thereon less all losses, expenses and distributions chargeable thereto until such contributions shall be transferred to the Rollover Contribution Fund as of the Valuation Date next following their receipt. (5) "Profit Sharing Contribution Holding Fund" which means the portions of the Trust Fund established by segregating Employer Profit Sharing Contributions for a Plan Year made pursuant to Article III for Active Participants, who are (A) staff or executive employees or store managers ("Profit Sharing Contribution Holding Fund #1") and (B) certified swing managers, primary maintenance employees, crew members or other store hourly employees ("Profit Sharing Contribution Holding Fund #2"), together with all income, profits and increments thereon less all losses, expenses and distributions chargeable respectively thereto until such contributions are transferred to Participant's Profit Sharing Fund Accounts following the close of such Plan Year and receipt of Employer Profit Sharing Contributions for such Plan Year as provided in Section 3.2. (b) The McDESOP portion of the Plan shall be held in the following Trust Sub-funds: (1) "Participant Elected Contribution Fund" which means the portion of the Trust Fund determined by segregating the Participant Elected Contributions to the Trust Fund and any Forfeitures allocated thereto for all preceding valuation periods credited to Participants' Accounts or credited to the Trust since the preceding Valuation Date together with all income, profits and increments thereon less all losses, expenses and distributions chargeable thereto. (2) "Employer Matching Contribution Fund" which means the portion of the Trust Fund determined by segregating the Employer Contributions, Special Section 401(k) Employer Contributions, Additional Employer Contributions and any Forfeitures allocated to Participants' Employer Matching Contribution Accounts in accordance with Section 7.2 as of all preceding Valuation Dates, together with all income, profits and increments thereon less all losses, expenses and distributions chargeable thereto. (3) "Participant Elected Contribution Holding Fund" which means the portion of the Trust Fund established by segregating Participant Elected Contributions to the Trust received since the immediately preceding Valuation Date and any Company Stock purchased with such contributions, together with all losses, expenses and distributions chargeable thereto until such contributions shall be transferred to the Participant Elected Contribution Fund. (4) "Employer Matching Contribution Holding Fund" which means the portion of the Trust Fund established by segregating the Employer Matching Contributions to the Trust (excluding any Employer Per Capital Matching Contributions) and any amount of Forfeitures pursuant to Sections 11.4(c) and 16.6 as of a Valuation Date including any Company Stock purchased with such contributions or Forfeitures, together with all income, profits and increments thereon, less all losses, expenses and distributions chargeable thereto until such contributions are transferred to the Employer Matching Contribution Fund as of a subsequent Valuation Date as provided in Section 7.2(a). (5) "Employer Per Capita Matching Contribution Holding Fund" which means the portion of the Trust Fund established by segregating in separate subaccounts the Employer Matching Contributions made to the Trust and designated as Employer Per Capita Matching Contributions in accordance with Section 4.1(a) and any Additional Employer Contributions in accordance with Section 4.4 for the Plan Year or portion of the Plan Year, any Forfeitures which the Board of Directors determines shall be allocated as Per Capita Matching Contributions as provided in Section 4.1(a) and any Company Stock purchased with such contributions, together with all income, profits and increments thereon less all losses, expenses and distributions chargeable thereto until all such contributions are transferred to the Employer Matching Contribution Fund as of a subsequent Valuation Date as provided in Section 7.2(d). (6) "Employer Auxiliary ESOP Fund" which means the portion of the Trust Fund established by segregating the amounts released from an Auxiliary ESOP Suspense Account pursuant to Section 6.3 and Forfeitures allocated in accordance with Section 11.4(c) for all preceding Plan Years, together with all income (other than dividends on Company Stock which are used to repay a loan), profits, and increments thereon less all losses, expenses and distributions chargeable thereto. (7) "McDESOP Suspense Fund" which means the portion of the Trust Fund determined by segregating the Auxiliary ESOP Suspense Accounts established with respect to each loan made in accordance with Section 6.1 together with all income, profits and increments thereon less all losses, expenses, loan payments or transfers changeable thereto. (c) "Diversification Fund" means the portion of the Trust Fund established by segregating the amounts transferred from Participant's Employer Auxiliary ESOP Contribution Accounts, Participant Elected Contribution Accounts and Employer Matching Contribution Accounts in the McDESOP portion of the Plan in accordance with Section 10.12. The Diversification Trust Sub- fund is part of the McDESOP portion of the Plan but is held in the Profit Sharing Master Trust in order to implement Participants' diversification elections made in accordance with Section 10.12. 1.58 "Valuation Date" means the last business day of each calendar month and such additional dates as the Committee may from time to time specify except that, effective July 1, 1993, solely for the purpose of valuing accounts to make distributions pursuant to Article XI, "Valuation Date" means the fifteenth day of each calendar month (or if the fifteenth day of the month is not a business day, the next previous business day) and the last business day of each calendar month and such additional dates as the Committee may from time to time specify. 1.59 "Vesting Retirement Date" means the date on which a Participant attains age 55. 1.60 "Year of Credited Service" means a Plan Year during which an Employee has not less than one thousand (1,000) Hours of Service including once the individual has become an employee Hours of Service credited while he was a Leased Employee. 1.61 "Year of Eligibility Service" means an Eligibility Computation Period during which an Employee has not less than one thousand (1,000) Hours of Service including once the individual has become an employee Hours of Service credited while he was a Leased Employee. ARTICLE II PARTICIPATION 2.1 Participation. Each person who was a Participant under the provisions of the McDonald's Corporation Savings and Profit Sharing Plan or McDonald's Matching and Deferred Stock Ownership Plan on the day before the Effective Date, shall continue to be a Participant hereunder. Each other Employee shall become a Participant on the first Entry Date coinciding with or next following the date he completes one Year of Eligibility Service and attains age 21. Admission to participation in the Plan shall only be made when an Employee is not on an Authorized Leave of Absence or serving with the Armed Forces of the United States. Each Participant shall continue to be a Participant until the later of (a) the date he incurs a Termination of Employment or has a Break in Service and (b) the date his entire vested Net Balance Account has been paid from the Trust. Each Participant is a participant only with respect to the portions of the Plan which have been adopted by his Employer. 2.2 Certification of Participation and Compensation to Committee. Each Employer shall certify to the Committee, within a reasonable time after each Entry Date, the names of all new Participants. Each Employer, within a reasonable time after the last day of each Plan Year, shall certify to the Committee with respect to its Employees each Participant's number of Hours of Service and Considered Compensation during such Plan Year and such other information as the Committee may request. 2.3 Termination of Employment, Break in Service, Reemployment and Change in Employment Status. Upon resuming employment following a Break in Service, an Employee who is at least age 21, who had at least one Year of Eligibility Service prior to such Break in Service, and who completes one Year of Eligibility Service following such Break in Service shall become a Participant retroactively to the day of such Employee's Retroactive Participation Date (as defined in the following sentence) provided that such Employee shall not be an Active Participant until the first day of the calendar month in which occurs the date of his completion of one Year of Eligibility Service following the Break in Service (the "Active Participation Date") and his Considered Compensation shall be deemed to be first earned commencing with his Active Participation Date; provided that Participant Elected Contributions and Employer Matching Contributions shall commence on the first day of the pay period in which the Participant completes One Year of Eligibility Service or as soon as administratively feasible thereafter. An Employee's "Retroactive Participation Date" is the date such Employee resumes employment. Upon a change in his employment status or resuming employment following a Termination of Employment which did not constitute a Break in Service, an Employee who was a Participant prior to a Termination of Employment shall be treated as an Active Participant from the day of his change in status or resumption of employment. 2.4 Employees of Foreign or Domestic Affiliates. An employee of a Foreign or Domestic Affiliate who becomes an Employee shall become a Participant on the later of the day such individual becomes an Employee or the next Entry Date following the date such Employee attains age 21 and completes one Year of Eligibility Service. 2.5 Leased Employee. A person who has been a Leased Employee (determined without regard to Section 1.34(b)) who becomes an Employee shall become a Participant on the later of (a) the first day of the month following the month in which such person becomes an Employee or (b) the next Entry Date following the date such person attains age 21 and completes one Year of Eligibility Service. 2.6 McDESOP Participation. Each Eligible Employee who, pursuant to this Article II, would otherwise become a Participant in the McDESOP portion of the Plan upon employment or reemployment on or after November 1, 1992 and who is a certified swing manager, primary maintenance employee, crew member or other store hourly employee shall only become a Participant for purposes of making Participant Elected Contributions and receiving associated matching contributions and for the portions of the plan relating to such contributions (the "401(k) portion of the Plan") and shall not become a Participant for the purpose of receiving allocations of shares of Company Stock released from the Auxiliary ESOP Suspense Account as provided in Section 6.3(a) ("Auxiliary ESOP portion of the Plan"). Notwithstanding the forgoing, any such Eligible Employee who was a Participant in the Auxiliary ESOP portion of the Plan on December 31, 1991, shall on January 1, 1992, cease to be a Participant therein and, if such Eligible Employee has Accounts in the Auxiliary ESOP portion of the Plan such Eligible Employee shall nonetheless cease to be a Participant for all purposes except for the purpose of receiving distributions, and making claims for benefits under the Plan and shall receive no further allocations from the Auxiliary ESOP portion of the Plan. ARTICLE III PROFIT SHARING PLAN EMPLOYER CONTRIBUTIONS 3.1 Profit Sharing Contributions. Profit Sharing Contributions shall be made by Employers, as follows: (a) Determination of Contribution. The Board of Directors shall determine and certify to the Committee the amount, if any, of Employer Profit Sharing Contributions to be made to the Plan by all Employers hereunder separately for (1) staff and executive employees or store managers and (2) Certified Swing Managers, primary maintenance employees, crew members and other hourly restaurant employees. In its discretion, the Board of Directors may determine different amounts of contributions or contributions of different percentages of Considered Compensation for the groups identified in (1) and (2) of the preceding sentence. Such determination shall be binding on all Participants, the Committee, the Company and the Other Employers. (b) Employer's Shares of Profit Sharing Contributions. Subject to Section 12.2, each Employer including the Company shall contribute for each Plan Year an amount equal to the sum of the Staff Contribution and the Crew Contribution as determined for such Employer below: (1) Staff Contribution. The amount of an Employer's Staff Contribution shall equal the product of (A) the total Profit Sharing Contributions for the Plan Year for the Participants identified in Section 3.1(a)(1), as determined by the Board of Directors in accordance with Section 3.1(a), multiplied by (B) a fraction the numerator of which is the total Considered Compensation for such Plan Year of such Participants who are (i) Active Participants and (ii) Employees of such Employer and the denominator of which is the total Considered Compensation for the Plan Year of all Active Participants who are Employees of all Employers described in Section 3.1(a)(1); and (2) Crew Contribution. The amount of an Employer's Crew Contribution shall equal the product of (A) the total Profit Sharing Contributions for the Plan Year for the Participants identified in Section 3.1(a)(2), as determined by the Board of Directors in accordance with Section 3.1(a), multiplied by (B) a fraction the numerator of which is the total Considered Compensation for such Plan Year of such Participants who are (i) Active Participants and (ii) Employees of such Employer and the denominator of which is the total Considered Compensation for the Plan Year of all Active Participants who are Employees of all Employers described in Section 3.1(a)(2). 3.2 Payment of Contributions Made Pursuant to Article III. The Employer Profit Sharing Contributions for each Plan Year shall be paid in cash or in securities of McDonald's Corporation, which are qualifying employer securities as defined in ERISA Section 407(d)(5) (which includes but is not limited to Company Stock), in full not later than the due date for filing the federal income tax return of the Employer for the tax year during which the last day of such Plan Year falls. Employer Profit Sharing Contributions and Forfeitures, if any, for each Plan Year shall be held in the Profit Sharing Contribution Holding Fund and, if contributed in cash, invested in the Money Market Fund or, if contributed as qualifying employer securities, remain invested in qualifying employer securities until February 1 following the Plan Year or, if not administratively feasible, as soon thereafter as administrative requirements may warrant, at which time the Committee shall allocate such amounts to Participants' Profit Sharing Fund Accounts and invest them in accordance with Section 10.7, 10.8 or 10.11(a), as applicable. ARTICLE IV McDESOP EMPLOYER CONTRIBUTIONS 4.1 Amount of Employer Matching Contributions. Employer Matching Contributions shall be made by Employers as specified in (a), subject to the limitations specified in (b), as follows: (a) Employer Matching Contributions. For each Plan Year, each Employer shall contribute to the Trust as Employer Matching Contributions an amount equal to (i) the Matching Amount reduced by (ii) the Forfeiture Amount, as defined below: (1) The Matching Amount shall equal fifty percent (or such greater percentage as the Board of Directors from time to time determines) of the sum of all Participant Elected Matched Contributions (excluding Special Participant Elected Matched Contributions as described in Section 5.1) for the Plan Year made for Active Participants who are employed by that Employer. If the Forfeiture Amount for a Plan Year is greater than the Matching Amount, the Matching Amount shall equal the Forfeiture Amount plus any Employer Matching Contributions made to the Trust by the Employers for such Plan Year. (2) The Forfeiture Amount shall equal (A) the amount of Forfeitures which occur during a Plan Year pursuant to Sections 11.4(c) and 16.6, (B) multiplied by a fraction the numerator of which is the amount of Participant Elected Matched Contributions (excluding Special Participant Elected Matched Contributions) made for Active Participants who are Employees of such Employer and the denominator of which is the total amount of Participant Elected Matched Contributions (excluding Special Participant Elected Matched Contributions) made for Active Participants for the Plan Year. Notwithstanding the foregoing, the Board of Directors may from time to time determine that each Employer shall make Employer Matching Contributions in a designated equal amount for the Plan Year or a designated portion of such Plan Year for each Participant ("Employer Per Capita Matching Contributions"). (b) Average Actual Contribution Percentage. The average actual contribution percentage ("Average ACP") for a specified group of Participants for a Plan Year shall be the average of the actual contribution percentages of the persons in such group. A Participant's actual contribution percentage is equal to the product of (1) 100 multiplied by (2) the quotient of (A) the sum of Employer Matching Contributions including any Forfeitures allocated therewith and Special Section 401(k) Employer Contributions (both to the extent not counted for purposes of the Required ADP Test pursuant to Section 5.2(d)) and, if the Committee in its discretion so elects, Participant Elected Contributions actually paid to the Trust for each such Employee for such Plan Year divided by (B) the Employee's Considered Compensation for the Plan Year ("Actual Contribution Percentage"). As soon as practicable after the end of the Plan Year, the Committee shall calculate the Average ACP for the Plan Year for the group of Employees eligible to be Active Participants who are Highly Compensated Employees and for the group of such Employees who are Non-highly Compensated Employees. (c) Required Actual Contribution Percentage Test and Adjustment. The Average ACP for the group of Highly Compensated Employees eligible to be Active Participants for any Plan Year shall not exceed both (1) and (2) ("Required ACP Test") as follows: (1) the Average ACP for the group of Participants who are Non-highly Compensated Employees multiplied by 1.25, and (2) the lesser of (A) the Average ACP for the group of Employees eligible to be Active Participants who are Non- highly Compensated Employees multiplied by 2 or (B) such Average ACP for such Employees plus 2%. If the Required ACP Test for a Plan Year is not met and, if the Company does not elect to make Special Section 401(k) Employer Contributions with respect to the Plan Year sufficient to result in the Average ACP of the Highly Compensated Employees not exceeding the amounts in both Sections 4.1(c)(1) and (c)(2), then the Committee shall reduce Employer Matching Contributions including any Forfeitures allocated therewith which may be allocated to Participants who are Highly Compensated Employees to the highest percentage of Considered Compensation which results in the Average ACP of Highly Compensated Employees meeting the requirements of Section 4.1(c)(1) or (c)(2) above. The Committee shall reduce and distribute such excess Employer Matching Contributions including any Forfeitures allocated therewith and any income, gains or losses attributable thereto, as determined in accordance with Section 5.3, to Highly Compensated Employees by first reducing and distributing the Employer Matching Contributions including any Forfeitures allocated therewith of such Participants with the highest Actual Contribution Percentage to equal that of the Highly Compensated Employee with the next highest Actual Contribution Percentage and repeating such reductions until the Average ACP for the Highly Compensated Employees does not exceed both the amounts in Sections 4.1(c)(1) and (c)(2) above. The Committee shall make any distributions necessary for the Plan to meet the Required ACP Test after the end of the Plan Year with respect to which such reduced Employer Matching Contributions including any Forfeitures allocated therewith were made and, if reasonably possible, by March 15 following the end of such Plan Year but, in any event, not later than by the end of the following Plan Year. 4.2 Auxiliary ESOP Contributions. Employer Auxiliary ESOP Contributions shall be made by Employers, as follows: (a) Company Auxiliary ESOP Contributions. For each Plan Year that a loan authorized under Section 6.1 remains unpaid, the Company shall contribute in cash to the Trust, as Employer Auxiliary ESOP Contributions, such amounts (if any) as shall be determined by the Board of Directors, provided, however, the Company's Employer Auxiliary ESOP Contribution in cash for any Plan Year shall not be less than the product of: (1) the installment (if any) payable on such loan reduced by the dividends on unallocated shares of Company Stock (or Company stock into which such shares have been converted) held in the suspense account associated with such loan (or any loan refinanced with such loan), dividends on allocated shares of Company Stock (or Company Stock into which such shares have been converted) held in Participants' Employer Auxiliary ESOP Contribution Accounts acquired with the proceeds of such loan (or any Loan refinanced with such loan) and earnings attributable to such dividends and to Employer Auxiliary ESOP Contributions made to repay such loan; multiplied by (2) a fraction, the numerator of which is the Considered Compensation paid by the Company to Employees for the Plan Year paid while they were Active Participants and the denominator of which is the Considered Compensation for the Plan Year paid to all Employees while they were Active Participants. If no installment (as drawn or renegotiated) is payable on a loan for the Plan Year, no Employer Auxiliary ESOP Contribution shall be required with respect to such loan for the Plan Year, except as otherwise determined by the Board of Directors. The dividends on allocated shares of Company Stock held in Participants' Employer Auxiliary ESOP Contribution Accounts acquired with the proceeds of a loan or any loan refinanced with such loan (or shares into which such Company Stock has been converted) shall be included in Section 4.2(a)(1) only to the extent that Employer Contributions and the dividends and other income attributable to unallocated shares held in the suspense account associated with such loan are less than the installments payable or to be payable with respect to such loan. (b) Employer Auxiliary ESOP Contributions. Each Employer that has adopted the Auxiliary ESOP (other than the Company) shall contribute to the Trust an amount equal to the product of: (1) the total Considered Compensation for the Plan Year paid by such Employer to Employees while they were Active Participants; multiplied by (2) a fraction the numerator of which is the Employer Auxiliary ESOP Contribution of the Company for the Plan Year and the denominator of which is the Considered Compensation paid by the Company to Employees while they were Active Participants. (c) Types of Auxiliary ESOP Contributions. There shall be two types of Employer Auxiliary ESOP Contributions, determined by the type of loan designated by the Board of Directors at the time a loan is authorized under Section 6.1 hereof: (1) Per Capita Employer Auxiliary ESOP Contributions with respect to which amounts released from the Auxiliary ESOP Suspense Account (after such released amount is reduced by amounts allocated to Participants' Per Capita Employer Auxiliary ESOP Contribution Accounts with respect to dividends paid on shares of Company Stock held in such Accounts and used to repay the loan) shall be allocated to Participants' Per Capita Employer Auxiliary ESOP Contribution Accounts in accordance with Section 7.3(a), and (2) Compensation Based Employer Auxiliary ESOP Contributions with respect to which amounts released from the Auxiliary ESOP Suspense Account (after such released amount is reduced by amounts allocated to Participants' Compensation Based Employer Auxiliary ESOP Contribution Accounts with respect to dividends paid on shares of Company Stock held in such Accounts and used to repay the loan) shall be allocated to Participants' Compensation Based Employer Auxiliary ESOP Contribution Accounts in accordance with Section 7.3(b). (d) Additional Employer Auxiliary ESOP Contributions. The Board of Directors may, in its discretion, determine that Additional Employer Auxiliary ESOP Contributions shall be made for a Plan Year in Company Stock and designate such contributions as Per Capita Additional Auxiliary ESOP Contributions or Compensation Based Additional Auxiliary ESOP Contributions (collectively called "Additional Employer Auxiliary ESOP Contributions"). The Company shall make such Additional Employer Auxiliary ESOP Contributions in an amount equal to the total Additional Employer Auxiliary ESOP Contribution multiplied by a fraction the numerator of which is the Considered Compensation paid by the Company to Employees for the Plan Year paid while they were Active Participants and the denominator of which is the Considered Compensation for the Plan Year paid to all Employees while they were Active Participants. Each Employer that has adopted the Auxiliary ESOP (other than the Company) shall contribute to the Trust as Additional Employer Auxiliary ESOP Contributions an amount equal to the product of the total Considered Compensation for the Plan Year paid by such Employer to Employees while they were Active Participants multiplied by a fraction the numerator of which is the Company's Additional Employer Auxiliary ESOP Contribution and the denominator of which is the Compensation paid by the Company to Employees while they were Active Participants. (e) Special Dividend Replacement Contributions. The Board of Directors may, in its discretion, determine that Special Dividend Replacement Contributions shall be made as of any Valuation Date in an amount not to exceed the dividends with respect to Company Stock allocated to Participant's Employer Auxiliary ESOP Accounts which are used pursuant to Section 6.3(b). Each Employer shall make any such Special Dividend Replacement Contributions in an amount equal to the total amount of such contributions to be made as of a Valuation Date multiplied by a fraction the numerator of which is the Considered Compensation paid to Active Participants who are Employees of the Employer for the calendar quarter ending on the Valuation Date and the denominator of which is the Considered Compensation paid to all Active Participants during the calendar quarter ending on the Valuation Date. (f) Auxiliary ESOP Suspense Account. All Employer Auxiliary ESOP Contributions made with respect to a loan shall be held and accounted for within the separate Auxiliary ESOP Suspense Account associated with such loan. 4.3 Annual Employer Contribution Elections. (a) Minimum and Maximum Amount of Participant Elected Matched Contributions. Prior to January 1, 1993, an Active Participant may elect a Special Participant Elected Matched Contribution in the amount of $1 per week to commence to be made to the Trust on his behalf. Once elected, such Special Participant Elected Matched Contributions shall continue for so long as the Participant is an Active Participant until the Participant elects to discontinue such contributions. If Participant Elected Matched Contributions (in addition to Special Participant Elected Matched Contributions made prior to January 1, 1993) are to be permitted for all or any portion of a Plan Year, the Company by action of its Board of Directors shall specify for the Plan Year or portion of the Plan Year, the amount (either as a dollar amount or a percentage of each Active Participant's Considered Compensation) of such Participant Elected Matched Contributions ("Specified Participant Elected Matched Contributions") which shall be made on behalf of an Active Participant in the absence of a contrary election by the Participant and may also specify, the minimum and maximum amounts of Participant Elected Matched Contributions which a Participant may elect in lieu of Specified Participant Elected Matched Contributions (either as a dollar amount or a percentage of each Participant's Considered Compensation) for the Plan Year or portion of the Plan Year as permitted by procedures established by the Plan Administrator, provided that such minimum and maximum amounts shall be not greater for any Plan Year than (1) prior to to January 1, 1993, one dollar ($1) per week plus (A) five percent (5%) of the Participant's Considered Compensation if the Participant is a staff or an executive employee or a store manager, (B) ten percent (10%) of the Participant's Considered Compensation if the Participant is a Certified Swing Manager or primary maintenance employee, and (C) eight percent (8%) of the Participant's Considered Compensation if the Participant is a crew member or other hourly restaurant employee; and (2) on or after January 1, 1993 and prior to January 1, 1994 (A) five percent (5%) of the Participant's Considered Compensation if the Participant is a staff or an executive employee or a store manager, (B) ten percent (10%) of the Participant's Compensation if the Participant is a Certified Swing Manager or primary maintenance employee, and (C) eight percent (8%) of the Participant's Compensation if the Participant is a crew member or other hourly restaurant employee; and (3) on or after January 1, 1994 (A) six percent (6%) of the Participant's Considered Compensation if the Participant is a staff or an executive employee or a store manager, (B) ten percent (10%) of the Participant's Considered Compensation if the Participant is a Certified Swing Manager or primary maintenance employee, and (C) eight percent (8%) of the Participant's Considered Compensation if the Participant is a crew member or other hourly restaurant employee. (b) Special Section 401(k) Employer Contributions. For each Plan Year, the Company may elect to have the Company and the other Employers make a Special Section 401(k) Employer Contribution to the Plan in such amount (if any) as the Board of Directors may determine, which shall be allocated pursuant to Section 7.2(b) to the Employer Matching Contribution Accounts of those Active Participants who for the Plan Year are Non-highly Compensated Employees who have Compensation reduction elections in effect. In any Plan Year in which the Company elects to have such a Special Section 401(k) Employer Contribution made, each Employer, including the Company, shall contribute a fractional portion of the Special Section 401(k) Employer Contribution, in an amount equal to the Special Section 401(k) Employer Contribution multiplied by a fraction, the numerator of which is the amount of Participant Elected Contributions for such Plan Year of those Active Participants who are employed by the Employer and who are Non-highly Compensated Employees, and the denominator of which is the amount of Participant Elected Contributions for the Plan Year of all Active Participants who are Non-highly Compensated Employees. 4.4 Additional Employer Contributions. For such Plan Years, if any, as the Board of Directors shall direct, the Employers shall make Additional Employer Contributions in an amount to be determined by the Board of Directors. Each such Employer shall contribute Additional Employer Contributions to the Trust for a Plan Year in an amount equal to the total Additional Employer Contributions for such Plan Year multiplied by a fraction the numerator of which is the number of Active Participants eligible to receive Additional Employer Contributions who are Employees of the Employer and the denominator of which is the total number of Active Participants eligible to receive Additional Employer Contributions. 4.5 Payment of Contributions Made Pursuant to Article IV. Employer Contributions for each Plan Year made in accordance with Article IV, except for Special Section 401(k) Employer Contributions as provided in Section 4.3(b), shall be delivered to the Trustee on or before the due date for the filing of the federal income tax return (including any extensions) of the Employer for the tax year during which the last day of such Plan Year occurs. Special Section 401(k) Employer Contributions for a Plan Year may be made during the Plan Year or at any time on or before the last day of the following Plan Year. Employer Matching Contributions and any Forfeitures allocated therewith, Special Section 401(k) Employer Contributions and Additional Employer Contributions shall be invested in the McDESOP McDonald's Common Stock Fund and held in the Employer Matching Contribution Holding Fund until allocated to Participant's Accounts as provided in Sections 7.2(a), 7.2(b) and 7.2(c), respectively. Employer Per Capita Matching Contributions shall be invested in the McDESOP McDonald's Common Stock Fund and held in the Employer Per Capita Matching Contribution Holding Fund until allocated to Participant's Accounts as provided in Section 7.2(d). Participant Elected Contributions shall be invested in the McDESOP McDonald's Common Stock Fund and held in the Participant Elected Contribution Holding Fund until credited to Participant's Accounts as provided in Section 7.4. 4.6 Form of Contributions. Except as otherwise provided, Employer Contributions to the McDESOP Trust shall be either in cash or in Company Stock, as each Employer shall determine in its discretion. ARTICLE V PARTICIPANT ELECTED CONTRIBUTIONS 5.1 Participant Elected Contributions. Each Active Participant, who is employed by an Employer, shall have his Considered Compensation reduced for each Plan Year or designated portion of a Plan Year by an amount equal to the Specified Participant Elected Matched Contribution for the Plan Year or designated portion of a Plan Year, as provided in Section 4.3(a), which amount his Employer shall contribute to the McDESOP Trust on the Participant's behalf as a Participant Elected Matched Contribution, unless the Participant shall elect, on such form, at such time and in such manner as the Committee shall specify, not to have his Considered Compensation so reduced or (subject to the minimum and maximum amounts of reduction specified for the Plan Year pursuant to Section 4.3(a)) reduced by a lesser or greater amount. In addition, each Active Participant may elect in writing on forms approved by the Committee to have his Employer contribute to the McDESOP Trust on the Participant's behalf as Participant Elected Unmatched Contributions an amount equal to any additional amount by which the Participant elects to have his Considered Compensation reduced (which election may be a larger percentage for certain Considered Compensation during a Plan Year, e.g. bonus, and a smaller percentage for other Considered Compensation, e.g. salary, as the Committee shall permit), provided that such amount may not exceed (i) prior to January 1, 1993, five percent (5%), and (ii) on or after January 1, 1993, seven percent (7%) of his Considered Compensation for a Plan Year and further provided that an Active Participant may elect Participant Elected Unmatched Contributions as provided above regardless of whether the Participant is making Participant Elected Matched Contributions for that period. The Committee may from time to time establish general policies requiring Participants to elect Participant Elected Matched Contributions up to a specified level before electing any Participant Elected Unmatched Contributions. Prior to January 1, 1993, each Participant may elect to have his Considered Compensation reduced by one dollar ($1.00) per week as provided in Section 4.3(a) which his Employer shall contribute to the McDESOP Trust on his behalf as a Special Participant Elected Matched Contribution and may elect to discontinue such contributions. Such Special Participant Elected Matched Contributions shall be treated as Participant Elected Matched Contributions for all purposes hereunder except that Special Participant Elected Contributions shall not be counted as Participant Elected Matched Contributions for the purpose of applying the limit of five percent (5.0%) of a Participant's Considered Compensation applicable to Participant Elected Matched Contributions. Notwithstanding any provision herein to the contrary, the amount of a Participant's Participant Elected Contributions for any calendar year shall not exceed an amount or percentage which from time to time is established by the Committee or the Board of Directors, nor a pro rata portion of said amount for any partial calendar year of contributions. Except as otherwise specifically provided herein, a Participant may make, change or revoke a Compensation reduction election at such times and in such manner as the Committee may permit, provided that any such election, change or revocation shall apply solely to Considered Compensation, which is not currently available to the Participant as of the date of such election, change or revocation. The Compensation reduction election by the Active Participant which is in accordance with the Plan shall continue in effect, notwithstanding any change in Considered Compensation, until he shall change such Compensation reduction election or until he shall cease to be an Active Participant. If a Participant has an election pursuant to the McDonald's 1989 Executive Equalization Plan ("McCap I") or the McDonald's Supplemental Employee Benefit Equalization Plan ("McCap II") in effect for a calendar year, the Participant's Compensation reduction election hereunder may not be changed for such year but may only be changed before the beginning of the following Plan Year for such Plan Year. Each Employer shall make Participant Elected Contributions to the Trustee on behalf of each Active Participant employed by the Employer in the amount by which the Participant's Considered Compensation was reduced pursuant to this Section 5.1. 5.2 Restrictions on Participant Elected Contributions. Notwithstanding the provisions of Section 5.1, the following restrictions shall apply to Participant Elected Contributions: (a) No Participant Compensation reduction election shall be solicited or accepted from any Participant and no Participant Elected Contributions shall be made on behalf of any Participant unless and until a registration statement under the Securities Act of 1933 has become effective with respect to securities offered in connection with the Plan, unless in the opinion of counsel for the Company such registration statement is not required; (b) No Compensation reduction election shall be solicited or accepted from any Participant who resides or works in any state and no Participant Elected Contributions shall be made on behalf of any Participant who resides or works in any state unless and until the Plan shall have complied with applicable securities and blue sky laws of the state or in the opinion of counsel of the Company is exempt from such law; and (c) (1) The sum of Participant Elected Contributions and of elected deferrals under any Related Defined Contribution Plan for any Participant shall in no event exceed a maximum of $8,728 (in 1992 as adjusted from time to time, in accordance with Section 402(g)(5) of the Internal Revenue Code) for a calendar year ("Maximum Elective Deferral Amount"). (2) If the Participant notifies the Committee in writing by March 1 following the Plan Year or such later date not later than the April 15 following the Plan Year as the Committee shall permit, that the sum of his elective contributions to a simplified employer pension, to a 403(b) plan (as defined in Section 402(g)(3) of the Internal Revenue Code), or to any qualified cash or deferred arrangement (as defined in Section 401(k) of the Internal Revenue Code) exceeds the Maximum Elective Deferral Amount ("Excess Elected Deferrals"), such portion of the Participant's Participant Elected Contributions as the Participant shall elect in such notice not to exceed the amount of such Excess Elected Deferrals (including any income allocated thereto as determined in accordance with Section 5.3) shall be distributed to the Participant not later than the April 15 following the Plan Year. In determining whether a Participant has made Excess Elected Deferrals under this Section 5.2(c)(2), if a Participant is a participant in any plan described in Section 403(b) of the Internal Revenue Code under which he makes elective deferrals, the Maximum Elective Deferral Amount shall be increased in accordance with the provisions of Sections 402(g)(4) and 402(g)(8) of the Internal Revenue Code with respect to any Participant who participates in a plan described in Section 403(b) of the Internal Revenue Code or who is a qualified employee in a plan of a qualified organization (as defined in Section 402(g)(8) of the Internal Revenue Code) for a calendar year. (3) Notwithstanding the foregoing, if the Participant has elected to participate in McCAP I or McCAP II as provided therein his Compensation reduction elections hereunder shall be irrevocable to the extent provided in Section 5.1 and any amount of such deferrals which shall be in excess of the Maximum Elective Deferral Amount and any Employer Matching Contributions and any Forfeitures allocated therewith shall not be contributed hereunder but shall be credited to the Participant's account under McCAP I or McCAP II, as applicable, to the extent provided thereunder and further provided that no such amount shall be credited to a Participant under more than one of the McDonald's Profit Sharing Program Equalization Plan ("McEqual"), McCAP I and McCAP II or any other non-qualified deferred compensation plan from time to time maintained by the Company. (4) If a Participant is not eligible to or has not elected to participate in McCAP I or McCAP II as provided therein and has Compensation reduction elections in excess of the Maximum Elective Deferral Amount hereunder, such Participant Elected Contributions shall not be contributed to the Plan nor shall such Participant be credited with any Participant Elected Contributions or Employer Matching Contributions and any Forfeitures allocated therewith under McCAP I or McCAP II, as applicable, for the Plan Year. (5) In determining whether the Maximum Elective Deferral Amount has been exceeded, the Plan Administrator may count Participant Elected Contributions toward the limit in the order contributed to the Plan, may apply the Maximum Elective Deferral Amount on a pro rata basis to periods specified by the Plan Administrator or such other approach as the Plan Administrator shall reasonably determine. (d) Average Actual Deferral Percentage. The average Actual Deferral Percentage ("Average ADP") for a specified group of Participants for a Plan Year shall be the average of the Actual Deferral Percentages of the members of such group. The Actual Deferral Percentage of an individual is the amount of his Participant Elected Contributions (excluding for each Non-highly Compensated Employee any such contributions in excess of the Maximum Elective Deferral Amount as defined in Section 5.2(c)(1)) and such portion, if any, as the Committee determines, of Employer Matching Contributions and Special Section 401(k) Employer Contributions, actually paid to the Trust for each such Employee for such Plan Year divided by the Employee's Considered Compensation for the Plan Year ("Actual Deferral Percentage"). As soon as practicable after the end of the Plan Year, the Committee shall calculate the Average ADP for the Plan Year for the group of Participants who are Highly Compensated Employees and for the group of Participants who are Non-highly Compensated Employees. (e) Required ADP Test and Adjustment. The Average ADP for a group of Highly Compensated Employees eligible to be Active Participants for any Plan Year shall not exceed both (1) and (2) ("Required ADP Test") below: (1) the Average ADP for the group of Active Participants who are Non-highly Compensated Employees multiplied by 1.25, and (2) the lesser of (A) the Average ADP for Active Participants who are Non-highly Compensated Employees multiplied by 2 or (B) such Average ADP for such Active Participants plus 2%. If the Required ADP Test for a Plan Year is not met and, if the Company does not elect to make Special Section 401(k) Contributions with respect to the Plan Year sufficient to result in the Average ADP of the Highly Compensated Employees not exceeding both the amounts in Sections 5.2(e)(1) and (e)(2), then the Committee shall reduce, in accordance with Section 5.5, Participant Elected Contributions (and any Employer Matching Contributions and any Forfeitures allocated therewith allocated with respect thereto) that Active Participants who are Highly Compensated Employees may defer so that the Average ADP of Highly Compensated Employees does not exceed the amounts in Sections 5.2(e)(1) and (e)(2). The Committee shall reduce and distribute such excess Participant Elected Contributions and any income, gains or losses attributable thereto, as determined in accordance with Section 5.3, to Highly Compensated Employees by first reducing the Participant Elected Contributions (and any Employer Matching Contributions and any Forfeitures allocated therewith) of such Participants with the highest Actual Deferral Percentage to equal that of the Highly Compensated Employee with the next highest Actual Deferral Percentage and repeating such reductions until the ADP for the Highly Compensated Employees does not exceed the amounts in both Section 5.2(e)(1) and (e)(2) above. The Committee shall distribute such reduced Participant Elected Contributions and any income allocable thereto after the end of the Plan Year with respect to which such reduced Participant Elected Contributions were made and, if reasonably possible, by March 15 following the end of such Plan Year but, in any event, not later than by the end of the following Plan Year. If Employer Matching Contributions and any Forfeitures allocated therewith are included in calculating the ADP for a Plan Year, any such contributions reduced hereunder shall be distributed to Participants in the same manner as Participant Elected Contributions are distributed (including any income allocable thereto). If Employer Matching Contributions and any Forfeitures allocated therewith are not included in calculating the ADP for Plan Year, any amount of Employer Matching Contributions and any forfeitures allocated therewith reduced hereunder because such contributions were originally allocated with respect to Participant Elected Matched Contributions which are reduced to meet the Required ADP Test shall become a Forfeiture and shall be allocated to other Participant's Employer Matching Contribution Accounts in proportion to the Employer Matching Contributions and any Forfeitures allocated therewith to such accounts pursuant to Sections 7.2(a) and (d). 5.3 Allocation of Income to Certain Distributed Amounts. Income, gains and losses equal to the sum of the amounts determined under (a) below shall be allocated to and distributed with any amounts distributed to a Participant pursuant to Sections 4.1(c), 5.2(e) or 5.4 as follows: (a) Income for Plan Year. Income, gains and losses for a completed Plan Year with respect to contributions distributed in accordance with Section 4.1(c), 5.2(e) or 5.4 shall equal the income, gains and losses for the Plan Year allocable to a Participant's Account for such contributions (taking the contributions allocated to each different type of Account, separately) multiplied by a fraction the numerator of which is the amount of such contributions so distributed and the denominator of which is the total of such Account balance as of the last day of the Plan Year reduced by all earnings and gains and increased by all expenses and losses allocable to such Account for the Plan Year. (b) Allocation of Distributed Income to Accounts. Income, gains and losses distributed with any amounts distributed to a Participant pursuant to Sections 4.1(c), 5.2(e) or 5.4 shall reduce the income, gains and losses allocated to a Participant's Elected Contribution Account or Employer Matching Contribution Account, in accordance with Section 10.15, in an amount equal to the total amount of such income, gains and losses distributed. 5.4 Multiple Use of Alternative Limitations. If after any reductions provided for in Sections 4.1(c) and 5.2(e) are made, the ACP of Highly Compensated Employees exceeds the amount in Section 4.1(c)(1) but does not exceed the lesser of the amounts in Section 4.1(c)(2) and the Average ADP of Highly Compensated Employees exceeds the amount in Section 5.2(e)(1) but does not exceed the lesser of the amounts in Section 5.2(e)(2), the sum of the Average ADP and the Average ACP, for a Plan Year, of the Highly Compensated Employees who are Active Participants (i) shall not exceed the greater of (a) or (b), where: (a) equals the sum of (1) plus (2) where: (1) is one hundred and twenty-five percent (125%) of the greater of (A) the Average ADP for such Plan Year of the Non-Highly Compensated Employees who are Active Participants, or (B) the Average ACP for such Plan Year of such Non-Highly Compensated Employees; and (2) is two percent plus the lesser of the amount determined under Section 5.4(a)(1)(A) or the amount determined under Section 5.4(a)(1)(B), but in no event shall this amount exceed two hundred percent (200%) of the lesser of the amounts determined under Section 5.4(a)(1)(A) or 5.4(a)(1)(B); and (b) equals the sum of (1) plus (2) where (1) is one hundred and twenty-five percent (125%) of the lesser of (A) the Average ADP for such Plan Year of the Non-Highly Compensated Employees who are Active Participants, or (B) the Average ACP for such Plan Year of such Non-Highly Compensated Employees; and (2) is two percent plus the greater of the amount determined under Section 5.4(b)(1)(A) or 5.4(b)(1)(B). In no event, however, shall this amount exceed 200 percent of the greater of the amounts determined under Section 5.4(b)(1)(A) or 5.4(b)(1)(B). The Committee may establish, from time to time, such rules, restrictions and limitations as it may deem appropriate to insure that the above limitations are met. If the Committee determines that the reduction or disallowance of Employer Matching Contributions and any Forfeitures allocated therewith, Participant elections or Participant Elected Contributions is necessary or desirable with respect to Highly Compensated Employees, the Committee may reduce or disallow Employer Matching Contributions and any Forfeitures allocated therewith or Participant Elected Contributions and the income, gains and losses thereon as determined pursuant to Section 5.3 for such Highly Compensated Employees, including elections for Participant Elected Contributions or such contributions and Employer Matching Contributions and any Forfeitures allocated therewith already made for the Plan Year, as provided in Section 4.1(c), 5.2(e) or 5.5. 5.5 Excess Compensation Reduction Elections. Participant Elected Contributions for any Participant or group of Participants shall not exceed the maximum amounts permitted under Sections 4.1(c), 5.2(e) and 5.4, as determined by the Committee in its sole discretion. If any amounts of Employer Matching Contributions and any Forfeitures allocated therewith of any Participant or group of Participants are determined by the Committee to be in excess of the amounts permitted under Section 4.1(c) or 5.4, or if any amounts of Participant Elected Contributions for any Participant or group of Participants are determined by the Committee to be in excess of the amounts permitted under Section 5.2(e) or 5.4 and if the Company has not elected to make Special Section 401(k) Employer Contributions with respect to the Plan Year sufficient to satisfy the requirements of Section 4.1(c), 5.2(e) or 5.4 or if the Committee reasonably expects that Employer Matching Contributions and any Forfeitures allocated therewith or Participant Elected Contributions will be in excess of the amounts permitted under Section 4.1(c), 5.2(e) or 5.4, the Committee may apply one or both of (a) and (b) below to the extent the Committee, in its discretion, reasonably estimates to be necessary to satisfy Section 4.1(c), 5.2(e) or 5.4. (a) Restrictions on Participant Elected Contributions. The Committee may, in accordance with uniform and non-discriminatory rules from time to time established by the Committee, reduce prospectively the amount of the Participant Elected Contributions which may be made by an Employer to the McDESOP Trust on behalf of Active Participants who are Highly Compensated Employees by reducing the Participant's elections for such contribution to the extent the Committee reasonably determines it is necessary to satisfy Section 5.2(e) or 5.4. (b) Staggered and Limited Elections for Highly Compensated Employees. The Committee may, in accordance with uniform and non-discriminatory rules it establishes from time to time, require that Active Participants who are among the Highly Compensated Employees for the Plan Year make Compensation reduction elections following and/or preceding the completion of such elections by Employees who are Non-highly Compensated Employees and the Committee may (1) limit the amount by which each Participant who is among the Highly Compensated Employees may elect to reduce his Considered Compensation, and (2) permit each Employee who is a Non-highly Compensated Employee to elect to reduce his Considered Compensation within higher limits than those for Highly Compensated Employees. (c) Estimated Compensation. For the purposes of Section 5.5(a) and (b), Employers are permitted to determine that Participants are Highly Compensated Employees or Non-highly Compensated Employees based on the Participant's Considered Compensation for the immediately preceding Plan Year or estimated Considered Compensation for the current Plan Year in accordance with uniform and nondiscriminatory rules whenever information regarding actual Considered Compensation for the Plan Year is not reasonably available at the time the amount of a contribution hereunder is determined or limited; provided that subsequent adjustments shall be made, as necessary, to the extent such estimates prove to be incorrect. 5.6 Deadline for Participant Elected Contributions. Each Employer shall contribute on behalf of each Active Participant the Participant Elected Contributions for each Plan Year to the Trustee as soon as administratively possible as of the earliest date on which such contributions can reasonably be segregated from the Employer's general assets but not later than the earlier of (1) 90 days from the date on which such amounts would otherwise have been payable to the Active Participant in cash or (2) the end of the twelve-month period immediately following the last day of such Plan Year or by such later date as may be permitted under applicable law, Treasury Regulations and Rulings of the Internal Revenue Service. 5.7 Application of the Limitations of Sections 5.2(c), 5.2(e), 4.1(c), 5.4 and 9.1. Section 5.2(c) shall be first applied to contributions under the Plan, secondly, Section 5.2(e) shall be applied to contributions under the Plan, thirdly, Section 4.1(c) shall be applied to contributions under the Plan, fourthly, Section 5.4 shall be applied to contributions under the Plan, and lastly, Section 9.1 shall be applied to contributions under the Plan. ARTICLE VI AUXILIARY ESOP PROVISIONS 6.1 Power to Borrow. The Board of Directors in its discretion may authorize the Trustee of the Trust to borrow funds on behalf of the Plan for the purpose of purchasing Company Stock and for making repayment of outstanding loans, the proceeds of which have been used to purchase Company Stock and for which the Plan is liable. At the time of authorizing a loan, the Board of Directors shall specify whether the loan is to be a loan to be repaid with Per Capita Employer Auxiliary ESOP Contributions ("Per Capita Loan") or Compensation Based Employer Auxiliary ESOP Contributions ("Compensation Based Loan"). In the event the Trustee's borrowing shall cause a lending of money or other extension of credit to be made between the Plan and a Disqualified Person or a Party in Interest or, if in connection with such borrowing, a Disqualified Person or Party in Interest shall guarantee a loan or other extension of credit to the Plan, such loan or other extension of credit to the Plan shall, as an "Exempt Loan," meet the requirements of Section 4975(d)(3) of the Internal Revenue Code and Section 408(b)(3) of ERISA and regulations thereunder, which include the following: (a) The loan shall be for a specific term and not payable upon demand except in the event of default; (b) The loan is primarily for the benefit of Participants and Beneficiaries, at a reasonable rate of interest, and under terms at the time the loan is made which are at least as favorable to the Plan as the terms of a comparable loan resulting from arms-length negotiations between independent parties; (c) The proceeds of the loan must be used within a reasonable time after their receipt to acquire Company Stock or for making repayment of an outstanding Exempt Loan; (d) The loan shall be without recourse against the Plan and collateral for the loan shall be limited to the shares of Company Stock acquired with the proceeds of the loan (or Company Stock into which such shares have been converted) or used as collateral on an outstanding Exempt Loan which is being repaid with the proceeds of the loan. No person entitled to payment under the loan shall have any right to any assets of the Plan other than the collateral, Employer Auxiliary ESOP Contributions (excluding contributions of Company Stock), earnings on such collateral and contributions (including but not limited to dividends paid on unallocated Company Stock held in the Auxiliary ESOP Suspense Account) and dividends on Company Stock (or Company Stock into which such shares have been converted) acquired with the loan proceeds and held in Participants' Employer Auxiliary ESOP Contribution Accounts; (e) In the event of a default upon the loan, the value of the Plan assets transferred in satisfaction of the loan shall not exceed the amount of the default and, if the lender is a Party in Interest or Disqualified Person, shall not exceed an amount of Plan assets equal to the amount of the payment schedule with respect to which there is a failure to pay; and (f) The loan may provide that there shall be no required payments of principal and/or interest for one or more years and the Company may from time to time request the Trustee to renegotiate any such loan to change the payment terms with respect to payments not then due and payable, to extend the period of payment, or to reduce or eliminate the amount of any payment or payments of principal and/or interest not then due and payable. These rules shall be changed by amendment to the Plan to the extent changes in applicable law require or permit. 6.2 Accounting for Loan Proceeds and Employer Auxiliary ESOP Contributions. The Committee shall establish with respect to each loan a separate Auxiliary ESOP Suspense Account to record and separately account for: (a) the proceeds of each loan or other extension of credit authorized under Section 6.1 and any unallocated Company Stock purchased with proceeds of such a loan or any loan refinanced with such loan (and any Company Stock into which such purchased shares have been converted), (b) Employer Auxiliary ESOP Contributions with respect to such loan, (c) any income, gains or losses allocated to the Auxiliary ESOP Suspense Account with respect to such loan and (d) any dividends from shares of Company Stock purchased (and Company Stock into which such purchased shares have been converted) with the proceeds of the loan (or any loan refinanced with such loan) which have been allocated to Participants' Accounts and transferred to the Suspense Account. Subject to the discretion of the Trustee to reinvest proceeds from the sale of Company Stock pursuant to Section 6.4(b), earnings of the Auxiliary ESOP Suspense Account with respect to a loan shall be used to repay the loan, and to the extent not so used shall be released and allocated under Section 6.3 hereof. Assets shall be released from the Auxiliary ESOP Suspense Account only in accordance with the provisions of Section 6.3 or to repay a loan or for reinvestment in Company Stock pursuant to Section 6.4(b), provided, however, proceeds of an Exempt Loan may not be used to repay any loan which is not an Exempt Loan. 6.3 Release from Auxiliary ESOP Suspense Account. (a) Loan Repayment Release. Company Stock acquired with the proceeds of an Exempt Loan, or other loan authorized under Section 6.1 or a loan refinanced with such Exempt Loan or other loan (and Company Stock into which such purchased shares have been converted) and held in the Auxiliary ESOP Suspense Account under Section 6.2 shall be released as of the last Valuation Date of a Plan Year immediately following the release under Section 6.3(b) for such Valuation Date for allocation to Per Capita Employer Auxiliary ESOP Contribution Accounts or Compensation Based Employer Auxiliary ESOP Contribution Accounts, as applicable, of each Active Participant in accordance with the provisions of Section 6.3(a)(1) below, unless such loan provides for the annual payment of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten (10) years, and the interest paid on such loan is determined under standard loan amortization tables, in which case such Company Stock shall be released in accordance with Section 6.3(a)(1) or (2) below, as may be selected by the Board of Directors in its discretion at the time such loan is made; provided, however, if such loan is renewed, extended or refinanced, and if the sum of the expired duration of the loan, any renewal period, extension period, and the duration of the refinancing exceeds ten (10) years, determined as of the date of the renewal, extension or refinancing, Section 6.3(a)(1) shall apply: (1) Each Plan Year in which any amount remains outstanding under an Exempt Loan (or other loan authorized under Section 6.1), the number of shares of Company Stock released from the Auxiliary ESOP Suspense Account shall equal the difference between (A) the product (rounded upward to the nearest whole number of shares) of the number of shares of Company Stock held and accounted for under the Auxiliary ESOP Suspense Account immediately before the release increased by the number of shares, if any, previously released from the Auxiliary ESOP Suspense Account in accordance with Section 6.3(b) for the Plan Year with respect to such loan, multiplied by a fraction, the numerator of which is the amount of principal and interest paid on the Exempt Loan (or other loan authorized under Section 6.1) for the Plan Year and the denominator of which is the sum of the numerator plus the principal and interest to be paid for all future Plan Years (without consideration of possible extensions or renewal periods) reduced by (B) the number of shares, if any, previously released from the Auxiliary ESOP Suspense Account in accordance with Section 6.3(b) for the Plan Year with respect to such loan. If the interest rate under the Exempt Loan (or other loan authorized under Section 6.1) is variable, the interest to be paid in future Plan Years shall be computed by using the interest rate applicable as of the end of the Plan Year of payment. (2) For each Plan Year during the duration of an Exempt Loan (or other loan authorized under Section 6.1), the number of shares of Company Stock released from the Auxiliary ESOP Suspense Account shall equal the difference between (A) the product of the number of shares of Company Stock held and accounted for under the Auxiliary ESOP Suspense Account immediately before the release increased by the number of shares, if any, previously released from the Auxiliary ESOP Suspense Account in accordance with Section 6.3(b) for the Plan Year with respect to such loan, multiplied by a fraction, the numerator of which is the amount of principal paid on the Exempt Loan (or other loan authorized under Section 6.1) for the Plan Year and the denominator of which is the sum of the numerator plus the principal to be paid for all future years reduced by (B) the number of shares, if any, previously released from the Auxiliary ESOP Suspense Account in accordance with Section 6.3(b) for the Plan Year with respect to such loan. If subsection (1) is applicable and if no amount of principal and interest is paid with respect to a loan for the Plan Year, or if subsection (2) is applicable and no amount of principal is paid for the Plan Year, there shall be no release of shares of Company Stock from the Auxiliary ESOP Suspense Account maintained with respect to such loan for the Plan Year in accordance with Section 6.3(a). If an Exempt Loan (or other loan authorized under Section 6.1) is repaid as a result of a refinancing by another Exempt Loan (or other loan authorized under Section 6.1), such repayment shall not be considered a repayment of principal under Sections 6.3(a)(1) and (2) and the release of shares shall be determined as provided in Section 6.3(a)(1) and (2), by aggregating principal and interest on the loan and any refinancings of the loan. (b) As of each Valuation Date, there shall be released from the Auxiliary ESOP Suspense Account maintained with respect to each Exempt Loan (or other loan authorized under Section 6.1) Company Stock in an amount equal to (1) the number of shares which have a fair market value as of the Valuation Date equal to the amount of dividends paid to the Trust with respect to shares of Company Stock which were purchased with the proceeds of such loan or any loan refinanced with such loan (and Company Stock into which such purchased shares have been converted) and which have been allocated to Participants' Accounts, which dividends shall be received by the Trust since the immediately preceding Valuation Date, credited to Participants' Accounts and immediately placed in the Auxiliary ESOP Suspense Account to be used to repay the loan, reduced by (2) the number of any shares contributed or the number of shares purchased with any cash contributed to the Trust as Special Dividend Replacement Contributions in accordance with Section 4.2(e) with respect to the loan. (c) Any release from the Auxiliary ESOP Suspense Account provided for in Section 6.3(b) for each Valuation Date during a Plan Year (including the last Valuation Date for a Plan Year) shall be made prior to the release from the Auxiliary ESOP Suspense Account provided for in Section 6.3(a). 6.4 Installment Payments on Exempt Loan. (a) Installment Payments. The Trustee shall make payments on an Exempt Loan (or other loan authorized under Section 6.1) in the amounts and at such times as such payments are due under the terms of such loan and such additional payments on such loan as the Trustee determines in its discretion, provided, however, such payments shall be made solely from the Auxiliary ESOP Suspense Account, from amounts of Employer Auxiliary ESOP Contributions made in cash, from dividends with respect to shares of Company Stock purchased with a loan or a loan refinanced by such loan (or Company Stock into which such shares have been converted) which shares have been released from an Auxiliary ESOP Suspense Account and allocated to Participants' Accounts and from dividends or other earnings with respect to the Auxiliary ESOP Suspense Account maintained with respect to such loan and provided further that Per Capita Employer Auxiliary ESOP Contributions and related earnings shall be used solely to repay Per Capita Loans and Compensation Based Employer Auxiliary ESOP Contributions and related earnings shall be used solely to repay Compensation Based Loans. (b) Sale of Company Stock Held in Auxiliary ESOP Suspense Account. In the event that any shares of Company Stock acquired with the proceeds of a loan or a loan refinanced with such loan (and Company Stock into which such purchased shares have been converted) and held in an Auxiliary ESOP Suspense Account are sold prior to release from such Auxiliary ESOP Suspense Account, the Trustee, in its sole discretion, may either (1) apply the proceeds of such sale, or any portion thereof, toward repayment of such loan or a loan refinanced with such loan or (2) reinvest the proceeds of such sale, or any portion thereof, in shares of Company Stock. In exercising its discretion pursuant to Section 6.4(a), the Trustee shall consider the long-term interests of both current and future Participants and Beneficiaries in providing benefits under the Plan and Trust. 6.5 Non-Terminable Rights and Protections. Any of the provisions herein to the contrary notwithstanding, the following protections and rights are non-terminable, except to the extent required or permitted under applicable law, Treasury Regulations and Rulings of the Internal Revenue Service, with respect to proceeds of an Exempt Loan regardless of whether the Plan continues to be maintained as a leveraged ESOP. (a) Except as provided in this Section 6.5, or except as otherwise required by applicable law, no security acquired with the proceeds of an Exempt Loan may be subject to a put, call (other than a call with respect to Company Stock which is convertible preferred stock which provides for a reasonable opportunity for a conversion into common stock of the Company which is Company Stock after such call is exercised), or other option, or buy-sell or similar arrangement while held by and when distributed from the Plan, whether or not the Plan is then an ESOP. (b) If any Company Stock acquired with the proceeds of an Exempt Loan (or other loan authorized under Section 6.1) or which is otherwise held in an Account in the McDESOP portion of the Plan is not readily tradeable on an established market, or thereafter ceases to be publicly traded and if and only if such Company Stock should ever be distributed from the Plan, the distributee shall be given an option exercisable only by the distributee (or the distributee's donees or a person, including an estate of a distributee, to whom the security passes by reason of the Participant's death), to put the security to the Company for a 60 day period beginning on the date of distribution ("First Put Period") and for another 60 day period commencing on the first anniversary of the date of distribution ("Second Put Period"). If such security ceases to be readily tradeable on an established market (or becomes subject to a trading limitation) before the end of the Second Put Period, the Company shall notify the Participant in writing on or before the 10th day after the date the security ceases to be readily tradeable on an established market (or becomes subject to a trading limitation) that the security is subject to a put option to the Company for any portion of the First Put Period and the Second Put Period remaining after the date the security ceases to be readily tradeable on an established market, and such notice shall inform the distributees of the terms of the put option. The Plan shall have the right, but not the obligation, to assume the rights and obligations of the Company with respect to the put option at the time the put option is exercised. A put option hereunder shall be exercised by the holder notifying the Company in writing that the put option is being exercised. If during the First Put Period or the Second Put Period, a distributee is unable to exercise a put option because the Company is prohibited from honoring it under applicable Federal or State law ("Non-Exercise Period"), the put option shall be exercisable during an extended put period ("Extended Put Period"). The Extended Put Period shall commence on the 10th day after the Company can honor the put option and notice of this fact is given to the distributees entitled to an Extended Put Period and shall extend for a period equal to the number of days in the Non-Exercise Period but not more than 60 days. If the Non-Exercise Period was for more than 60 days, a second Extended Put Period shall occur commencing on the first anniversary of the first Extended Put Period and shall extend for the lesser of (1) 60 days or (2) number of days in the Non-Exercise Period reduced by 60 days. A put option shall be exercisable at a price equal to the value of the security determined as of the most recent Valuation Date following the Participant's exercise of the put option. Payment under a put option shall not be restricted by the provisions of a loan or other arrangement, including the Company's articles of incorporation, unless so required by State law. If the distributee exercises a put option with respect to Company Stock received by the Participant as part of an installment distribution, the Company shall pay for such Company Stock not later than thirty days after the exercise of such option. If the distributee exercises a put option with respect to Company Stock received as part of a distribution to the Participant within one taxable year of the balance to the credit of the Participant's vested Net Balance Account, the Company may pay for such Company Stock not later than the thirtieth day after the exercise of such option or may elect to pay for such Company Stock with deferred payments. Payments for shares of Company Stock put to the Company may be deferred only if adequate security and a reasonable rate of interest are provided and if periodic payments are made in substantially equal installments (at least annually) beginning within 30 days after the date the put option is exercised and extending for no more than 5 years after the put option is exercised. The provisions of this Section 6.5 shall not be terminated or amended except to the extent required or permitted under applicable law, Treasury Regulations and Rulings of the Internal Revenue Service. 6.6 Independent Appraisals Required. All valuations of Company Stock which is not readily tradeable on an established securities market shall be made as of each Valuation Date by an independent appraiser meeting requirements similar to the requirements of the regulations prescribed under Section 170(a)(1) of the Internal Revenue Code. ARTICLE VII ALLOCATIONS OF CONTRIBUTIONS 7.1 Profit Sharing Contribution Allocation Formula. (a) As of the last Valuation Date of each Plan Year, Profit Sharing Contribution Holding Fund #1 (after adjustment for earnings or losses of the Distribution Fund as provided in Section 10.18 and all contributions for the Plan Year which are made after the last day of the Plan Year as provided in Section 10.19) shall be allocated to the Profit Sharing Fund Account of each Active Participant who is a staff or an executive employee or a store manager, in an amount equal to the product of (1) multiplied by (2) where: (1) is Profit Sharing Contribution Holding Fund #1 for the Plan Year, and (2) is a fraction the numerator of which is the Active Participant's Considered Compensation for the Plan Year and the denominator of which is the total Considered Compensation of all such Active Participants for such Plan Year. (b) As of the last Valuation Date of each Plan Year, Profit Sharing Contribution Holding Fund #2 (after adjustment for earnings or losses of the Distribution Fund as provided in Section 10.18 and all Contributions for the Plan Year which are made after the last day of the Plan Year as provided in Section 10.19) shall be allocated to the Profit Sharing Fund Account of each Active Participant who is a certified swing manager, a primary maintenance employee or crew or other store hourly employee in an amount equal to the product of (1) multiplied by (2) where: (1) is Profit Sharing Contribution Holding Fund #2 for the Plan Year, and (2) is a fraction of the numerator of which is the Active Participant's Considered Compensation for the Plan Year and the denominator of which is the total Considered Compensation of all such Active Participants for such Plan Year. (c) Allocations to the Profit Sharing Fund Accounts of Active Participants shall be made as soon as reasonably possible after the end of a Plan Year after the Company has determined that its final contribution for the Plan Year has been made to the McDonald's Corporation Savings and Profit Sharing Master Trust. Employer Profit Sharing Contributions shall be held in the Profit Sharing Contribution Holding Fund until allocated to the Profit Sharing Fund Account of each Active Participant. If notwithstanding its earlier determination that the final contribution for a Plan Year has been made, additional Employer Profit Sharing Contributions are contributed for a Plan Year, such contributions shall be allocated no later than the last day of the next following Plan Year. Effective the first day of the calendar month next following the date amounts are allocated pursuant to this Section 7.1, such amounts shall be invested in accordance with the investment elections applicable to each respective Participant's Profit Sharing Fund Account as provided in Sections 10.7, 10.8 or 10.11. 7.2 Employer Matching Contributions, Additional Employer Contributions and Special Section 401(k) Employer Contributions. (a) Allocation of Employer Matching Contributions. As of each Valuation Date, the Employer Matching Contributions and Forfeitures (excluding Employer Per Capita Matching Contributions) held in the Employer Matching Contribution Holding Fund shall be allocated to the Employer Matching Contribution Account of each Active Participant in an equal percentage (not to exceed the Matching Percentage as defined in Section 4.1(a)) of each Participant's Participant Elected Matched Contributions (excluding Special Participant Elected Matched Contributions) made for the period since the immediately preceding Valuation Date. Notwithstanding the foregoing, any amount in the Employer Matching Contribution Holding Fund as of the last Valuation Date of the Plan Year (even if such contributions for the Plan Year are made after such Valuation Date as provided in Section 10.18) after allocations are made pursuant to the preceding sentence, shall be allocated to Employer Matching Contribution Account of each Active Participant who is an Employee on such Valuation Date in an amount equal to such remaining amount multiplied by a fraction the numerator of which is the amount of Participant Elected Matched Contributions (excluding Special Participant Elected Matched Contributions) made on behalf of such Active Participant for the Plan Year and the denominator of which is the total amount of Participant Elected Matched Contributions (excluding Special Participant Elected Matched Contributions) made on behalf of all such Active Participants for the Plan Year. (b) Allocation of Special Section 401(k) Employer Contributions. Special Section 401(k) Employer Contributions to the Trust for a Plan Year shall be allocated, as of the last Valuation Date of the Plan Year, in an equal amount to the Employer Matching Contribution Account of each designated Active Participant. The designated Active Participants shall be the smallest group of Non-Highly Compensated Employees who made Participant Elected Contributions for the Plan Year and to whom the dollar amount of per individual Special Section 401(k) Employer Contributions could be allocated which would cause the Plan to pass whichever of the following tests it would not otherwise pass: the ADP test in Section 5.2(e), the ACP test in Section 4.1(c) or the multiple use test in Section 5.4. (c) Allocation of Additional Employer Contributions. As of the last Valuation Date of each Plan Year as the Board of Directors may direct, Additional Employer Contributions shall be allocated to the Employer Matching Contribution Account of each Active Participant in an amount equal to the amount of the Additional Employer Contributions for the Plan Year multiplied by a fraction, the numerator of which is the number of full calendar months during which the Participant was an Active Participant, and the denominator of which is the aggregate number of full calendar months during which all Active Participants were Active Participants. (d) Allocation of Employer Per Capita Matching Contributions. As of the last Valuation Date of the Plan Year or as of such other date as the Committee shall specify with respect to specified Employer Per Capita Matching Contributions, the Employer Per Capita Matching Contributions held in the Employer Per Capita Matching Contribution Holding Fund (even if such contributions for the Plan Year are made after such Valuation Date as provided in Section 7.5) shall be allocated to the Employer Matching Contribution Account of each Active Participant for a Plan Year or portion of a Plan Year in an amount equal to the Employer Per Capita Matching Contributions divided by the number of Active Participants eligible to receive Employer Per Capita Matching Contributions for the Plan Year or portion of a Plan Year. 7.3 Auxiliary ESOP Contributions. (a) Per Capita Auxiliary ESOP Contributions. Any shares of Company Stock purchased with the proceeds of a loan (or any Company Stock into which such shares have been converted) designated by the Board of Directors to be repaid by Per Capita Auxiliary ESOP Contributions (or a loan refinanced by such loan) and released from the Auxiliary ESOP Suspense Accounts maintained with respect to such loans, any income from such Per Capita Auxiliary ESOP Suspense Accounts released pursuant to Sections 6.2 and 6.3, and any Forfeitures from Per Capita Employer Auxiliary ESOP Contribution Accounts for the Plan Year shall be allocated to each Active Participant's Per Capita Employer Auxiliary ESOP Contribution Account: (1) as of each Valuation Date, in an amount, if any, with respect to each loan equal to the amount of dividends paid with respect to Company Stock (or Company Stock into which such shares have been converted) which was purchased with the proceeds of such loan (or a loan refinanced with such loan) and which has been allocated to the Participant's Account, which dividends, since the immediately preceding Valuation Date were credited to Participant's Accounts and immediately transferred to the Auxiliary ESOP Suspense Account to be used to make payments on the loan; and (2) as of the last Valuation Date of each Plan Year, in an amount equal to the number of shares of Company Stock released from the Per Capita Auxiliary ESOP Suspense Account in accordance with Section 6.3(a) divided by the number of Active Participants for the Plan Year. (b) Compensation Based Auxiliary ESOP Contributions. Any shares of Company Stock purchased with the proceeds of a loan (or Company Stock into which such shares have been converted) designated by the Board of Directors to be repaid by Compensation Based Auxiliary ESOP Contributions (or a loan refinanced by such loan) and released from the Auxiliary ESOP Suspense Accounts maintained with respect to such loan, any income from such Compensation Based Auxiliary ESOP Suspense Accounts released pursuant to Sections 6.2 and 6.3, and any Forfeitures from Compensation Based Employer Auxiliary ESOP Contribution Accounts for the Plan Year shall be allocated to each Active Participant's Compensation Based Employer Auxiliary ESOP Contribution Account: (1) as of each Valuation Date, in an amount, if any, with respect to each loan equal to the amount of dividends paid with respect to Company Stock (or Company Stock into which such shares have been converted) which was purchased with the proceeds of such a loan (or a loan refinanced by such loan) and which has been allocated to the Participant's Account, which dividends, since the immediately preceding Valuation Date, were credited to Participants' Accounts and immediately transferred to the Auxiliary ESOP Suspense Account pursuant to Section 10.17(b)(3) to be used to make payments on the loan; and (2) as of the last Valuation Date of each Plan Year, in an amount equal to the number of shares of Company Stock released from the Compensation Based Auxiliary ESOP Contribution Suspense Account in accordance with Section 6.3(a) multiplied by a fraction the numerator of which is the Considered Compensation of the Active Participant and the denominator of which is the total of all Considered Compensation of all Active Participants. (c) Additional Employer Auxiliary ESOP Contributions. Additional Employer Auxiliary ESOP Contributions for a Plan Year which were designated in accordance with Section 4.2(d) as Per Capita Additional Employer Auxiliary ESOP Contributions (and any Forfeitures therefrom) shall be allocated as of the last Valuation Date of the Plan Year to the Additional Employer Auxiliary ESOP Contribution Account of each Active Participant in an amount equal to the total amount of Per Capita Additional Employer Auxiliary ESOP Contributions (and any Forfeitures therefrom) for the Plan Year divided by the number of Active Participants. Additional Employer Auxiliary ESOP Contributions for a Plan Year which were designated in accordance with Section 4.2(d) as Compensation Based Additional Employer Auxiliary ESOP Contributions (and any Forfeitures therefrom) shall be allocated as of the last Valuation Date of such Plan Year to the Additional Employer Auxiliary ESOP Contribution Account of each Active Participant in an amount equal to the total amount of Additional Employer Auxiliary ESOP Contributions (and any Forfeitures therefrom) multiplied by a fraction the numerator of which is the Considered Compensation of such Active Participant and the denominator of which is the total Considered Compensation of all Active Participants for the Plan Year. Per Capita Additional Employer Auxiliary ESOP Contributions and Compensation Based Additional Employer Auxiliary ESOP Contributions shall be separately accounted for in Participants' Additional Employer Auxiliary ESOP Contribution Accounts. (d) Special Dividend Replacement Contributions. Any Special Dividend Replacement Contributions made to the Plan pursuant to Section 4.2(e) shall be credited to Participant's Accounts to replace dividends which pursuant to Section 6.3(b) are credited to the Auxiliary ESOP Suspense Account to be used to repay the Exempt Loan the proceeds of which purchased the shares of Company Stock with respect to which such dividends were paid. 7.4 Participant Elected Contributions. As of each Valuation Date, the Participant Elected Contributions in the Participant Elected Contribution Holding Fund shall be credited to the Participant Elected Contribution Accounts of the Participants for whom such contributions were made. 7.5 Timing of Allocations. Amounts allocated to or transferred to Participants' Accounts as of a Valuation Date shall be credited to the Accounts as of such Valuation Date but after the adjustments are made for Trust income as provided in Sections 10.14, 10.15, 10.16 and 10.17. Amounts contributed to the Plan shall be credited as of the date of contribution to the following Funds: Profit Sharing Contribution Holding Fund, Participant Elected Contribution Holding Fund, Employer Matching Contribution Holding Fund, Employer Per Capita Matching Contribution Holding Fund, Rollover Contribution Holding Account and the Auxiliary ESOP Suspense Account. ARTICLE VIII ROLLOVER CONTRIBUTIONS AND TRUSTEE TRANSFERS 8.1 Participant Rollover Contributions. A Participant may elect through procedures approved by the Committee to make Rollover Contributions to the Plan. If any Rollover Contribution includes property other than money, the Trustee may in its sole discretion refuse to accept such Rollover Contribution or may condition its acceptance of such Rollover Contribution on such terms and conditions as it deems reasonable. Each Participant's Rollover Contribution shall be held in his Rollover Contribution Holding Account until the next following Valuation Date at which time his Rollover Contribution Holding Account is transferred to the Participant's Rollover Contribution Account and invested in accordance with his investment elections provided for in Section 10.10. 8.2 Limited Participation. An Employee who is not eligible to participate in the Plan solely by reason of failing to meet the eligibility requirements of Section 2.1 and who reasonably expects to become a Participant when such requirements are met, may be a Participant in the Plan solely for the limited purpose of making a Rollover Contribution subject to the same conditions on such Rollover Contributions as any other Participant. 8.3 Withdrawal of Rollover Contributions. At the election of the Participant, Rollover Contributions may be withdrawn from his Rollover Contribution Account and Rollover Contribution Holding Account as provided in Section 11.16. 8.4 Rollover Contributions Not Forfeitable. A Participant's Rollover Contribution Account and Rollover Contribution Holding Account shall be fully vested and non-forfeitable. ARTICLE IX LIMITATIONS ON CONTRIBUTIONS BECAUSE OF FEDERAL LEGISLATION 9.1 Limitations on Contributions. Any of the provisions herein to the contrary notwithstanding, a Participant's Annual Additions (as defined in paragraph (a) below) for any Plan Year shall not exceed his Maximum Annual Additions (as defined in paragraph (b) below) for the Plan Year. If a Participant's Annual Additions would but for the provisions of this Section 9.1, exceed his Maximum Annual Additions (the "Annual Excess"), the Participant's Annual Additions for the Plan Year shall be reduced under Section 9.1(d) by the amount necessary to eliminate such Annual Excess. Rollover Contributions shall not be included as part of a Participant's Annual Additions. (a) "Annual Additions" of a Participant for a Plan Year means the sum of the following: (1) Employer Contributions and Forfeitures allocated to his Profit Sharing Fund Account for the Plan Year; (2) Participant Elected Contributions, Employer Matching Contributions, Additional Employer Contributions, Special Section 401(k) Contributions and any Forfeitures allocated therewith for the Plan Year allocated to the Participant; (3) any amount of Leveraged ESOP Annual Additions, as determined under Section 9.1(c), allocated to the Participant; (4) all other employer contributions and forfeitures (excluding Forfeitures allocated to the Participant's Employer Auxiliary ESOP Contribution Account) for such Plan Year allocated to the Participant's accounts for such Plan Year under the Plan or any other Related Defined Contribution Plan not already included under Section 9.1(a)(1), 9.1(a)(2) or 9.1(a)(3); (5) the amount of nondeductible participant contributions under the Plan or any Related Plan made by the Participant for the Plan Year; and (6) solely with respect to the limitation under Section 9.1(b)(2) contributions allocated to any individual medical account (as defined in Internal Revenue Code Section 401(h)) which is part of a defined benefit plan maintained by an Employer as provided in Internal Revenue Code Section 415(1) and any amount attributable to post retirement medical benefits allocated to an account established under Internal Revenue Code Section 419A(d)(1). (b) "Maximum Annual Additions" of a Participant for a Plan Year means the lesser of (1) or (2) below: (1) 25% of the Participant's Considered Compensation, or (2) the greater of (i) $30,000 or (ii) one-fourth (1/4) of the amount in effect under Section 415(b)(1)(A) of the Internal Revenue Code ($112,221 in 1992, adjusted in subsequent years for cost of living adjustments determined in accordance with regulations prescribed by the Secretary of Treasury or his delegate pursuant to the provisions of Section 415(d) of the Internal Revenue Code). (c) "Leveraged ESOP Annual Additions" means: (1) If the Participant is an Active Participant with respect to the Auxiliary ESOP for the Plan Year under the McDESOP portion of the Plan, and if no more than one-third (1/3) of the total amounts deductible under Section 404(a)(9) of the Internal Revenue Code for the Plan Year is allocated to Highly Compensated Employees, an amount for each Exempt Loan equal to the product of (A) the Employer Auxiliary ESOP Contributions used to repay each loan for the Plan Year, and reduced, for any Plan Year for which the loan repaid is an Exempt Loan as defined in Section 6.1, by the amount used to pay interest on the Exempt Loan, multiplied by (B) (i) in the case of Per Capita Employer Auxiliary ESOP Contributions, a fraction, the numerator of which is one, and the denominator of which is the number of Active Participants and (ii) in the case of Compensation Based Auxiliary ESOP Contributions, a fraction, the numerator of which is the Participant's Considered Compensation for the Plan Year, and the denominator of which is the Considered Compensation of all Active Participants for the Plan Year; provided that, if a Participant's allocations to his Employer Auxiliary ESOP Contribution Account are reduced in order to reduce the Annual Excess in accordance with the provisions of this Article IX, the Participant's Considered Compensation for purposes of both the numerator and the denominator of this fraction shall be reduced to an amount equal to the Participant's Considered Compensation, multiplied by a fraction, the numerator of which is the Participant's allocation to his Employer Auxiliary ESOP Contribution Account for the Plan Year after applying the Annual Excess reduction provisions hereunder and the denominator of which is such allocation to his Employer Auxiliary ESOP Contribution Account for the Plan Year before applying the Annual Excess reduction provisions hereunder. (2) If the Participant is an Active Participant with respect to the ESOP for the Plan Year and if Section 9.1(c)(1) does not apply, an amount for each loan equal to the sum of (A) Forfeitures allocated to the Participant's Per Capita Employer Auxiliary ESOP Contribution Account and Compensation Based Employer Auxiliary ESOP Contribution Account under the McDESOP portion of the Plan, and (B) the sum of the products of the Employer Auxiliary ESOP Contributions used to repay each loan for the Plan Year (including the amount used to repay interest on such loans), multiplied by (i)(a) in the case of Per Capita Employer Auxiliary ESOP Contributions, a fraction, the numerator of which is one, and the denominator of which is the number of Active Participants and (b) in the case of Compensation Based Auxiliary ESOP Contributions, a fraction, the numerator of which is the Participant's Considered Compensation for the Plan Year and the denominator of which is the Considered Compensation of all Active Participants for the Plan Year; provided that, if a Participant's allocations to his Employer Auxiliary ESOP Contribution Account are reduced in order to reduce the Annual Excess in accordance with the provisions of this Article IX, the Participant's Considered Compensation for purposes of both the numerator and the denominator of this fraction shall be reduced to an amount equal to the Participant's Considered Compensation, multiplied by a fraction, the numerator of which is the Participant's allocation to his Employer Auxiliary ESOP Contribution Account for the Plan Year, after applying the Annual Excess reduction provisions hereunder and the denominator of which is such allocation to his Employer Auxiliary ESOP Contribution Account for the Plan Year before applying the Annual Excess reduction provisions hereunder. (3) The amount of Employer Auxiliary ESOP Contributions deemed to be used to pay interest on a loan for a Plan Year for purposes of Section 9.1(c)(2)(A) and (B) shall be the amount of Employer Auxiliary ESOP Contributions made for the Plan Year multiplied by a fraction the numerator of which is the amount of all interest payments made by the Trust for the Plan Year with respect to such loan (including any refinancing of such loan) from all sources and the denominator of which is the amount of all payments of both principal and interest made by the Trust for the Plan Year with respect to such loan (including any refinancing of such loan) from all sources. (d) Elimination of Annual Excess. If a Participant has an Annual Excess for a Plan Year, such excess shall not be allocated to the Participant's Accounts, but shall be eliminated as follows: (1) If any Annual Excess remains after application of the preceding paragraph, the Participant's Employer Contributions allocable to such Participant's Profit Sharing Fund Account shall be reduced to the extent such reductions reduce the Annual Excess. (2) If any Annual Excess remains after application of the preceding paragraph, the Participant's Leveraged ESOP Annual Additions (other than those with respect to Dividend Replacement Contributions) shall be reduced by reducing the allocations made as of a given Valuation Date reducing allocations with respect to Forfeitures before allocations with respect to Employer Contributions for each loan starting first with the most recent loan and then with other loans in the reverse of the order in which made to the extent which reductions reduce the amount of the Annual Excess. (3) For Plan Years ending before July 1, 1993, if any Annual Excess remains after application of the preceding paragraph, Participant Elected Contributions, Employer Matching Contributions, Special Section 401(k) Employer Contributions and Forfeitures shall be reduced by reducing those contributions most recently credited to the Participant's Accounts first (followed by the next most recent and so forth) and with respect to contributions credited as of a Valuation Date, reducing allocations in the order indicated below: (A) The Participant's allocations of Participant Elected Unmatched Contributions and any Special Section 401(k) Employer Contributions allocated with respect thereto shall be reduced, in proportionate amounts, to the extent such reductions reduce the amount of the Annual Excess. (B) The Participant's allocations of Participant Elected Matched Contributions and the Employer Matching Contributions, Special Section 401(k) Employer Contributions and Forfeitures allocated with respect thereto shall be reduced, in proportionate amounts, to the extent such reductions reduce the amount of the Annual Excess. Participant Elected Matched Contributions (except for Special Participant Elected Matched Contributions) which are matched by Employer Matching Contributions at the lowest rate shall be reduced first followed by those matched at higher rates in sequence and followed lastly by Special Participant Elected Matched Contributions. to the extent such reductions reduce the amount of the Annual Excess. (4) For Plan Year ending on or after July 1, 1993, if any Annual Excess remains after application of the preceding paragraph, Participant Elected Contributions and Employer Matching Contributions shall be reduced by reducing those contributions most recently credited to the Participant's Accounts first (followed by the next most recent and so forth) and with respect to contributions credited as of a Valuation Date reducing contributions in the order listed, as follows: Employer Matching Contributions, Participant Elected Unmatched Contributions and Participant Elected Matched Contributions to the extent such reductions reduce the amount of the Annual Excess. (5) If any Annual Excess remains after application of the preceding paragraph, the Participant's allocations of Additional Employer Contributions shall be reduced to the extent such reductions reduce the amount of the Annual Excess. (6) For Plan Years ending on or after July 1, 1993, if any Annual Excess remains after application of the preceding paragraph, the Participant's allocations of Special Section 401(k) Employer Contributions shall be reduced to the extent such reductions reduce the amount of the remaining Annual Excess. (7) If any Annual Excess remains after application of the preceding paragraph, the Participant's allocations to his Additional Employer Auxiliary ESOP Contribution Account shall be reduced to the extent such reductions reduce the amount of the Annual Excess. (8) If any Annual Excess remains after application of the preceding paragraph, any Special Dividend Replacement Contributions credited to the Participant's Employer Auxiliary ESOP Contribution Account shall be reduced to the extent such reductions reduce the amount of the remaining Annual Excess. Any allocations of Employer Contributions and Forfeitures reduced or eliminated under this Section 9.1(d), as above provided, shall, subject to the limits of this Section 9.1, be reallocated to the Accounts of the other Participants not having such reductions as of the last day of that Plan Year in the same manner as such Employer Contributions and Forfeitures were initially allocated under Article VII. The amount of any Participant Elected Contributions reduced or eliminated under this Section 9.1 which have been contributed to the Plan shall be allocated as (and in lieu of) Employer Matching Contributions in the Plan Year for which or next following the Plan Year for which the reduction is made. Any Employer Contributions and Forfeitures which, under the limits of this Section 9.1, cannot be reallocated to the Accounts of other Participants in the Plan Year shall, subject to the limits of this Section 9.1, be held in an unallocated suspense account and reallocated in a subsequent Plan Year. If the Plan shall be terminated, any amounts held in a suspense account shall be reallocated to the accounts of all Participants in accordance with Article VII subject to the limitations of Section 9.1, and any such amounts which cannot be reallocated to Participants in the Plan Year of the termination shall be returned to the Employers in such proportions as shall be determined by the Committee. (e) Limitation in Case of Employee Participation in Both Defined Benefit and Defined Contribution Plans. If a Participant participates in any defined benefit plan of the Employer (or any Related Defined Benefit Plan), the sum of the Defined Benefit Plan Fraction (as defined in Section 415(e)(2) of the Internal Revenue Code) and the Defined Contribution Plan Fraction (as defined in Section 415(e)(3) of the Internal Revenue Code) for such Participant shall not exceed 1.0 (called the "Combined Fraction"). If the Combined Fraction of such Participant exceeds 1.0, the Participant's Defined Benefit Plan Fraction shall be reduced by limiting the Participant's annual benefits payable from the Related Defined Benefit Plan in which he participates to the extent necessary to reduce the Combined Fraction of such Participant to 1.0, and to the extent the Combined Fraction continues to exceed 1.0, by reducing the Participant's Maximum Annual Additions to the extent necessary to reduce the Combined Fraction to 1.0. In calculating the Participant's Defined Contribution Fraction employee contributions as permitted under the Plan or a Related Plan before January 1, 1987, shall be counted as Annual Additions only to the extent that they were counted under the Plan as then in effect. 9.2 Employer Contribution Reductions. If a Participant's Participant Elected Contributions or his allocations of Employer Contributions and Forfeitures are reduced or eliminated under Section 9.1, the amount shall be provided to the Participant under McEqual, McCAP I or McCAP II, or other non-qualified plans maintained by the Company, to the extent therein provided. Amounts of Participant Elected Contributions and Employer Matching Contributions expected to be within the limitations under Section 9.1 shall be contributed to the Plan and credited hereunder. Amounts of such contributions expected to be in excess of the limitations under Section 9.1 shall be tentatively credited to McEqual, McCAP I or McCAP II or other non-qualified plans maintained by the Company. If it is subsequently determined that additional amounts of Participant Elected Contributions or Employer Matching Contributions should be contributed hereto to attain the limitations under Section 9.1, in order to put the Participant in the same position he would have been in had such amounts been contributed contemporaneously to the Plan, contributions to the Plan will reflect, to the extent of the limits of Section 9.1, the income, gains and losses which would have been credited to the Participant's Accounts hereunder had such amounts been credited hereto instead of being tentatively credited to McEqual, McCAP I, McCAP II or other non-qualified plans maintained by the Company. The effect of adjustments to contributions for such income, gains and losses may be that some Participants hereunder will be credited with Participant Elected Contributions in excess of the limits stated in Sections 4.3(a) and 5.1 and in amounts which are more than or less than the amounts of such contributions elected by the Participant, and may have rates of Employer Matching Contributions which are larger or smaller than the rate established by the Company for the Plan Year in accordance with Section 4.1. In determining the amounts to be credited to a Participant's accounts during a Plan Year under McEqual, McCAP I, McCAP II and other non-qualified plans maintained by the Company, the Committee may make assumptions based upon reasonable estimates of the amount of the Participant's Considered Compensation, his Participant Elected Contributions, levels of Employer Contributions hereunder and other relevant factors and, as necessary, make subsequent adjustments to the extent the estimates prove to be incorrect. ARTICLE X TRUSTEE AND TRUST FUNDS 10.1 Trust Agreements. The Company and the Trustee have entered into one or more Trust Agreements which provide for the investment of the assets of the Plan and administration of the Trust Funds. The Trust Agreement, as from time to time amended, shall continue in force and shall be deemed to form a part of the Plan, and any and all rights or benefits which may accrue to any person under the Plan shall be subject to all the terms and provisions of the Trust Agreement. 10.2 Trustee's Duties. The powers, duties and responsibilities of the Trustee of the Trust shall be as stated in the respective Trust Agreement and as may be delegated to, and accepted by, the Trustee from the Committee and Board of Directors. Nothing contained in the Plan either expressly or by implication shall be deemed to impose any additional powers, duties or responsibilities upon the Trustee. All Employer Contributions, Participant Contributions, Rollover Contributions and Participant Elected Contributions shall be paid into a Trust and all withdrawals permitted and benefits payable under the Plan shall be paid from the Trust. 10.3 Trust Expenses. Except to the extent paid by an Employer, all clerical, legal and other expenses of the Plan and the Trust and the Trustee's fees shall be paid by the Trust and shall be proportionately charged to the Auxiliary ESOP and other parts of the Trust Fund except to the extent directly attributable to a specific portion of a Trust Fund in which case it shall be charged to that portion of the Trust Fund. 10.4 Trust Entity. The Trust under this Plan from its inception shall be a separate entity aside and apart from the Employers or their assets. The Trusts and the corpus and income thereof, shall not be subject to the rights or claims of any creditor of any Employer. 10.5 Right of the Employers to Trust Assets. Subject to the provisions of Section 9.1, the Employers shall have no right or claims of any nature in or to the Trust Fund except the right to require the Trustee to hold, use, apply, and pay such assets in its possession in accordance with the Plan for the exclusive benefit of the Participants or their Beneficiaries and for defraying the reasonable expenses of administering the Plan and Trust, provided that: (a) if, and to the extent that, a deduction for Employer contributions under Section 404 of the Internal Revenue Code is disallowed, employer contributions conditioned on deductibility shall be returned to the appropriate Employer within one year after the disallowance of the deduction; and (b) if, and to the extent that, an Employer contribution is made through mistake of fact, such employer contribution shall be returned to the appropriate Employer within one year of the payment of the contribution and any Participant Elected Contributions shall be distributed to the Participants with respect to which such contributions were made. Notwithstanding any other provision of this Section 10.5, if, upon application of (a) or (b) above, Employer contributions would be returned to an Employer, then the Employer shall distribute the value of any portion of such contributions to the appropriate Participants. All Employer Contributions are conditioned on their being deductible under Section 404 of the Internal Revenue Code. 10.6 Trust Investment Funds. Excluding those assets held in the Distribution Fund, as provided in Section 10.27, assets of the Trust Fund shall be held as follows: (a) Profit Sharing Plan. The assets of the Profit Sharing Plan portion of the Trust and any amounts transferred to a Qualified Participant's Diversification Account pursuant to Sections 10.6(c) and 10.12 shall be held in the following Investment Funds: (1) The Diversified Stock Fund invested in common stocks, and securities convertible into common stocks, of corporations other than McDonald's Corporation or its Domestic or Foreign Affiliates, and in any other securities which represent an equity investment, provided, however, that the Diversified Stock Fund may be invested in pooled or common trust funds or open-end investment companies without regard to whether assets of such funds or investment companies are invested in securities of McDonald's Corporation or its Domestic or Foreign Affiliates; (2) The Profit Sharing McDonald's Common Stock Fund invested in common stock of McDonald's Corporation; (3) The Insurance Contract Fund or such other fund designated by the Committee which shall be invested: (i) Effective prior to November 1, 1993, solely in such contracts issued by such insurance company (or companies) as may be from time to time selected by the Committee, which may include (but shall not be limited to) a group annuity contract, a guaranteed investment contract, an immediate participation guaranty contract, or a deposit administration contract. Such insurance company as of date of selection, must have an A plus rating by A.M. Best Company or a comparable rating by a comparable service which rates insurance companies. The Committee shall have the right directly, or indirectly through directing the Trustee, to exercise all rights, powers and elections provided under any such contract. (ii) Effective November 1, 1993 and thereafter, (A) in contracts issued by an insurance or other company (or companies), (B) directly in debt securities that have fixed obligations to pay interest and principal on specified dates or which have similar investment characteristics (which may have equity features triggered by performance, the passage of time, or similar characteristics or may be securities which are derivatives of such securities) ("Fixed Income Obligations") or (C) in pooled or common trust funds, regulated investment companies, or open-ended investment companies generally invested in Fixed Income Obligations without regard to whether assets of such common trust funds, regulated investment companies, or open-ended investment companies are invested in securities of McDonald's Corporation or its Domestic or Foreign Affiliates. The contracts issued by insurance or other companies held by the Insurance Contract Fund (X) may be investment contracts or (Y) may be investment management agreements which may provide separate book value guarantees pursuant to which the insurance or other company guarantees (i) the book value of a pool or segregated group of fixed income obligations held in the Insurance Contract Fund and (ii) specified amounts of income under various conditions as provided in such agreement ((X) and (Y) collectively shall be referred to as "Assets Subject to Guarantee"). With respect to Assets Subject to Guarantee, the Plan shall use book value accounting and Participants' Accounts shall contain and shall be entitled only to their pro rata share of book value and guaranteed income which for all purposes hereunder will be treated as fair market value unless the Committee determines that the guarantees no longer apply, a market value distribution has occurred under the contract, or there has been a default on the guarantee. (4) The Multi-Asset Fund invested in domestic common stocks, debt securities that have a fixed obligation to pay interest and principal on specified dates or which have substantially similar investment characteristics, real estate, international common stocks, and securities convertible into domestic common stocks, of corporations other than McDonald's Corporation or its Domestic or Foreign Affiliates, and in any other securities which represent an equity investment, provided, however, that the Multi-Asset Fund may be invested in pooled or common trust funds or open-end investment companies without regard to whether assets of such funds or investment companies are invested in securities of McDonald's Corporation or its Domestic or Foreign Affiliates; and (5) The Money Market Fund invested in United States Government debt securities which mature or become payable within two years and which are the direct obligation of or guaranteed by the United States Government, including bonds, notes, certificates of indebtedness, and treasury bills; in commercial paper rated A-l and P-l by Moody's and Standard & Poor's; and in certificates of deposit in those banks designated in the agreement with the Investment Manager or, if there is no such agreement or if the agreement fails to designate such banks, in the McDonald's Corporation Investment Policy. In addition to investments otherwise permitted for the Money Market Fund, funds which otherwise could not be appropriately invested either because of the small amount involved, or because of the short time duration for which an investment is to be made, may be invested in the Northern Trust Company Collective Trust Short Term Investment Fund and such other common or collective trust funds or investment companies registered under the Investment Company Act of 1940, which have similar investment and administrative characteristics, as the Committee may from time to time designate. The portion of a Trust Sub-fund invested in the Money Market Fund may be held in a separate Subaccount within the Money Market Fund or may be aggregated into Subaccounts for several Trust Sub-funds as the Plan Administrator shall determine. The portion of the Profit Sharing Contribution Holding Fund and the portion of the Rollover Contribution Holding Fund invested in the Money Market Fund shall each be invested in separate Trust Subaccounts which may be invested in identified accounts in a common or collective trust fund or investment company fund or may hold identified assets and shall be directly credited with the income of such separate Trust Subaccount or identified assets. In order to maintain appropriate or adequate liquidity and pending or pursuant to investment directions from an Investment Manager, the Trustee of the Trust is authorized to hold such portions as it deems necessary of the Diversified Stock Fund, the Profit Sharing McDonald's Common Stock Fund, and the Multi-Asset Fund in cash or liquid short-term cash equivalent investments or securities (including, but not limited to United States government treasury bills, commercial paper, and savings accounts and certificates of deposit, including those of the Trustee, and common or commingled trust funds invested in such securities, including those of the Trustee). (b) McDESOP. The assets of the McDESOP portion of the Trust (other than any amounts which have been transferred to a Participant's Diversification Account pursuant to Section 10.12) shall be held in the following Investment Funds: (1) The McDESOP McDonald's Common Stock Fund invested in Company Stock which is common stock of McDonald's Corporation, and (2) The McDESOP McDonald's Preferred Stock Fund invested in Company Stock which is non-callable preferred stock of McDonald's Corporation which is convertible at any time into common stock of McDonald's Corporation or is callable preferred stock which provides a reasonable opportunity for conversion into McDonald's common stock after it is called; provided that any shares of Company Stock held in the McDESOP McDonald's Common Stock Fund and McDESOP McDonald's Preferred Stock Fund shall be separately allocated to Participant's Participant Elected Contribution Accounts, Employer Matching Contribution Accounts and Employer Auxiliary ESOP Contribution Accounts which shall be denominated in shares of Company Stock. In order to maintain adequate liquidity, pending the investment of funds in one of the aforementioned Investment Funds, pending the use of funds to make payments on a loan or for funds which could not be appropriately invested either because of the small amount involved or the short time duration for which the investment is to be made, the Trustee is authorized to hold such portions of the Trust Fund in the Northern Trust Company Collective Trust Short Term Investment Fund and such other common or collective trust funds or investment companies registered under the Investment Company Act of 1940, which have similar investment and administrative characteristics, as the Committee may from time to time designate. The portion of a Trust Sub-fund so invested shall be held in a separate identified Sub-account in such short term fund and shall be directly credited with the income of such separate Trust Sub-account. The McDESOP McDonald's Common Stock Fund and the McDESOP McDonald's Preferred Stock Fund may hold identified assets and shall be directly credited with the income of such identified assets. (c) McDESOP Diversification Fund. Participant Elected Contributions which a Participant has elected to diversify pursuant to Section 10.12 shall be credited to the Participant's McDESOP Contribution Diversification Account and invested in the Profit Sharing Plan Trust Investment Funds listed in Section 10.6(a) as provided in Section 10.12 as of the first business day of the calendar month following the month in which (1) the diversification election was made for amounts diversified in accordance with Sections 10.8, 10.12 and 10.13 and (2) the compensation (from which such Participant Elected Contributions were taken) was paid or as of such earlier date as the Committee shall provide. Until such date as the Committee shall provide otherwise, Participant Elected Contributions and Employer Matching Contributions which the Participant has elected to diversify pursuant to Section 10.12 shall be invested in the McDESOP McDonald's Common Stock Fund until the Diversification Election is implemented pursuant to Section 10.13. In the case of future contributions subject to a Diversification Election pursuant to Section 10.12, the Diversification Election shall be implemented as of the next date on which Investment Elections are implemented in accordance with Section 10.8 or 10.11(a), as applicable, after the date such contributions are made to the Plan. 10.7 Investment of Participant's Employer Profit Sharing Contributions. The provisions of Sections 10.7(a) and 10.7(b) shall apply to Employer Profit Sharing Contributions as follows: (a) Each Participant's share of Employer Profit Sharing Contributions and the earnings thereon shall be invested in the Profit Sharing McDonald's Common Stock Fund in an amount equal to the Participant's share of Employer Profit Sharing Contributions multiplied by the Automatic McDonald's Stock Proportion. The remainder of the Participant's Employer Profit Sharing Contributions and the earnings thereon for the Plan Year shall be invested in accordance with Section 10.8 or 10.11, as applicable; provided that if in accordance with a Participant's elections pursuant to Section 10.8, a percentage of his Employer Profit Sharing Contributions and the earnings thereon for the Plan Year greater than the Automatic McDonald's Stock Proportion would be invested in the Profit Sharing McDonald's Common Stock Fund, the Participant's Employer Profit Sharing Contributions and the earnings thereon with respect to the Profit Sharing Plan for the Plan Year shall be invested in accordance with the Participant's elections pursuant to Section 10.8. The "Automatic McDonald's Stock Proportion" is a percentage announced by the Board of Directors for the Plan Year. (b) A Participant may elect, at such time and in such manner as the Committee shall designate for each Plan Year not to have the Automatic McDonald's Stock Proportion of his Employer Profit Sharing Contributions and Forfeitures and the earnings thereon with respect to the Profit Sharing Plan for the Plan Year invested in the Profit Sharing McDonald's Common Stock Fund. If a Participant elects not to have the Automatic McDonald's Stock Proportion of his Employer Profit Sharing Contributions and Forfeitures with respect to the Profit Sharing Plan for the Plan Year invested in the Profit Sharing McDonald's Common Stock Fund, his Employer Profit Sharing Contributions, such Forfeitures and the earnings thereon shall be invested in accordance with Sections 10.8 or 10.11, as applicable. 10.8 Investment Election with Regard to a Participant's Profit Sharing Fund Account and Diversification Accounts. Four times each Plan Year (three times each Plan Year prior to July 1, 1993) (or on such more frequent basis as the Committee shall permit), each Participant shall have the right to elect, on such forms and in accordance with such rules and procedures as the Committee may from time to time prescribe, to have his Profit Sharing Fund Account (including any amounts which have previously been invested in the Profit Sharing McDonald's Common Stock Fund pursuant to Section 10.7) and his Diversification Accounts, if any, invested in the Diversified Stock Fund, the Money Market Fund, the Profit Sharing McDonald's Common Stock Fund, the Insurance Contract Fund, the Multi-Asset Fund or other similar fund designated by the Committee or in any combination of them; provided that amounts which have been invested in the Profit Sharing McDonald's Common Stock Fund in accordance with Section 10.7 shall remain invested in the Profit Sharing McDonald's Common Stock Fund until a new investment election made by the Participant in accordance with this Section 10.8 is effective. If a Participant makes a LESOP Diversification Election, a Future Contribution Diversification Election or McDESOP Diversification Election in accordance with Section 10.12, his Diversification Account, if any, shall be invested in accordance with his Profit Sharing Fund Account investment election in effect at the time his diversification election is effective or in accordance with Section 10.11(a) if no such investment election is in effect and shall be invested in accordance with any subsequently effective Investment Election as provided above. The Participant's election as to the percentage of his Profit Sharing Fund Account and Diversification Account to be invested in each Investment Fund, shall be made in increments of 10 percent (10%) up to 100 percent (100%). A Participant may elect to invest as much as 100% of his Profit Sharing Fund Account and Diversification Account in the Profit Sharing McDonald's Common Stock Fund. Subject to Section 10.7, a Participant's investment election shall be effective until his next investment election is effective. 10.9 Investment Election with Regard to a Participant's Investment Savings Fund Account. Four times each Plan Year (three times each Plan Year prior to July 1, 1993) (or on such more frequent basis as the Committee shall permit), each Participant who elected to make Participant Contributions, shall have the right to elect, on such forms and in accordance with such rules and procedures as the Committee may from time to time prescribe, to have his Investment Savings Fund Account invested in the Diversified Stock Fund, the Money Market Fund, the Insurance Contract Fund or the Multi-Asset Fund (or other similar fund designated by the Committee) or in any combination of them. The Participant's investment election under this Section shall be made in increments of ten percent (l0%) up to 100 percent (100%). A Participant's investment election shall be effective until his next investment election. 10.10 Investment Election with Regard to a Participant's Rollover Contribution Account. Four times each Plan Year (three times each Plan Year prior to July 1, 1993) (or on such more frequent basis as the Committee shall permit), each Participant shall have the right to elect, on such forms and in accordance with such rules and procedures as the Committee may from time to time prescribe, to have his Rollover Contribution Account invested in the Insurance Contract Fund (or other similar fund designated by the Committee), the Diversified Stock Fund, the Money Market Fund or the Multi-Asset Fund or in any combination of them. The Participant's investment election under this Section shall be made in increments of ten percent (l0%) up to 100 percent (100%). 10.11 Failure to Make an Investment Election. (a) Profit Sharing Fund Accounts. If a Participant fails to make an investment election for his Profit Sharing Fund Account and his Diversification Account during any Plan Year, then such Accounts shall be invested in accordance with such Participant's immediately preceding investment election made with respect to such Accounts in accordance with Section 10.8; provided that any amounts invested in the Profit Sharing McDonald's Common Stock Fund in accordance with Section 10.7 shall remain invested in the Profit Sharing McDonald's Common Stock Fund until a new investment election made by the Participant in accordance with Section 10.8 is effective. If a Participant has never made an investment election with respect to such Accounts, then the amount, if any, invested in the Profit Sharing McDonald's Common Stock Fund in accordance with Section 10.7 shall remain invested in the Profit Sharing McDonald's Common Stock Fund and the remainder of the Participant's Profit Sharing Fund Account, the Participant's LESOP Diversification Account and the McDESOP Contribution Diversification Account shall be invested one hundred percent (100%) in the Money Market Fund. (b) Investment Savings Fund Account and Rollover Contribution Account. If a Participant fails to make an investment election for his Investment Savings Fund Account and/or his Rollover Contribution Account during any Plan Year, then such Account(s) shall be invested in accordance with such Participant's immediately preceding investment election made with respect to such Account(s). If a Participant has never made an investment election with respect to such Account(s) then such Account(s) shall be invested 100 percent (100%) in the Money Market Fund. 10.12 Diversification of McDESOP Accounts and Contributions. (a) Age Diversification of Leveraged ESOP Account Balances. (1) Diversification Elections by Qualified Participant. Commencing with the first day of the month after a Participant becomes a Qualified Participant (and, if later, the first day of the month after a Participant attains age 60) and during each Annual Election Period and at the same times and subject to the same administrative requirements as apply to Investment Elections under Section 10.8, each Qualified Participant shall be permitted to make a diversification election with respect to his Qualified Account ("LESOP Diversification Election"). (A) Effective on or after July 1, 1994, a Qualified Participant, regardless of the amount in his Employer Auxiliary ESOP Contribution Account, may make a LESOP diversification election. (B) Effective before July 1, 1994, a Qualified Participant was permitted to make a LESOP Diversification Election if the sum of his Employer Auxiliary ESOP Contribution Account, Participant Elected Contribution Account, Employer Matching Contribution Account (including any corresponding accounts in McEqual, McCAPI or McCAPII) and the portion of the balance of his McDonald's Stock Sharing Plan Accounts attributable to Company Stock (acquired after December 31, 1986) was at any time equal to or more than $500. Such an election was effective with respect to all such accounts in the Plan and the corresponding accounts in McEqual, McCAPI and McCAPII. (2) Definitions. (A) "Qualified Participant" means a Participant (including a Participant who has had a Termination of Employment) who has attained age 55 or the Beneficiary of a deceased Participant who would have attained the age of 55 if he were alive. (B) "Annual Election Period" means the 90 day period after the last day of each Plan Year commencing with the Plan Year in which the Participant first becomes a Qualified Participant. (C) "Qualified Account" means a Qualified Participant's accounts identified below: (i) For periods on and after July 1, 1994, Auxiliary ESOP Contribution Account, and (ii) For periods before July 1, 1994, Auxiliary ESOP Contribution Account, Participant Elected Contribution Account and Employer Matching Contribution Account and his McDonald's Stock Sharing Plan Accounts (the latter considering only the portion of the balance attributable to the Company Stock acquired by the McDonald's Stock Sharing Plan after December 31, 1986). (D) "Maximum Diversification Percentage" means: (i) In the case of a Qualified Participant who has not attained age 60 and who has not had a Termination of Employment, 25%; (ii) In the case of a Qualified Participant who has attained age 60 and has not had a Termination of Employment, 50%; and (iii) In the case of a Qualified Participant who has had a Termination of Employment, 100%. (E) "LESOP Diversification Election" means an election by a Qualified Participant to transfer to his LESOP Diversification Account or McDESOP Diversification Account, as applicable, an amount not exceeding the difference between (i) the Maximum Diversification Percentage (or lesser percentages in five percent (5%) increments) of the sum of (a) the value of Company Stock credited to the Participant's Qualified Account plus (b) the amounts previously transferred under this Section 10.12 from such Qualified Account to the Participant's Diversification Accounts ("Prior Diversification Transfers"), reduced by (ii) the Participant's Prior Diversification Transfers. If a Participant has made a LESOP Diversification Election and has not made a subsequent LESOP Diversification Election with a lower percentage election than his prior LESOP Diversification Election, a percentage of the value of all future allocations to the Participant's Qualified Account equal to the percentage of the Participant's LESOP Diversification Election shall be transferred to the Participant's LESOP Diversification Account. If a Participant who has made a LESOP Diversification Election makes a new LESOP Diversification Election at a percentage (including to zero) lower than the percentage of the earlier LESOP Diversification Election, no portion of allocations to the Participant's Qualified Account shall be transferred to the Diversification Account until the product of the new lower percentage elected multiplied by the sum of the Qualified Account plus Prior Diversification Transfers exceeds the Prior Diversification Transfers, at which time such excess, and thereafter, a percentage of all future allocations to the Participant's Qualified Account equal to the percentage of the Participant's LESOP Diversification Election shall be transferred to Participant's Diversification Account. No amount transferred to a Participant's Diversification Account may be transferred back to the Participant's Employer Auxiliary ESOP Account. (3) Investment of Amounts Subject to LESOP Diversification Election. The amount subject to a Participant's LESOP Diversification Election shall be transferred to the Participant's LESOP Diversification Account or McDESOP Diversification Account under the Plan and thereafter shall be invested in accordance with the Participant's elections pursuant to Section 10.8 or 10.11(a) but determined without regard to Section 10.7 provided that such transfer shall occur no later than 90 days after the date on which the Participant becomes a Qualified Participant, attains age 60 or the end of each Annual Election Period during which the Participant makes a LESOP Diversification Election or at such earlier dates as the Committee, pursuant to Section 10.13 shall permit. (b) Diversification of Future Contributions Participant Elected Contributions. Effective on or after July 1, 1993, if the balance of a Participant's Participant Elected Contribution Account is equal to $1500 or more (or such lesser amount as the Committee from time to time determines), the Participant may make an election ("Future Contribution Diversification Election") with respect to his future Participant Elected Contributions to have up to 100 percent of the amount of such contributions, in increments of 25 percent, credited to his McDESOP Diversification Account. Once he has made a Future Contribution Diversification Election, a Participant may change his election with respect to future Participant Elected Contributions, subject to Section 10.13, but each such change shall only effect Participant Elected Contributions made to the Plan after the date the election is effective and before the date a new Future Contribution Diversification Election becomes effective. Effective July 1, 1994, Future Contribution Diversification Elections may be made by any Participant regardless of the size of his account balance and may be made in five percent (5%) increments. (c) Age Diversification of Participant Elected Contribution Accounts and Employer Matching Contribution Accounts. Effective July 1, 1994, beginning with the first day of the month following the month in which a Participant attains 50 years of age, the Participant (or the Beneficiary of a Participant who would have attained age 50 if he had not died) may elect to diversify by transferring to his McDESOP Diversification Account up to 100 percent (100%) (in increments of five percent (5%)) of his: (1) Participant Elected Contribution Account; and (2) Employer Matching Contribution Accounts. The diversification amount to be transferred from a Participant's Participant Elected Contribution Account shall be an amount equal to the difference between (A) the diversification percentage elected by the Participant multiplied by the sum of (i) the Participant's Participant Elected Contribution Account, and (ii) the amounts previously transferred from the Participant's Participant Elected Contribution Account to the Participant's McDESOP Diversification Account ("Prior Elected Contribution Transfers") reduced by (B) the amount of the Participant's Prior Elected Contribution Transfers. The Diversification Amount to be transferred from a Participant's Employer Matching Contribution Accounts shall be an amount equal to the difference between (A) the diversification percentage elected by the Participant multiplied by the sum of (i) the Participant's Employer Matching Contribution Accounts and (ii) the amounts previously transferred from the Participant's Employer Matching Contribution Accounts to the Participant's McDESOP Diversification Account ("Prior Matching Contribution Transfers") reduced by (B) the amount of the Participant's Prior Matching Contribution Transfers. If a Participant has made a Diversification Election and has not made a subsequent Diversification Election with a lower percentage, a percentage of the value of all future allocations to the Participant's Participant Elected Contribution Account and Employer Matching Contribution Accounts respectively equal to the percentage of the Participant's Diversification Election shall be transferred to the Participant's McDESOP Diversification Account. If a Participant who has made a McDESOP Diversification Election, makes a new McDESOP Diversification Election at a percentage (including zero) lower than the percentage of the earlier McDESOP Diversification Election, no portion of the allocations to the Participant's Participant Elected Contribution Account and Employer Matching Contribution Accounts, respectively, shall be transferred to the McDESOP Diversification Account until the respective products of the new lower percentage elected multiplied by (A) the sum of the Participant Elected Contribution Account plus Prior Elected Contribution Transfers and (B) the sum of the Employer Matching Contribution Accounts plus Prior Matching Contribution Transfers exceed (A) the Prior Elected Contribution Transfers and (B) Prior Matching Contribution Transfers, at which time each such respective excess, and thereafter, a percentage of all future allocations respectively to the Participant's Participant Elected Contribution Account and Employer Matching Contribution Accounts equal to the percentage of the Participant's McDESOP Diversification Election shall be transferred to the Participant's McDESOP Diversification Account. A McDESOP Diversification Election shall be made at the same time and with the same effective dates and such other rules as investment elections under Section 10.13. Once a Participant has made a McDESOP Diversification Election of a given percentage it will continue in effect until he makes a new election. A Participant can elect to reduce the percentage of his McDESOP Diversification Election to a larger or a lesser percentage (including to zero); however, amounts already credited to his McDESOP Diversification Account shall not be transferred back to his Participant Elected Contribution Account and his Employer Matching Contribution Accounts. (d) Distributions from Diversification Accounts. The provisions of the Plan shall apply to amounts subject to a Diversification Election under Section 10.12 in the same manner as to the Participant Elected Contribution Accounts or Employer Matching Contribution Accounts, except that the balance in a Participant's McDESOP Diversification Account shall be invested in the Trust Investment Funds in the same manner as the Participant elects to invest his Profit Sharing Fund Account pursuant to Section 10.8 or as provided in Section 10.11(a), whichever is applicable, but determined without regard to Section 10.7. Contributions credited to a Participant's McDESOP Contribution Diversification Account shall be credited to the Investment Funds available under the Profit Sharing Plan in the same proportions as the Participant elects pursuant to Section 10.8 or as provided in Section 10.11(a) whichever is applicable, but determined without regard to Section 10.7. A Participant to whom a distribution is payable under Article X shall have the right to elect to receive any distributions made from his McDESOP Diversification Account in McDonald's common stock. 10.13 Effective Date of Participant's Investment and Diversification Elections. Effective prior to July 1, 1994, each Participant's investment election, pursuant to Sections 10.8, 10.9 and 10.10 and a Diversification Election made pursuant to Section 10.12, shall be made effective as of such date or dates as the Committee shall, in accordance with uniform and non-discriminatory rules designate, or as soon thereafter as is administratively convenient. Effective July 1, 1994 and thereafter, each Participant's investment election or Diversification Election submitted by the 25th of a calendar month, pursuant to Sections 10.8, 10.9 and 10.10 and a Diversification Election made pursuant to Section 10.12, shall be made effective as of the first day of the next calendar month or as soon thereafter as is administratively convenient. Diversification Elections with respect to future contributions made in accordance with Section 10.12 shall be implemented the first day of the calendar month after the month in which such contributions are made to the Plan or as soon thereafter as is administratively convenient. This Section 10.13 is intended to give the Committee the authority to implement Participants' Investment Elections and Diversification Elections as soon as possible with due regard for requiring advance notice of elections. The Committee may use such methods as making transfers between Investment Funds based upon estimates followed by corrective adjustments made when exact data becomes available and, in the event of inability to effectuate elections because of data processing, communications or other systems breakdowns, the Committee may effectuate such elections as soon as is reasonable under the existing circumstances. 10.14 Trust Income. As of the close of business on each Valuation Date, the fair market value of the Trust Fund shall be determined. The fair market value of Assets Subject to Guarantee, as defined in Section 10.6(a)(3), shall be book value for all purposes hereunder unless the Committee determines that the book value guarantees no longer apply, a market value distribution has occurred under the contract or there has been a default on the guarantee. The fair market value of the Trust Fund shall be determined, recorded and communicated in writing to the Committee by the Trustee. The Trustee shall also determine the fair market value of each separate Investment Fund. The Trustee's determination of fair market value shall be final and conclusive on all persons. Once the values of each such Investment Fund have been determined, the value of each Trust Sub-fund invested in such Investment Fund shall be determined in accordance with Section 10.15. Once the fair market value of each Trust Sub-fund invested in each Investment Fund is determined, the value of each Participant's Accounts held in such Trust Sub-fund shall be determined therefrom in accordance with Section 10.17. For purposes of valuation under Sections 10.15 and 10.16, the "daily weighted average" of amounts held under or transferred into a fund or account means the sum of the daily values of such amounts in the fund or account for each day of the month divided by the number of days in the month, determined by including amounts on the date of transfer into a fund or an account and excluding amounts on the date of transfer out of a fund or an account. 10.15 Trust Sub-fund Income. As of each Valuation Date, the Committee shall determine the adjustment required to be made to the value of each Trust Sub-fund to make the total of all Trust Sub-fund balances which are invested in an Investment Fund equal to the total value of the Investment Fund in the manner described below: (a) Income Allocation to Trust Sub-funds Invested in the Diversified Stock Fund, Profit Sharing McDonald's Common Stock Fund, the Insurance Contract Fund, the Multi-Asset Fund, McDESOP McDonald's Preferred Stock Fund, McDESOP McDonald's Common Stock Fund or the Money Market Fund Subaccounts which are not directly credited with income. The value of the portion of each Trust Sub-fund in the Profit Sharing Plan (including Participants' Diversification Accounts) invested in the Diversified Stock Fund, the Profit Sharing McDonald's Common Stock Fund, the Multi-Asset Fund, the Insurance Contract Fund, the Money Market Fund Sub accounts which are not directly credited with income pursuant to Section 10.6(a)(5) and the Participant Elected Contribution Sub- fund, the Employer Matching Contribution Sub-fund and to the extent not invested in Company Stock, the Employer Auxiliary ESOP Contribution Sub-fund and the Auxiliary ESOP Suspense Account invested in the McDESOP McDonald's Preferred Stock Fund or the McDESOP McDonald's Common Stock Fund as of a Valuation Date is equal to the product of (1) multiplied by (2) where: (1) is the value of the portion of such Trust Sub-fund invested in an Investment Fund as of the immediately preceding Valuation Date, reduced by the amount of any distributions therefrom since the immediately preceding Valuation Date, and (2) is a fraction the numerator of which is the value of the Investment Fund as of the Valuation Date reduced by the amount of any contributions credited thereto since the immediately preceding Valuation Date and the denominator of which is the value of such Investment Fund as of the immediately preceding Valuation Date reduced by the amount of any distributions from such Investment Fund since the immediately preceding Valuation Date. (b) Income Allocation to Trust Sub-funds Invested in the Money Market Fund Subaccounts which are directly credited with income pursuant to Section 10.6(a)(6). The value of the portion of each Trust Sub-fund in the Profit Sharing Plan invested in Profit Sharing Money Market Fund Subaccounts which are directly credited with income as of a Valuation Date shall be equal to the sum of (1) plus (2) where: (1) is the value of the portion of such Trust Sub-fund invested in a Money Market Fund Subaccount as of the immediately preceding Valuation Date, reduced by any transfers or distributions therefrom since the immediately preceding Valuation Date, and (2) is an amount equal to the income of the portion of the Trust Sub-fund invested in the Money Market Fund Subaccount since the immediately preceding Valuation Date. Notwithstanding the foregoing, any dividends paid to the Trust with respect to Company Stock which was purchased with the proceeds of an Exempt Loan (or other loan permitted in accordance with Section 6.1 including a loan which was refinanced with such loan) and any Company Stock into which such purchased shares have been converted, which has been allocated to Participants' Accounts and which are being used pursuant to Section 6.4(a) to repay such loan shall not be credited to Participants' Accounts but shall be credited to the Auxiliary ESOP Suspense Account maintained with respect to such loan pursuant to Section 6.2 and used to repay such loan; provided that the amount of any such dividends which are not used as of the last Valuation Date of a Plan Year to repay the loan shall be allocated to Participants' Accounts pursuant to Section 10.17 as of such Valuation Date. 10.16 Income Directly Credited to Trust Sub-funds. For the purpose of determining the allocation of income to Participants' Participant Elected Contribution Accounts as of a Valuation Date, there shall be added to the value of the Participant Elected Contribution Fund as of that Valuation Date an amount equal to the sum of (a) the income directly credited to the Participant Elected Contribution Holding Fund pursuant to Section 10.6 and (b) the income allocated to such Fund from the Distribution Fund in accordance with Section 10.18 for the period ending on such Valuation Date. For the purpose of determining the allocation of income to Participants' Employer Matching Contribution Account as of a Valuation Date there shall be added to the value of the Employer Matching Contribution Fund as of that Valuation Date an amount equal to the sum of (a) the income directly credited to the Employer Matching Contribution Holding Fund and the Per Capita Employer Matching Contribution Holding Fund pursuant to Section 10.6 and (b) the income allocated to such Fund from the Distribution Fund in accordance with Section 10.18 for the period ending on such Valuation Date. Any income directly credited to the Profit Sharing Contribution Holding Fund shall be allocated to Participant Accounts as part of the Profit Sharing Contribution Holding Fund as provided in Section 7.1. 10.17 Adjustment of Account Balances. As of each Valuation Date, the Committee shall determine the adjustment required to be made to the value of each Participant's Accounts and the Auxiliary ESOP Suspense Accounts to make the total of all such Account balances which are invested in an Investment Fund and held in a Trust Sub-fund equal to the total amount invested in that Investment Fund and held in that Trust Sub-fund. (a) Valuation of the Portion of Profit Sharing Fund Accounts, Investment Savings Fund Accounts, Rollover Contribution Accounts, Diversification Accounts, Participant Elected Contribution Accounts and Employer Matching Contribution Accounts invested in an Investment Fund other than the Money Market Fund Subaccounts which are directly credited with income. The value of the portion of each Participant's Profit Sharing Fund Account, Investment Savings Fund Account, Rollover Contribution Account, Diversification Account, Participant Elected Contribution Account and Employer Matching Contribution Account invested in an Investment Fund other than the Money Market Fund Subaccounts which are directly credited with income pursuant to Section 10.6(a)(6) as of a Valuation Date shall be equal to the product for each Investment Fund of (1) multiplied by (2) where: (1) is the value of the portion of such Account held in a Trust Sub-fund and invested in an Investment Fund as of the immediately preceding Valuation Date, reduced by any distributions therefrom since the immediately preceding Valuation Date, and (2) is a fraction, the numerator of which is the value of the portion of the Trust Sub-fund invested in such Investment Fund as of the Valuation Date reduced by any contributions credited thereto since the immediately preceding Valuation Date and the denominator of which is the value of such portion of the Trust Sub-fund invested in such Investment Fund as of the immediately preceding Valuation Date reduced by any distributions therefrom since the immediately preceding Valuation Date. In determining the value of the foregoing numerator for purposes of the Participant Elected Contribution Fund and the Employer Matching Contribution Fund, the income of the Participant Elected Contribution Holding Fund and the Employer Matching Contribution Holding Fund and the Per Capita Employer Matching Contribution Holding Fund shall be included in accordance with Section 10.16. (b) Valuation of the Portion of Participants' Accounts Invested in the Money Market Fund. The value of the portion of each Participant's Accounts held in a Trust Sub-fund and invested in a Money Market Fund Subaccount which is directly credited with income as of a Valuation Date shall be equal to the sum of (1) plus (2) where: (1) is the value of the portion of the Participant's Account held in a Trust Sub-fund and invested in the Money Market Fund Subaccount which is directly credited with income pursuant to Section 10.6(a)(b) as of the immediately preceding Valuation Date, reduced by any transfers or distributions therefrom since the immediately preceding Valuation Date, and (2) is an amount equal to the income of the portion of such Account held in a Trust Sub-fund and invested in the Money Market Fund Subaccount since the immediately preceding Valuation Date. The income of such portion of such Account is equal to the product of (A) multiplied by (B) where: (A) is the difference between (i) the sum of (I) the value of the portion of the Trust Sub-fund invested in the Money Market Fund Subaccount as of the Valuation Date plus (II) any transfers or distributions therefrom since the immediately preceding Valuation Date, reduced by (ii) the sum of (I) the value of such portion of the Trust Sub-fund invested in the Money Market Fund Subaccount as of the immediately preceding Valuation Date plus (II) any contributions or other amounts transferred thereto since the immediately preceding Valuation Date; and (B) is a fraction, the numerator of which is the daily weighted average value of the portion of the Account held in the Trust Sub-fund and invested in the Money Market Fund Subaccount for the period since the immediately preceding Valuation Date, and the denominator of which is the daily weighted average value of the portion of the Trust Sub-fund invested in the Money Market Fund Subaccount for the period since the immediately preceding Valuation Date. (3) Valuation of the Portion of the Auxiliary ESOP Suspense Account and Participants' Employer Auxiliary ESOP Accounts invested in Company Stock. Participants' Employer Auxiliary ESOP Accounts and Auxiliary ESOP Suspense Accounts shall be directly credited with the dividends and other distributions and earnings of shares of Company Stock credited thereto; provided that any dividends credited to Participants' Employer Auxiliary ESOP Accounts which are to be used to repay an Exempt Loan shall immediately after being so credited to Participants' Accounts be transferred to the Auxiliary ESOP Suspense Account and held in a separate account until used to repay a loan and further provided that the amount of such dividends transferred to the Auxiliary ESOP Suspense Account for a Plan Year shall not exceed the fair market value of the Company Stock (determined on the Valuation Date allocated) allocated to Participants' Employer Auxiliary ESOP Accounts pursuant to Section 6.3(b) for the Plan Year. The Accounts of Participants as adjusted according to Section 10.17 shall determine the value of the interest of each Participant in the Trust for all purposes subject to the crediting of any contributions as provided in Article VII until a subsequent determination is made by the Committee. 10.18 Allocation of Income of the Distribution Fund. Any net income and gains (after reduction by losses and by expenses not paid by an Employer) of the Distribution Fund shall be allocated to the Profit Sharing Plan and to McDESOP in proportion to the amount of distributions from each such portion of the Plan transferred to the Distribution Fund since the preceding Valuation Date. The portion of such net income allocated to the Profit Sharing Plan shall be credited to Profit Sharing Contribution Holding Funds #1 and #2 in proportion to the Profit Sharing Contributions made thereto in accordance with Article III and shall be allocated to Participants' Profit Sharing Contribution Accounts in accordance with Section 7.1. The portion of such income allocated to McDESOP shall be credited to Participants' Participant Elected Matched Contribution Accounts and Employer Matching Contribution Accounts in proportion to the income allocable thereto in accordance with Section 10.16. Effective July 1, 1993, for purposes of making the foregoing allocations, distributions from Participants' Diversification Accounts shall be considered to be part of the McDESOP portion of the Plan. 10.19 Separate Accounting in the Trust Fund. The Committee shall create and maintain separate accounts for each Participant as described in Section 1.1. Every adjustment to a Participant's Accounts shall be considered as having been made on the relevant Valuation Date, regardless of the date of actual entry or receipt by the Trustee of Employer Contributions and Participant Elected Contributions for a Plan Year. 10.20 Trust Investment. The assets of a Trust Fund may at any one time be invested up to 100% exclusively in Company Stock subject to the provisions of the Trust. 10.21 Separate Accounting for Auxiliary ESOP Suspense Account. The Committee shall create and maintain a separate account, called an Auxiliary ESOP Suspense Account, to record and to separately account for (a) each loan or other extension of credit made pursuant to Section 6.1, (b) all Employer Auxiliary ESOP Contributions to the Plan to repay each such loan or extension of credit, (c) net income, gains or losses charged to such Employer Auxiliary ESOP Contributions and Auxiliary ESOP Suspense Account under Sections 10.17 and 10.6(b), and (d) all payments made on such loan or other extension of credit until such loan or other extension of credit is repaid, in accordance with Sections 6.1, 6.2 and 6.3. 10.22 Correction of Error. In the event of any error, including but not limited to an error in the adjustment of a Participant's Accounts or an error in including or excluding persons as Participants, the Committee, in its sole discretion, may correct such error by either crediting or charging the adjustment required, or such adjustment as the Committee in its sole discretion shall determine to be equitable, to make such correction to or against Forfeitures or to or against income and expenses of the Trust for the Plan Year in which the correction is made, or if an Employer contributes an amount to correct any such error, from such amount. Effective January 1, 1995, corrections of Participant Elected Contributions and Employer Matching Contributions which an individual should have been permitted to make, but because of an error in Plan administration was not permitted to make, shall be made as provided in the preceding sentence by crediting the individual's Participant Elected Contribution Account and Employer Matching Contribution Account respectively with (a) Participant Elected Contributions equal to the average percentage of compensation which was contributed for the preceding Plan Year as such contributions by highly compensated employees or non-highly compensated employees (whichever the individual is classified as) and (b) the amount of Employer Matching Contributions and Forfeitures which would have been credited to such individual's Employer Matching Contribution Account with respect to such Employer Matching Contributions. After the preceding correction is made, the Participant's Participant Elected Contribution Account and Employer Matching Contribution Account shall be credited with a rate of return which is equal to the rate of return the Participant's accounts would have received had the accounts been invested in the manner in which such accounts were invested at the time the Participant was first given the opportunity to make Participant Elected Contributions. Except as provided in this Section, the Accounts of other Participants shall not be readjusted on account of such error. 10.23 Statement of Accounts. As soon as practicable after the last day of each Plan Year, the Committee shall deliver to each Participant a statement of his Net Balance Account. 10.24 Purchase or Sale of Company Stock. The Trustee, on behalf of McDESOP, may (a) sell Company Stock to a Party in Interest or a Disqualified Person if such sale is for at least the fair market value of the Company Stock and (b) purchase Company Stock from a Party in Interest or a Disqualified Person, if such purchase is for no more than the fair market value of the Company Stock and (c) no commission is charged with respect to such sale or acquisition; provided that such sale or acquisition is for the price of the Company Stock prevailing on an established securities market, if the Company Stock is readily tradeable on such market and determined by an independent appraiser, if the Company Stock is not readily tradeable on an established securities market. 10.25 Shareholder Rights in Company Stock. A fundamental purpose of the McDESOP portion of the Plan and the Trust which is maintained to implement the McDESOP portion of the Plan is to obtain for the Company, its shareholders, Participants and future Participants the benefits resulting from Participants having the right to vote shares of Company Stock and to determine whether shares of Company Stock should be sold or retained in response to a public or private tender offer. A key purpose of the McDESOP portion of the Plan is to encourage Participants to feel and to act like owners of the Company by assuring them the opportunity to share the economic benefit of ownership of Company Stock and the opportunity to direct the manner in which shares held by McDESOP are voted at all shareholder meetings and to determine whether shares of Company Stock should be sold or retained in response to a public or private tender offer. It is similarly desired that Participants who elect to invest their profit sharing accounts in Company Stock have the same opportunity with respect to the shares held in Participants' Profit Sharing Accounts. The broad employee participation in the Plan at all levels of the Company and limitations on maximum benefits to Participants who are officers, shareholders or highly compensated employees assure that such voting and decisions by Participants represent the overall knowledge and experience of a broad representative cross-section of employees of the Company. It, therefore, is anticipated that the votes and other decisions of Participants will be fairly representative of both present and future Participants' interests. Accordingly it has been concluded that Participants are best able to determine questions concerning voting and whether to sell or retain shares of Company Stock in a public or private tender offer with respect to shares allocated to their own accounts, as each person is uniquely able to determine his best interests based upon both his unique knowledge of his own situation and his unique knowledge of the Company. Moreover, because the overall broad group of employees who are Participants is fairly representative of both present and future Participants' interests it is believed that such Participants as a group are uniquely able to determine the best interests of future Participants who benefit from future allocations of Company Stock under the Plan. Further, such participation in fundamental shareholder decisions by Participants is expected to result in increased commitment to the success of the Company further enhancing financial rewards of plan participation for such Participants, as well as enhancing shareholder and Company values. In order to assure that each Participant will express his or her unrestrained best judgment concerning how these rights should be exercised independent of any considerations associated with such Participant's employment status with the Company, Participants exercise such rights through a method that assures the confidentiality of their votes and other decisions. (a) Allocated Shares. With respect to shares (and fractional shares) of Company Stock which have been allocated to Participants' Accounts (including shares held in the Profit Sharing McDonald's Stock Fund with respect to amounts credited to Participant's Profit Sharing Fund Account or Diversification Account), each Participant or Beneficiary, as a named fiduciary, shall have the right to direct the Trustee as to the manner of voting and the exercise of all other rights which a shareholder of record has with respect to such shares (including, but not limited to, the right to sell or retain such shares in a public or private tender offer). In voting or exercising such other rights with respect to such shares the Participants and Beneficiaries shall consider their own individual long-term best interests in providing benefits under the Plan and Trust rather than a short term gain. In the event that a Participant shall fail to direct the Trustee as to the manner of voting of such shares of Company Stock allocated to the Participant's Accounts or as to the exercise of other rights in respect of such shares, the Trustee shall vote such shares or exercise such rights with respect to such shares in accordance with Section 10.25(b). (b) Unallocated Shares and Allocated Shares Not Directed. With respect to shares (and fractional shares) of Company Stock which are either not allocated to Participants' Accounts or are allocated to the Accounts of Participants who fail (or whose Beneficiaries fail) to provide any direction pursuant to Section 10.25(a), each Participant who is an Employee, as a named fiduciary, shall have the right to direct the Trustee as to the manner of voting the number of such shares (and fractional shares), and the exercise of all other rights which a shareholder of record has with respect to such shares (including, but not limited to, the right to sell or retain such shares in a public or private tender offer), as is equal to the product of (i) the sum of the number of unallocated shares and undirected shares multiplied by (ii) a fraction, the numerator of which is the number of shares (and fractional shares) of Company Stock which have been allocated to the Accounts of such Participant and the denominator of which is the total number of shares (and fractional shares) of Company Stock which have been allocated to the Accounts of all Participants who give directions to the Trustee pursuant to this Section 10.25(b). In voting or exercising such other rights with respect to such shares such Participants shall consider the long term interests of both current and future Participants and Beneficiaries in providing benefits under the Plan and Trust rather than a short term gain. (c) Named Fiduciaries. The Trustee shall notify each Participant and Beneficiary who is authorized pursuant to Section 10.25(a) or (b) to direct the Trustee as to the manner of voting and the exercise of other shareholder rights with respect to shares (and fractional shares) of Company Stock that such Participant or Beneficiary is a named fiduciary, within the meaning of Section 402(a)(2) of ERISA, with respect to such shares (and fractional shares), and shall instruct each such Participant and Beneficiary that in exercising such authority to direct the Trustee, with respect to shares of Company Stock allocated to his Accounts, he should consider his own individual long-term best interests in providing benefits under the Plan and, with respect to shares of Company Stock voted pursuant to Section 10.25(b), he should consider the long-term interests of both current and future Participants and Beneficiaries in providing benefits under the Plan and Trust rather than a short term gain. (d) Confidentiality. The Trustee shall solicit the directions of Participants and Beneficiaries in accordance with Section 10.25(a), (b) and (c) and shall follow such directions by delivering aggregated votes to the Company or otherwise implementing such directions in any convenient manner which preserves the confidentiality of the votes or other directions of individual Participants or Beneficiaries. Any designee of the Trustee who assists in the solicitation or tabulation of the directions of Participants or Beneficiaries shall certify that he will maintain the confidentiality of all directions given. 10.26 Cash Distributions with Respect to Company Stock. If there is a discrepancy between (1) the amount received by the Trust upon the sale of Company Stock or credited to a portion of the Trust upon the transfer of Company Stock from one portion of the Trust to another, for the purpose of making cash distributions to Participants or Beneficiaries and (2) the value of such Company Stock on the Valuation Date as of which such stock is valued for the purpose of determining the amount of the Participant's cash distributions, such discrepancy shall be credited to or charged against the Trust Income of the portion of the Trust Fund (i.e., the Profit Sharing Plan Accounts, the Leveraged ESOP Accounts and the remaining McDESOP Accounts) which held the stock before sale or transfer as of the Valuation Date next following the sale or transfer. 10.27 Distribution Fund. Any of the provisions herein to the contrary notwithstanding, the Committee shall have the authority to direct a Trustee to transfer amounts which in accordance with Article XI are currently distributable in cash to Participants or Beneficiaries who have had a Termination of Employment or, in the case of the Profit Sharing Plan, a Break in Service, to a Distribution Fund ("Distribution Fund"), during the calendar month next following the calendar month within which such amount became distributable. The Distribution Fund shall be held (a) in a checking account of the Trustee in the name of the Trust with, if the Trustee is a bank or a Trust Company, the Trustee's banking department, or (b) in short term liquid investments, in such types of investments or pooled, common, commingled or collective trust funds, including, if the Trustee is a bank, those of the Trustee, as the Committee may from time to time authorize the Trustee to invest in such respective amounts and proportions and in such manner as the Committee shall from time to time determine. The Committee may authorize one or more of its members, or their designees, to sign, manually, or by facsimile signature, any and all checks, drafts, and orders, including orders or directions in informal or letter form, against any funds in the Distribution Fund and the Trustee is authorized to honor any and all checks, drafts and orders so signed. As of each Valuation Date, income, gains, losses and expenses (to the extent not paid by an Employer) of the Distribution Fund shall be determined separately from the remainder of the Trust and the net income or losses of the Distribution Fund, for each Plan Year shall be added to the net income of the Trust Fund for such Plan Year as provided in Section 10.18 and any net losses of the Distribution Fund for the Plan Year shall be paid by the Company. ARTICLE XI DISTRIBUTION OF BENEFITS 11.1 Distributions, General. (a) Except as provided in Section 11.11 (for lump sum distributions of amounts not more than $3,500) and subject to Section 11.8 (with respect to withholding of taxes), upon the Participant's Termination of Employment on or after Vesting Retirement Date, Disability or for any other reason other than death, distributions shall be made in accordance with Section 11.2. (b) Except as provided in Section 11.11 (for lump sum distributions of amounts not more than $3,500) and subject to Section 11.8 (with respect to withholding of taxes), upon the Participant's death, distributions shall be made in accordance with Section 11.3. (c) If a Participant or Beneficiary is otherwise entitled to a distribution because of retirement on or after Vesting Retirement Date, Disability, death or other Termination of Employment, the Committee shall require that immediate distribution of small vested Accrued Benefits shall be made in accordance with and subject to the limitations of Section 11.11, notwithstanding the provisions of Sections 11.2 and 11.3. (d) A Participant or Beneficiary who has not had a Termination of Employment shall receive a distribution as provided in Section 11.13 not later than his Required Beginning Date. 11.2 Payment of Net Balance Account on Disability, or on Retirement or Other Termination of Employment. (a) Form of Payment of Accounts. (1) Retirement or Disability. Subject to Sections 11.11 and 11.14, if a Participant retires on or after his Vesting Retirement Date or has a Termination of Employment on account of a Disability and if the Participant makes no election pursuant to Section 11.2(b), the Trustee shall distribute to the Participant the vested portion of his Net Balance Account credited to his Accounts held in the Plan in a single non-periodic distribution within a reasonable time after the Valuation Date next following the later of (i) such event or (ii) the last day of the Plan Year in which he attains the age of 70-1/2. A Participant whose Net Balance Account is payable pursuant to the preceding sentence may elect to receive payment in whichever of the following methods the Participant shall elect in writing: (A) A single non-periodic payment; (B) Substantially equal installments, not less frequently than annually, over a period certain subject to Section 11.12, either directly from the Plan, or by purchase of a nontransferable period certain annuity contract purchased from an insurance company which is authorized to do business in any state and which has an A plus rating by A.M. Best Company or a comparable rating by a comparable service which rates insurance companies, payable for such period of time as the Participant shall elect; or (C) In the form of a nontransferable life annuity contract in an amount which can be purchased from an insurance company designated by the Participant which is authorized to do business in any state and which has an A plus rating by A.M. Best Company or a comparable rating by a comparable service which rates insurance companies, with the Participant's vested Net Balance Account credited to his Accounts or with the portion of the Participant's vested Net Balance Account which the Participant elects to receive in the form of a nontransferable life annuity contract. (2) Termination for Reasons Other than Retirement or Disability or Death. If a Participant has a Termination of Employment for reasons other than retirement on or after his Vesting Retirement Date, Disability or death, the Trustee shall distribute the Participant's vested Net Balance Account: (A) Prior to July 1, 1993, subject to an election by the Participant to accelerate the date of distribution, in cash and in a single non-periodic payment within a reasonable time after the last day of the Plan Year in which he attains the age of 70-1/2, but not later than his Required Beginning Date. Such a Participant shall not be entitled to elect installment payments or an annuity for distributions which commence on or after the Participant has attained age 55. (B) On or after July 1, 1993, subject to the Participant's election to receive nonperiodic or installment distributions as follows: (I) Profit Sharing Fund Account. The vested portion of the Participant's Profit Sharing Fund Account shall be distributed to the Participant in cash or in McDonald's common stock, in accordance with Section 11.2(f), within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (II) Investment Savings Fund Account. The Participant's Investment Savings Fund Account shall be distributed to the Participant in cash within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (III) Rollover Contribution Account and Rollover Contribution Holding Account. The Participant's Rollover Contribution Account and Rollover Contribution Holding Account shall be distributed to the Participant in cash within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (IV) McDESOP Accounts. The Participant's McDESOP Accounts, including the vested portion of all accounts identified in Sections 1.1(b) and in 1.1(c) shall be distributed to the Participant in cash or in McDonald's common stock as provided in Section 11.2(g) within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (V) Distributions in Default of Election. In the absence of an election by a Participant to receive a distribution of his entire vested Net Balance Account or to commence to receive installment distributions at least equal to the greater of the Minimum Distribution Amount and the amount determined under Section 11.2(d)(3), his entire vested Net Balance Account shall be distributed or to commence to be distributed within a reasonable time after the end of the calendar year in which he attains the age of 70 1/2, but not later than his Required Beginning Date. A Participant entitled to elect to receive a distribution or to commence receiving distributions pursuant to this Section 11.2(a)(2) is not entitled to elect an annuity form of distribution. (3) Break in Service. If a Participant has a Break in Service without having a Termination of Employment, the Trustee shall distribute the portion of his vested Net Balance Account in the Profit Sharing Plan in cash and in a single non-periodic payment within a reasonable time after the earlier of the Valuation Date next following the date the Participant elects to receive such distribution or after the Participant attains the age of 70-1/2, but not later than his Required Beginning Date; provided that if the Participant completes one year of Eligibility Service following the Break in Service, he shall not be permitted further elections to receive distributions made pursuant to Article XI until he again has a Break in Service or Termination of Employment. (b) Elections by Retired or Disabled Participants. As permitted in Section 11.2(a)(1), with respect to a distribution on account of a Participant's Termination of Employment on or after his Vesting Retirement Date or on account of Disability, a Participant may elect separately with respect to the portion of his Net Balance Account held in the Profit Sharing Plan and in McDESOP, on such form as may be provided or approved by the Committee, the form of benefit and the date (including an immediate or a delayed date) of commencement of benefits. The actual date of distribution shall be determined in accordance with the administrative procedures established by the Plan Administrator but shall be no earlier than the day following the Valuation Date which next follows the date the completed election form is submitted to the Plan Administrator. To the extent that such a Participant is receiving a portion of his benefit in a form other than an annuity purchased from an insurance company, he may from time to time make or change his benefit elections to accelerate or to delay the date and the rate of distribution on such a form as may be provided or approved by the Committee, subject to such rules as the Committee shall specify and to the limits stated in Sections 11.2(d) and 11.2(e), hereof. In the absence of any election, a Participant who has a Termination of Employment on or after his Vesting Retirement Date or on account of Disability shall be deemed to have elected to receive the vested portion of his Net Balance Account in a single non-periodic payment paid within a reasonable time after the end of the calendar year in which he attains age 70-1/2, but not later than his Required Beginning Date. (c) Types of Annuities. If the Participant elects to receive his benefit in the form of an annuity contract as permitted under Section 11.2(a)(1), each Participant, subject to Sections 11.2(d) and 11.2(e) shall have the right to direct the Trustee to purchase an available nontransferable annuity contract from an insurance company designated by the Participant which is authorized to do business in any state and which has an A plus rating by A.M. Best Company or a comparable rating by a comparable service which rates insurance companies. The benefit under such annuity contract shall be paid to the Participant prior to his death, and if a joint and survivor annuity is provided, unless such joint annuitant shall be the Participant's spouse, the periodic benefit payable to the Participant's Beneficiary shall not be greater than the following percentage of the benefit paid to the Participant: Excess of age of employee Applicable over age of beneficiary percentage ------------------------- ---------- 10 years or less 100 11 96 12 93 13 90 14 87 15 84 16 82 17 79 18 77 19 75 20 73 21 72 22 70 23 68 24 67 25 66 26 64 27 63 28 62 29 61 30 60 31 59 32 59 33 58 34 57 35 56 36 56 37 55 38 55 39 54 40 54 41 53 42 53 43 53 44 and greater 52 (d) Limitations on Participant Elections. Notwithstanding the provisions of Section 11.9 or any elections made by the Participant, (1) Period for Installment or Annuity Payments. Except as provided in Section 11.14, installment payments and period certain payments under any annuity contract purchased from an insurance company shall be made or shall commence not later than the Required Beginning Date and shall be made over a period not in excess of (A) the lesser of the period determined under Section 11.2(d)(3) or (B) the Participant's life expectancy or the joint and last survivor life expectancy of the Participant and his Beneficiary (such life expectancies to be determined in accordance with Section 11.12(e)). In the case of payments made in the form of a life annuity, payments shall be made over a period not in excess of the life of the Participant or the lives of the Participant and his Beneficiary. (2) Annuity Payments. If benefits are paid under an annuity contract, payments shall be non-increasing or shall increase only as follows: (A) with any percentage increase in a specified and generally recognized cost-of-living index, (B) to the extent of the reduction in the Participant's payments to provide for a survivor benefit upon death of the beneficiary whose life was being used to determine the period over which benefits are being paid; or (C) to provide cash refunds of Participant Contributions upon the Participant's death; and (3) Minimum Distribution Incidental Benefit Requirements. If benefits are paid in installments, payments for the calendar year in which the Participant attains the age of 70-1/2 and in each calendar year thereafter shall equal at least the dollar value of the Participant's vested Net Balance Account as of the last Valuation Date of the immediately preceding Plan Year divided by the following Applicable Divisor: Attained Age of Participant on Birthday in Calendar Year Applicable Divisor ---------------------------- ------------------ 70 26.2 71 25.3 72 24.4 73 23.5 74 22.7 75 21.8 76 20.9 77 20.1 78 19.2 79 18.4 80 17.6 81 16.8 82 16.0 83 15.3 84 14.5 85 13.8 86 13.1 87 12.4 88 11.8 89 11.1 90 10.5 91 9.9 92 9.4 93 8.8 94 8.3 95 7.8 96 7.3 97 6.9 98 6.5 99 6.1 100 5.7 101 5.3 102 5.0 103 4.7 104 4.4 105 4.1 106 3.8 107 3.6 108 3.3 109 3.1 110 2.8 111 2.6 112 2.4 113 2.2 114 2.0 115 1.8 If benefits are paid in the form of an annuity with a period certain feature, the number of years over which such period certain payments are made shall not exceed the lesser of (1) the Participant's or the Participant's and Beneficiary's joint and last survivor life expectancy as determined in Section 11.12(e) or (2) the number of years shown in the Applicable Divisor column above. (e) Qualified Joint and Survivor Annuities. (1) Notwithstanding the foregoing provisions of this Section 11.2, in the case of a Participant who has elected pursuant to Section 11.2(a)(1) to receive one or more of his Accounts in a life annuity, such distribution shall be in the form of a Qualified Joint and Survivor Annuity purchased by the Trust from an insurance company designated by the Participant which is authorized to do business in any state and which has an A plus rating by A.M. Best Company or a comparable rating by a comparable service which rates insurance companies, unless the Participant with his spouse's consent as provided in Section 11.10 elects to receive a different form of annuity or another form of benefit. The term "Qualified Joint and Survivor Annuity" means an immediate annuity payable, for a married Participant, to the Participant for life and, if the Participant's spouse survives the Participant, a survivor annuity payable to the spouse for life in an amount equal to 50 percent (50%) of the annuity payable to the Participant and, for an unmarried Participant, a single life annuity payable to the Participant for life. The amount of the benefits payable under a Qualified Joint and Survivor Annuity shall be the amount which can be purchased from an insurance company with the vested portion of the one or more of his Accounts which the Participant elects to receive in the form of a life annuity. (2) If a Participant who has elected to receive all or a portion of his vested Net Balance Account in the form of a life annuity dies before the annuity starting date, such portion of his vested Net Balance Account shall be paid to his surviving spouse in the form of a Qualified Preretirement Survivor Annuity payable to the surviving spouse for life ("QPSA") unless either the Participant, with his spouse's consent in accordance with Section 11.10, has elected to waive the QPSA or the spouse elects pursuant to Section 11.3(a)(3) to waive the QPSA and to receive another form of benefit; provided that if the Trust has paid for an annuity to provide a life annuity benefit elected by the Participant and the Participant dies before his annuity starting date under the contract, the QPSA shall be provided by the annuity contract and the surviving spouse shall have no claim against the Trust with respect to the Accounts which he has elected to receive in the form of a life annuity. Any portion of a Participant's vested Net Balance Account in excess of the value of a QPSA, if paid directly by the Plan, or remaining after the payment of annuity premiums to an insurance company, if paid by an insurance company, shall be distributed to the Participant's Beneficiary as provided in Section 11.3. (3) A Participant who elects to receive benefits in the form of a life annuity and to whom benefits would be payable in the form of a Qualified Joint and Survivor Annuity pursuant to this Section 11.2(e) shall have the right to waive a Qualified Joint and Survivor Annuity (such waiver shall be consented to by the Participant's spouse in writing in accordance with Section 11.10) and the QPSA by delivering written notice to the Committee, at any time within the 90 day period prior to the annuity starting date, to receive all or a portion of such benefits in a different form of annuity or another form of benefit. If a Participant elects to receive benefits in the form of a life annuity, the Committee shall within a reasonable period of time provide the Participant, by personal delivery or first class mail, with a written explanation of: (A) the terms and conditions of the Qualified Joint and Survivor Annuity and the QPSA; (B) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Annuity and the QPSA; (C) the rights of the Participant's spouse to consent to the Participant's election to waive the Qualified Joint and Survivor Annuity and the QPSA and the effect of consenting to such waiver; and (D) the Participant's right to make, and the effect of, a revocation of an election to waive the Qualified Joint and Survivor Annuity and the QPSA. Any election made by a Participant to receive a life annuity form of benefit pursuant to this Section 11.2(e) may be revoked by such Participant (with his spouse's consent) by delivering written notice to the Committee at any time prior to the Participant's annuity starting date and, once revoked, may be made again at any time by delivering written notice to the Committee prior to the Participant's annuity starting date. If a Participant, who has elected a life annuity form of benefit and who has not waived (with his spouse's consent) the QPSA, dies before his annuity starting date, his surviving spouse may elect pursuant to (A) through (D) and Section 11.10 to waive the QPSA. (f) Form of Profit Sharing Distributions. If the method of distribution selected by a Participant includes either a nonperiodic payment or installment payments or a combination of nonperiodic payments and installments, the Participant may elect, on such form and in such manner as the Committee shall provide or permit, to receive the portion of his vested Net Balance Account in the Profit Sharing Plan distributed in cash or in shares of McDonald's common stock or in any combination of the two as elected by the Participant; provided however that, in the absence of an election to receive shares of McDonald's common stock, such distributions shall be made in cash and, further provided, that the portion of such distribution distributed in the form of shares of McDonald's common stock shall not, except as otherwise provided below, exceed the value (if any) of the Participant's interest in the Profit Sharing McDonald's Common Stock Fund. Until such time as a Participant's vested Net Balance Account has been distributed, transferred to a Distribution Fund in accordance with Section 10.27 or forfeited in accordance with Section 11.4, any portion of the Participant's Net Balance Account remaining in the Profit Sharing Plan portion of the Plan shall continue to be invested in accordance with Section 10.7 and the Participant's (or his Beneficiary's) investment elections in accordance with Sections 10.8, 10.9, 10.10 and 10.11, as applicable. (g) McDESOP Accounts. If the sum of the portion of a Participant's vested balances in his Participant Elected Contribution Account, Employer Matching Contribution Account and McDESOP Diversification Account to the extent it is attributable to amounts diversified from his Participant Elected Contributions or Employer Matching Contribution Account and is invested in McDonald's common stock, consists of $1500 or more as of the Valuation Date immediately preceding a distribution, such amounts shall be distributed in the form of shares of McDonald's common stock, unless the Participant (or his Beneficiary) elects a distribution in cash. If the sum of the portion of a Participant's vested balance in his Employer Auxiliary ESOP Contribution Accounts and his LESOP Diversification Account to the extent it is invested in McDonald's common stock consists of $1500 or more as of the Valuation Date immediately preceding the date of distribution, such accounts shall be distributed in the form of shares of McDonald's common stock, unless the Participant (or his Beneficiary) elects a distribution in cash. If the sum of the portion of a Participant's vested balance in his Participant Elected Contribution Account, Employer Matching Contribution Account and his Diversification Account to the extent it is attributable to his Participant Elected Contributions or Employer Matching Contributions and is invested in McDonald's common stock is less than $1500 as of the Valuation Date immediately preceding the distribution, such Accounts shall be distributed in cash, unless the Participant (or his Beneficiary) elects to receive a distribution in shares of McDonald's common stock. If the sum of the portion of a Participant's vested Net Balance Account in his Employer Auxiliary ESOP Contribution Account and his LESOP Diversification Account to the extent it is attributable to his Employer Auxiliary ESOP Contributions and is invested in McDonald's common stock has a value of less than $1500 as of the Valuation Date immediately preceding the distribution, such Accounts shall be distributed in cash, unless the Participant (or his Beneficiary) elects to receive a distribution in shares of McDonald's common stock. If any distribution in shares of McDonald's common stock described in this Section 11.2 would not be in whole shares, the value of any fractional share shall be distributed in cash. A Participant or Beneficiary who is entitled to a distribution may elect to receive a cash distribution in lieu of McDonald's common stock or a McDonald's common stock distribution in lieu of cash by filing a written election with the Committee on forms approved by the Committee and in a manner prescribed by the Committee on or before the Valuation Date coincident with or next preceding the date of distribution. Until such time as a Participant's vested Net Balance Account has been distributed, transferred to a Distribution Fund in accordance with Section 10.27, or forfeited in accordance with Section 11.4 (A) any portion of his Net Balance Account in his Diversification Account shall continue to be invested as provided in Section 10.12(b), and (B) any portion of his Net Balance Account remaining in the McDESOP portion of the Plan shall continue to be invested in Company Stock and held therein. If any Company Stock distributed from a Participant's Participant Elected Contribution Account, Employer Matching Contribution Account or Diversification Account is not readily tradeable on an established market when distributed, the distributee shall have the put option rights which are described in Section 6.5(b) with respect to such shares. (h) Distributions After Rehire. If a Participant who has had a Termination of Employment subsequently becomes an Employee, such Participant shall not be entitled to elect distributions until he again becomes eligible to receive distributions as provided in Section 11.2. 11.3 Payment of Net Balance Account on Death of Participant. (a) Form of Payment. The Net Balance Account of a Participant who dies before having a Termination of Employment shall be fully vested. The Net Balance Account of a Participant who dies after having a Termination of Employment for reasons other than a Termination of Employment on or after Vesting Retirement Date, death or Disability shall be vested as provided in Section 11.4(b). If a Participant dies before his entire vested Net Balance Account has been paid from the Plan, except to the extent otherwise provided in Section 11.2(e)(2), distributions shall be made as follows: (1) If the Participant has a surviving spouse, the Trustee shall distribute the vested portion of the Participant's Net Balance Account to the Participant's surviving spouse as the Participant's Beneficiary in accordance with Section 11.3(a)(3) unless the Participant (with his spouse's consent in accordance with Section 11.10) has named another Beneficiary. (2) If the Participant does not have a surviving spouse or if the Participant (with his spouse's written consent in accordance with Section 11.10) has named another Beneficiary, the Trustee shall distribute the vested portion of the Participant's Net Balance Account in accordance with Section 11.3(a)(3) to the Beneficiary named by the Participant in accordance with Section 11.6. (3) The Participant's vested Net Balance Account shall be distributed within a reasonable time after the Valuation Date following the Participant's death or at such later date as the Beneficiary may elect under Section 11.3(b). Distributions to the Participant's Beneficiary shall be in whichever of the following methods of payment the Beneficiary, by written notice to the Committee, shall elect unless the Participant has elected in a written notice delivered to the Committee not to permit such Beneficiary elections in which case the Participant shall elect the method of payment, from the following: (A) A single non-periodic payment; (B) Substantially equal installments, not less frequently than annually, over a period certain, directly from the Profit Sharing Plan portion of the Plan; or (C) In the form of a nontransferable annuity contract purchased from an insurance company designated by the Beneficiary which is authorized to do business in any state and which has an A plus rating by A.M. Best Company or a comparable rating by a comparable service which rates insurance companies payable to the Beneficiary over his life. In the absence of any election by a Participant or a Beneficiary as to time and manner of payment, the Participant and the Beneficiary shall be deemed to have elected to receive the benefit in an immediate single sum payment. Distributions shall be made to a Participant's Beneficiary in cash or in Company Stock under the conditions provided in Sections 11.2(f) and 11.2(g). (b) Beneficiary Elections. With respect to a distribution on account of a Participant's death, his Beneficiary, as designated pursuant to Section 11.6, may elect the form of benefit and the date of commencement of benefits, unless the Participant has elected not to permit such Beneficiary elections. If the Participant has not elected otherwise, the Beneficiary may also elect, with respect to benefits not being received in the form of an annuity, to accelerate or to delay the receipt of benefits. Such elections shall be made in writing on a form provided or approved by the Committee and are subject to such rules as the Committee shall specify and to the limits stated in Sections 11.3(c), 11.3(d), 11.3(e) and 11.3(f), as applicable. Once a Beneficiary has made benefit elections, he may in the same manner and subject to the same conditions, with respect to benefits not being received in the form of an annuity contract purchased from an insurance company, change the election at any time, and with respect to any election delay or accelerate the receipt of benefits from time to time. (c) Period of Distribution - Death After Distributions Commence. Notwithstanding any other provisions of this Plan and any elections made by the Participant or his Beneficiary, except an election made in accordance with Section 11.13(a), if a Participant dies on or after his Required Beginning Date but before his entire vested Net Balance Account has been distributed, and on or after the date upon which distribution of his vested Net Balance Account has commenced in installments over a period certain: (1) not in excess of the life expectancy of the Participant or the joint and last survivor life expectancy of the Participant and his Beneficiary and such life expectancy was not subject to redetermination under Section 11.12(b), the balance of the Participant's vested Net Balance Account shall be distributed to his Beneficiary at least as rapidly as under the method of distribution in effect on the date of the Participant's death; or (2) not in excess of the life expectancy or life expectancies which are subject to periodic redetermination in accordance with Section 11.12(b), the balance of the Participant's vested Net Balance Account shall be distributed to his Beneficiary (A) by the last day of the Plan Year following the Plan Year in which the Participant died, if the period was based solely upon the Participant's life expectancy and (B) over a period not longer than the Beneficiary's remaining life expectancy as determined under the method of determining life expectancy used for the Beneficiary at the time benefit payments commenced to the Participant, if the period was based upon the joint and last survivor life expectancy of the Participant and the Beneficiary. The remaining life expectancy of a Beneficiary for purposes of the preceding sentence shall be (1) if such life expectancy is not subject to redetermination, the Beneficiary's life expectancy at the time installment payments commenced to be made to the Participant reduced by one year for each year over which such payments have been made or (2) if such life expectancy is subject to redetermination, the Beneficiary's life expectancy as redetermined at the applicable times following the Participant's death. (d) Period of Distribution - Death Before Distributions Commence. Notwithstanding any elections made by a Participant or Beneficiary, if Section 11.3(c) is not applicable, and a Participant dies before his entire vested Net Balance Account has been distributed or commenced to be distributed, the Participant's vested Net Balance Account shall be distributed not later than December 31 of the calendar year which contains the fifth anniversary of the Participant's death; except that if his Beneficiary is an individual, the Participant's vested Net Balance Account may be distributed over a period not exceeding the Beneficiary's life expectancy (or, if there are multiple Beneficiaries, the Beneficiary with the shortest life expectancy) determined as of the date of the Participant's death, and if the Beneficiary is a trust, his vested Net Balance Account may be distributed over a period not exceeding the life expectancy, determined as of the Participant's death, of the beneficiary of the trust or estate who then has the shortest life expectancy, beginning no later than December 31 of the calendar year after the calendar year of the Participant's death to the extent permitted under Section 11.3(h). Notwithstanding the foregoing, if the Beneficiary is the Participant's surviving spouse, distribution shall be made or shall commence not later than December 31 of the calendar year in which the Participant would have attained the age of 70-1/2 years. (e) Death of Surviving Spouse Who Is Beneficiary Before Benefit Payments Commence. If the surviving spouse of a Participant is the Beneficiary, and the surviving spouse dies before distributions have begun to the surviving spouse in accordance with Section 11.3(c)(1) or (2), the rules of Sections 11.3(c) and 11.3(d) shall apply as though such surviving spouse were the Participant, substituting the date of death of such spouse for the date of the Participant's death to determine the dates therein. Distributions are considered to have begun to the surviving spouse on the later of the dates specified in Section 11.3(c)(1) or (2). (f) Death of Beneficiary After Benefit Payments Commence. If a Beneficiary has commenced to receive distributions under Section 11.3(d), and such Beneficiary dies before the entire vested Net Balance Account has been distributed, any subsequent Beneficiary whose status as a Beneficiary was contingent on the death of the first Beneficiary shall receive distributions at least as rapidly as under the distribution method in effect upon the first Beneficiary's death. (g) Amount Paid to a Child. Any amount paid to a child, in accordance with regulations prescribed by the Secretary of the Treasury, 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 such other events as the Secretary of the Treasury may by regulations prescribe). (h) Trust as Beneficiary. Notwithstanding the foregoing provisions of Section 11.3, if a trust is designated the Beneficiary under the Plan and (1) if the following requirements below are met, the Beneficiary or Beneficiaries of the trust shall be considered the Beneficiary in accordance with applicable regulations and rulings for the purpose of determining the period over which distributions in the form of installments or annuities may be distributed. The applicable trust requirements are: (A) the trust is a valid trust under state law, or would be but for the fact that there is no corpus; (B) the trust is irrevocable, as of the Participant's death; (C) the beneficiaries of the trust with respect to the trust's interest in the Participant's vested Net Balance Account are identifiable; and (D) a copy of the trust instrument is provided to the Plan Administrator; and (2) If the above listed requirements are not met and the Participant dies on or after the Participant's Required Beginning Date, the Participant shall be treated as not having designated a Beneficiary for purposes of determining the period over which distributions may be made and distributions shall be made to the trust at least as rapidly as over the longest period over which distributions could have been made under Section 11.3(c) if the Participant had no Beneficiary. (3) If the above listed requirements are not met, and the Participant dies before his Required Beginning Date, the Participant shall be treated as not having designated a Beneficiary for purposes of the exception to the requirement in Section 11.3(d) that distributions be made within five years and distributions shall be made within the five year period designated in Section 11.3(d). 11.4 Vesting and Forfeitures. (a) A Participant who has a Termination of Employment on or after his Vesting Retirement Date or who has a Termination of Employment on account of Disability or death shall be fully vested in his Net Balance Account. (b) If a Participant has a Break in Service or has a Termination of Employment with the Employer for reasons other than retirement on or after his Vesting Retirement Date, death, or Disability, such Participant shall be fully vested in his (1) Investment Savings Fund Account; (2) Participant Contribution Holding Account; (3) his Rollover Contribution Account; (4) Rollover Contribution Holding Account; (5) Participant Elected Contribution Account; and (6) Employer Matching Contribution Account. Such Participant shall be vested in his Profit Sharing Fund Account and his Employer Auxiliary ESOP Contribution Account in accordance with the following table wherein the first column represents the Credited Service of the Participant, and the second column represents the Vested Percentage of the Participant's Profit Sharing Fund Account and Employer Auxiliary ESOP Contribution Account: Years of Credited Service Vested Percentage ------------------------- ----------------- less than 2 years 0 2 years but less than 3 5 3 years but less than 4 20 4 years but less than 5 40 5 years but less than 6 60 6 years but less than 7 80 7 years and over 100 (c) The portion of the Participant's Profit Sharing Fund Account and Employer Auxiliary ESOP Contribution Account which is not vested as of his Termination of Employment or the occurrence of a Break in Service shall become a Forfeiture at the earlier of (1) the first day of the Plan Year immediately following the Plan Year in which the Participant has five consecutive Breaks in Service or (2) as of the Valuation Date immediately following the Valuation Date as of which the Vested Percentage of the Participant's Profit Sharing Fund Account and Employer Auxiliary ESOP Contribution Account, respectively, are distributed. Subject to Section 11.3(d) and 11.3(e), (A) Forfeitures occurring with respect to a Participant's Profit Sharing Fund Account shall be credited to the Employer Matching Contribution Holding Fund as of the Valuation Date following the date the amount of such Forfeiture is determined but not later than the sixth Valuation Date after the date as of which the amounts became a Forfeiture and (B) from Participants' Employer Auxiliary ESOP Contribution Accounts shall be allocated for the Plan Year among all Active Participants as provided in Section 7.3 for Forfeitures from Participants' Employer Auxiliary ESOP Contribution Accounts. A Participant whose Vested Percentage is zero at the time of his Termination of Employment or Break in Service shall be deemed to have had a distribution of the Vested Percentage of his Profit Sharing Fund Account and Employer Auxiliary ESOP Contribution Account as of the Valuation Date immediately following the date on which the Participant has a Termination of Employment or Break in Service. Notwithstanding the foregoing, if the vested portion of a Participant's Profit Sharing Fund Account and Employer Auxiliary ESOP Contribution Account was distributed as of a Valuation Date in 1992 before July 1, the unvested portion of such account balances shall become a Forfeiture as of June 30, 1992. (d) If a Participant, (1) who had a Termination of Employment, resumes employment with an Employer before he has a Break in Service or, (2) who had a Termination of Employment or Break in Service occurring on or after January 1, 1985, earns one Year of Eligibility Service following the Break in Service (but before having five consecutive Breaks in Service), the amount of the Participant's Profit Sharing Fund Account and Employer Auxiliary ESOP Contribution Account, if any, forfeited under Section 11.4(c) shall be reinstated to the respective Accounts out of Forfeitures from the Profit Sharing portion and the leveraged ESOP portion of the McDESOP portion of the Plan, respectively, for the Plan Year in which such resumption of employment occurs or such one Year of Eligibility Service is earned, whichever is applicable. To the extent that Forfeitures for such Plan Year are not sufficient, the amount to be reinstated shall be charged against income of the Profit Sharing Fund and the Employer Auxiliary ESOP Contribution Fund, respectively. Thereafter, in the case of a Participant who received a distribution and had his Forfeiture reinstated, the Participant's Vested Percentage in his Profit Sharing Fund Account or Employer Auxiliary ESOP Contribution Account shall be equal to an amount determined by subtracting the amount distributed (the "Distributed Amount") on the Participant's Termination of Employment or Break in Service from the product of (1) the Participant's Vested Percentage determined pursuant to Section 11.4 multiplied by (2) the sum of (a) the Distributed Amount and (b) the value of the Participant's Profit Sharing Fund Account or Employer Auxiliary ESOP Contribution Account, respectively. (e) The amount, if any, forfeited under Section 11.4(c) shall not be reinstated if a Participant is rehired or again becomes a Participant and if the Participant (1) had a Break in Service before January 1, 1985 or (2) did not have a Break in Service before January 1, 1985 and had five consecutive Breaks in Service. If all or a portion of the Vested Percentage of a Participant's Profit Sharing Fund Account or Employer Auxiliary ESOP Contribution Account prior to his Termination of Employment or Break in Service was not distributed prior to his resumption of service and he was not 100% vested upon Termination of Employment or Break in Service, then: (1) the Vested Percentage of the Participant's Profit Sharing Fund Account or Employer Auxiliary ESOP Contribution Account at the time of Forfeiture which was not distributed shall be held in a "Pre-Break Profit Sharing Fund Account" and "Pre-Break Employer Auxiliary ESOP Contribution Account," respectively, which shall be 100% vested; and (2) the Participant's Profit Sharing Contributions and the net earnings thereon and Employer Auxiliary ESOP Contributions and the net earnings thereon attributable to service after the Break in Service or five (5) consecutive Breaks in Service, as applicable, shall be held in a "Post-Break Profit Sharing Fund Account," and "Post-Break Employer Auxiliary ESOP Contributions," respectively, which shall be vested in accordance with Section 11.4(b). (f) Each Participant who is a certified swing manager, primary maintenance employee, crew member or other hourly restaurant employee who is an Employee on July 1, 1992, shall be fully vested in his Employer Auxiliary ESOP Contribution Account as of July 1, 1992. 11.5 Payment of Employer Profit Sharing Contribution for Year of Termination of Employment. If a Participant (or the Beneficiary thereof) who is an Active Participant for the Plan Year in which or immediately before which he has a Termination of Employment receives an allocation of Employer Profit Sharing Contributions pursuant to Section 7.1, an allocation of Company Stock released from the Auxiliary ESOP Suspense Account pursuant to Section 7.3 or an allocation of Employer Matching Contributions and Forfeitures pursuant to Section 7.2 after he has received a single sum distribution of his Net Balance Account, the vested portion of any such allocation shall be distributed to the Participant or, in the event of his death, to his Beneficiary within a reasonable time after the later of the close of the Plan Year or the Valuation Date following the Participant's election to receive such distribution. If such Participant or Beneficiary has not received a single sum distribution of his vested Net Balance Account, any such allocations pursuant to Sections 7.1, 7.2 and 7.3 for the Plan Year shall be credited to the Participant's Profit Sharing Fund Account, Employer Auxiliary ESOP Contribution Account and Employer Matching Contribution Account, respectively, and the vested portion of such contributions shall be distributed as a part of such account in the manner provided in Section 11.2 or 11.3, whichever shall apply. 11.6 Designation of Beneficiary and Form of Beneficiary Benefit. Subject to Sections 11.3 and 11.10, the Participant may (1) designate his Beneficiary, (2) elect the form of his Beneficiary's benefit and (3) elect to prohibit Beneficiary elections under Section 11.3(b) on forms provided by and filed with the Committee; provided that a beneficiary designation completed and filed with the Committee before January 1, 1989, under the McDonald's Corporation Savings and Profit Sharing Plan shall be deemed to apply to the Profit Sharing Plan portion of the Plan and a beneficiary designation completed and filed with the Committee before January 1, 1989, under the McDonald's Matching and Deferred Stock Ownership Plan shall be deemed to apply to the McDESOP portion of the Plan. A beneficiary designation form filed with the Committee on or after January 1, 1989 shall be deemed to apply to the entire plan unless the form specifically states otherwise. The Participant may change his Beneficiary designation and his elections concerning his Beneficiary's benefit from time to time by filing the beneficiary designation form with the Committee. No designation of Beneficiary or election concerning a Beneficiary's benefit or change of such designation or election shall be effective until filed with the Committee. If a Participant shall fail to file a valid Beneficiary designation, if all persons designated on the Beneficiary designation form predecease the Participant (or, in the case of a Beneficiary other than an individual, cease to exist prior to the Participant's death) or to the extent that the Participant's Beneficiary designation form fails to dispose of his entire interest, the Trustee shall distribute the Participant's vested Net Balance Account to the following persons in the following order of precedence: (a) His surviving spouse; (b) With respect to the Profit Sharing Plan portion of the Plan, his Beneficiary designated under the McDonald's Matching and Deferred Stock Ownership Plan or the McDESOP portion of the Plan; and with respect to the McDESOP portion of the Plan, his Beneficiary designated under the McDonald's Corporation Savings and Profit Sharing Plan or the Profit Sharing Plan portion of the Plan; (c) The person or entity who receives the Participant's McDonald's group term life insurance benefits; (d) His lawful descendants including adopted children per stripes; (e) His parents in equal shares, or (if only one parent survives him) his surviving parent; (f) The lawful descendants of his parents, per stripes; (g) His estate. In the absence of a Participant's election to prohibit the Beneficiary elections allowed in Section 11.3(b), his Beneficiary shall be permitted to make such elections. 11.7 Incompetency, Distribution of Benefits. (a) If a Participant or Beneficiary is declared an incompetent or is a minor, and a conservator, guardian or other person legally charged with his care is appointed or if such Participant is not a minor and has executed a so-called durable power of attorney and if the Committee is given written notice of such appointment or power of attorney, any benefits to which such Participant or Beneficiary is entitled shall be distributable to such conservator, guardian or other person legally charged with his care or to the attorney-in-fact under the power of attorney. (b) If a Participant or Beneficiary is incompetent, a minor or, in the opinion of the Committee, would fail to derive benefit from distribution of his accounts and if a conservator, guardian or other person legally charged with his care has not been appointed or if the Committee has not been given written notice of such appointment, the Committee may (1) require the appointment of a conservator or guardian, (2) distribute the Participant's Accounts to relatives of the Participant or Beneficiary for the benefit of the Participant or Beneficiary, or (3) distribute such Accounts directly to or for the benefit of the Participant or Beneficiary. (c) The decision of the Committee in such matters shall be final, binding and conclusive upon the Employer and the Trustee and upon each Employee, Participant, Beneficiary and every other person or party interested or concerned, and neither the Employer, the Committee nor the Trustee shall be under any duty to see to the proper application of such distribution made to or for a Participant or Beneficiary, or conservator, guardian or relative of a Participant or Beneficiary. 11.8 Deduction of Taxes from Accounts Payable. The Trustee or the Committee may deduct from the amount to be distributed such amount as the Trustee or the Committee, in its sole discretion, deems proper to protect the Trustee, the Committee and the Trust against liability for the payment of death, succession, inheritance, income, or other taxes, and out of the money so deducted, the Trustee may discharge any such liability and pay the amount remaining to the Participant, the Beneficiary or the deceased Participant's estate, as the case may be. 11.9 Deadline for Payment of Benefits. Except to the extent that a Participant in accordance with the Plan otherwise elects and except to the extent it is not administratively feasible, payment of benefits shall be made or commence not later than sixty (60) days after the latest of (a) the close of the Plan Year in which the Participant attains age fifty-five (55), (b) the close of the Plan Year in which occurs the tenth (10th) anniversary of the Plan Year in which the Participant commenced participation, and (c) the close of the Plan Year in which the Participant has a Termination of Employment; provided that, a Participant, who is entitled to receive a distribution pursuant to this Section 11.9, must submit a claim for benefits before any distributions will be made hereunder. 11.10 Spousal Consent to a Beneficiary or a Waiver. (a) A valid spousal consent to the Participant's naming of a Beneficiary other than his spouse or to the Participant's Waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity shall be: (1) in a writing acknowledging the effect of the consent; (2) witnessed by a notary public; (3) effective only with respect to a specific Beneficiary and, in the case of a waiver of a Qualified Joint and Survivor Annuity or Qualified Preretirement Survivor Annuity, shall specify an optional form of benefit unless the spouse voluntarily in such consent expressly permits subsequent designations of beneficiaries or elections of optional forms of benefit without further spousal consent and acknowledges the spouse's right to limit the consent to a specific Beneficiary and optional form of benefit, where applicable; and (4) effective only for the spouse who exercises the consent; provided that notwithstanding the provisions of this Article XI, the consent of a Participant's spouse shall not be required if it is established to the satisfaction of a Plan representative that such consent may not be obtained because there is no spouse, because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe. (b) To the extent provided in any Qualified Domestic Relations Order (as defined in Section 414(p) of the Internal Revenue Code), the former spouse of a Participant shall be treated as the surviving spouse of such Participant for purposes of Section 11.3 and for providing consent in accordance with Section 11.10(a). 11.11 Single Sum Payment without Election. Notwithstanding any provisions of this Article XI (except Section 11.14 to the extent therein provided) to the contrary, if the Participant or Beneficiary is entitled to a distribution because of the Participant's Break in Service (but not in the case of a Break in Service without a Termination of Employment), retirement on or after his Vesting Retirement Date, death, Disability, or other Termination of Employment, and if (a) prior to July 1, 1993, the value of the vested portion of the Participant's Net Balance Account under the Plan; and (b) effective on or after July 1, 1993, the value of the sum of (1) the vested portion of a Participant's Net Balance Account under the Plan and (2) his Accounts under the McDonald's Stock Sharing Plan does not exceed $3,500, the Committee shall direct the immediate distribution of such benefit prior to the annuity starting date or other date of distribution or commencement of distribution, regardless of any election or consent of the Participant, his spouse, or other Beneficiary. 11.12 Installment Payments. Notwithstanding anything in Sections 11.2 or 11.3 to the contrary and subject to Section 11.4: (a) Elected Installments Paid to Participant. If a Participant elects installment payments, they shall be substantially equal installments, paid at least annually, over a period certain as elected by the Participant which period shall not be in excess of the life expectancy of the Participant or the joint and last survivor life expectancy of the Participant and his Beneficiary, if such Beneficiary is an individual ("Applicable Life Expectancy") determined as of the date such payments commence; provided that if elected by the Participant pursuant to Section 11.12(e), life expectancy may be redetermined. (b) Required Installments Paid to Participant. The Applicable Life Expectancy of a Participant, who according to the records of the Employer has attained the age of 70-1/2 and who elects to receive installments but who fails to make a permissible election with respect to the period over which installments shall be paid or fails to provide the Committee with any requested proof of his age or the age of his Beneficiary by such deadline as the Committee shall require, shall be deemed to be the life expectancy of the Participant as reasonably determined from the records of the Employer; provided that if a Participant subsequently provides the Committee with proof that his age is greater than the Employer's records indicated, the Committee shall redetermine the Participant's Applicable Life Expectancy based upon the corrected information and shall distribute to the Participant any amounts which would have been required to be distributed if the Participant's correct age had been used to determine his Applicable Life expectancy for the purpose of determining the Minimum Distribution Amount for any installment distributions which have already been made. (c) Installments Commencing After Participant's Death. If installments commence to be paid after the Participant's death to the Participant's Beneficiary who is an individual, they shall be substantially equal installments, paid at least annually, over a period certain not in excess of the life expectancy of such individual ("Applicable Life Expectancy") determined as of the date such payments commence; provided that if the Participant's Beneficiary is his surviving spouse, such Beneficiary may elect to have his life expectancy redetermined as provided in Section 11.12(e). (d) Minimum Distribution Amount. Installment payments are substantially equal if the amount of each installment distributed in a calendar year is not less than an amount ("Minimum Distribution Amount") equal to the balance of the person's Net Balance Account as of the last day of the preceding calendar year divided by the Applicable Life Expectancy. In calculating the Minimum Distribution Amount for each calendar year after the calendar year in which the Participant attained the age of 70-1/2 or for each calendar year after payments to the Beneficiary have commenced (either of which is called the "First Year"), the Applicable Life Expectancy shall be reduced by one for each calendar year which has elapsed commencing with the First Year. (e) Determination of Life Expectancy. The life expectancy of a Participant and of his spouse and the joint and last survivor life expectancy of the Participant and his spouse may be redetermined for purposes of determining the amounts required to be distributed pursuant to Section 11.2(c), 11.2(d) or 11.12(a), if elected by the Participant (or his spouse, if the Participant is deceased and if his spouse is the Participant's Beneficiary) in accordance with such uniform and nondiscriminatory rules as the Committee shall establish, but may not be redetermined more frequently than annually. Life expectancies shall not be redetermined unless the Participant (or spouse) so elects by the date distributions are required to commence under the Plan. Unless subject to redetermination, life expectancies are calculated using the Participant's or Beneficiary's birth date in the calendar year in which the Participant attains the age of 70-1/2, in the case of benefits commencing during the Participant's lifetime and in the case of payments to the Beneficiary, as of the date such payments commence. In the case of annuity payments, however, life expectancy is determined in the calendar year in which annuity payments commence. If a Participant's or his spouse's life expectancy is not being redetermined, it shall be reduced by one for each year after the calendar year in which it was determined for the purpose of determining the amount of installment payments hereunder. All life expectancies shall be determined using the expected return multiples in Tables V and VI of Treas. Reg. Section 1.72-6 or any successor tables issued from time to time by the Internal Revenue Service. 11.13 Required Minimum Distributions to Employed Participants. (a) A Participant who has attained his Required Beginning Date but has not had a Termination of Employment shall commence receiving installment payments for the calendar year in which he becomes 70-1/2 not later than April 1 of the following year and installment payments for each calendar year after the calendar year in which he became 70-1/2, not later than the last day of each such year. (b) The amount distributed for the year in which such Participant becomes 70-1/2 and in each calendar year thereafter shall be not less than the Minimum Distribution Amount determined under Section 11.12(a). (c) A Participant who has not had a Termination of Employment and who expects to attain his Required Beginning Date in the next calendar year, may elect at such time and on such form as the Committee shall permit to receive his first distribution required pursuant to Section 11.13(a) in the year in which he becomes 70-1/2 years of age. (d) If the vested Net Balance Account of a Participant who receives a distribution of the Minimum Distribution Amount under this Section 11.13 is $3500 or less, the Participant may elect to receive his entire vested Net Balance Account at the same time that such Minimum Distribution Amount is paid. A Participant, who elects to receive his entire vested Net Balance Account pursuant to the preceding sentence, may elect to have such election apply each subsequent Plan Year until he changes the election with respect to a future Plan Year. Effective November 1, 1994, the first sentence of this Section 11.13(d) shall be applied without regard to the requirement that the Participant's vested Net Balance Account be $3,500 or less. 11.14 Transitional Rules. (a) TEFRA 242(b) Elections. Effective for all Participants and Beneficiaries whether or not the Participant was an Employee after the Effective Date of the Plan, notwithstanding any other provision herein, distributions to Participants or Beneficiaries made from the Profit Sharing Plan portion of the Plan, except for the Participant's Diversification Account, are subject to any valid election under TEFRA Section 242(b) made under the McDonald's Corporation Savings and Profit Sharing Plan by a Participant prior to January 1, 1984 to have the distribution of the Participant's benefits deferred or extended beyond the period otherwise permitted under the provisions of this Article XI which was then permitted under applicable law until the Participant (or his Beneficiary) revokes the election by an act recognized as a revocation under TEFRA 242(b); provided that if the Participant's spouse is not the Beneficiary of 100 percent of his vested Accrued Benefit under the Plan, the Participant's spouse shall have consented to the naming of another Beneficiary in accordance with Section 11.10. (b) Distributions to Certain Participants and Beneficiaries in Pay Status. Effective for all Participants and Beneficiaries whether or not the Participant was an Employee after January 1, 1984, for any distribution which would not have disqualified the Trust under Code Section 401(a)(9) as in effect prior to amendment by the Tax Reform Act of 1984, which was permitted under the Plan as in effect on the date such distributions commenced, and which either (1) commenced prior to and continued on or after January 1, 1984, distributions may continue to the Participant or the Beneficiary to whom such distribution is being made under the method of distribution in effect; provided that the method of distribution was specified in a writing including the time at which the distribution was to commence, the period over which such distributions will be made and, in the case of any distribution upon the Participant's death, a list of the Beneficiaries of the Participant in order or priority; or (2) commenced prior to the first Plan Year beginning in 1985, distributions may continue to the Participant or the Beneficiary to the extent permitted under applicable law, regulations and rulings. 11.15 Sale of Restaurant - Special Vesting Rules. Notwithstanding any of the provisions herein to the contrary, a Participant who is not 100% vested in his Profit Sharing Fund Account and his Employer Auxiliary ESOP Contribution Account and who has a Termination of Employment on account of a sale on or after December 1, 1986 but prior to January 1, 1993 of a McDonald's restaurant to a joint venture partnership in which the Company owns an interest ("Joint Venture") shall have a single opportunity to elect, in accordance with such procedures as the Committee shall establish, to receive a distribution of his benefits as provided in Article XI (or to retain the ability to make an election to receive such a distribution at any time) or (notwithstanding the provisions of Section 11.11 to the contrary), solely for purposes of determining the Participant's Vested Percentage in his Profit Sharing Fund Account and his Employer Auxiliary ESOP Contribution Account, to continue to be credited with Credited Service for employment with the Joint Venture. If the Participant elects to continue to be credited with Credited Service for employment with the Joint Venture, his Accounts will subsequently be distributed by applying Article XI as if the Joint Venture were his sole Employer for the purpose of determining when such Participant thereafter has a Termination of Employment. Service for periods of employment with the Joint Venture shall be determined by crediting each such electing Participant with one Year of Credited Service for each subsequent consecutive October 31 that such Participant is employed by the Joint Venture; provided that a Participant shall not receive more than one Year of Credited Service for a single Plan Year. 11.16 Withdrawal of Participant and Rollover Contributions Permitted. A Participant may, upon written notice to the Committee, ten (10) days prior to the end of any calendar month, withdraw all or any portion of such Participant's Investment Savings Fund Account, Rollover Contribution Account and Rollover Contribution Holding Account valued as of the Valuation Date of the calendar month in which notice is given. Distribution of such withdrawals shall be made within the next calendar month. The Committee may, from time to time, establish such rules and procedures as it deems appropriate to administer or limit the withdrawal of Participant and Rollover Contributions under this Section 11.16 provided, however, that in no event shall the Committee limit a Participant's right of withdrawal to less than one withdrawal per Plan Year. To the extent administratively feasible the period of notice required for withdrawal or distribution can be relaxed, reduced or eliminated upon appropriate request to the Committee. 11.17 Direct Rollovers. This Section 11.17 applies to distributions made on or after January 1, 1993. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section 11.17, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover; subject to such reasonable administrative requirements as the Committee may from time to time establish which may include, but shall not be limited to, requirements consistent with Treasury Regulations and other guidance issued by the Internal Revenue Service permitting de minimis standards for amounts eligible to be rolled over or paid partly to the Participant and partly rolled over. A Participant may make an election pursuant to this Section 11.17 only after the Distributee has met otherwise applicable requirements for receipt of a distribution under the Plan, including but not limited to any applicable requirements that the Participant's spouse or (pursuant to a Qualified Domestic Relations Order as defined in Section 16.5) former spouse consent to the Participant's waiver of a Qualified Joint and Survivor Annuity or Qualified Preretirement Survivor Annuity. If a Participant or Beneficiary elects to receive a Direct Rollover or a distribution in a form other than an annuity as provided in Section 11.2(a)(1)(C) or 11.3(a)(3)(C), such distribution may be made or commence to be made less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (1) the Committee shall clearly inform the Participant or Beneficiary that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant or Beneficiary after receiving the notice affirmatively elects a distribution. (b) In the absence of the adoption by the Committee of any requirements to the contrary, the following shall apply: (1) A Distributee whose Eligible Rollover Distribution is less than $200 upon the Valuation Date immediately preceding the date of distribution shall not be permitted to elect to have all or any portion of the distribution made in the form of a Direct Rollover. (2) A Distributee who elects a Direct Rollover in an amount equal to at least $500 may also elect to have the remaining portion of his distribution paid to the Distributee. (3) A Distributee shall be permitted to divide an Eligible Rollover Distribution into separate distributions to be paid to two or more Eligible Retirement Plans in two or more Direct Rollovers. (4) A Distributee's election to make or not to make a Direct Rollover with respect to a payment in a series of periodic payments shall apply to all subsequent payments in the series until the Distributee changes his election. (5) If a Distributee, who has been notified as to the availability of the Direct Rollover option, fails to elect a Direct Rollover with respect to an Eligible Rollover Distribution, such Distributee shall be deemed to have elected not to make a Direct Rollover. (c) As used in this Section 11.17, the following terms shall have the following meanings: (1) "Eligible Rollover Distribution" means 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: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 11.13; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) "Eligible Retirement Plan" means an individual retirement account described in Section 408(a) of the Internal Revenue Code, an individual retirement annuity described in Section 408(b) of the Internal Revenue Code, an annuity plan described in Section 403(a) of the Internal Revenue Code, or a qualified trust described in Section 401(a) of the Internal Revenue Code, that accepts the Distributee's Eligible Rollover Distributions. However, in the case of an Eligible Rollover Distribution to a Participant's surviving spouse or surviving former spouse who is a Distributee pursuant to a Qualified Domestic Relations Order, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (3) "Distributee" means a Participant. In addition, a Participant's surviving spouse and a former spouse who is the alternate payee under a Qualified Domestic Relations Order are Distributees with regard to the interest of such spouse or former spouse. (4) "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. ARTICLE XII SUBSIDIARY PARTICIPATION 12.1 Adoption of Plan and Trust. Any Commonly Controlled Entity, Subsidiary or Domestic or Foreign Affiliate of the Company (or other business entity in which the Company owns an interest) may, with the approval of the Board of Directors and under such terms and conditions as the Board of Directors may prescribe, adopt the Plan and Trust by resolution of its board of directors (or approval of other appropriate persons in the case of a noncorporate entity); provided that the Auxiliary ESOP portion of the Plan can be adopted only by a corporation which is a Commonly Controlled Entity or another corporation included with the Company in a group defined in (a) or (b) below: (a) a corporation which is part of a group of corporations in which a common parent owns directly stock possessing at least 50 percent of the voting power of all classes of stock and at least 50 percent of each class of non-voting stock in a first tier subsidiary and such subsidiary (and all other corporations below it in the chain) which would meet the 80 percent test of Section 1563(a) of the Code if the first tier subsidiary were the common parent); and (b) a corporation which is part of a group of corporations in which a common parent owns directly stock possessing all of the voting power of all classes of stock and all of the non-voting stock in the first tier subsidiary and the first tier subsidiary owns directly stock possessing at least 50 percent of the voting power of all classes of stock, and at least 50 percent of each class of non-voting stock, in a second tier subsidiary of the common parent and such second tier subsidiary (and all other corporations below it in the chain which would meet the 80 percent test of Section 1563(a) of the Code if the second tier subsidiary were a common parent). 12.2 Withdrawal from Plan by Participating Employer. While it is not the present intention of any Employer to withdraw from the Plan, any Employer other than the Company shall have the right, at any time, upon the approval of and under such conditions as may be provided by the Board of Directors, to withdraw from the Plan and Trust by delivering to the Committee and the Trustee written notice of its election so to withdraw. Upon receipt of such notice by the Committee, the Accounts of Participants employed by the withdrawing Employer as of the date of withdrawal shall be fully vested and shall not thereafter be subject to Forfeiture unless such Participant shall transfer to another Employer as of the date of the withdrawal. In the event of the withdrawal of an Employer, such Employer shall elect and notify the Committee of its election, whether the Net Balance Accounts of the Participants employed by such Employer (a) shall be immediately distributable by the Trustee, (b) shall be retained in the Plan and become distributable when such employees die, or otherwise terminate their employment with the Employer, or (c) if the Employer establishes a plan which meets the requirements of Section 401(a) of the Code which plan permits a transfer from this Plan to it by transfer of the Net Balance Accounts of Participants who are employees of such Employer to such Employer's plan to be held in separate accounts under such plan for the benefit of the respective Participants; provided that a distribution shall not be made to a Participant who is not otherwise entitled to a distribution in accordance with Article XI unless there has been a disposition of substantially all the assets used by the Employer in a trade or business and the Employee continues employment with the corporation acquiring such assets or the Company has disposed of its interest in the Employer and the Employee continues employment with the former Employer. ARTICLE XIII ADMINISTRATION OF THE PLAN 13.1 Appointment and Removal of, and Resignation by, Trustee. The Board of Directors shall have the power to appoint a successor to a Trustee (including any one or more individuals acting as Trustee) which has resigned or been removed, to direct the Trustee to enter into a custodial agreement providing for deposit of all or any part of the Trust Fund with the custodian, and, with the consent of the Trustee, to appoint a co-Trustee. The Trustee may resign at any time upon thirty (30) days' written notice (or such shorter period of time as the Board of Directors shall permit by written consent) to the Company and the Committee. The Board of Directors shall have the power to remove the Trustee, with or without cause, upon written notice to the Trustee. The appointment of a successor Trustee or co-Trustee shall become effective upon acceptance in writing of such appointment by the successor Trustee or co-Trustee and upon acceptance of such appointment by the successor Trustee, the Trustee shall assign, transfer and pay over to the successor Trustee the Trust Fund. The successor Trustee or co-Trustee may be either a corporate Trustee or an individual, and, except as required by federal law, the successor Trustee or co-Trustee shall not be personally liable for anything done or omitted to be done by a predecessor Trustee or co-Trustee prior to the appointment of the successor or co-Trustee or be required to examine the accounts, records or acts of any predecessor Trustee or co-Trustee. Each successor Trustee appointed to and accepting a Trusteeship hereunder shall have all the rights, title, powers, duties, exemptions and limitations of the original Trustee. 13.2 Appointment of Committee; Tenure in Office. The administrative committee ("Committee") shall consist of not less than five (5) members who shall be appointed by the Board of Directors. The Board of Directors shall have power to determine the period during which any Committee member shall serve and, in its discretion, may remove any member of the Committee at any time without assigning any reason therefore. A Committee member may resign at any time by written notice to the Chief Executive Officer or any Executive Vice President of the Company. Upon a vacancy occurring, owing to the death, resignation or removal by the Board of Directors of any member of the Committee, a successor shall be appointed by the Board of Directors. Until a vacancy in the Committee is filled by the Board of Directors, the remaining members of the Committee shall continue to act as the Committee. The Board of Directors shall certify to the Trustee and the Committee the names of the members of the Committee and, thereafter, any change in its membership. 13.3 Named Fiduciaries. The Company, the Board of Directors, the Committee and every Participant, Beneficiary or Employee of the Company, its subsidiaries or affiliates who becomes a fiduciary by virtue of the delegation of duties, responsibilities and authority with respect to the administration and operation of the Plan in accordance with Article XIII shall be "named fiduciaries" as provided in Section 402(a) of ERISA, and shall, accordingly, be afforded the protection provided for in Section 405(c)(2) of ERISA with respect to named fiduciaries. 13.4 Delegation of Responsibilities. The Committee and the Board of Directors shall have the authority, as it may deem advisable, to delegate, from time to time, by instrument in writing all or any part of its responsibilities under the Plan (including the power to delegate) to such person or persons as it may deem suitable, and in the same manner to revoke any such delegation of responsibility. Periodically the delegate shall report to the Committee or Board of Directors concerning the discharge of his delegated responsibilities. Any action of the delegate in the exercise of such delegated responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Committee or the Board of Directors. Neither the Committee, the Board of Directors nor any of their members shall be liable for the acts or omissions of such delegate except as otherwise required by Federal law. The Committee's authority to delegate in accordance with this Section 13.4 shall include, but not be limited to, authority to delegate all or any part of the responsibilities set forth in Section 13.5 to any department or employee of the Company or other Employer including but not limited to the Legal Department, the Tax Department, the Accounting Department, the Human Resources Department, the Information Services Department or the Payroll Department. 13.5 Committee Duties. The Committee on behalf of the Participants and all other Beneficiaries of the Plan and the Trust shall administer and operate the Plan and the Trust Agreement in accordance with the terms of the Plan and the Trust Agreement and shall periodically report to the Board of Directors on the administration and operation of the Plan. The Committee shall have all powers necessary to discharge its duties, including, but not by way of limitation, the following: (a) To periodically review and monitor the performance of the Investment Managers, as defined in Section 4.4 of the Trust Agreement, and provide recommendations to the Board of Directors for the appointment or removal of the Plan's Investment Managers; (b) To prepare and furnish to the Board of Directors its recommendations with respect to the establishment of and, from time to time, changes in the general investment objectives and guidelines for the management and investment of the assets of the Plan; (c) To prepare and furnish the Board of Directors with periodic reports on the performance of the Investment Funds and the general administration of the Plan; (d) To review and monitor the performance of the Trustee with respect to the responsibilities set forth in the Trust Agreements; (e) To construe and interpret the Plan, decide all questions concerning eligibility for participation and questions relating to the amount and manner of payment of benefits hereunder and all such determinations shall be conclusive and binding upon Participants, spouses and other Beneficiaries; (f) To receive from the Company and Employer or have prepared by the Company and Employer such records and information as shall be necessary for the proper administration of the Plan; (g) To have prepared and furnished to Participants or Beneficiaries all information required under Federal law or provisions of this Plan to be furnished to them; (h) To have prepared and filed or published with the Department of Labor and the Department of Treasury or other governmental agency all reports or other information required under federal law; (i) To have maintained records of the Trust Fund with respect to the Net Balance Accounts of Participants; (j) To determine all questions arising in the administration of the Plan, including those relating to the eligibility of persons to become Participants; the rights of Participants and their Beneficiaries; and Employer Contributions; and its decision thereon shall be final and binding upon all persons hereunder; and (k) To review the performance of any person to whom duties and responsibilities have been delegated under Section 13.4. 13.6 Committee Action by Majority -- Authorization of Members to Execute Documents. The Committee may act at a meeting (including a telephonic meeting) by the consent of a majority of its members, or without a meeting by the unanimous written consent of its members. No member of the Committee shall vote or decide upon any matter relating specifically to himself or to his specific rights or benefits under the Plan. The Committee may authorize any of its members to execute on its behalf any document which reflects an action or decision of the Committee and the Committee shall notify the Trustee in writing of the names of its members so authorized. Until the Committee revokes or alters such authorization by a written notice to the Trustee, the Trustee may accept and rely upon any document executed by such members as reflecting action by the Committee. 13.7 Secretary. The Committee shall appoint a Secretary (who may, but need not, be a member of the Committee) to keep records of the acts and resolutions of the Committee. The Secretary may also perform such other duties which may, from time to time, be delegated to him in writing by the Committee. 13.8 Member as Participant. A member of the Committee who is also a Participant or a Beneficiary shall receive any benefit to which he may be entitled as a Participant or Beneficiary in the Plan so long as such benefit is computed and paid on a basis that is consistent with the terms of the Plan as applied to all other Participants and Beneficiaries. 13.9 Rules and Decisions. The Committee may, from time to time, adopt or amend such rules and regulations as it deems necessary or desirable which are consistent with the provisions or the purposes of the Plan. All rules and decisions of the Committee shall be applied to all Participants in similar circumstances in a uniform and non-discriminatory manner. In adopting, amending or applying its rules and regulations, the Committee shall be entitled to, but need not, rely upon information furnished by a Participant or Beneficiary, a delegate, an Employer or Employee, the Trustee or the Company. All rules and regulations of the Committee shall be conclusive and binding upon Participants, spouses and Beneficiaries. 13.10 Agents and Counsel. The Committee and its delegates shall have the authority to appoint or employ individuals to assist or to advise in the administration of the Plan and any other agent deemed advisable, including but not limited to, independent certified public accountants and legal and actuarial counsel, who may but need not be the accountants or the legal or the actuarial counsel of the Company. 13.11 Authorization of Benefit Distribution. The Committee shall issue directions to the Trustee concerning all distributions to be made from the Trust Fund pursuant to the provisions of the Plan. All such directions shall be in accordance with the Plan. 13.12 Claims Procedure. (a) Each Participant or Beneficiary (for purposes of this Section called a "Claimant") may submit his claim for benefits to the Plan Administrator in writing in such form as is permitted by the Committee. A Claimant shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a claim for benefits, prior to his filing a claim for benefits and exhausting his rights to review in accordance with this Section. When a claim for benefits has been filed properly, such claim for benefits shall be evaluated and the Claimant shall be notified of the approval or the denial within ninety (90) days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period, and such notice shall specify the special circumstances requiring an extension and the date by which a final decision will be reached (which date shall not be later than one hundred and eighty (180) days after the date on which the claim was filed). A Claimant shall be given a written notice in which he shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part, the Claimant shall be given written notice which shall contain (1) the specific reasons for the denial, (2) references to pertinent Plan provisions on which the denial is based, (3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and (4) the Claimant's rights to seek review of the denial. (b) If a claim is denied, in whole or in part, the Claimant shall have the right to request that the Committee review the denial, provided that he files a written request for review with the Committee within sixty (60) days after the date on which he received written notification of the denial (or such longer period as the Committee for good cause may permit). A Claimant (or his duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Committee. Within sixty (60) days after a request for review is received, the review shall be made and the Claimant shall be advised in writing of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the Claimant shall, within such initial sixty (60) day period, be given a written notification specifying the reasons for the extension and when such review shall be completed (provided that such review shall be completed within one hundred and twenty (120) days after the date on which the request for review was filed). The decision on review shall be forwarded to the Claimant in writing and shall include specific reasons for the decision and references to Plan provisions upon which the decision is based. A decision on review shall be final and binding on all persons for all purposes. If a Claimant shall fail to file a request for review in accordance with the procedures herein outlined, such Claimant shall have no rights to review and shall have no right to bring action in any court, and the denial of the claim shall become final and binding on all persons for all purposes. 13.13 Information to be Furnished to Committee. The Company and Employers shall furnish the Committee or its delegate such evidence, data and information as the Committee or its delegate may reasonably request. Participants and their Beneficiaries shall also furnish to the Committee such evidence, data or information as the Committee or its delegate shall request. 13.14 Plan Administrator. The Committee may appoint a Plan Administrator who may (but need not) be a member of the Committee; and in the absence of such appointment, the Committee shall be the Plan Administrator. 13.15 Fiduciary as Participant. A fiduciary who is also a Participant or a Beneficiary shall receive any benefit to which he may be entitled as a Participant or Beneficiary in the Plan so long as such benefit is computed and paid on a basis that is consistent with the terms of the Plan as applied to all other Participants and Beneficiaries. 13.16 Fiduciary Responsibility. If a Plan fiduciary acts in accordance with ERISA, Title I, Subtitle B, Part 4: (a) in determining that a Participant's spouse has consented to the naming of a Beneficiary other than the spouse, in relying on a Participant's election to waive a Qualified Joint and Survivor Annuity or a qualified survivor annuity or a revocation of such an election, or in determining that the consent of the Participant's spouse may not be obtained because there is no spouse, the spouse cannot be located or other circumstances prescribed by the Secretary of the Treasury by regulations, then to the extent of payments made pursuant to such consent, revocation or determination, the Plan and its fiduciaries shall have no further liability; (b) in treating a domestic relations order as being (or not being) a Qualified Domestic Relations Order, or, during any period in which the issue of whether a domestic relations order is a Qualified Domestic Relations Order is being determined (by the Committee, by a court of competent jurisdiction, or otherwise), in segregating in a separate account in the Plan or in an escrow account the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a Qualified Domestic Relations Order, in paying the amounts segregated or held in escrow to the person entitled thereto if within 18 months the domestic relations order (or a modification thereof) is determined to be a Qualified Domestic Relations Order, in paying such amounts to the person entitled thereto if there had been no order, if within 18 months the domestic relations order is determined not to be qualified or if the issue is not resolved within 18 months and in prospectively applying a domestic relations order which is determined to be qualified after the close of the 18-month period, then the obligation of the Plan and its fiduciaries to the Participant and each alternate payee shall be discharged to the extent of any payment made pursuant to such acts. ARTICLE XIV AMENDMENT, TERMINATION, MERGER AND CONSOLIDATION OF PLAN 14.1 Amendment. The Board of Directors shall have the right, at any time and from time to time, to amend, in whole or in part, any or all of the provisions of the Plan and the Trust Agreement, provided that no amendment shall authorize or permit any part of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their beneficiaries, or permit any portion of the Trust Fund to revert to or become the property of any Employer, except as may be permitted under applicable law, regulations and rulings. No amendment shall deprive any Participant or any Beneficiary of a deceased Participant of any of the benefits or of an optional form of benefit to which he is entitled under this Plan with respect to contributions previously made or, except to the extent permitted in regulations and rulings issued by the Secretary of the Treasury, shall eliminate an optional form of benefit with respect to contributions previously made, nor shall any amendment decrease any Participant's Accounts provided that no amendment made in conformance to provisions of the Internal Revenue Code or any other statute relating to employee's trusts, or any official regulations or rulings issued pursuant thereto, shall be considered prejudicial to the rights of any Participant or Beneficiary. No amendment which affects the rights, duties or responsibilities of the Trustee may be made without the Trustee's written consent. The Committee shall have the same authority with respect to the adoption of amendments to the Plan and the Trust Agreement as the Board of Directors in the following circumstances: (a) to adopt amendments to the Plan or Trust which the Committee determines are necessary or desirable for the Plan to comply with or to obtain benefits or advantages under the provisions of applicable law, regulations or rulings or requirements of the Internal Revenue Service or other government administrative agency or of changes in such law, regulations, rulings or requirements; and (b) to adopt any other procedural or cosmetic amendment that the Committee determines to be necessary or desirable that does not materially change benefits to Participants or their Beneficiaries or materially increase the Employers' contributions to the Plan. The Committee shall provide notice of amendments adopted by the Committee to the Board of Directors on a timely basis. 14.2 Termination of Plan By the Company. Although it is the intention of the Company that this Plan be permanent, the Company reserves the right to terminate the Plan and the Trust at any time, by delivering to the Committee, the Trustee and each Employer hereunder, written notice of termination. Upon termination of the Plan or permanent discontinuance of Employer Contributions to the Plan, the interest in his Net Balance Account of each Participant who is an Employee at the time of the termination, shall become fully vested. Such vested Accounts, shall, however, be subject to readjustment as provided in Sections 10.14, 10.15, 10.16, 10.17 and 10.19. In the event of termination of this Plan, the Board of Directors may direct that the Trustee continue the Trust for a specified period of time, or for such period of time, as the Trustee, in its sole discretion, may deem to be in the best interest of the Participants or their Beneficiaries. In the absence of specific direction from the Board of Directors, the Trust assets shall be distributed by the Trustee to Participants under the options set forth in Section 11.2 hereof or to Beneficiaries under the options set forth in Section 11.3; provided, however, that Participant Elected Contributions shall be distributed only if (a) the Participant has a Termination of Employment, death or Disability, or has attained the age of 59-1/2, (b) the Plan is terminated without the Employer's establishment or maintenance of another defined contribution plan (excluding a leveraged ESOP as defined in Code Section 4975(e)(7)) or (c) the Employer disposes of substantially all of its assets used in a trade or business or disposes of its interest in a subsidiary and the Employee continues employment with the corporation acquiring the assets or the subsidiary and if, in the case of a distribution made pursuant to Section 14.2(b) or (c) the distribution is made in the form of a single distribution of the entire balance to the credit of the Participant in a single taxable year. Upon the partial termination of the Plan the interest of each Participant whose employment is terminated on account of, or who is affected by, such partial termination shall become fully vested and such Participant's benefits shall be distributable to the extent permitted in the preceding sentence. Sales of McDonald's Restaurants by the Company or another Employer will not constitute a partial termination unless such sale under all other facts and circumstances constitutes a partial termination. 14.3 Merger, Consolidation, or Transfer of Assets. This Plan shall not be merged or consolidated with, nor shall any assets or liabilities be transferred to, any other plan, unless the benefits payable to each Participant if the Plan were terminated immediately after such action would not be less than the benefits which would have been payable to each such Participant if the Plan had been terminated immediately before such action. 14.4 Transfer of Assets from Plans of Subsidiaries. The Board of Directors may, in its sole and exclusive discretion, authorize and direct the transfer to the Trust of all (or any designated portion) of the assets of any defined contribution plan (the "Transferred Assets") which is a Related Plan. The Transferred Assets, to the extent allocable to persons who are Participants in the Plan, shall be held, managed and distributed for the benefit of participants of the Related Plan (the "Transferred Assets") subject to such terms and conditions as the Board of Directors and the board of directors (or persons having authority similar to the board of directors of a corporation) of the Commonly Controlled Entity, if applicable, of the Company shall provide. (a) The Trustee shall accept, under such terms and conditions as the Board of Directors shall provide for, all Transferred Assets. (b) Except as otherwise expressly provided by the Board of Directors and the board of directors (or persons having authority similar to the board of directors of a corporation) of the Commonly Controlled Entity, if applicable, all Participants' interests in the Transferred Assets shall be 100 percent (100%) vested and non-forfeitable. (c) The Committee shall keep separate records of account for each Participant's interests in the Transferred Assets. (d) Except as otherwise expressly provided herein, the Transferred Assets shall be held, managed, invested and distributed in the same manner (and subject to the same restrictions) as Rollover Contributions, as provided in Article VIII of the Plan. (e) Each Participant's Transferred Assets shall be distributable in the same manner as a Participant's Rollover Contribution Account; provided that the Participant can also elect any benefit option which was available with respect to the Transferred Assets under the Related Plan. ARTICLE XV TOP HEAVY PROVISIONS 15.1 Application. The definitions in Section 15.2 shall apply under this Article XV and the special rules in Section 15.3 shall apply, notwithstanding any other provisions of the Plan, for any Plan Year in which the Plan is a Top Heavy Plan and for such other Plan Years as may be specified herein. Anything in this Article XV to the contrary notwithstanding, if the Plan is a multiple employer plan as described in Internal Revenue Code Section 413(c), the provisions of this Article XV shall be applied separately to each Employer (together with the businesses which with that Employer are Commonly Controlled Entities or members of an Affiliated Service Group) taking account of benefits under the plan provided to employees of the Employer, Commonly Controlled Entity or members of an Affiliated Service Group because of service with that Employer or Commonly Controlled Entity. 15.2 Special Top Heavy Definitions. The following special definitions shall apply under this Article XV. (a) "Aggregate Employer Contributions" means the sum of all Employer Contributions and Forfeitures under this Plan allocated for a Participant to the Plan and employer contributions and forfeitures allocated for the Participant to all Related Defined Contribution Plans in the Aggregation Group; provided, however, that for Plan Years beginning before January 1, 1985, employer contributions attributable to salary reduction or similar arrangement under the Plan shall not be included in Aggregate Employer Contributions and provided further that, for Plan Years which begin after December 31, 1988, Participant Elected Contributions, Employer Matching Contributions and Special Section 401(k) Contributions shall not be included for Non-Key Employees. (b) "Aggregation Group" means the group of plans in a Mandatory Aggregation Group, if any, that includes the Plan, unless inclusion of Related Plans in the Permissive Aggregation Group in the Aggregation Group would prevent the Plan from being a Top Heavy Plan, in which case "Aggregation Group" means the group of plans consisting of the Plan and each other Related Plan in a Permissive Aggregation Group with the Plan. (1) "Mandatory Aggregation Group" means each plan (considering the Plan and Related Plans) that, during the Plan Year that contains the Determination Date or any of the four preceding Plan Years, (A) had a participant who was a Key Employee, or (B) was necessary to be considered with a plan in which a Key Employee participated in order to enable the plan in which the Key Employee participated to meet the requirements of Section 401(a)(4) and Section 410 of the Internal Revenue Code. If the Plan is not described in (A) or (B) above, it shall not be part of a Mandatory Aggregation Group. (2) "Permissive Aggregation Group" means the group of plans consisting of (A) the plans, if any, in a Mandatory Aggregation Group with the Plan, and (B) any other Related Plan, that, when considered as a part of the Aggregation Group, does not cause the Aggregation Group to fail to satisfy the requirements of Section 401(a)(4) and Section 410 of the Internal Revenue Code. A Related Plan in (B) of the preceding sentence may include a simplified employee pension plan, as defined in Internal Revenue Code Section 408(k), and a collectively bargained plan, if when considered as a part of the Aggregation Group such plan does not cause the Aggregation Group to fail to satisfy the requirements of Section 401(a)(4) and Section 410 of the Internal Revenue Code considering, if the plan is a multiple employer plan as described in Internal Revenue Code Section 413(c), benefits under the plan only to the extent provided to employees of the employer because of service with the employer and, if the plan is a simplified employee pension plan, only the employer's contribution to the plan. (c) "Determination Date" means, with respect to a Plan Year, the last day of the preceding Plan Year or, in the case of the first Plan Year, the last day of such Plan Year. If the Plan is aggregated with other plans in the Aggregation Group, the Determination Date for each other plan shall be, with respect to any Plan Year, the Determination Date for each such other plan which falls in the same calendar year as the Determination Date for the Plan. (d) "Key Employee" means, for the Plan Year containing the Determination Date, any person or the beneficiary of any person who is an employee or former employee of an Employer, a Commonly Controlled Entity or member of an Affiliated Service Group as determined under Internal Revenue Code Section 416(i) and who, at any time during the Plan Year containing the Determination Date or any of the four (4) preceding Plan Years (the "Measurement Period"), is a person described in paragraph (1), (2), (3) or (4), subject to paragraph (5). (1) An officer of the Employer, Commonly Controlled Entity or member of an Affiliated Service Group who: (A) in any Measurement Period, in the case of a Plan Year beginning after December 31, 1983, is an officer during the Plan Year and has annual Considered Compensation for the Plan Year in an amount greater than fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of Internal Revenue Code for the calendar year in which such Plan Year ends ($112,221 in 1992, adjusted in subsequent years as determined in accordance with regulations prescribed by the Secretary of the Treasury or his delegate pursuant to the provisions of Section 415(d) of the Internal Revenue Code); and (B) in any Measurement Period, in the case of a Plan Year beginning before January 1, 1984, is an officer during the Plan Year, regardless of his Considered Compensation (except to the extent that applicable law, regulations and rulings indicate that the compensation requirement set forth in subparagraph (A) above is applicable). No more than a total of fifty (50) persons (or, if lesser, the greater of three (3) persons or ten percent (10%) of all persons or beneficiaries of persons who are employees or former employees) shall be treated as Key Employees under this paragraph (1) for any Measurement Period. In the case of an Employer, Commonly Controlled Entity or member of an Affiliated Service Group which is not a corporation (I) in any Measurement Period, in the case of a Plan Year beginning on or before February 28, 1985 no persons shall be treated as Key Employees under this paragraph (1); and (II) in any Measurement Period, in the case of a Plan Year beginning after February 28, 1985, the term "officer" as used in this subsection (d) shall include administrative executives as described in Section 1.416-1(T-13) of the Treasury Regulations. (2) One (1) of the ten (10) persons who, during a Plan Year in the Measurement Period: (A) have annual Considered Compensation from the Employer, Commonly Controlled Entity or member of an Affiliated Service Group for such Plan Year greater than the amount in effect under Section 415(c)(1)(A) of the Internal Revenue Code for the calendar year in which such Plan Year ends (the greater of $30,000 for 1992 or one-fourth of the dollar limitation in effect under Section 415(b)(1)(A) of the Internal Revenue Code, adjusted in subsequent years as determined in accordance with regulations prescribed by the Secretary of the Treasury or his delegate pursuant to the provisions of Section 415(d) of the Internal Revenue Code); and (B) own (or are considered as owning within the meaning of Internal Revenue Code Section 318) in such Plan Year, the largest percentage interests in the Employer, Commonly Controlled Entity or member of an Affiliated Service Group, in such Plan Year, provided that no person shall be treated as a Key Employee under this paragraph unless he owns more than one-half percent (1/2%) interest in the Employer, Commonly Controlled Entity or member of an Affiliated Service Group. No more than a total of ten (10) persons or beneficiaries of persons who are employees or former employees shall be treated as Key Employees under this paragraph (2) for any Measurement Period. (3) A person who, for a Plan Year in the Measurement Period, is a more than five percent (5%) owner (or is considered as owning more than five percent (5%) within the meaning of Internal Revenue Code Section 318) of the Employer, Commonly Controlled Entity or member of an Affiliated Service Group. (4) A person who, for a Plan Year in the Measurement Period, is a more than one percent (1%) owner (or is considered as owning more than one percent (1%) within the meaning of Internal Revenue Code Section 318) of the Employer, a Commonly Controlled Entity or member of an Affiliated Service Group and has an annual Considered Compensation for such Plan Year from the Employer, Commonly Controlled Entity or member of an Affiliated Service Group of more than $150,000. (5) If the number of persons who meet the requirements to be treated as Key Employees under paragraph (1) or (2) exceed the limitation on the number of Key Employees to be counted under paragraph (1) or (2), those persons with the highest annual Considered Compensation in a Plan Year in the Measurement Period for which the requirements are met and who are within the limitation on the number of Key Employees will be treated as Key Employees. If the requirements of paragraph (1) or (2) are met by a person in more than one (1) Plan Year in the Measurement Period, each person will be counted only once under paragraph (1) or (2): (A) under paragraph (1), the Plan Year in the Measurement Period in which a person who was an officer and had the highest annual Considered Compensation shall be used to determine whether the person will be treated as a Key Employee under the preceding sentence; (B) under paragraph (2), the Plan Year in the Measurement Period in which the ownership percentage interest is the greatest shall be used to determine whether the person will be treated as a Key Employee under the preceding sentence. Notwithstanding the above provisions of paragraph (5), a person may be counted in determining the limitation under both paragraphs (1) and (2). In determining the sum of the Present Value of Accrued Benefits for Key Employees under subsection (h) of this Section, the Present Value of Accrued Benefits for any person shall be counted only once. (e) "Non-Key Employee" means (1) a person or the beneficiary of a person with an account balance in the Plan or an account balance or accrued benefit in any Related Plan in the Aggregation Group or (2) an employee, a former employee or the beneficiary of such person who has received a distribution during the Measurement Period and (3) who during the Measurement Period is not a Key Employee. (f) "Present Value of Accrued Benefits" means, for any Plan Year, an amount equal to the sum of (1), (2) and (3) for each person who, in the Plan Year containing the Determination Date, was a Key Employee or a Non-Key Employee. (1) Subject to (4) below, the value of a person's Net Balance Account under the Plan and his accrued benefit under each Related Defined Contribution Plan in the Aggregation Group, determined as of the valuation date coincident with or immediately preceding the Determination Date, adjusted for contributions due as of the Determination Date, as follows: (A) in the case of a plan not subject to the minimum funding requirements of Section 412 of the Internal Revenue Code, by including the amount of any contributions actually made after the valuation date but on or before the Determination Date, and, in the first plan year of a plan, by including contributions made after the Determination Date that are allocated as of a date in that first plan year; and (B) in the case of a plan that is subject to the minimum funding requirements, by including the amount of any contributions that would be allocated as of a date not later than the Determination Date, plus adjustments to those amounts as required under applicable rulings, even though those amounts are not yet required to be contributed or allocated (e.g., because they have been waived) and by including the amount of any contributions actually made (or due to be made) after the valuation date but before the expiration of the extended payment period in Section 412(c)(10) of the Internal Revenue Code. (2) Subject to (4) below, the sum of the actuarial present values of a person's accrued benefits under each Related Defined Benefit Plan in the Aggregation Group, expressed as a benefit commencing at Vesting Retirement Date (or the person's attained age, if later) determined based on the following actuarial assumptions: (A) Interest rate 5%; and (B) Post Retirement Mortality: 1984 Unisex Pension Table; and determined in accordance with Internal Revenue Code Section 416(g), provided, however, that if a defined benefit plan in the Aggregation Group provides for different or additional actuarial assumptions to be used in determining the present value of accrued benefits thereunder for the purpose of determining the top heavy status thereof, then such different or additional actuarial assumptions shall apply with respect to each defined benefit plan in the Aggregation Group, and further provided that the accrued benefit of any Non-Key Employee shall be determined under the method which is used for accrual purposes for all Related Defined Benefit Plans or, if no single accrual method is used in all such plans, such accrued benefit shall be determined as if such benefit accrued not more rapidly than the slowest accrual rate permitted under Section 411(b)(1)(C) of the Internal Revenue Code. The present value of an accrued benefit for any person who is employed by an employer maintaining a plan on the Determination Date is determined as of the most recent valuation date which is within a 12-month period ending on the Determination Date, provided however that: (C) for the first plan year of the plan, the present value for an employee is determined as if the employee had a Termination of Employment (i) on the Determination Date or (ii) on such valuation date but taking into account the estimated accrued benefit as of the Determination Date; and (D) for the second and subsequent plan years of the plan, the accrued benefit taken into account for an employee is not less than the accrued benefit taken into account for the first plan year unless the difference is attributable to using an estimate of the accrued benefit as of the Determination Date for the first plan year and using the actual accrued benefit as of the Determination Date for the second plan year. For purposes of this paragraph (2), the valuation date is the valuation date used by the plan for computing plan costs for minimum funding, regardless of whether a valuation is performed that year. If the plan provides for a nonproportional subsidy as described in Treasury Regulations Section 1.416-1 (T-27), the present value of accrued benefits shall be determined taking into account the value of nonproportional subsidized early retirement benefits and nonproportional subsidized benefit options. (3) Subject to (4) below, the aggregate value of amounts distributed during the plan year that includes the Determination Date or any of the four preceding plan years including amounts distributed under a terminated plan which, if it had not been terminated, would have been in the Aggregation Group. (4) The following rules shall apply in determining the Present Value of Accrued Benefits: (A) Amounts attributable to qualified voluntary employee contributions, as defined in Section 219(e) of the Internal Revenue Code, shall be excluded. (B) In computing the Present Value of Accrued Benefits with respect to rollovers or plan-to-plan transfers, the following rules shall be applied to determine whether amounts which have been distributed during the five (5) year period ending on the Determination Date from or accepted into this Plan or any plan in the Aggregation Group shall be included in determining the Present Value of Accrued Benefits: (i) Unrelated Transfers accepted into the Plan or any plan in the Aggregation Group after December 31, 1983 shall not be included. (ii) Unrelated Transfers accepted on or before December 31, 1983 and all Related Transfers accepted at any time into the Plan or any plan in the Aggregation Group shall be included. (iii) Unrelated Transfers made from the Plan or any plan in the Aggregation Group shall be included. (iv) Related Transfers made from the Plan or any plan in the Aggregation Group shall not be included by the transferor plan (but shall be counted by the accepting plan). The accrued benefit of any individual who has not performed services for an Employer maintaining the Plan at any time during the five (5) year period ending on the Determination Date shall be excluded in computing the Present Value of Accrued Benefits. (g) "Related Transfer" means a rollover or a plan-to-plan transfer which is either not initiated by the Employee or is made between plans each of which is maintained by a Commonly Controlled Entity or member of an Affiliated Service Group. (h) A "Top Heavy Aggregation Group" means an Aggregation Group in any Plan Year for which, as of the Determination Date, the sum of the Present Value of Accrued Benefits for Key Employees under all plans in the Aggregation Group exceeds sixty percent (60%) of the sum of the Present Value of Accrued Benefits for all employees under all plans in the Aggregation Group; provided that, for purposes of determining the sum of Present Value of Accrued Benefits for all employees, former Key Employees who have not performed any services for an Employer, a Commonly Controlled Entity or a member of an Affiliated Service Group in the Plan Year containing the Determination Date or the preceding four Plan Years shall be excluded entirely from the calculation of the Present Value of Accrued Benefits for the Plan Year that contains the Determination Date. For purposes of applying the special rules herein with respect to a Super Top Heavy Plan, a Top Heavy Aggregation Group will also constitute a "Super Top Heavy Aggregation Group" if in any Plan Year as of the Determination Date, the sum of the Present Value of Accrued Benefits for Key Employees under all plans in the Aggregation Group exceeds ninety percent (90%) of the sum of the Present Value of Accrued Benefits for all employees under all plans in the Aggregation Group. (i) "Top Heavy Plan" means the Plan in any Plan Year in which it is a member of a Top Heavy Aggregation Group, including a Top Heavy Aggregation Group consisting solely of the Plan. For purposes of applying the rules herein with respect to a Super Top Heavy Plan, a Top Heavy Plan will also constitute a "Super Top Heavy Plan" if the Plan in any Plan Year is a member of a Super Top Heavy Aggregation Group, including a Super Top Heavy Aggregation Group consisting solely of the Plan. (j) "Unrelated Transfer" means a rollover or a plan-to-plan transfer which is both initiated by the Employee and (1) made from a plan maintained by a Commonly Controlled Entity or member of an Affiliated Service Group to a plan maintained by an employer which is not a Commonly Controlled Entity or member of an Affiliated Service Group or (2) made to a plan maintained by a Commonly Controlled Entity or member of an Affiliated Service Group from a plan maintained by an employer which is not a Commonly Controlled Entity or member of an Affiliated Service Group. 15.3 Special Top Heavy Provisions. For each Plan Year in which the Plan is a Top Heavy Plan, the following rules shall apply, except that the special provisions of this Section 15.3 shall not apply with respect to any employee included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective-bargaining agreement between employee representatives and one or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representative and the Employer or Employers: (a) Minimum Employer Contributions. In any Plan Year in which the Plan is a Top Heavy Plan, the Employers shall make additional Employer Contributions to the Plan as necessary for each Participant who is employed on the last day of the Plan Year and who is a Non-Key Employee to bring the amount of his Aggregate Employer Contributions for the Plan Year up to at least three percent (3%) of his Considered Compensation, or such lesser amount as is equal to the largest percentage of a Key Employee's Considered Compensation allocated to the Key Employee as Aggregate Employer Contributions. For purposes of determining whether a Non-Key Employee is a Participant entitled to have minimum Employer Contributions made on his behalf, a Non-Key Employee will be treated as a Participant even if he is not otherwise a Participant (or accrues no benefit) under the Plan because: (1) he has failed to complete the requisite number of hours of service (if any) after becoming a Participant in the Plan, (2) he is excluded from participation in the Plan (or accrues no benefit) merely because his compensation is less than a stated amount, or (3) he is excluded from participation in the Plan (or accrues no benefit) merely because of a failure to make mandatory employee contributions or because of a failure to make elective 401(k) contributions. (b) Vesting. For each Plan Year in which the Plan is a Top Heavy Plan and for each Plan Year thereafter, the vested right of each Participant who has an Hour of Service after the Plan becomes a Top Heavy Plan to a percentage of his Profit Sharing Fund Account and Employer Auxiliary ESOP Contribution Account (to the extent such Accounts had not been forfeited prior to the Plan's becoming a Top Heavy Plan) shall be determined under the following table: Year of Credited Service Vested Percentage ------------------------ ----------------- Less than 2 0% 2 but less than 3 20 3 but less than 4 40 4 but less than 5 60 5 but less than 6 80 6 or more 100 (c) Limitations. In computing the limitations under Article IX hereof for years in which the Plan is a Top Heavy Plan, the special rules of Section 416(h) of the Code shall be applied in accordance with applicable regulations and rulings so that, in determining the denominator of the defined contribution plan fraction, as defined in Section 415(e)(3) of the Internal Revenue Code ("Defined Contribution Plan Fraction") and the defined benefit plan fraction as defined in Section 415(e)(2) of the Internal Revenue Code ("Defined Benefit Plan Fraction") at each place at which "1.25" would have been used, "1.00" shall be substituted and by substituting $41,500 for $51,875 in the numerator of the transition fraction described in Section 415(e)(6)(B) of the Internal Revenue Code, unless the Plan is not a Super Top Heavy Plan and the special requirements of Section 416(h)(2) of the Internal Revenue Code have been satisfied. (d) Transition Rule for a Top Heavy Plan. Notwithstanding the provisions of Section 15.3(c), for each Plan Year in which the Plan is a Top Heavy Plan and in which the Plan does not meet the special requirements of Section 416(h)(2) of the Internal Revenue Code in order to use 1.25 in the denominator of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction, if an Employee was a participant in one or more defined benefit plans and in one or more defined contribution plans maintained by the Employer before the plans became Top Heavy Plans and if such Participant's Combined Fraction exceeds 1.00 because of accruals and additions that were made before the plans became Top Heavy Plans, a factor equal to the lesser of 1.25 or such lesser amount (but not less than 1.00) as shall be needed to make the Employee's Combined Fraction equal to 1.00 shall be used in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction if there are no further accruals or annual additions under any Top Heavy Plans until the Participant's Combined Fraction is not greater than 1.00 when a factor of 1.00 is used in the denominators of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction. Any provisions herein to the contrary notwithstanding, if the Plan is a Top Heavy Plan and the Plan does not meet the special requirements of Section 416(h)(2) of the Internal Revenue Code in order to use 1.25 in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction, there shall be no further Annual Additions for a Participant whose Combined Fraction is greater than 1.00 when a factor of 1.00 is used in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction, until such time as the Participant's Combined Fraction is not greater than 1.00. (e) Transition Rule for a Super Top Heavy Plan. Notwithstanding the provisions of Sections 15.3(c) and 15.3(d), for each Plan Year in which the Plan is a Super Top Heavy Plan, (1) if an Employee was a participant in one or more defined benefit plans and in one or more defined contribution plans maintained by the employer before the plans became Super Top Heavy Plans, and (2) if such Participant's Combined Fraction exceeds 1.00 because of accruals and additions that were made before the plans became Super Top Heavy Plans and if immediately before the plans became Super Top Heavy Plans the Combined Fraction as then computed did not exceed 1.00, then a factor equal to the lesser of 1.25 or such lesser amount (but not less than 1.00) as shall be needed to make the Employee's Combined Fraction equal to 1.00 shall be used in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction if there are no further accruals or annual additions under any Super Top Heavy Plans until the Participant's Combined Fraction is not greater than 1.00 when a factor of 1.00 is used in the denominators of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction. Any provisions herein to the contrary notwithstanding, if the Plan is a Super Top Heavy Plan, there shall be no further Annual Additions for a Participant whose Combined Fraction is greater than 1.00 when a factor of 1.00 is used in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction until the Participant's Combined Fraction is not greater than 1.00. (f) Terminated Plan. If the Plan becomes a Top Heavy Plan after it has formally been terminated, has ceased crediting for benefit accruals and vesting and has been or is distributing all plan assets to participants and their beneficiaries as soon as administratively feasible or if a terminated plan has distributed all benefits of participants and their beneficiaries, the provisions of Section 15.3 shall not apply to the Plan. (g) Frozen Plans. If the Plan becomes a Top Heavy Plan after contributions have ceased under the Plan but all assets have not been distributed to participants or their beneficiaries, the provisions of Section 15.3 shall apply to the Plan. ARTICLE XVI MISCELLANEOUS PROVISIONS 16.1 Headings. Headings of sections and subsections of the Plan are inserted for convenience of reference and are neither part of the Plan nor to be considered in the construction thereof. 16.2 Indemnification. Each member of the Committee, each member of the Board of Directors, each individual serving as Trustee without compensation, and each and every Employee to whom are delegated duties, responsibilities and authority with respect to the Plan and the Trust shall be indemnified, held harmless and promptly reimbursed by the Company against all claims, liabilities, fines and penalties and all expenses (including, but not limited to, attorney fees) reasonably incurred by or imposed upon such member, individual or Employee which arise as a result of his actions or failure to act in connection with the operation and administration of the Plan and the Trust, to the extent lawfully allowable; provided that to the extent that such claim, liability, fine, penalty or expense is paid for by liability insurance purchased by or paid for by the Company, reimbursement shall be limited to amounts which would not cause the loss of coverage under such insurance and further provided that to the extent that the Company has reimbursed the Employee, the Company shall be subrogated to the Trustee's rights to reimbursement under such insurance. Notwithstanding the foregoing, the Company shall not indemnify any person for any such amount incurred through any settlement or compromise of any action unless the Company consents in writing to such settlement or compromise. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized by the Company in the specific case upon receipt of an undertaking by or on behalf of the member of the Committee, member of the Board of Directors, individual Trustee or Employee to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Company as authorized in this Section 16.2. 16.3 Employees' Trust. This Plan is created for the exclusive purpose of providing benefits to the Participants in the Plan and their Beneficiaries, and shall be interpreted in a manner consistent with its being a Plan described in Section 401(a) of the Internal Revenue Code and with the Trust's being a Trust exempt under Section 501(a) of the Internal Revenue Code. 16.4 Nonalienation of Benefits. (a) Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, garnish, execute on, levy or otherwise dispose of any right to benefits payable hereunder, shall be void. The Trust Fund shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. The foregoing provisions of this Section 16.4(a) shall not preclude the (1) enforcement of a Federal tax levy made pursuant to Section 6331 of the Internal Revenue Code or (2) collection by the United States on a judgment resulting from an unpaid tax assessment. (b) Notwithstanding Section 16.4(a), the Trustee (1) shall comply with an order entered on or after January 1, 1985 determined by the Plan Administrator to be a Qualified Domestic Relations Order as provided in Section 16.5, (2) shall comply with a domestic relations order entered before January 1, 1985 if benefits are already being paid under such order, and (3) may treat an order entered before January 1, 1985 as a Qualified Domestic Relations Order even if it does not meet the requirements of Section 16.5. 16.5 Qualified Domestic Relations Order. (a) Qualified Domestic Relations Order means any judgment, decree, or order (including approval of a property settlement agreement): (1) which is made pursuant to a state domestic relations law (including a community property law), (2) which relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a Participant, (3) which creates or recognizes the existence of an alternate payee's right to receive all or a portion of the Participant's Net Balance Account under the Plan, and (4) with respect to which the requirements of paragraphs (b) and (c) are met. (b) A domestic relations order can be a Qualified Domestic Relations Order only if such order clearly specifies: (1) the name and the last known mailing address, if any, of the Participant and the name and mailing address of each alternate payee covered by the order, (2) the amount or percentage of the Participant's Accrued Benefit to be paid by the Plan to each such alternate payee, or the manner in which such amount or percentage is to be determined, (3) the number of payments or period to which such order applies, and (4) each Plan to which such order applies. (c) A domestic relations order can be a Qualified Domestic Relations Order only if such order does not: (1) require the plan to provide any type or form of benefit, or any option not otherwise provided under the Plan, (2) require the Plan to provide increased benefits (determined on the basis of actuarial value), or (3) require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a Qualified Domestic Relations Order. (d) In the case of any payment before a Participant has had a Termination of Employment, a domestic relations order shall not be treated as failing to meet the requirements of Section 16.5(c)(1) solely because such order requires that payment of benefits be made to an alternate payee: (1) (A) on or after the date on which the Participant attains (or would have attained) the age of 50, for periods before May 1, 1990, and (B) without regard to the Participant's attainment of any specified age, for periods after April 30, 1990. (2) as if the Participant had retired on the date on which such payment is to begin under such order; and (3) in any form in which such benefits may be paid under the Plan to the Participant (other than in the form of a Qualified Joint and Survivor Annuity with respect to the alternate payee and his or her subsequent spouse). (e) To the extent provided in any Qualified Domestic Relations Order the former spouse of a Participant if married to the Participant for at least one year, shall be treated as the surviving spouse of such Participant for purposes of consenting to the waiver of a Qualified Joint and Survivor Annuity as provided in Sections 11.2(f) and 11.10 and the naming of another Beneficiary to the extent provided in Sections 11.3 and 11.10. (f) Notwithstanding anything to the contrary in Article X, if, pursuant to a Qualified Domestic Relations Order, a segregated account is established containing the interest of an alternate payee, the alternate payee shall direct the manner in which such segregated account shall be invested in accordance with the procedures under Article X; provided that such segregated account shall remain invested in the same manner as the assets were invested before the account was segregated until the alternate payee's election in accordance with this Section 16.5(f) becomes effective. 16.6 Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of the Accounts of a retired, deceased or terminated Participant (including amounts held in the Distribution Fund with respect to checks which are distributed but which are not cashed) which cannot be distributed because of the Committee's inability, after a reasonable search, to locate a Participant or his Beneficiary within a period of two (2) years after the payment of benefits becomes due. Unclaimed amounts with respect to Accounts held in the Profit Sharing Plan portion of the Plan for a Plan Year shall become a Forfeiture and shall be allocated for such Plan Year as determined in accordance with Section 7.1 hereof, within a reasonable time after the close of the Plan Year in which such two-year period shall end. The Committee shall allocate Forfeitures with respect to Accounts held in the McDESOP portion of the Plan (excluding those arising in respect to an Employer Auxiliary ESOP Contribution Account) to Participants' Participant Elected Contribution Accounts and Employer Matching Contribution Accounts (a) for periods before December 1, 1994, in the same manner as trust income is allocated to such Accounts under Section 7.2 and (ii) effective December 1, 1994 and thereafter by crediting such Forfeitures to the Employer Matching Contribution Holding Fund as of the Valuation Date following the date the amount of such Forfeitures is determined for the immediately preceding Plan year but not later than March 31 of the year following the Plan year with respect to which such Forfeitures occurred. Forfeitures arising in respect to an Employer Auxiliary ESOP Contribution Account to Participants' Employer Auxiliary ESOP Contribution Accounts shall be allocated in the same manner as Forfeitures under Section 7.3 are allocated to such Accounts. If an unclaimed amount is subsequently properly claimed by the Participant or the Participant's Beneficiary ("Reclaimed Amount") and unless an Employer in its discretion makes a contribution to the Plan for such year in an amount sufficient to pay such Reclaimed Amount, it shall be charged as follows: (a) To the extent such Reclaimed Amount originated as an unclaimed amount with respect to the Accounts held in the Profit Sharing Plan portion of the Plan, it shall be charged against Forfeitures from the Profit Sharing portion of the Plan and, if such Forfeitures are not sufficient, the remainder shall be treated as an expense of the Profit Sharing Plan portion of the Plan during the Plan Year in which the Participant or Beneficiary makes such claim. (b) To the extent that the Reclaimed Amount originated as an unclaimed amount with respect to the amounts held in the McDESOP portion of the Plan, excluding those arising in respect to an Employer Auxiliary ESOP Contribution Account, it shall be charged against Forfeitures for the Plan Year with respect to Participants' Participant Elected Contribution Accounts and Employer Matching Contribution Accounts and, to the extent such Forfeitures are not sufficient, shall be treated as an expense of that portion of the McDESOP portion of the Plan which excludes the portion of the McDESOP portion of the Plan which is held by the Trustee pursuant to the Auxiliary ESOP provisions of the Plan. (c) To the extent that such Reclaimed Amount originated as an unclaimed amount in respect to an Employer Auxiliary ESOP Contribution Account, it shall be treated as a charge against Forfeitures arising under Sections 11.4 and 16.6 for the Plan Year with respect to Participants' Employer Auxiliary ESOP Contribution Accounts and, to the extent such Forfeitures are not sufficient, shall be treated as an expense of the Auxiliary ESOP portion of the McDESOP portion of the Plan. 16.7 Maximum Age Condition. Anything to the contrary herein notwithstanding, eligibility to participate in the Plan and to elect or receive allocations of contributions to the Trust shall not be subject to any restrictions on account of a maximum age condition. 16.8 Invalidity of Certain Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions, to the extent invalid or unenforceable, had not been included. 16.9 Gender and Number. Except when otherwise indicated by the context, any masculine terminology herein shall also include the feminine and the singular shall also include the plural. 16.10 Law Governing. This Plan and Trust shall be construed and enforced according to the laws of the State of Illinois other than its laws respecting choice of law, to the extent not preempted by ERISA. Executed in multiple originals this 21st day of November, 1994. McDonald's Corporation By: /s/ Stanley R. Stein --------------------- Stanley R. Stein Its: Senior Vice President Human Resources EX-10 6 MATERIAL CONTRACT - STOCK SHARING PLAN Exhibit 10(e) McDONALD'S STOCK SHARING PLAN As Amended and Restated Effective January 1, 1989 TABLE OF CONTENTS PAGE SECTION I - Definitions....................................... 2 1.1 "Accounts" or "Participant's Accounts"............... 2 1.2 "Authorized Leave of Absence"........................ 3 1.3 "Beneficiary"........................................ 3 1.4 "Benefits Retirement Date"........................... 3 1.5 "Board of Directors"................................. 3 1.6 "Committee".......................................... 3 1.7 "Commonly Controlled Entity"......................... 3 1.8 "Company"............................................ 3 1.9 "Compensation"....................................... 3 1.10 "Considered Compensation"............................ 5 1.11 "Disability"......................................... 5 1.12 "Domestic Affiliate"................................. 5 1.13 "Economic Recovery Tax Act".......................... 5 1.14 "Effective Date"..................................... 5 1.15 "Employee"........................................... 5 1.16 "Employer"........................................... 6 1.17 "Employer Contributions"............................. 6 1.18 "ERISA".............................................. 6 1.19 "Foreign Affiliate".................................. 6 1.20 "Highly Compensated Employee"........................ 6 1.21 "Hour of Service".................................... 9 1.22 "Internal Revenue Code".............................. 11 1.23 "Leased Employee".................................... 11 1.24 "Licensee"........................................... 11 1.25 "Matching and Deferred Stock Ownership Plan"......... 11 1.26 "Participant"........................................ 11 1.27 "Plan"............................................... 11 1.28 "Plan Year".......................................... 11 1.29 "Related Plan"....................................... 11 1.30 "Required Beginning Date"............................ 12 1.31 "Subsidiary"......................................... 12 1.32 "Tax Reduction Act".................................. 12 1.33 "Termination of Service"............................. 12 1.34 "Top Paid Group"..................................... 13 1.35 "Trust".............................................. 13 1.36 "Trust Agreement".................................... 13 1.37 "Trustee"............................................ 13 1.38 "Trust Fund"......................................... 13 1.39 "Valuation Date"..................................... 13 SECTION II - Participation.................................... 14 2.1 Participation........................................ 14 SECTION III - Contributions and Allocations................... 15 3.1 Plan Contributions................................... 15 3.2 Participant's Vested Rights.......................... 16 3.3 Allocations of Contributions......................... 16 3.4 Limits on Allocation and Contributions............... 17 3.5 Contributions Irrevocable............................ 17 3.6 Maximum Limitations on Contributions................. 18 SECTION IV - Trust Fund....................................... 21 4.1 Trust Fund........................................... 21 4.2 Determination of Increase or Decrease in Net Worth of the Trust Fund.................................... 21 4.3 Statement of Accounts................................ 21 4.4 Participant Rights................................... 21 4.5 Participant's Interest in the Trust Fund............. 22 4.6 Expenses of the Trust Fund........................... 22 4.7 Separate Accounting For Contributions................ 22 4.8 Correction of Error.................................. 22 4.9 Distribution Fund.................................... 23 4.10 Diversification...................................... 23 SECTION V - Distribution of Benefits.......................... 25 5.1 Payment of Benefits in General....................... 25 5.2 Distributions of Participant's Accounts.............. 25 5.3 Death of Participant................................. 26 5.4 Participant Withdrawals.............................. 27 5.5 Form of Distributions................................ 27 5.6 Incompetency, Distribution of Benefits............... 28 5.7 Deduction of Taxes from Amounts Payable.............. 29 5.8 Spousal Consent to Waiver............................ 29 5.9 Latest Time of Distribution.......................... 29 5.10 Direct Rollovers..................................... 30 SECTION VI - Subsidiary Participation......................... 33 6.1 Adoption of Plan and Trust by a Subsidiary........... 33 6.2 Withdrawal from Plan by Participating Employer....... 33 SECTION VII - Administration of the Plan...................... 34 7.1 Appointment of Trustee............................... 34 7.2 Appointment of Committee; Tenure in Office........... 34 7.3 Named Fiduciaries.................................... 34 7.4 Delegation of Responsibilities....................... 35 7.5 Committee Action by Majority - Authorization of Members to Execute Documents......................... 35 7.6 Secretary............................................ 35 7.7 Member as Participant................................ 35 7.8 Committee Powers and Duties.......................... 35 7.9 Rules and Decisions.................................. 36 7.10 Agents and Counsel................................... 36 7.11 Authorization of Benefit Distribution................ 37 7.12 Claims Procedure..................................... 37 7.13 Information to be Furnished to Committee............. 38 7.14 Fiduciary Responsibility............................. 38 7.15 Fiduciary as Participant............................. 39 SECTION VIII - Amendment, Termination, Merger and Consolidation of Plan.......................... 40 8.1 Amendment............................................ 40 8.2 Termination of Plan By the Company................... 41 8.3 Merger, Consolidation, or Transfer of Assets......... 41 8.4 Put Option Requirement............................... 41 SECTION IX - Top Heavy Provisions............................. 43 9.1 Application.......................................... 43 9.2 Special Top Heavy Definitions........................ 43 9.3 Special Top Heavy Provisions......................... 51 SECTION X - Miscellaneous Provisions.......................... 55 10.1 Headings............................................ 55 10.2 Indemnification..................................... 55 10.3 Employees' Trust.................................... 55 10.4 Nonalienation of Benefits........................... 55 10.5 Qualified Domestic Relations Order.................. 56 10.6 Exception to Distribution Limitation Period......... 58 10.7 Unclaimed Amounts................................... 58 10.8 Invalidity of Certain Provisions.................... 60 10.9 Gender and Number................................... 60 10.10 Law Governing....................................... 60 McDONALD'S STOCK SHARING PLAN The McDonald's Stock Sharing Plan, as originally adopted effective January 1, 1975, and amended from time to time, is hereby amended and restated to read as herein set forth and is intended to qualify as an employee stock ownership plan - stock bonus plan as defined in Sections 301(d) and 301(e) of the Tax Reduction Act and Sections 401(a) and 409 of the Internal Revenue Code and in Section 331 of the Economic Recovery Tax Act and Section 41 of the Internal Revenue Code before its repeal effective with respect to compensation accrued on or after January 1, 1987) of the Internal Revenue Code. Eligibility, benefits, payment of benefits and the amount of benefits, if any, of a person whose employment with an Employer terminated before January 1, 1989 and who is not rehired by an Employer on or after January 1, 1989 shall, except as otherwise specifically provided herein, be determined in accordance with the provisions of the Plan as in effect on the date the person ceased to be an Employee of an Employer. As originally adopted and as amended and restated herein, the purpose of the McDonald's Stock Sharing Plan is to provide eligible employees with an equity interest in McDonald's Corporation through their participation in this Plan. Pursuant to this purpose and the intent of the applicable law, assets of the Plan will be invested primarily in qualifying employee securities in the form of shares of common stock of McDonald's Corporation. No person shall become a participant in the Plan and no further contributions shall be made to the Plan, except as provided in Section 3.1(a), on or after January 1, 1987. SECTION I Definitions The following words and phrases, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings: 1.1 "Accounts" or "Participant's Accounts" means a Participant's share in the Trust, including all shares (or fractional shares) of common stock of McDonald's Corporation allocated to such Accounts. Each Participant shall have five (5) separate Accounts, which shall be: (a) A "Participant Contribution Account", to which shall be credited Participant Matched Contributions made with respect to Plan Years ending on or before December 31, 1982, plus income and gains and less expenses and losses attributable thereto; (b) An "Unmatched Employer Contribution Account", to which shall be credited Unmatched Employer Contributions contributed in accordance with Section 3.1(a), which have been allocated to a Participant with respect to Plan Years ending on or before December 31, 1982, plus income and gains and less expenses and losses attributable thereto; (c) A "PAYSOP Employer Contribution Account", to which shall be credited Employer Contributions contributed in accordance with Section 3.1(b) and which have been allocated to a Participant with respect to Plan Years beginning on or after January 1, 1983, plus income and gains and less expenses and losses attributable thereto; (d) An "Employer Matching Contribution Account", to which shall be credited Employer Matching Contributions made by an Employer to the Plan in accordance with Section 3.1(d) for Plan Years ending on or before December 31, 1982, plus income and gains and less expenses and losses attributable thereto; (e) An "Additional Employer Contribution Account", to which shall be credited (1) contributions which have been allocated to a Participant's Additional Company Contribution Account with respect to Plan Years ending on or before December 31, 1982, and (2) with respect to contributions for Plan Years ending after December 31, 1982, contributions in excess of the amount which qualifies for tax credit under Section 41(a)(2) of the Internal Revenue Code, plus income and gains and less expenses and losses attributable thereto. 1.2 "Authorized Leave of Absence" means any absence authorized by an Employer under the Employer's standard personnel practices. An absence due to service in the Armed Forces of the United States shall be considered an Authorized Leave of Absence provided that the Employee returns to employment with the Employer within the period provided by law. 1.3 "Beneficiary" means the person or persons designated by a Participant in accordance with the provisions of Section 5.3 to receive any death benefit which shall be distributable under the Plan. 1.4 "Benefits Retirement Date" means the date on which a Participant attains age 55. 1.5 "Board of Directors" means the Board of Directors of the Company. 1.6 "Committee" means the Committee appointed pursuant to Section 7.2. 1.7 "Commonly Controlled Entity" means a corporation, trade or business if it and an Employer are members of a controlled group of corporations as defined in Section 414(b) of the Internal Revenue Code, under common control as defined in Section 414(c) of the Internal Revenue Code, or members of an affiliated service group as defined in Section 414(m) of the Internal Revenue Code; provided, however, that solely for purposes of Section 3.6 and of Section 1.29 when used in Section 3.6, the standard of control under Sections 414(b) and 414(c) of the Internal Revenue Code shall be deemed to be "more than 50%" rather than "at least 80%." 1.8 "Company" means McDonald's Corporation, or any successor corporation by merger, consolidation, purchase or otherwise which elects to adopt the Plan and the Trust. 1.9 "Compensation" of a Participant for a Plan Year means (a) except as otherwise provided herein, the Participant's total compensation paid during the Plan Year to such Participant by an Employer while a Participant in the Plan as reflected in Box 10 of the Participant's Internal Revenue Service Form W-2 (or Box 1, as revised for 1993, or the equivalent box on any comparable form which may hereafter replace such form) for the Plan Year, increased by any amounts by which the Participant's compensation is reduced pursuant to a compensation reduction election under any Related Plan or pursuant to other compensation reduction contributions for medical, dental or dependent care or other benefits and by the amount of Participant Elected Contributions under the McDonald's Matching and Deferred Stock Ownership Plan which are credited to the Participant's account under the McDonald's McDESOP Equalization Plan for the Plan Year and excluding provisions for life insurance, reimbursement for moving expenses, non-cash compensation, officers' discretionary bonuses, any benefits under the Plan or any other qualified plan described in Section 401(a) of the Internal Revenue Code, or income earned from stock options, Stock Exchange Rights or Performance Units, (as such terms are defined in the McDonald's Corporation 1978 Incentive Plan) and payments to a Participant for foreign service in the form of tax gross-up benefits, allowances for cost of living, housing and education, and other similar payments; (b) for purposes of Article IX and for determining the limitations under Section 3.6, Compensation means the total compensation paid to the Participant by an Employer, or a Commonly Controlled Entity, as defined in Section 414(m) of the Internal Revenue Code for the Plan Year, excluding any benefits under the Plan or any other qualified plan described in Section 401(a) of the Internal Revenue Code, or other deferred compensation, stock options, and any other distribution which receives special tax benefit; and (c) for the purpose of determining whether a Participant is (1) a Highly Compensated Employee, (2) a member of the Top Paid Group or (3) a Key Employee pursuant to Section 9.2(d), Compensation shall be Compensation as defined in Section 1.9(b) increased by the amount by which the Participant's compensation is reduced pursuant to a cash or deferred arrangement which meets the requirements of Section 401(k) of the Internal Revenue Code and pursuant to compensation reduction contributions for medical, dental or dependent care or other benefits under a cafeteria plan meeting the requirements of Section 125 of the Internal Revenue Code. For purposes of Sections 1.9(a) and (c), Compensation taken into account under the Plan shall not exceed $200,000 (in 1989, and as adjusted in subsequent years as provided by the Secretary of the Treasury) (the "dollar limit"). In determining whether a Participant's compensation for a Plan Year exceeds the dollar limit, if and only to the extent required by the Internal Revenue Code, the compensation of each Five Percent Owner and of each Participant who is one of the ten Highly Compensated Employees paid the greatest compensation (determined before the aggregation of the compensation of any family member) shall include the compensation of such Participant's spouse and lineal descendants who have not attained age 19 before the end of the Plan Year earned as employees of McDonald's or a Commonly Controlled Entity. For purposes of applying the dollar limit in the first sentence of this paragraph, if the Compensation of a Five Percent Owner or of a Participant who is one of the ten Highly Compensated Employees paid the greatest compensation (determined before the aggregation of the compensation of any family member) is equal to or greater than the dollar limit or more ("Affected Participant"), the Compensation of each of such Affected Participant, his spouse and lineal descendants who have not attained age 19 before the end of the Plan Year ("Affected Family Member") shall be equal to the dollar limit for the Plan Year multiplied by a fraction the numerator of which is such individual's Compensation after application of the dollar limit and the denominator of which is the sum of such Compensation for the Affected Participant and the Affected Family Members. Effective January 1, 1994, "$150,000" shall be substituted for "$200,000" in the above paragraph. 1.10 "Considered Compensation" means Compensation of a Participant, excluding any amount in excess of $1.00. 1.11 "Disability" means a mental or physical condition which renders a Participant permanently unable or incompetent to carry out the job responsibilities he held or tasks to which he was assigned at the time the disability was incurred. The determination of disability shall be made by the Committee on the basis of such medical and other competent evidence as the Committee shall deem relevant. 1.12 "Domestic Affiliate" means any domestic corporation, partnership or joint venture of which, in the case of a corporation, the Company either owns, directly or indirectly, either twenty-five percent (25%) or more of the voting power of all classes of stock or twenty-five percent (25%) or more of the value of all stock, or of which, in the case of a partnership or joint venture, the Company owns, directly or indirectly, twenty-five percent (25%) or more of both the capital and profits. 1.13 "Economic Recovery Tax Act" means the Economic Recovery Tax Act of 1981, as amended, and any subsequent legislation dealing with payroll-based tax credit employee stock ownership plans as described in Section 331 of the Economic Recovery Tax Act. 1.14 "Effective Date" of the restatement is January 1, 1989. 1.15 "Employee" means any person who is employed by the Company or another Employer including persons on an Authorized Leave of Absence. Such term does not include a consultant, an independent contractor or a Leased Employee. 1.16 "Employer" means the Company and any Subsidiary of the Company which, pursuant to Section 6.l, elects to adopt the Plan and the Trust. 1.17 "Employer Contributions" means contributions by an Employer under the Plan including: (a) Employer Matching Contributions made in accordance with Section 46(a)(2)(B)(ii) of the Internal Revenue Code of 1954 for years ending on or before December 31, 1978, and thereafter, in accordance with Section 46(a)(2)(E)(ii) of the Internal Revenue Code of 1954 for years ending on or before December 31, 1982 and (b) Unmatched Employer Contributions made in accordance with Section 46(a)(2)(B)(i) of the Internal Revenue Code of 1954 for years ending on or before December 31, 1978, and thereafter, in accordance with Section 46(a)(2)(E)(i) of the Internal Revenue Code of 1954 for years ending on or before December 31, 1982; (c) PAYSOP Employer Contributions made in accordance with Section 41(a)(2) of the Internal Revenue Code of 1954, for years beginning on or after January 1, 1983; and (d) Additional Employer Contributions, including contributions allocated to a Participant's Additional Company Contribution Account for Plan Years ending on or before December 31, 1982, and thereafter, contributions made by an Employer and allocated to a Participant's Additional Employer Contribution Account for Plan Years beginning on or after January 1, 1983, which are in excess of the amount which qualifies for tax credit under Section 41(a)(2) of the Internal Revenue Code of 1954. 1.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.19 "Foreign Affiliate" means any foreign corporation, partnership or joint venture of which, in the case of a corporation, the Company owns, directly or indirectly, twenty-five percent (25%) or more of the voting power of all classes of stock or twenty-five percent (25%) or more of the value of all stock, or of which, in the case of a partnership or a joint venture, the Company owns, directly or indirectly, twenty-five percent (25%) or more of both the capital and profits. 1.20 "Highly Compensated Employee" means, for a Plan Year, any Participant who performs services as an employee for an Employer or Commonly Controlled Entity during such Plan Year and who: (a) (1) at any time during the Plan Year or the preceding Plan Year ("Preceding Plan Year"), was a Five Percent Owner; or (2) (A) received Compensation in excess of $78,353 (for 1988, adjusted in subsequent years as provided by the Secretary of the Treasury) during the Preceding Plan Year or (B) received Compensation in excess of $81,720 (for 1989, adjusted in subsequent years as provided by the Secretary of the Treasury) during the Plan Year and was one of the 100 employees of the group consisting of the Employers and Commonly Controlled Entities who received the most Compensation during the Plan Year; or (3) received Compensation for the Preceding Plan Year in excess of $52,235 (for 1988, adjusted in subsequent years as provided by the Secretary of the Treasury) and is in the Top Paid Group for the Preceding Plan Year; or (4) (A) was an officer of (or performed the duties of an officer for) an Employer or a Commonly Controlled Entity during the Preceding Plan Year or was an officer of such an entity (or performed the duties of an officer of such an entity) during the Plan Year and one of the 100 employees of the group consisting of the Employers and Commonly Controlled Entities who received the most Compensation during the Plan Year, and (B) received Compensation in excess of fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Internal Revenue Code ($94,023 in 1988 and $98,064 in 1989, adjusted in subsequent years as determined in accordance with regulations prescribed by the Secretary of the Treasury or his delegate), provided that no more than fifty (50) persons shall be treated as officers hereunder for any Plan Year or Preceding Plan Year. (b) For purposes of this Section 1.20, the Compensation of (1) any Highly Compensated Employee in the group consisting of the ten (10) Highly Compensated Employees paid the greatest Compensation (without regard to this Section 1.20(b)) or, (2) any Five Percent Owner, shall include any Compensation paid to a spouse, lineal ascendants or descendants, or any spouse of such lineal ascendants or descendants of such Highly Compensated Employee or such Five Percent Owner and such spouse, lineal ascendants or descendants, or any spouse of such lineal ascendants or descendants shall not be treated as an employee for purposes of this Section 1.20. (c) For purposes of this Section 1.20 and Section 1.38, employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) of the Internal Revenue Code) from an Employer or a Commonly Controlled Entity which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Internal Revenue Code) shall not be treated as employees. (d) A former employee shall also be treated as a Highly Compensated Employee for a Plan Year if such former employee had a Termination of Service prior to such Plan Year and was a Highly Compensated Employee (without regard to this Section 1.20(d)) for either the Plan Year in which he had a Termination of Service or any Plan Year ending on or after his 55th birthday. (e) Effective July 1, 1993, in lieu of determining which individuals are Highly Compensated Employees as provided in paragraphs (a)(1), (a)(2), (a)(3), and (a)(4) of this Section 1.20, the Plan Administrator may elect for any Plan Year to consider as a Highly Compensated Employee for such Plan Year each Participant who performs services as an employee for an Employer or Commonly Controlled Entity during such Plan Year and who, during the Plan Year: (1) was at any time a Five Percent Owner; (2) received Compensation in excess of $81,720 (for 1989, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate); (3) received Compensation in excess of $52,235 (for 1989, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate) and was a member of the Top Paid Group; and (4) was an officer of (or performed the duties of an officer for) an Employer, a Commonly Controlled Entity or member of an Affiliated Service Group and received Compensation in excess of fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Internal Revenue Code ($98,064 for 1989, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate). (f) The Committee may elect for any Plan Year to determine the Highly Compensated Employees for such year by substituting (1) "$62,345" (in 1992, adjusted in subsequent years provided by the Secretary of the Treasury or his delegate) for "$93,518" (in 1992, adjusted in subsequent years provided by the Secretary of the Treasury or his delegate) in Sections 1.20(a)(ii) or 1.20(e)(2) as applicable, and ignoring Sections 1.20(a)(iii) or 1.20(e)(3), respectively. 1.21 "Hour of Service" means: (a) Each hour for which an employee or a Leased Employee is paid directly or indirectly, or entitled to payment, by an Employer or a Commonly Controlled Entity (regardless of whether then an Employee): (1) for performance of duties; (2) on account of a period of time during which no duties were performed, provided that, except as herein otherwise expressly provided, no more than 501 Hours of Service shall be credited for any single continuous period during which an Employee performs no duty, and provided that no Hours of Service shall be credited for payments made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws, or for reimbursement of medical expenses shall be excluded; and (3) for which back pay, irrespective of mitigation of damages, is awarded or agreed to by the employer, provided that no more than 501 Hours of Service shall be credited any single continuous period of time during which the Employee did not or would not have performed duties. (b) (1) An Employee's prior or subsequent employment by a Foreign Affiliate or Domestic Affiliate shall be treated as Hours of Service by the Employer. If a McDonald's Restaurant operated by a Licensee is acquired by the Company or one of its Subsidiaries or affiliates, each person who is employed by such Licensee as of the date of acquisition and is continuously employed by McDonald's until the last day of the Plan Year shall be credited by the Employer with their Hours of Service with such Licensee. (2) To the extent an Employee is not otherwise credited with Hours of Service while on an Authorized Leave of Absence, an Employee on an Authorized Leave of Absence shall be credited with a number of Hours of Service for each payroll period during the Authorized Leave of Absence equal to the average number of Hours of Service per payroll period (not to exceed forty Hours of Service per week) credited to such Employee for the six calendar week period (or pertinent payroll period if such period is longer), ending immediately prior to the commencement of the Authorized Leave of Absence, notwithstanding the limitations of Section 1.21(a)(2). Notwithstanding the foregoing, an Employee who fails either (l) to return to his employment within ninety (90) days after the expiration of an Authorized Leave of Absence or (2) to remain in the employ of an Employer after the expiration of an Authorized Leave of Absence for the lesser of (a) a period equal to the period of his Leave of Absence or (b) one year following his return to employment, unless such failure shall be due to death, Disability, illness or retirement on or after the Participant's Benefits Retirement Date, shall be considered to have voluntarily terminated his employment as of the date the Leave of Absence commenced for purposes of determining Hours of Service under this Section. (c) Effective January 1, 1985, to the extent not otherwise credited in Section 1.21, solely for purposes of avoiding a Break in Service, for periods of absence from work on account of Parental Leave, an Employee shall be credited with Hours of Service as defined below: (1) the Hours of Service which normally would have been credited to such individual but for the Parental Leave, or (2) eight (8) Hours of Service per day of such absence if the Plan is unable to determine the Hours of Service which would have been credited to such individual but for the Parental Leave. (d) The determination of Hours of Service for reasons other than the performance of duties shall, except as provided in Section 1.21(b)(2), be in accordance with the provisions of Labor Department Regulations Section 2530.200b-2(b), and Hours of Service shall be credited to computation periods in accordance with the provisions of Labor Department Regulations Section 2530.200b-2(c). (e) Except as provided in Section 1.21(b)(2), each Employee who is paid on a salaried basis shall be credited with 95 Hours of Service for each semi-monthly payroll period during which such Employee has any Hours Of Service. 1.22 "Internal Revenue Code" means the Internal Revenue Code of 1986, as from time to time amended and any subsequent Internal Revenue Code; provided that references to the Internal Revenue Code with respect to contributions previously permitted hereunder shall be understood to be references to the Internal Revenue Code as in effect for the periods during which such contributions were permitted hereunder and shall be deemed to include any such sections of the Internal Revenue Code prior to amendment, modification or renumbering. References to any section of the Internal Revenue Code shall be deemed to include similar sections of the Internal Revenue Code as renumbered or amended. 1.23 "Leased Employee" means any person who is not an employee of an Employer or a Commonly Controlled Entity and who provides service to an Employer if: (a) such services are provided pursuant to an agreement between the recipient and any other person; (b) such person has performed such services for the Employer (or for the Employer or any Commonly Controlled Entity) on a substantially full time basis for a period of at least 1 year; and (c) such services are of a type historically performed, in the business field of the Employer or Commonly Controlled Entity, by employees. 1.24 "Licensee" means any person, other than McDonald's Corporation or any of its Subsidiaries or Domestic Affiliates or Foreign Affiliates, who operates a McDonald's Restaurant pursuant to lease and license agreements (or so-called "Business Facilities Lease") with the Company or affiliated companies. 1.25 "Matching and Deferred Stock Ownership Plan" means the McDonald's Matching and Deferred Stock Ownership Plan, as from time to time amended. 1.26 "Participant" means a person participating in the Plan in accordance with the provisions of Section 2.l. 1.27 "Plan" means the McDonald's Stock Sharing Plan as herein set forth and as hereafter amended from time to time. 1.28 "Plan Year" means the 12 month period commencing on January l and ending on December 31. 1.29 "Related Plan" means any other qualified defined contribution plan or qualified defined benefit plan (as defined in Section 415(k) of the Internal Revenue Code) maintained by an Employer or a Commonly Controlled Entity, respectively called a "Related Defined Contribution Plan" and a "Related Defined Benefit Plan." 1.30 "Required Beginning Date" means April 1 (but not before April 1, 1990 for a Participant who is not a Five Percent Owner) of the calendar year following: (a) for a Participant who reaches age 70-1/2 before January 1, 1988, the later of: (1) the calendar year in which he reaches age 70-1/2, or (2) if the Participant is not a Five Percent Owner at any time during the Plan Year ending with or within the calendar year in which he attains age 70-1/2 or any of the four (4) prior Plan Years, the calendar year in which he has a Termination of Service; provided that if any such Participant becomes a Five Percent Owner during any Plan Year after he attains age 70-1/2, the "Required Beginning Date" for such Participant shall be the April 1 of the calendar year following the calendar year in which such Plan Year ends, and (b) for a Participant who reaches age 70-1/2 on or after January 1, 1988, the calendar year in which the Participant reaches age 70-1/2. Notwithstanding the foregoing, the Required Beginning Date shall not be any date earlier than any date to which Required Beginning Date can be delayed in accordance with applicable law, regulations, or rulings. 1.31 "Subsidiary" means any other corporation if it and the Company are members of a controlled group of corporations within the meaning of Section 409(l)(4) of the Internal Revenue Code. 1.32 "Tax Reduction Act" means the Tax Reduction Act of 1975 as amended from time to time, and any successor thereto pertaining to investment tax credit employee stock ownership plans as described in Sections 301(d) and 301(e) of the Tax Reduction Act and references to sections thereof shall be deemed to include any such sections as amended, modified or renumbered. 1.33 "Termination of Service" means termination of an Employee's employment with an Employer for any reason, including death, Disability, resignation, discharge, or retirement on or after Benefits Retirement Date; provided, however, that the transfer of a Participant from an Employer to a Foreign or Domestic Affiliate or from one Foreign or Domestic Affiliate to another Foreign or Domestic Affiliate or to an Employer shall not be regarded as a Termination of Service. 1.34 "Top Paid Group" means, for a Plan Year, the group consisting of the top twenty percent of the total number of persons employed by all Employers and Commonly Controlled Entities when ranked on the basis of Compensation paid during the Plan Year; provided that for purposes of determining the total number of persons employed by such entities, the following employees shall be excluded: (a) employees who had not completed six (6) months of service, (b) employees who worked less than seventeen and one-half (17-1/2) hours per week, (c) employees who normally worked during not more than six (6) months during any Plan Year, and (d) employees who had not attained age 21. 1.35 "Trust" means the legal entity resulting from the Trust Agreement between the Company and the Trustee, and any amendments thereto, by which contributions under the Plan shall be received, held, invested and distributed to or for the benefit of the Participants and Beneficiaries. 1.36 "Trust Agreement" means the agreement between the Company and the Trustee, establishing the McDonald's Stock Sharing Trust, as amended from time to time. 1.37 "Trustee" means any corporation, individual, or individuals who shall accept the appointment to execute the duties of Trustee as set forth in the Trust Agreement. 1.38 "Trust Fund" means all property received by the Trustee, together with all income, profits and increments thereon, less all losses and distributions chargeable thereto. 1.39 "Valuation Date" means the last business day of the calendar quarter and such other dates as the Committee shall specify. SECTION II Participation 2.1 Participation. No person shall become a Participant after December 31, 1986. Any person who was a Participant before that date shall continue as a Participant until his Accounts are distributed from the Plan. SECTION III Contributions and Allocations 3.1 Plan Contributions. (a) Additional Employer Contribution. While the Company does not currently intend to make further contributions to the Plan, the Company, in its discretion, may contribute to the Trust for any Plan Year such amount ("Additional Employer Contribution") as shall be determined by the Board of Directors. If the Company elects to make an Additional Employer Contribution for any Plan Year each Employer other than the Company shall contribute to the Trust for the Plan Year an amount equal to the product of the total Considered Compensation for the Plan Year of all Participants who are Employees of such Employer multiplied by a fraction, the numerator of which is the Additional Employer Contribution of the Company for the Plan Year and the denominator of which is the total Considered Compensation for the Plan Year of all Participants who are Employees of the Company. Notwithstanding the provisions of this Section 3.l(a), no Employer shall make any contribution under this Section 3.l(a) for any Plan Year in excess of the maximum amount deductible from income by the Employer for the Plan Year under the provisions of the Internal Revenue Code. The Board of Directors shall determine and certify to the Committee the amount of any contribution to be made by each Employer under this Section 3.l(a). Such determination shall be binding on all Participants, the Committee, the Company, and the other Employers. (b) Employer Contributions Made Before Effective Date. The following Employer Contributions made before the date indicated shall be held in Participant's Accounts as follows: (1) Unmatched Employer Contributions made with respect to periods before December 31, 1982 and credited to Participant's Unmatched Employer Contribution Account; (2) PAYSOP Employer Contributions made with respect to periods on or after January 1, 1983 and ending on or before December 31, 1986 and credited to Participant's PAYSOP Employer Contribution Account; and (3) Employer Matching Contributions made with respect to periods ending on or before December 31, 1982 and credited to Participant's Employer Matching Contribution Account. (c) Participant Contributions After January 1, 1983. No Participant Contributions may be made with respect to Plan Years beginning on or after January 1, 1983. Participant Contributions made before January 1, 1983 shall continue to be held in Participants' Participant Contribution Accounts. (d) Form of Contributions. Contributions to the Trust by an Employer shall be either in cash or in shares of common stock of the Company, as the Employer shall determine in its discretion. 3.2 Participant's Vested Rights. Each Participant's rights to the Participant's Accounts shall be fully vested and non-forfeitable. 3.3 Allocations of Contributions. (a) Unmatched Employer Contributions. For periods ending on or before December 31, 1982, Unmatched Employer Contributions to the Trust for each Plan Year were allocated, as of the last day of the Plan Year, to each Participant, who (1) completed not less than 1,000 Hours of Service during the Plan Year, (2) was a Participant for any period of time during the Plan Year and had a Termination of Service because of retirement after age 55, death, or Disability, or (3) was a Participant for any period of time during the Plan Year and had a Termination of Service during the Plan Year and had at least 10 years of Credited Service under the McDonald's Corporation Savings and Profit Sharing Plan as of the end of the Plan Year, in the proportion that each such Participant's Considered Compensation for the Plan Year bears to the Aggregate Considered Compensation for the Plan Year of all such Participants. (b) Employer Matching Contributions. For periods ending on or before December 31, 1982, all Employer Matching Contributions to the Trust for each Plan Year ending on or before December 31, 1982 were allocated, as of the last day of the Plan Year, to each Participant who was entitled to an allocation for the year under Section 3.3(a) in an amount equal to the amount of such Participant's Fixed Participant Contributions and Variable Participant Contributions for the Plan Year which have been paid in such manner and by such time as was established by the Committee, which date shall be not later than 24 months after the end of the Plan Year. (c) PAYSOP Employer Contributions. All PAYSOP Employer Contributions to the Trust for each Plan Year beginning on or after January 1, 1983 and ending on or before December 31, 1986, were allocated, as of the last day of the Plan Year, to each Participant who (1) completed not less than 1,000 Hours of Service during the Plan Year, or (2) was a Participant for any period of time during the Plan Year and had a Termination of Service because of retirement after age 55, death, or Disability, or (3) was a Participant for any period of time during the Plan Year and had a Termination of Service during the Plan Year and had at least 10 years of Credited Service under the McDonald's Corporation Savings and Profit Sharing Plan as of the end of the Plan Year, in the proportion that each such Participant's Considered Compensation for the Plan Year bears to the Aggregate Considered Compensation for the Plan Year for all such Participants. (d) Additional Employer Contributions. Additional Employer Contributions, if any, to the Trust for each Plan Year shall be allocated, as of the last day of the Plan Year, to each Participant who (1) completed not less than 1,000 Hours of Service during the Plan Year, or (2) was a Participant for any period of time during the Plan Year and had a Termination of Service because of retirement after age 55, death, or Disability, or (3) was a Participant for any period of time during the Plan Year and had a Termination of Service during the Plan Year and had at least 10 years of Credited Service under the Profit Sharing Plan portion of the McDonald's Corporation Profit Sharing Program as of the end of the Plan Year, in the proportion that each such Participant's Considered Compensation for the Plan Year bears to the Aggregate Considered Compensation for the Plan Year for all such Participants. 3.4 Limits on Allocation and Contributions. Any of the provisions of the Plan to the contrary notwithstanding, no amount shall be allocated to the Account of any Participant in excess of the maximum amount permitted to be allocated to a participant in a plan of this type as described in Section 401 of the Internal Revenue Code and no amount shall be contributed by any Employer in excess of the maximum amount permitted to be contributed by such Employer to a plan of this type as described in Section 401 of the Internal Revenue Code. 3.5 Contributions Irrevocable. Amounts contributed by an Employer to the Plan shall, subject to the provisions of Section 3.6, be irrevocable, shall not be returned to any Employer, and shall continue to be allocated in accordance with the provisions of the Plan notwithstanding any circumstances under which any Employer suffers recapture of the tax credit obtained initially through the Employer Contributions to the Plan; provided however, that if, and to the extent that the amount of Employer Matching Contributions for a Plan Year exceeds the amount of Participant Matched Contributions for such Plan Year, such excess shall be returned to the Employer. 3.6 Maximum Limitations on Contributions. (a) Limitations on Contributions. Any of the provisions herein to the contrary notwithstanding, a Participant's Annual Additions for any Plan Year shall not exceed his Maximum Annual Additions for the Plan Year. If a Participant's Annual Additions exceed his Maximum Annual Additions (the "Annual Excess"), the Participant's Annual Additions for the Plan Year shall be reduced under Section 3.6(c) by the amount necessary to eliminate such Annual Excess. (b) Definitions. (1) "Annual Additions" of a Participant for a Plan Year means the sum of the following: (A) Additional Employer Contributions for the Plan Year; (B) all annual additions with respect to employer contributions and forfeitures for such Plan Year allocated to such Participant's accounts for such Plan Year under any other Related Defined Contribution Plan, not already included under Section 3.6(b)(1)(A) provided that Forfeitures of employer securities under the Employer Auxiliary ESOP portion of the Profit Sharing Program and employer contributions used to repay interest on an exempt loan thereunder shall not be included under this Section 3.6(b)(1)(B); (C) the amount of nondeductible participant contributions under this Plan or any Related Plan made by the Participant for the Plan Year; and (D) contributions allocated to any individual medical account (as defined in Code Section 401(h)) which is part of a defined benefit plan maintained by an Employer as provided in Code Section 415(1) and any amount attributable to post-retirement medical benefits allocated to an account established under Internal Revenue Code Section 419(d)(1). (2) "Maximum Annual Addition" of a Participant for a Plan Year means effective for Plan Years beginning on or before July 12, 1989 the greater of (A) and (B) below and effective for Plan Years beginning after July 12, 1989, the amount in (A) below: (A) the lesser of (i) and (ii) below: (i) 25% of the Participant's Compensation, or (ii) the greater of (I) $30,000 or (II) one-fourth (1/4) of the amount in effect under Section 415(b)(1)(A) of the Internal Revenue Code ($98,064 in 1989, adjusted in subsequent years for cost of living adjustments determined in accordance with regulations prescribed by the Secretary of Treasury or his delegate pursuant to the provisions of Section 415(d) of the Internal Revenue Code). (B) the lesser of (i) and (ii) below: (i) 25% of the Participant's Compensation, or (ii) the sum of (I) the greater of (a) $30,000 or (b) one-fourth (1/4) of the amount in effect under Section 415(b)(1)(A) of the Internal Revenue Code ($98,064 for 1989, adjusted in subsequent years for cost of living adjustments determined in accordance with regulations prescribed by the Secretary of Treasury or his delegate pursuant to the provisions of Section 415(d) of the Internal Revenue Code), and (II) the lesser of (a) the amount determined under clause (I) above and (b) the Participant's leveraged ESOP Annual Additions for the Plan Year under the McDonald's Profit Sharing Program. (c) If a Participant has an Annual Excess for a Plan Year, the Annual Excess shall be eliminated as follows: (1) The allocations to the Participant's accounts under McDonald's Profit Sharing Program shall be reduced as provided therein. (2) If any Annual Excess remains after application of paragraph (1), Additional Employer Contributions, in that order, shall be reduced to the extent such reductions reduce the amount of the remaining Annual Excess. (3) Subject to Section 3.6(c)(5), any allocations of Additional Employer Contributions reduced or eliminated under this Section 3.6 shall, subject to the limits of this Section 3.6, be reallocated to the Accounts of the other Participants as of the last day of the Plan Year in the same manner as such Employer Contributions were initially allocated under Section 3.3. Any Additional Employer Contributions which cannot, under the limits of this Section 3.6, be reallocated to the Accounts of other Participants in the Plan Year shall, subject to the limits of this Section 3.6, be held in an unallocated suspense account and reallocated in the subsequent Plan Year. If the Plan is terminated, any amounts held in an unallocated suspense account not then allocated shall, to the maximum extent permitted under Section 3.6(a), be allocated among Participants in the Plan Year of termination and any amounts in excess of such limit shall be returned to the Employers. (d) If a Participant participates in any Related Defined Benefit Plan, the sum of the Defined Benefit Plan Fraction (as defined in Section 415(e)(2) of the Internal Revenue Code) and the Defined Contribution Plan Fraction (as defined in Section 415(e)(3) of the Internal Revenue Code) for such Participant shall not exceed 1.0 (called the "Combined Fraction"). If the Combined Fraction of such Participant exceeds 1.0, the Participant's Defined Benefit Plan Fraction shall be reduced by limiting the Participant's annual benefits payable from the Related Defined Benefit Plan in which he participates to the extent necessary to reduce the Combined Fraction of such Participant to 1.0, and to the extent the Combined Fraction continues to exceed 1.0, by reducing the Participant's Maximum Annual Additions to the extent necessary to reduce the Combined Fraction to 1.0. SECTION IV Trust Fund 4.1 Trust Fund. All assets held under the Plan shall be held in the Trust Fund pursuant to the terms and provisions of the Trust Agreement, and shall be invested primarily in shares of common stock of the Company. The Trustee is specifically authorized to invest up to 100% of the assets of the Trust Fund in shares of common stock of the Company. The Trustee may, at its discretion, retain in cash an amount equal to the value of fractional shares allocable to Participants entitled to receive an immediate distribution from the Plan and amounts permitted to be so held pursuant to Section 4.9 hereof. 4.2 Determination of Increase or Decrease in Net Worth of the Trust Fund. As of each Valuation Date the Trustee shall determine the fair market value of the Trust and give written notice thereof to the Committee. The Trustee's determination of fair market value shall be final and conclusive on all persons. The net income thus derived from the Trust shall be accumulated and shall from time to time be invested as a part of the Trust Fund. As of each Valuation Date, the Committee shall determine the Trust Fund's net income, gains or losses since immediately preceding Valuation Date, and shall proportionately allocate such net income, gains or losses among (a) the sum of all Participants' Accounts, and (b) the sum of amounts held in a suspense account under Section 3.6(c), all valued as of the immediately preceding Valuation Date. Thereafter, the Committee shall credit (or charge) each Account of a Participant with such allocated net income, gains or losses by multiplying such allocated net income, gains or losses by a fraction, the numerator of which is the balance of such Participant's Account, reduced by the amount of any distributions therefrom, as of the immediately preceding Valuation Date, and the denominator of which is the total value of all Participants' Accounts, reduced by the amount of any distributions therefrom, as of the immediately preceding Valuation Date. 4.3 Statement of Accounts. As soon as practicable after the last day of each Plan Year, the Committee shall deliver to each Participant a statement of his Account. 4.4 Participant Rights. Each Participant shall have the right to direct the Committee with respect to shares (and fractional shares) of stock of the Company allocated to his Account as to the manner of voting such shares (and fractional shares) and such other rights (including, but not limited to the right to sell or retain such shares in extraordinary instances involving an unusual price and terms and conditions for shares of common stock of the Company such as a tender offer) as the Participant would be entitled to exercise if the Participant were the shareholder of record for such shares as provided in Section 7.8(c). In the event that a Participant shall fail to direct the Committee as to the manner of voting shares of stock allocated to the Participant's Account or as to the exercise of other rights in respect of such shares, the Committee shall direct the Trustee not to vote such shares or exercise such rights. The Company shall notify each Participant of his rights (and the Committee of the Participants' rights), as described under this Section 4.4, a reasonable period prior to the date on which such rights must be exercised (not less than 30 days prior to such date unless a lesser period, in the opinion of counsel for the Company, is permitted, considering applicable law and provisions with respect to shareholders of the Company generally under the Company's by-laws) and provide each Participant with all information with respect to such rights that a shareholder of record would receive. 4.5 Participant's Interest in the Trust Fund. The Participant's interest in the Trust Fund shall include all assets of the Trust Fund allocated to the Participant's Account and any dividends or other distributions made in respect thereto. All assets allocated to the Participant's Account and all dividends or distributions received in respect of assets held in the Participant's Account shall be invested and reinvested in shares of common stock of the Company. 4.6 Expenses of the Trust Fund. Effective for periods before January 1, 1990, all expenses of the Plan and of the Trust ("Expenses") of whatever kind including, but not limited to, administrative and legal expenses, shall be paid by the Company and shall in no event be paid with any assets of the Trust Fund. Effective on or after January 1, 1990, Expenses shall be paid by the Trust from Forfeitures in accordance with Section 10.7 to the extent not paid by an Employer. 4.7 Separate Accounting For Contributions. Separate Accounts shall be maintained for each Participant as described in Section l.l hereof. 4.8 Correction of Error. In the event of any error, including but not limited to an error in the adjustment of a Participant's Accounts, an error in including or excluding persons as Participants, or otherwise, the Committee, in its sole discretion, may correct such error by either crediting or charging the adjustment required or such adjustment as the Committee in its sole discretion shall determine to be equitable, in order to make such correction either to or against unclaimed amounts in accordance with Section 10.7 or to or against income and expenses of the Plan for the Plan Year in which the correction is made, or in the discretion of the Company, by Additional Employer Contributions to the Plan. 4.9 Distribution Fund. Any of the provisions herein to the contrary notwithstanding, the Committee shall have the authority to direct the Trustee to transfer amounts currently distributable in cash to Participants who have had a Termination of Service to a distribution fund (the "Distribution Fund") during the calendar quarter next following the calendar quarter within which such amounts became distributable occurred. The Distribution Fund shall be held (a) in a checking account of the Trustee in the name of the Trust with the Trustee's banking department, and (b) in short term liquid investments, in such types of investments or pooled, common, commingled or collective trust funds, including those of the Trustee, as the Committee may from time to time authorize the Trustee to invest in such respective amounts and proportions and in such manner as the Committee shall from time to time determine. The Committee may authorize one or more of its members, or their designees, to sign, manually, or by facsimile signature, any and all checks, drafts, and orders, including orders or directions in informal or letter form, against any funds in the Distribution Fund and the Trustee is authorized to honor any and all checks, drafts and orders so signed. Income, gains, losses and expenses of the Distribution Fund as of the last day of each calendar quarter (to the extent not paid by an Employer), shall be determined separately. Any net income of the Distribution Fund shall be added to the net income of the Trust Fund for such calendar quarter and any net losses of the Distribution Fund for a Plan Year shall be paid by the Company. Checks for amounts transferred to the Distribution Fund, shall be written and sent to each Participant within 90 days after such amount has been transferred to the Distribution Fund. 4.10 Diversification. Within 90 days after the last Valuation Date within the Qualified Election Period, a Qualified Participant may make a diversification election with respect to the Specified Portion of his Accounts. The specified portion of a Participant's Accounts which he elects to diversify shall be distributed to the Participant within 90 days after the Qualified Election Period. Distributions shall be made in accordance with this Section 4.10 not withstanding the requirement that employer securities be held in the Plan for 84 months after the date of acquisition by the Plan. As used herein, the following terms shall have the meanings indicated: (a) "Qualified Election Period" means the 6-Plan Year period beginning with the later of: (1) the first Plan Year in which the individual first becomes a Qualified Participant, or (2) the first Plan Year beginning after December 31, 1986. (b) "Qualified Participant" means any Participant who has completed at least ten years of participation in the Plan and has attained age 55. (c) "Specified Portion" means 25 percent of the shares of common stock of McDonald's corporation acquired by the Plan after December 31, 1986; provided that the Participant's Specified Portion shall be zero unless the value of such common stock of McDonald's Corporation is equal to or more than $500. In a Participant's sixth Qualified Election Period, the preceding sentence shall be applied by substituting "50 percent" for "25 percent". The amount which shall be subject to a diversification election shall equal (A)(i) 25 percent and 50 percent, as applicable, be multiplied by (ii) the sum of (a) the value of the common stock of McDonald's Corporation credited to the Participant's Accounts plus (b) the amounts previously distributed pursuant to this Section 4.10 and Section 5.4 reduced by (B) the amounts previously distributed pursuant to this Section 4.10. The foregoing provisions shall apply only to the extent that a Participant is not otherwise eligible to elect to receive distributions of amounts eligible to be distributed hereunder in accordance with Section 5.4 during a Qualified Election Period. SECTION V Distribution of Benefits 5.1 Payment of Benefits in General. A Participant's benefits under this Plan shall be payable in accordance with the provisions of this Article. (a) If a Participant has a Termination of Service due to retirement on or after his Benefits Retirement Date, Total and Permanent Disability, or for any other reason other than death, the Participant's Accrued Benefit shall be payable in a lump sum in accordance with and subject to the limitations of Section 5.2. (b) If a Participant dies, his Accrued Benefit shall be payable to his surviving spouse if he was married at the time of his death, or to his other Beneficiary or Beneficiaries if he was not married at the time of his death or to the extent he is permitted to name a Beneficiary other than his surviving spouse in a lump sum in accordance with and subject to the limitations of Section 5.3. (c) A Participant may elect to receive an in-service distribution of his Accrued Benefit in accordance with and subject to the limitations of Section 5.4. (d) If a Participant is otherwise entitled to a distribution due to retirement on or after Benefits Retirement Date, Total and Permanent Disability, death or other Termination of Service, the Committee may require the immediate distribution of small vested Accrued Benefits in accordance with and subject to the limitations of Section 5.9, notwithstanding the provisions of Sections 5.2, and 5.3. 5.2 Distributions of Participant's Accounts. If the value of a Participant's Considered Accounts is not greater than $3,500 on the Valuation Date immediately following his Termination of Service, within a reasonable time after such Valuation Date, the Participant's Accounts shall be distributed to the Participant; and within a reasonable time after the date on which the Company makes its contribution to the Trust for the Plan Year in which the Participant has a Termination of Service, the Participant shall receive a distribution of any amount credited after the initial distribution to his Accounts for such Plan Year. If the value of a Participant's Considered Accounts is greater than $3,500 on the Valuation Date immediately following his Termination of Service, the Participant's Accounts shall be distributed at an administratively convenient time (but not later than April 1) in the year following the later of the year in which the Participant attains age 70-1/2 or has a Termination of Service, unless such Participant elects in writing to receive a lump sum distribution at an earlier date. The term, "Considered Accounts" as used in this Section 5.2 shall have the following meaning: (a) Effective before July 1, 1993, the Participant's Accounts under the Plan; and (b) Effective on and after July 1, 1993, the sum of (1) the Participant's Accounts under the Plan on the date valued for distribution and (2) his vested Net Balance Account under the Profit Sharing Program. 5.3 Death of Participant. (a) Form of Payment. If a Participant dies before the Participant's Accounts have been paid from the Plan, distribution shall be made as follows: (1) If the Participant has a surviving spouse, the Trustee shall distribute the Participant's Accounts to the Participant's surviving spouse as the Participant's Beneficiary in accordance with Section 5.3(b) unless the Participant has named another Beneficiary, the Participant's spouse has consented in accordance with Section 5.8. (2) If the Participant does not have a surviving spouse or if the Participant, with his spouse's consent in accordance with Section 5.8, has named another Beneficiary, the Trustee shall distribute the Participant's Accounts in accordance with Section 5.3(a)(3) to the Beneficiary named by the Participant in accordance with Section 5.3(b). (3) The Participant's Accounts shall be distributed within a reasonable time after the Valuation Date following the Participant's death in a lump sum except as provided in Section 5.7, and any amount credited after the initial distribution to the Participant's Accounts for the Plan Year will also be so distributed within a reasonable time after the date on which the Company makes its contribution to the Trust for the Plan Year within which the Participant dies. (b) Beneficiary Designation. Subject to Section 5.3(a), the Participant may change his designation of Beneficiary from time to time by filing a new Beneficiary designation form with the Committee. No designation of Beneficiary or change in designation of Beneficiary shall be effective until filed with the Committee. Except as provided in Section 5.3(a)(1), if a Participant shall fail to file a valid Beneficiary designation form, or if all persons designated on the Beneficiary designation form predecease the Participant, the Trustee shall distribute such Participant's Accounts in a lump sum to the following persons, in the following order of precedence: (1) His surviving spouse; (2) Those persons designated by the Participant to receive his death benefits under the Group Life Insurance Program of the Employer or, in the absence of such designation, under the Profit Sharing Plan portion of the McDonald's Corporation Profit Sharing Program; (3) The person or entity who receives the Participant's McDonald's group term life insurance benefits whether or not designated as beneficiary by the Participant; (4) Lawful descendants including adopted children, per stirpes; (5) Parents in equal shares, or (if only one parent survives him) his surviving parent; (6) Lawful descendants of his parents, per stirpes; and (7) His estate. (c) Period of Distribution to Beneficiary. Notwithstanding any other provisions of this Plan or any elections made by a Participant or Beneficiary, the Participant's Accrued Benefit shall be distributed within five (5) years of the Participant's death. 5.4 Participant Withdrawals. A Participant may, on a form at such time and in such manner as the Committee shall prescribe, elect to have distributed to him in shares of common stock of the Company, the shares which have been allocated to his Account for eighty-four (84) months following the month in which such shares were allocated to his Account, provided that such withdrawals shall consist of whole shares. 5.5 Form of Distributions. The form of distribution to a Participant or Beneficiary shall be as follows: (a) Effective before January 1, 1993: (1) If the distribution would be five (5) or more shares of common stock of the Company, the distribution shall be in the form of shares of common stock of the Company unless the Participant or Beneficiary elects to receive payment in cash. (2) If the distribution would be fewer than five (5) shares of common stock of the Company, the distribution shall be in the form of cash, unless the Participant or Beneficiary elects to receive payment in the form of shares of common stock of the Company. (b) Effective on or after January 1, 1993: (1) If amount to be distributed from the Participant's Account has a value of $1500 or more, the distribution shall be in the form of shares of common stock of the Company unless the Participant or Beneficiary elects to receive payment in cash. (2) If the amount to be distributed has a value of less than $1500, the distribution shall be in the form of cash, unless the Participant or Beneficiary elects to receive payment in the form of shares of common stock of the Company. A Participant or Beneficiary may exercise his right to elect the form of distribution by filing a written election with the Committee on forms approved by the Committee at the time and in a manner prescribed by the Committee on or before the date of distribution. If a Participant or Beneficiary receives a cash distribution, the value of his Account shall be determined as of the last day preceding the date of distribution. If a Participant's interest in his Account is distributable and includes a fractional share, the fractional share shall be distributed to the Participant in cash. 5.6 Incompetency, Distribution of Benefits. In the event a Participant or Beneficiary is declared an incompetent or is a minor, and a conservator, guardian or other person legally charged with his care is appointed, any benefits to which such Participant or Beneficiary is entitled shall be distributable to such conservator, guardian or other person legally charged with his care. If a Participant or Beneficiary is incompetent, a minor or in the opinion of the Committee, would fail to derive benefit from distribution of his Account and, if a conservator, guardian or other person legally charged for his care has not been appointed, the Committee, in its sole and exclusive discretion, may (a) require the appointment of a conservator or guardian, (b) distribute the Participant's Account to relatives of the Participant or Beneficiary for the benefit of the Participant or Beneficiary, or (c) distribute such Account directly to or for the benefit of the Participant or Beneficiary. The decision of the Committee in such matters shall be final, binding and conclusive upon the Employer and the Trustee and upon each Employee, Participant, Beneficiary and every other person or party interested or concerned, and neither the Employer, the Committee nor the Trustee shall be under any duty to see to the proper application of such distributions made to a Participant or Beneficiary, or conservator, guardian or relatives of a Participant or Beneficiary. 5.7 Deduction of Taxes from Amounts Payable. The Trustee may deduct from the amount to be distributed such amount as the Trustee, in its sole discretion, deems proper to protect the Plan Administrator, Trustee and the Trust against liability for the payment of death, succession, inheritance, income, or other taxes, and out of the money so deducted, the Trustee may discharge any such liability and pay the amount remaining to the Participant, the Beneficiary or the deceased Participant's estate, as the case may be. 5.8 Spousal Consent to Waiver. A valid spousal consent to the Participant's naming of a Beneficiary other than his spouse shall be: (a) in a writing acknowledging the effect of the consent; (b) witnessed by a notary public; and (c) effective only for the spouse who exercises the consent; provided that notwithstanding the provisions of this Section V, the consent of a Participant's spouse shall not be required if it is established to the satisfaction of a Plan representative that such consent may not be obtained because there is no spouse, because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe. 5.9 Latest Time of Distribution. Any provision herein to the contrary notwithstanding, distribution shall be made to a Participant not later than sixty (60) days after the latest of the close of the Plan Year in which (a) occurs the Participant's Benefits Retirement Date, (b) the Participant has a Termination of Service, and (c) occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan; provided that, all of a Participant's Accounts shall be distributed not later than the Participant's Required Beginning Date and further provided that, a Participant, who is entitled to receive a distribution pursuant to Section V, must submit a claim for benefits before any distribution will be made hereunder. 5.10 Direct Rollovers. This Section 10.5 applies to distributions made on or after January 1, 1993. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section 5.10, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover; subject to such reasonable administrative requirements as the Committee may from time to time establish which may include, but shall not be limited to, requirements consistent with Treasury Regulations and other guidance issued by the Internal Revenue Service permitting de minimis standards for amounts eligible to be rolled over or paid partly to the Participant and partly rolled over. A Participant may make an election pursuant to this Section 5.10 only after the Distributee has met otherwise applicable requirements for receipt of a distribution under the Plan, including but not limited to any applicable requirements that the Participant's spouse or (pursuant to a Qualified Domestic Relations Order as defined in Section 10.5) former spouse consent to the Participant's waiver of a Qualified Joint and Survivor Annuity or Qualified Preretirement Survivor Annuity. If a Participant or Beneficiary elects to receive a Direct Rollover, such distribution may be made or commence to be made less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (A) the Committee shall clearly inform the Participant or Beneficiary that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (B) the Participant or Beneficiary after receiving the notice affirmatively elects a distribution. (b) In the absence of the adoption by the Committee of any requirements to the contrary, the following shall apply: (A) A Distributee whose Eligible Rollover Distribution is less than $200 upon the Valuation Date immediately preceding the date of distribution shall not be permitted to elect to have all or any portion of the distribution made in the form of a Direct Rollover. (B) A Distributee who elects a Direct Rollover in an amount equal to at least $500 may also elect to have the remaining portion of his distribution paid to the Distributee. (C) A Distributee shall be permitted to divide an Eligible Rollover Distribution into separate distributions to be paid to two or more Eligible Retirement Plans in two or more Direct Rollovers. (D) A Distributee's election to make or not to make a Direct Rollover with respect to a payment in a series of periodic payments shall apply to all subsequent payments in the series until the Distributee changes his election. (E) If a Distributee, who has been notified as to the availability of the Direct Rollover option, fails to elect a Direct Rollover with respect to an Eligible Rollover Distribution, such Distributee shall be deemed to have elected not to make a Direct Rollover. (c) As used in this Section 5.10, the following terms shall have the following meanings: (A) "Eligible Rollover Distribution" means 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: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 5.2; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (B) "Eligible Retirement Plan" means an individual retirement account described in Section 408(a) of the Internal Revenue Code, an individual retirement annuity described in Section 408(b) of the Internal Revenue Code, an annuity plan described in Section 403(a) of the Internal Revenue Code, or a qualified trust described in Section 401(a) of the Internal Revenue Code, that accepts the Distributee's Eligible Rollover Distributions. However, in the case of an Eligible Rollover Distribution to a Participant's surviving spouse or surviving former spouse who is a Distributee pursuant to a Qualified Domestic Relations Order, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (C) "Distributee" means a Participant. In addition, a Participant's surviving spouse and a former spouse who is the alternate payee under a Qualified Domestic Relations Order are Distributees with regard to the interest of such spouse or former spouse. (D) "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. SECTION VI Subsidiary Participation 6.1 Adoption of Plan and Trust by a Subsidiary. Any Subsidiary of the Company may, with the approval of the Board of Directors and under such terms and conditions as the Board of Directors may prescribe, adopt the Plan and Trust by resolution of its own board of directors. 6.2 Withdrawal from Plan by Participating Employer. While it is not the present intention of any Employer to withdraw from the Plan, any Employer other than the Company shall have the right, at any time, to withdraw from the Plan and Trust by delivering to the Committee and the Trustee written notice of its election to so withdraw. Upon receipt of such notice by the Committee, the Accounts of Participants employed by the withdrawing Employer as of the date of withdrawal shall thereafter be distributable in shares of common stock of the Company by the Trustee at the discretion of the Committee at such time or times as the Committee, in its sole discretion, may deem to be in the best interest of such Participants or their Beneficiaries, provided that, except as provided in Section 10.6, no distribution shall be made to a Participant with respect to shares of common stock of the Company which have been allocated to the Participant's Account for less than eighty-four (84) months following the month in which such shares were allocated to the Participant's Account, unless the Participant shall have a separation from service as defined in Section 409(d) of the Internal Revenue Code. SECTION VII Administration of the Plan 7.1 Appointment of Trustee. The Board of Directors shall have the power to remove the Trustee, with or without cause, upon thirty (30) days' written notice to the Trustee unless the Trustee agrees to a shorter period, and to appoint a successor to a Trustee which has resigned or been removed, and, with the consent of the Trustee or Trustees, to appoint a co-Trustee or co-Trustees. The appointment of a successor Trustee or co-Trustee shall become effective upon acceptance in writing of such appointment by the successor Trustee or co-Trustee. The successor Trustee or co-Trustee may be either a corporate Trustee or an individual Trustee, and the successor Trustee or co-Trustee shall have no liability for anything done or omitted to be done by the former Trustee or co-Trustee prior to the appointment of the successor Trustee or co-Trustee. Each successor Trustee appointed to and accepting a Trusteeship hereunder shall have all the rights, title, powers, duties, exemptions and limitations of the original Trustee. 7.2 Appointment of Committee; Tenure in Office. The Committee, which shall be the Administrator of the Plan, unless the Committee shall appoint an Employee to act as Plan Administrator, shall consist of not less than five (5) members who shall be appointed by the Board of Directors. The Board of Directors shall have power to determine the period during which any Committee member shall serve and, in its discretion, may remove any member of the Committee at any time without assigning any reason therefor. Upon a vacancy occurring upon the death, resignation or removal by the Board of Directors of any member of the Committee, a successor shall be appointed by the Board of Directors within ninety (90) days after such event. Until a vacancy in the Committee is filled by the Board of Directors the remaining members of the Committee shall continue to act as the Committee. The Board of Directors shall certify to the Trustee the names of the members of the Committee and, thereafter, any change in its membership. 7.3 Named Fiduciaries. The Company, the Board of Directors, the Committee and every employee of the Company, its subsidiaries or affiliates who becomes a fiduciary by virtue of the delegation of duties, responsibilities and authority with respect to the administration and operation of the Plan in accordance with this Section 7 shall be considered "named fiduciaries" as provided in Section 402(a)(2) of ERISA, and accordingly afforded the protection provided for in Section 405(c)(2) of ERISA with respect to named fiduciaries. 7.4 Delegation of Responsibilities. The Committee and the Board of Directors shall have the authority to delegate, from time to time, by instrument in writing, all or any part of its responsibilities under the Plan (including the power to delegate) to such person or persons as it may deem advisable, and in the same manner to revoke any such delegation of responsibility. Periodically, the delegate shall report to the Committee or Board of Directors concerning the discharge of the delegated responsibilities. Any action of the delegate in the exercise of such delegated responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Committee or the Board of Directors. Neither the Committee, the Board of Directors nor any of their members shall be liable for the acts or omissions of such delegate except as otherwise required by federal law. 7.5 Committee Action by Majority - Authorization of Members to Execute Documents. The Committee may act at a meeting (including a telephonic meeting) by the consent of a majority of its members or without a meeting by the unanimous written consent of its members. No member of the Committee shall vote or decide upon any matter relating solely to himself or to his specific rights or benefits under the Plan. The Committee may authorize any of its members to execute on its behalf any document which reflects an action or decision of the Committee and the Committee shall notify the Trustee in writing of the names of its members so authorized. Until the Committee revokes or alters such authorization by a written notice to the Trustee, the Trustee may accept and rely upon any document executed by such members as reflecting action by the Committee. 7.6 Secretary. The Committee shall appoint a Secretary (who may, but need not be a member of the Committee) to keep records of the acts and resolutions of the Committee. The Secretary may also perform such other duties which may, from time to time, be delegated to him in writing by the Committee. 7.7 Member as Participant. A member of the Committee who is also a Participant or a Beneficiary shall receive any benefit to which he may be entitled as a Participant or Beneficiary in the Plan so long as such benefit is computed and paid on a basis that is consistent with the terms of the Plan as applied to all other Participants and Beneficiaries. 7.8 Committee Powers and Duties. The Committee shall have such powers as may be necessary to discharge its duties hereunder, including but not by way of limitation, the following: (a) To construe and interpret the Plan and to decide all questions concerning the eligibility for participation and relating to the amount and manner of distribution of benefits hereunder; (b) To receive from the Company and Employer and/or have prepared by the Company and Employer such records and information as shall be necessary for the proper administration of the Plan; (c) To receive each Participant's directions to the Trustee with respect to the Participant's rights described under Section 4.4, to aggregate all Participant directions (including to the extent possible, Participant directions with respect to fractional shares) and to communicate to the Trustee all such Participant directions; (d) To have prepared and furnished to Participants and/or Beneficiaries all information required under federal law or provisions of this Plan to be furnished to them; (e) To have prepared and filed or published with the Department of Labor or the Department of Treasury or other governmental agency all reports and other information required under federal law; (f) To have maintained records of the Trust Fund with respect to the Accounts of Participants; (g) To review and monitor the performance of the Trustee with respect to the responsibilities set forth in the Trust Agreement; and (h) To maintain separate accounts for Participants in accordance with Section 4.7 of the Plan. 7.9 Rules and Decisions. The Committee may, from time to time, adopt such rules and regulations as it deems necessary or desirable which are consistent with the provisions or the purposes of the Plan. All rules and decisions of the Committee shall be uniformly and consistently applied to all Participants in similar circumstances. The Committee shall be entitled to, but need not, rely upon information furnished by a Participant or Beneficiary, a delegate, an Employer or Employee, a prior Licensee, the Trustee or the Company. 7.10 Agents and Counsel. The Committee and its delegates shall have the authority to appoint or employ individuals to assist or to advise in the administration of the Plan and any other agent deemed advisable, including but not limited to, independent certified public accountants and legal and actuarial counsel, who may but need not be the accountants or the legal or the actuarial counsel of the Company. 7.11 Authorization of Benefit Distribution. The Committee shall issue directions to the Trustee concerning all distributions to be made from the Trust Fund pursuant to the provisions of the Plan, and warrants that all such directions are in accordance with the Plan. 7.12 Claims Procedure. (a) Each Participant or Beneficiary (for purposes of this Section called a "Claimant") may submit his claim for benefits to the Plan Administrator in writing in such form as is permitted by the Committee. A Claimant shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a claim for benefits, prior to his filing a claim for benefits and exhausting his rights to review in accordance with this Section. When a claim for benefits has been filed properly, such claim for benefits shall be evaluated and the Claimant shall be notified of the approval or the denial within ninety (90) days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period, and such notice shall specify the special circumstances requiring an extension and the date by which a final decision will be reached (which date shall not be later than one hundred and eighty (180) days after the date on which the claim was filed). A Claimant shall be given a written notice in which he shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part, the Claimant shall be given written notice which shall contain (1) the specific reasons for the denial, (2) references to pertinent Plan provisions on which the denial is based, (3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and (4) the Claimant's rights to seek review of the denial. (b) If a claim is denied, in whole or in part, the Claimant shall have the right to request that the Committee review the denial, provided that he files a written request for review with the Committee within sixty (60) days after the date on which he received written notification of the denial. A Claimant (or his duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Committee. Within sixty (60) days after a request for review is received, the review shall be made and the Claimant shall be advised in writing of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the Claimant shall, within such initial sixty (60) day period, be given a written notification specifying the reasons for the extension and when such review shall be completed (provided that such review shall be completed within one hundred and twenty (120) days after the date on which the request for review was filed). The decision on review shall be forwarded to the Claimant in writing and shall include specific reasons for the decision and references to Plan provisions upon which the decision is based. A decision on review shall be final and binding on all persons for all purposes. If a Claimant shall fail to file a request for review in accordance with the procedures herein outlined, such Claimant shall have no rights to review and shall have no right to bring action in any court, and the denial of the claim shall become final and binding on all persons for all purposes. 7.13 Information to be Furnished to Committee. The Company and Employers shall furnish the Committee or its delegate such data and information as the Committee may reasonably request. Participants and their Beneficiaries shall furnish to the Committee such evidence, data or information as the Committee or its delegate shall request. 7.14 Fiduciary Responsibility. If a Plan fiduciary acts in accordance with ERISA, Title I, Subtitle B, Part 4: (a) in determining that the Participant's spouse has consented to the naming of a Beneficiary other than the spouse or that the consent of the Participant's spouse may not be obtained because there is no spouse, the spouse cannot be located or other circumstances prescribed by the Secretary of the Treasury by regulations, then to the extent of payments made pursuant to such consent, revocation or determination, the Plan and its fiduciaries shall have no further liability. (b) in treating a domestic relations order as being (or not being) a Qualified Domestic Relations Order, or, during any period in which the issue of whether a domestic relations order is a Qualified Domestic Relations Order is being determined (by the Committee, by a court of competent jurisdiction, or otherwise), in segregating in a separate account in the Plan or in an escrow account the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a Qualified Domestic Relations Order, in paying the amounts segregated or held in escrow to the person entitled thereto if within 18 months the domestic relations order (or a modification thereof) is determined to be a Qualified Domestic Relations Order, in paying such amounts to the person entitled thereto if there had been no order, if within 18 months the domestic relations order is determined not to be qualified or if the issue is not resolved within 18 months and in prospectively applying a domestic relations order which is determined to be qualified after the close of the 18-month period, then the obligation of the Plan and its fiduciaries to the Participant and each alternate payee shall be discharged to the extent of any payment made pursuant to such acts. 7.15 Fiduciary as Participant. A fiduciary who is also a Participant or a Beneficiary shall receive any benefit to which he may be entitled as a Participant or Beneficiary in the Plan so long as such benefit is computed and paid on a basis that is consistent with the terms of the Plan as applied to all other Participants and Beneficiaries. SECTION VIII Amendment, Termination, Merger and Consolidation of Plan 8.1 Amendment. The Board of Directors shall have the right, at any time and from time to time, to amend, in whole or in part, any or all of the provisions of the Plan and the Trust Agreement (except Section 8.4 of the Plan, which shall not be amended except as provided therein), provided that no amendment shall authorize or permit any part of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their Beneficiaries, or permit any portion of the Trust Fund to revert to or become the property of any Employer, except as may be required to obtain or retain qualification, or as permitted, under Section 401(a) of the Internal Revenue Code or to be a Plan described in Sections 301(d) and 301(e) of the Tax Reduction Act, Section 331 of the Economic Recovery Tax Act and Section 409 of the Internal Revenue Code and that no amendment shall deprive any Participant or any Beneficiary of a deceased Participant of any of the benefits or of an optional form of benefit to which he is entitled under this Plan with respect to contributions previously made, nor shall any amendment decrease any Participant's Accounts provided that no amendment made in conformance to provisions of the Internal Revenue Code or any other statute relating to employee's trusts, or any official regulations or rulings issued pursuant thereto, shall be considered prejudicial to the rights of any Participant or Beneficiary. No amendment which affects the rights, duties or responsibilities of the Trust may be made without the Trustee's written consent. The Committee shall have the same authority with respect to the adoption of amendments to the Plan and Trust Agreement as the Board of Directors in the following circumstances: (a) to adopt amendments to the Plan which the Committee determines are necessary or desirable for the Plan to comply with or to obtain benefits or advantages under the provisions of applicable law, regulations or rulings or requirements of the Internal Revenue Service or other government administrative agency or changes in such law, regulations, rulings or requirements; and (b) to adopt any other procedural or cosmetic amendment that the Committee determines to be necessary or desirable that does not materially change benefits to Participants or their Beneficiaries or materially increase the Employer's contributions to the Plan. The Committee shall provide notice of amendments adopted by the Committee to the Board of Directors on a timely basis. 8.2 Termination of Plan By the Company. Although it is the intention of the Company that this Plan be permanent, the Company reserves the right to terminate the Plan and the Trust at any time, by delivering to the Committee, the Trustee and each Employer hereunder, written notice thereof. Upon termination of the Plan or permanent discontinuance of Employer Contributions to the Plan, the interest of each Participant and Beneficiary in his Accounts shall remain fully vested, but shall be subject to readjustment as provided in Section 4.2 hereof. In the event of termination of this Plan, the Board of Directors may direct that the Trustee continue the Trust for a specified period of time, or for such period of time as the Trustee, in its sole discretion, may deem to be in the best interest of the Participants or their Beneficiaries. In the absence of specific direction from the Board of Directors, the Trust assets shall be distributed by the Trustee in shares of common stock of the Company. Notwithstanding the provision of this Section, no distributions shall be made to any Participant of any assets which have been allocated to the Participant's Account for less than eighty-four (84) months following the month in which such assets were allocated to the Participant's Account, unless the Participant shall have a separation from service as defined in Section 409(d) of the Internal Revenue Code, except as otherwise permitted in Section 10.6. Upon the partial termination of the Plan, the interest of each Participant whose employment is terminated on account of (or who otherwise suffers such) partial termination shall remain fully vested. Sales of McDonald's Restaurants by the Company or another Employee will not constitute a partial termination unless such sale under all other facts and circumstances constitutes a partial termination. In the absence of specific direction from the Board of Directors, the Trust assets shall be distributed by the Trustee in shares of Company Stock. 8.3 Merger, Consolidation, or Transfer of Assets. This Plan shall not be merged or consolidated with, nor shall any assets or liabilities be transferred to, any other plan, unless the benefits payable to each Participant, if the Plan were terminated immediately after such action, would be not less than the benefits which would have been payable to each such Participant if the Plan had been terminated immediately before such action. 8.4 Put Option Requirement. If any common stock of the Company allocated to a Participant's Accounts, except the Participant's Additional Employer Contribution Account, under the Plan (the "Tax Credit Employer Security") is not publicly traded when distributed, or thereafter ceases to be publicly traded (or becomes subject to a trading limitation), the distributee shall be given an option exercisable only by the distributee (or the distributee's donees or a person, including an estate of a distributee, to whom the Tax Credit Employer Security passes by reason of the Participant's death), to put the Tax Credit Employer Security to the Company for a 15-month period beginning on the date of distribution. If such Tax Credit Employer Security ceases to be publicly traded (or becomes subject to a trading limitation) within 15 months after the distribution, the Company shall notify the Participant in writing on or before the 10th day after the date the Tax Credit Employer Security ceased to be publicly traded (or became subject to a trading limitation) that the Tax Credit Employer Security is subject to a put option to the Company for the remainder of the 15-month period (or, if such notice is given after the 10th day after the Tax Credit Employer Security ceases to be publicly traded, for a period equal to the remainder of the 15-month period plus a number of days equal to the number of days between such 10th day and the date on which such notice is actually given), and such notice shall inform the distributees of the terms of the put option. The Plan shall have the right, but not the obligation, to assume the rights and obligations of the Company with respect to the put option at the time the put option is exercised. A put option hereunder shall be exercised by the holder notifying the Company in writing that the put option is being exercised. The period during which the put option is exercisable shall be extended by the duration of any time period when a distributee is unable to exercise it because the Company is prohibited from honoring it under applicable Federal or State law. A put option shall be exercisable at a price equal to the value of the Tax Credit Employer Security determined as of the most recent Valuation Date. Payment under a put option shall not be restricted by the provisions of a loan or other arrangement, including the Company's articles of incorporation, unless so required by State law. Provisions for a payment under any put option shall be reasonable. Payments may be deferred only if adequate security and a reasonable rate of interest are provided and if periodic payments are made in substantially equal installments beginning within 30 days after the date the put option is exercised and extending for no more than 5 years after the put option is exercised. The provisions of this Section 8.4 shall not be terminated or amended except to the extent required or permitted under applicable law, Treasury Regulations and Rulings of the Internal Revenue Service. SECTION IX Top Heavy Provisions 9.1 Application. The definitions in Section 9.2 shall apply under this Section IX and the special rules in Section 9.3 shall apply, notwithstanding any other provisions of the Plan, for any Plan Year in which the Plan is a Top Heavy Plan and for such other Plan Years as may be specified herein. 9.2 Special Top Heavy Definitions. The following special definitions shall apply under this Section IX. (a) "Aggregate Employer Contributions" means the sum of all Employer Contributions and Forfeitures under this Plan allocated for a Participant to the Plan and employer contributions and forfeitures allocated for the Participant to all Related Defined Contribution Plans in the Aggregation Group; provided, however, that for Plan Years beginning before January 1, 1985, employer contributions attributable to salary reduction or similar arrangement which complies with Section 401(k) of the Internal Revenue Code ("Salary Reduction Contributions") under any Related Defined Contribution Plans shall not be included in Aggregate Employer Contributions and further provided that for Plan Years which began after December 31, 1988, Salary Reduction Contributions made under any Related Plan and any employer contributions to such Plan which match Salary Reduction Contributions. (b) "Aggregation Group" means the group of plans in a Mandatory Aggregation Group, if any, that includes the Plan, unless inclusion of Related Plans in the Permissive Aggregation Group in the Aggregation Group would prevent the Plan from being a Top Heavy Plan, in which case "Aggregation Group" means the group of plans consisting of the Plan and each other Related Plan in a Permissive Aggregation Group with the Plan. (1) "Mandatory Aggregation Group" means each plan (considering the Plan and Related Plans) that, during the Plan Year that contains the Determination Date or any of the four preceding Plan Years, (A) had a participant who was a Key Employee, or (B) was necessary to be considered with a plan in which a Key Employee participated in order to enable the plan in which the Key Employee participated to meet the requirements of Section 401(a)(4) and Section 410 of the Internal Revenue Code. If the Plan is not described in (A) or (B) above, it shall not be part of a Mandatory Aggregation Group. (2) "Permissive Aggregation Group" means the group of plans consisting of (A) the plans, if any, in a Mandatory Aggregation Group with the Plan, and (B) any other Related Plan, that, when considered as a part of the Aggregation Group, does not cause the Aggregation Group to fail to satisfy the requirements of Section 401(a)(4) and Section 410 of the Internal Revenue Code. A Related Plan in (B) of the preceding sentence may include a simplified employee pension plan, as defined in Internal Revenue Code Section 408(k), and a collectively bargained plan, if when considered as a part of the Aggregation Group such plan does not cause the Aggregation Group to fail to satisfy the requirements of Section 401(a)(4) and Section 410 of the Internal Revenue Code considering, if the plan is a multiemployer plan as described in Internal Revenue Code Section 414(f) or a multiple employer plan as described in Internal Revenue Code Section 413(c), benefits under the plan only to the extent provided to employees of the employer because of service with the employer and, if the plan is a simplified employee pension plan, only the employer's contribution to the plan. (c) "Determination Date" means, with respect to a Plan Year, the last day of the preceding Plan Year or, in the case of the first Plan Year, the last day of such Plan Year. If the Plan is aggregated with other plans in the Aggregation Group, the Determination Date for each other plan shall be, with respect to any Plan Year, the Determination Date for each such other plan which falls in the same calendar year as the Determination Date for the Plan. (d) "Key Employee" means, for the Plan Year containing the Determination Date, any person or the beneficiary of any person who is an employee or former employee of an Employer or a Commonly Controlled Entity as determined under Internal Revenue Code Section 416(i) and who, at any time during the Plan Year containing the Determination Date or any of the four (4) preceding Plan Years (the "Measurement Period"), is a person described in paragraph (1), (2), (3) or (4), subject to paragraph (5). (1) An officer of the Employer or Commonly Controlled Entity who: (A) in any Measurement Period, in the case of a Plan Year beginning after December 31, 1983, is an officer during the Plan Year and has annual Compensation for the Plan Year in an amount greater than fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of Internal Revenue Code for the calendar year in which such Plan Year ends ($30,000 in 1989, adjusted in subsequent years as determined in accordance with regulations prescribed by the Secretary of the Treasury or his delegate pursuant to the provisions of Section 415(d) of the Internal Revenue Code); and (B) in any Measurement Period, in the case of a Plan Year beginning on or before December 1, 1983, is an officer during the Plan Year, regardless of his Compensation (except to the extent that applicable law, regulations and rulings indicate that the compensation requirement set forth in subparagraph (A) above is applicable). No more than a total of fifty (50) persons (or, if lesser, the greater of three (3) persons or ten percent (10%) of all persons or beneficiaries of persons who are employees or former employees) shall be treated as Key Employees under this paragraph (1) for any Measurement Period. In the case of an Employer or Commonly Controlled Entity which is not a corporation (I) in any Measurement Period, in the case of a Plan Year beginning on or before February 28, 1985 no persons shall be treated as Key Employees under this paragraph (1); and (II) in any Measurement Period, in the case of a Plan Year beginning after February 28, 1985, the term "officer" as used in this subsection (d) shall include administrative executives as described in Section 1.416-1(T-13) of the Treasury Regulations. (2) One (1) of the ten (10) persons who, during a Plan Year in the Measurement Period: (A) have annual Compensation from the Employer or a Commonly Controlled Entity for such Plan Year greater than the amount in effect under Section 415(c)(1)(A) of the Internal Revenue Code for the calendar year in which such Plan Year ends ($30,000 for 1989 or one- fourth of the dollar limitation in effect under Section 415(b)(1)(A) of the Internal Revenue Code, adjusted in subsequent years as determined in accordance with regulations prescribed by the Secretary of the Treasury or his delegate pursuant to the provisions of Section 415(d) of the Internal Revenue Code); and (B) own (or are considered as owning within the meaning of Internal Revenue Code Section 318) in such Plan Year, the largest percentage interests in the Employer or a Commonly Controlled Entity, in such Plan Year, provided that no person shall be treated as a Key Employee under this paragraph unless he owns more than one-half percent (1/2%) interest in the Employer or a Commonly Controlled Entity. No more than a total of ten (10) persons or beneficiaries of persons who are employees or former employees shall be treated as Key Employees under this paragraph (2) for any Measurement Period. (3) A person who, for a Plan Year in the Measurement Period, is a more than five percent (5%) owner (or is considered as owning more than five percent (5%) within the meaning of Internal Revenue Code Section 318) of the Employer or a Commonly Controlled Entity. (4) A person who, for a Plan Year in the Measurement Period, is a more than one percent (1%) owner (or is considered as owning more than one percent (1%) within the meaning of Internal Revenue Code Section 318) of the Employer or a Commonly Controlled Entity and has an annual Compensation for such Plan Year from the Employer and Commonly Controlled Entities of more than $150,000. (5) If the number of persons who meet the requirements to be treated as Key Employees under paragraph (1) or (2) exceed the limitation on the number of Key Employees to be counted under paragraph (1) or (2), those persons with the highest annual Compensation in a Plan Year in the Measurement Period for which the requirements are met and who are within the limitation on the number of Key Employees will be treated as Key Employees. If the requirements of paragraph (1) or (2) are met by a person in more than one (1) Plan Year in the Measurement Period, each person will be counted only once under paragraph (1) or (2): (A) under paragraph (1), the Plan Year in the Measurement Period in which a person who was an officer and had the highest annual Compensation shall be used to determine whether the person will be treated as a Key Employee under the preceding sentence; (B) under paragraph (2), the Plan Year in the Measurement Period in which the ownership percentage interest is the greatest shall be used to determine whether the person will be treated as a Key Employee under the preceding sentence. Notwithstanding the above provisions of paragraph (5), a person may be counted in determining the limitation under both paragraphs (1) and (2). In determining the sum of the Present Value of Accrued Benefits for Key Employees under subsection (h) of this Section, the Present Value of Accrued Benefits for any person shall be counted only once. (e) "Non-Key Employee" means (i) a person or the beneficiary of a person with an account balance in the Plan or an account balance or accrued benefit in any Related Plan in the Aggregation Group or (ii) an employee, a former employee or the beneficiary of such person who has received a distribution during the Measurement Period and (iii) who during the Measurement Period is not a Key Employee. (f) "Present Value of Accrued Benefits" means, for any Plan Year, an amount equal to the sum of (1), (2) and (3) for each person who, in the Plan Year containing the Determination Date, was a Key Employee or a Non-Key Employee and, further provided that the accrued benefit of any Non-Key Employee shall be determined under the method which is used for accrual purposes for all Related Defined Benefit Plans or, if no single accrual method is used in all such plans, such accrued benefit shall be determined as if such benefit accrued not more rapidly than the slowest accrual rate permitted under Section 411(b)(1)(C) of the Internal Revenue Code. (1) Subject to (4) below, the value of a person's Accounts under the Plan and each Related Defined Contribution Plan in the Aggregation Group, determined as of the valuation date coincident with or immediately preceding the Determination Date, adjusted for contributions due as of the Determination Date, as follows: (A) in the case of a plan not subject to the minimum funding requirements of Section 412 of the Internal Revenue Code, by including the amount of any contributions actually made after the valuation date but on or before the Determination Date, and, in the first plan year of a plan, by including contributions made after the Determination Date that are allocated as of a date in that first plan year; and (B) in the case of a plan that is subject to the minimum funding requirements, by including the amount of any contributions that would be allocated as of a date not later than the Determination Date, plus adjustments to those amounts as required under applicable rulings, even though those amounts are not yet required to be contributed or allocated (e.g., because they have been waived) and by including the amount of any contributions actually made (or due to be made) after the valuation date but before the expiration of the extended payment period in Section 412(c)(10) of the Internal Revenue Code. (2) Subject to (4) below, the sum of the actuarial present values of a person's accrued benefits under each Related Defined Benefit Plan in the Aggregation Group, expressed as a benefit commencing at normal retirement date (or the person's attained age, if later) determined based on the following actuarial assumptions: (A) Interest rate 5%; and (B) Post Retirement Mortality: 1984 Unisex Pension Table; and determined in accordance with Internal Revenue Code Section 416(g), provided, however, that if a defined benefit plan in the Aggregation Group provides for different or additional actuarial assumptions to be used in determining the present value of accrued benefits thereunder for the purpose of determining the top heavy status thereof, then such different or additional actuarial assumptions shall apply with respect to each defined benefit plan in the Aggregation Group. The present value of an accrued benefit for any person who is employed by an employer maintaining a plan on the Determination Date is determined as of the most recent valuation date which is within a 12-month period ending on the Determination Date, provided however that: (C) for the first plan year of the plan, the present value for an employee is determined as if the employee had a Termination of Service (1) on the Determination Date or (2) on such valuation date but taking into account the estimated accrued benefit as of the Determination Date; and (D) for the second and subsequent plan years of the plan, the accrued benefit taken into account for an employee is not less than the accrued benefit taken into account for the first plan year unless the difference is attributable to using an estimate of the accrued benefit as of the Determination Date for the first plan year and using the actual accrued benefit as of the Determination Date for the second plan year. For purposes of this paragraph (2), the valuation date is the valuation date used by the plan for computing plan costs for minimum funding, regardless of whether a valuation is performed that year. If the plan provides for a nonproportional subsidy as described in Treasury Regulations Section 1.416-1 (T-27), the present value of accrued benefits shall be determined taking into account the value of nonproportional subsidized early retirement benefits and nonproportional subsidized benefit options. (3) Subject to (4) below, the aggregate value of amounts distributed during the plan year that includes the Determination Date or any of the four preceding plan years including amounts distributed under a terminated plan which, if it had not been terminated, would have been in the Aggregation Group. (4) The following rules shall apply in determining the Present Value of Accrued Benefits: (A) Amounts attributable to qualified voluntary employee contributions, as defined in Section 219(e) of the Internal Revenue Code, shall be excluded. (B) In computing the Present Value of Accrued Benefits with respect to rollovers or plan-to-plan transfers, the following rules shall be applied to determine whether amounts which have been distributed during the five (5) year period ending on the Determination Date from or accepted into this Plan or any plan in the Aggregation Group shall be included in determining the Present Value of Accrued Benefits: (i) Unrelated Transfers accepted into the Plan or any plan in the Aggregation Group after December 31, 1983 shall not be included. (ii) Unrelated Transfers accepted on or before December 31, 1983 and all Related Transfers accepted at any time into the Plan or any plan in the Aggregation Group shall be included. (iii) Unrelated Transfers made from the Plan or any plan in the Aggregation Group shall be included. (iv) Related Transfers made from the Plan or any plan in the Aggregation Group shall not be included by the transferor plan (but shall be counted by the accepting plan). The accrued benefit of any individual who has not received any Compensation from an Employer maintaining the Plan at any time during the five (5) year period ending on the Determination Date shall be excluded in computing the Present Value of Accrued Benefits. (g) "Related Transfer" means a rollover or a plan-to-plan transfer which is either not initiated by the Employee or is made between plans each of which is maintained by a Commonly Controlled Entity. (h) A "Top Heavy Aggregation Group" means an Aggregation Group in any Plan Year for which, as of the Determination Date, the sum of the Present Value of Accrued Benefits for Key Employees under all plans in the Aggregation Group exceeds sixty percent (60%) of the sum of the Present Value of Accrued Benefits for all employees under all plans in the Aggregation Group; provided that, for purposes of determining the sum of Present Value of Accrued Benefits for all employees, former Key Employees who have not performed any services for an Employer or a Commonly Controlled Entity in the Plan Year containing the Determination Date at the preceding four Plan Years shall be excluded entirely from the calculation of the Present Value of Accrued Benefits for the Plan Year that contains the Determination Date. For purposes of applying the special rules herein with respect to a Super Top Heavy Plan, a Top Heavy Aggregation Group will also constitute a "Super Top Heavy Aggregation Group" if in any Plan Year as of the Determination Date, the sum of the Present Value of Accrued Benefits for Key Employees under all plans in the Aggregation Group exceeds ninety percent (90%) of the sum of the Present Value of Accrued Benefits for all employees under all plans in the Aggregation Group. (i) "Top Heavy Plan" means the Plan in any Plan Year in which it is a member of a Top Heavy Aggregation Group, including a Top Heavy Aggregation Group consisting solely of the Plan. For purposes of applying the rules herein with respect to a Super Top Heavy Plan, a Top Heavy Plan will also constitute a "Super Top Heavy Plan" if the Plan in any Plan Year is a member of a Super Top Heavy Aggregation Group, including a Super Top Heavy Aggregation Group consisting solely of the Plan. (j) "Unrelated Transfer" means a rollover or a plan-to-plan transfer which is both initiated by the Employee and (a) made from a plan maintained by a Commonly Controlled Entity to a plan maintained by an employer which is not a Commonly Controlled Entity or (b) made to a plan maintained by a Commonly Controlled Entity from a plan maintained by an employer which is not a Commonly Controlled Entity. 9.3 Special Top Heavy Provisions. For each Plan Year in which the Plan is a Top Heavy Plan, the following rules shall apply, except that the special provisions of this Section 9.3 shall not apply with respect to any employee included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective-bargaining agreement between employee representatives and one or more employees if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representative and the Employer or Employers: (a) Minimum Employer Contributions. (1) For any Plan Year in which the Plan is a Top Heavy Plan, the Employers shall make additional Employer Contributions to the Plan as necessary for each Participant who is employed on the last day of the Plan Year and who is a Non-Key Employee to bring the amount of his Aggregate Employer Contributions for the Plan Year up to at least three percent (3%) of his Compensation, or if the Plan is not required to be included in an aggregation group in order to permit a defined benefit plan in the aggregation group to satisfy the requirements of Section 401(a)(4) or Section 410 of the Internal Revenue Code, such lesser amount as is equal to the largest percentage of a Key Employee's Compensation (as limited in accordance with Section 9.3(c)) allocated to the Key Employee as Aggregate Employer Contributions. (2) For purposes of determining whether a Non-Key Employee is a Participant entitled to have minimum Employer Contributions made on his behalf, a Non-Key Employee will be treated as a Participant even if he is not otherwise a Participant (or accrues no benefit) under the Plan because: (A) he has failed to complete the requisite number of hours of service (if any) after becoming a Participant in the Plan, (B) he is excluded from participation in the Plan (or accrues no benefit) merely because his compensation is less than a stated amount, or (C) he is excluded from participation in the Plan (or accrues no benefit) merely because of a failure to make mandatory employee contributions or, if the Plan is a Plan described in Section 401(k) of the Internal Revenue Code, because of a failure to make elective 401(k) contributions. (b) Vesting. For each Plan Year in which the Plan is a Top Heavy Plan and for each Plan Year thereafter, the vested right of each Participant who has an Hour of Service after the Plan becomes a Top Heavy Plan to a percentage of his Accrued Benefit to the extent the Accrued Benefit had not been forfeited prior to the Plan's becoming a Top Heavy Plan shall remain fully vested and nonforfeitable. (c) Top Heavy Limitations. (1) In computing the limitations under Section 3.6 hereof, if the Plan is a Top Heavy Plan and is not a Super Top Heavy Plan, the special rules of Section 416(h) of the Internal Revenue Code shall be applied in accordance with applicable regulations and rulings so that (A) in determining the denominator of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction, at each place at which "1.25" would have been used, "1.00" shall be substituted and (B) in determining the numerator of the transition fraction described in Section 415(e)(6)(B) of the Internal Revenue Code by substituting $41,500 for $51,875, unless the special requirements of Section 416(h)(2) of the Internal Revenue Code have been satisfied. (2) In computing the limitations under Section 3.6 hereof, if the Plan is a Super Top Heavy Plan, the special rules of Section 416(h) of the Code shall be applied in accordance with applicable regulations and rulings so that (A) in determining the denominator of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction, at each place at which "1.25" would have been used, "1.00" shall be substituted and (B) in determining the numerator of the transitional fraction described in Section 415(e)(6)(B) of the Internal Revenue Code $41,500 shall be substituted for $51,875. (d) Transition Rule for a Top Heavy Plan. Notwithstanding the provisions of Section 9.3(c), for each Plan Year in which the Plan is a Top Heavy Plan and in which the Plan does not meet the special requirements of Section 416(h)(2) of the Internal Revenue Code in order to use 1.25 in the denominator of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction, if an Employee was a participant in one or more defined benefit plans and in one or more defined contribution plans maintained by the employer before the plans became Top Heavy Plans and if such Participant's Combined Fraction exceeds 1.00 because of accruals and additions that were made before the plans became Top Heavy Plans, a factor equal to the lesser of 1.25 or such lesser amount (but not less than 1.00) as shall be needed to make the Employee's Combined Fraction equal to 1.00 shall be used in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction if there are no further accruals or annual additions under any Top Heavy Plans until the Participant's Combined Fraction is not greater than 1.00 when a factor of 1.00 is used in the denominators of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction. Any provisions herein to the contrary notwithstanding, if the Plan is a Top Heavy Plan and the Plan does not meet the special requirements of Section 416(h)(2) of the Internal Revenue Code in order to use 1.25 in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction, there shall be no further Annual Additions for a Participant whose Combined Fraction is greater than 1.00 when a factor of 1.00 is used in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction, until such time as the Participant's Combined Fraction is not greater than 1.00. (e) Transition Rule for a Super Top Heavy Plan. Notwithstanding the provisions of Sections 9.3(c) and 9.3(d), for each Plan Year in which the Plan is a Super Top Heavy Plan, (1) if an Employee was a participant in one or more defined benefit plans and in one or more defined contribution plans maintained by the employer before the plans became Super Top Heavy Plans, and (2) if such Participant's Combined Fraction exceeds 1.00 because of accruals and additions that were made before the plans became Super Top Heavy Plans and if immediately before the plans became Super Top Heavy Plans the Combined Fraction as then computed did not exceed 1.00, then a factor equal to the lesser of 1.25 or such lesser amount (but not less than 1.00) as shall be needed to make the Employee's Combined Fraction equal to 1.00 shall be used in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction if there are no further accruals or annual additions under any Super Top Heavy Plans until the Participant's Combined Fraction is not greater than 1.00 when a factor of 1.00 is used in the denominators of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction. Any provisions herein to the contrary notwithstanding, if the Plan is a Super Top Heavy Plan, there shall be no further Annual Additions for a Participant whose Combined Fraction is greater than 1.00 when a factor of 1.00 is used in the denominator of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction until the Participant's Combined Fraction is not greater than 1.00. (f) Terminated Plan. If the Plan becomes a Top Heavy Plan after it has formally been terminated, has ceased crediting for benefit accruals and vesting and has been or is distributing all plan assets to participants and their beneficiaries as soon as administratively feasible or if a terminated plan has distributed all benefits of participants and their beneficiaries, the provisions of Section 11.3 shall not apply to the Plan. (g) Frozen Plans. If the Plan becomes a Top Heavy Plan after contributions have ceased under the Plan but all assets have not been distributed to Participants or their beneficiaries, the provisions of Section 9.3 shall apply to the Plan. SECTION X Miscellaneous Provisions 10.1 Headings. Headings of sections and subsections of the Plan are inserted for convenience of reference and are not part of the Plan and are not to be considered in the construction thereof. 10.2 Indemnification. The Company shall indemnify and hold harmless each member of the Committee, each member of the Board of Directors, each individual Trustee and each and every employee of the Company or of a Commonly Controlled Entity, its Subsidiaries or Affiliates to whom are delegated duties, responsibilities and authority with respect to the Plan and the Trust against all claims, liabilities, fines and penalties and all expenses reasonably incurred by or imposed upon him (including but not limited to reasonable attorney fees) which arise as a result of his actions or failure to act in connection with the operation and administration of the Plan and the Trust to the extent lawfully allowable and to the extent that such claim, liability, fine, penalty or expense is not paid for by liability insurance purchased by or paid for by the Company. Notwithstanding the foregoing, the Company shall not indemnify any person for any such amount incurred through any settlement or compromise of any action unless the Company consents in writing to such settlement or compromise. Expenses incurred in defending a civil or criminal suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized by the Company in the specific case upon receipt of an undertaking by or on behalf of the member of the Committee, member of the Board of Directors, each individual Trustee or employee of the Company or of a Commonly Controlled Entity, its Subsidiary, or Affiliate, to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the Company as authorized in this Section 10.2. 10.3 Employees' Trust. This Plan is created for the exclusive purpose of providing benefits to the Participants in the Plan and their Beneficiaries, and shall be interpreted in a manner consistent with its being a Plan described in Sections 401(a) and 409 of the Internal Revenue Code, Sections 301(d) and 301(e) of the Tax Reduction Act and Section 331 of the Economic Recovery Tax Act, and the Trust exempt under Section 501(a) of the Internal Revenue Code. 10.4 Nonalienation of Benefits. (a) Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, garnish, execute on, levy or otherwise dispose of any right to benefits payable hereunder, shall be void. The Trust Fund shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. The foregoing provisions of this Section 10.4(a) shall not preclude the (1) enforcement of a Federal tax levy made pursuant to Section 6331 of the Internal Revenue Code or (2) collection by the United States on a judgment resulting from an unpaid tax assessment. (b) Notwithstanding Section 10.4(a), the Trustee (1) shall comply with an order entered on or after January 1, 1985 determined by the Plan Administrator to be a Qualified Domestic Relations Order as provided in Section 10.5, (2) shall comply with a domestic relations order entered before January 1, 1985 if benefits are already being paid under such order, and (3) may treat an order entered before January 1, 1985 as a Qualified Domestic Relations Order even if it does not meet the requirements of Section 10.5. 10.5 Qualified Domestic Relations Order. (a) "Qualified Domestic Relations Order" means any judgment, decree, or order (including approval of a property settlement agreement) (1) which is made pursuant to a state domestic relations law (including a community property law), (2) which relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a Participant, (3) which creates or recognizes the existence of an alternate payee's right to or assigns to an alternate payee the right to receive all or a portion of the Participant's Accounts under the Plan, and (4) with respect to which the requirements of paragraphs (b) and (c) are met. (b) A domestic relations order can be a Qualified Domestic Relations Order only if such order clearly specifies (1) the name and the last known mailing address, if any, of the Participant and the name and mailing address of each alternate payee covered by the order; (2) the amount or percentage of the Participant's Accrued Benefit to be paid by the Plan to each such alternate payee, or the manner in which such amount or percentage is to be determined; (3) the number of payments or period to which such order applies; and (4) each Plan Year to which such order applies. (c) A domestic relations order can be a Qualified Domestic Relations Order only if such order does not (1) require the Plan to provide any type or form of benefit, or any option not otherwise provided under the Plan, (2) require the Plan to provide increased benefits (determined on the basis of actuarial value), or (3) require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a Qualified Domestic Relations Order. If so ordered under a Qualified Domestic Relations Order, a distribution shall be made of shares of Company Stock held in the Participant's Unmatched Employer Contribution Account, Employer Matching Contribution Account, Participant Contribution Account and PAYSOP Employer Contribution Account for less than 84 months following the month in which such shares were allocated to his Accounts. (d) In the case of any payment before a Participant has had a Termination of Service, a domestic relations order shall not be treated as failing to meet the requirements of Section 10.5(c)(1) solely because such order requires that payment of benefits be made to an alternate payee (1) (A) Effective for periods before January 1, 1993 on or after the date on which the Participant attains (or would have attained) the age which is ten years before the Normal Retirement Date under the Plan, and (B) Effective for periods on or after January 1, 1993, without regard to the Participant's attainment of any specified age; provided that until an IRS determination letter is received stating that the Plan as amended by this provision is qualified, no common stock of the Company which has been held in a Participant's Account for less than 84 months shall be distributed pursuant to a QDRO to an alternate payee with respect to a Participant who is both under age 50 and not otherwise eligible to receive a distribution under the Plan. (2) as if the Participant had retired on the date on which such payment is to begin under such order, and (3) in any form in which such benefits may be paid under the Plan to the Participant. (e) To the extent provided in a Qualified Domestic Relations Order, the former spouse of a Participant shall be treated as the surviving spouse of such Participant for the purposes of Section 5.3. 10.6 Exception to Distribution Limitation Period. Notwithstanding any other provision of the Plan regarding limitations on the period of distribution of Trust Fund assets, the distribution limitation period restrictions imposed by Internal Revenue Code Section 409(d) with respect to distribution of Trust Fund assets from a Participant's Account shall not apply to assets which have been allocated to a Participant's Account in the event of: (a) a transfer of the Participant to the employment of an acquiring employer from the employment of an Employer upon the sale by the Employer to the acquiring employer of (i) substantially all of the assets used by the Employer in a trade or business conducted by the Employer; or (ii) the sale of substantially all of the stock of a subsidiary of the Employer; or (b) with respect to the stock of the Employer, a disposition of the Employer's interest in a subsidiary where the Participant continues employment with such subsidiary. 10.7 Unclaimed Amounts. (a) Effective for periods before January 1, 1990, unclaimed amounts shall consist of the amounts of the Accounts of a retired, deceased or terminated Participant which are not distributed because of the Committee's inability, after a reasonable search, to locate a Participant or his Beneficiary within a period of two years after the payment of benefits becomes due. Subject to Section 4.8, unclaimed amounts for a Plan Year shall be allocated as provided in Section 3.3(d) as Additional Employer Contributions for the Plan Year in which such two-year period shall end. If an Unclaimed Amount is subsequently properly claimed by the Participant or the Participant's Beneficiary, said amount shall be paid to such Participant or Beneficiary by treating such amount as an expense of all Participants' Additional Employer Contribution Accounts during the Plan Year in which the Participant or Beneficiary makes such claim, unless the Company in its discretion makes a contribution to the Plan for such Plan Year in an amount sufficient to pay such amount. (b) Effective for periods on or after January 1, 1990, unclaimed amounts shall consist of the amounts of the Accounts of a retired, deceased or terminated Participant which are not distributed because of the Committee's inability, after a reasonable search, to locate a Participant or his Beneficiary within a period of two years after the payment of benefits becomes due. As of the last day of the Plan Year in which such two-year period shall end, and as of the last day of each succeeding Plan Year in which there remain any Unclaimed Amounts, each Account which contains Unclaimed Amounts shall be reduced by an amount ("Forfeiture"), as determined hereinafter, which Forfeiture shall be applied (i) to restore any prior years' Forfeitures of Unclaimed Amounts which are properly claimed by a Participant or by a Participant's Beneficiary during such Plan Year and (ii) to pay any expenses of the Plan or Trust incurred during such Plan Year. The total amount of Forfeitures from Unclaimed Amounts for each Plan Year shall be equal to the sum of (A) prior years' Forfeitures from Unclaimed Amounts which are properly claimed by a Participant or by a Participant's Beneficiary during such Plan Year and are not paid from contributions made to the Plan by the Company for such Plan Year and (B) expenses of the Plan incurred during such Plan Year that are not paid by the Company. Forfeitures for each Plan Year shall come first from those Unclaimed Amounts which have remained in the Trust for the greatest period of time since first becoming Unclaimed Amounts, and thereafter from Unclaimed Amounts in descending order of maturity. If a Forfeiture of Unclaimed Amounts is subsequently properly claimed by the Participant or the Participant's Beneficiary, said amount shall be paid to the Participant or Beneficiary from Forfeitures for the Plan Year in which the Participant or Beneficiary makes such claim, as provided in this Section 10.7, or, to the extent such current year's Forfeitures are not sufficient, from contributions made to the Plan by the Company for such purpose. Subject to receipt of a favorable determination by the Internal Revenue Service that the application of Forfeitures pursuant to the provisions of this sentence will not adversely affect the qualification of the Plan as a tax credit employee stock ownership plan within the meaning of Section 409(a) of the Internal Revenue Code or, alternatively, that the Plan, as amended to provide for the application of Forfeitures pursuant to the provisions of this sentence, continues to qualify as a tax credit employee stock ownership plan within the meaning of Section 409(i) of the Internal Revenue Code, Forfeitures of Unclaimed Amounts may be applied to the payment of Plan expenses pursuant to this Section 10.7 without regard to the limitations on reimbursement for expenses prescribed by Section 409(i) of the Internal Revenue Code. 10.8 Invalidity of Certain Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and this Plan shall be construed and enforced as if such provisions had not been included. 10.9 Gender and Number. Except when otherwise indicated by the context, any masculine terminology herein shall also include the feminine and the singular shall also include the plural. 10.10 Law Governing. This Plan and Trust shall be construed and enforced according to the laws of the State of Illinois other than its laws respecting choice of law, to the extent not preempted by ERISA. Executed in multiple originals this 21st day of November, 1994. McDONALD'S CORPORATION By: /s/ Stanley R. Stein ---------------------------- Its: Senior Vice President EX-10 7 MATERIAL CONTRACT - DEFERRED INCENTIVE PLAN Exhibit 10(g) McDONALD'S CORPORATION DEFERRED INCENTIVE PLAN (As Amended and Restated Effective as of September 1, 1994) Section 1 Introduction 1.1 The Plan and Its Effective Date. The McDonald's Corporation Deferred Incentive Plan ("Plan") was established November 1, 1993. The effective date of the amendment and restatement of the Plan as set forth herein is September 1, 1994. 1.2 Purpose. McDonald's Corporation ("McDonald's" or the "Company") has established the Plan for its officers, regional managers, and certain expatriate international country heads to retain and attract highly qualified personnel by offering the benefits of a non-qualified, unfunded plan of deferred compensation. The Company may also allow other subsidiaries or affiliates to adopt the Plan in accordance with Section 7. 1.3 Administration. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee shall have the powers set forth in the Plan and the power to interpret its provisions. Any decisions of the Committee shall be final and binding on all persons with regard to the Plan. The Committee may delegate its authority hereunder to an officer or officers of the Company. Section 2 Participation and Deferral Elections 2.1 Eligibility and Participation. Subject to the conditions and limitations of the Plan, all officers and regional managers of the Company and international country heads who are on United States payroll and who are identified as eligible by the Committee shall be eligible to participate in the Plan ("Eligible Employees"). Any Eligible Employee who makes a Deferral Election as described in Section 2.2 below shall become a participant in the Plan ("Participant") and shall remain a Participant until the entire balance of the Participant's Deferral Accounts (defined in Section 4.1 below) is distributed. 2.2 Deferral Elections. Any Eligible Employee may make a Deferral Election to defer receipt of all or any portion of his or her incentive under the McDonald's Target Incentive Plan ("TIP") for a calendar year. Any Eligible Employee who is one of the five highest compensated officers of the Company (ranked by the total of base pay and the target incentive under TIP for the current year) may also elect to defer up to 50% of his or her base salary for the following calendar year. 2.3 Rules for Deferral Elections. Deferral Elections shall be made in accordance with the rules set forth below: (a) All Deferral Elections must be in writing on such forms as the Committee may prescribe and must be returned to the Committee no later than the date specified by the Committee. In no event will the return date specified by the Committee be later than the end of the year that precedes the year that the amount being deferred is made available to such Eligible Employee. (b) An individual shall be eligible to make a Deferral Election only if he or she is an Eligible Employee on the date specified by the Committee for the return of Deferral Election forms. (c) If an Eligible Employee terminates employment in the same calendar year in which he or she makes a Deferral Election, that Deferral Election will be null and void and no deferral will be made. (d) Amounts will be deferred to the "Payment Date" specified by the Eligible Employee in the Deferral Election and payments will commence within 30 days following the Payment Date in accordance with Section 5.1. The Payment Date specified must be no earlier than the calendar year following the year in which the deferred amounts would otherwise have been paid and must be either: (i) March 31 or September 30 of a specified year in the future (the "Specific Year Payment Date") or (ii) the March 31 following the year in which the Participant terminates employment (the "Employment Termination Payment Date"). If a Participant terminates employment and has one or more Specific Year Payment Dates that would occur after the Employment Termination Payment Date, all amounts deferred to those Specific Year Payment Date(s) shall automatically be accelerated to the Employment Termination Payment Date. Participant McDESOP Equalization Amounts and Company Profit Sharing Equalization Credits described in Section 3 shall be deferred to the Participant's Employment Termination Payment Date, even though a Participant has elected a Specific Year Payment Date for the remainder of his or her deferral. Deferral elections made in 1993 specified either a January 31 or July 31 payment date. Due to a change in accounting procedures, these payment dates will be converted to March 31 and September 30, respectively. (e) Each Deferral Election shall specify how amounts deferred pursuant to that election are to be invested under Section 4.2. Section 3 Equalization for McDonald's Corporation Profit Sharing Program 3.1 Equalization to Adjust for Participant 401(k) McDESOP Contributions. Amounts deferred under this Plan are not considered compensation for the McDonald's Corporation Profit Sharing Program (the "Profit Sharing Program") or for the related non-qualified plans: the McDonald's 1989 Executive Compensation Plan, the McDonald's Supplemental Employee Benefit Equalization Plan and the McDonald's Profit Sharing Program Equalization Plan (the "McCAP/McEqual Plans"). The McDESOP portion of the Profit Sharing Program allows participants to contribute a percentage of their compensation as Section 401(k) contributions. Therefore, Eligible Employees who are Profit Sharing Program participants and make Deferral Elections under this Plan shall automatically have a portion of the amount deferred set aside until the Participant's Termination Payment Date to adjust for the fact McDESOP Section 401(k) contributions cannot be made to the Profit Sharing Program or the related non-qualified plans for deferred amounts (the "Participant McDESOP Equalization Amount"). The Participant McDESOP Equalization Amount shall be based on the amount that would have been contributed by the Participant under the McDESOP portion of the Profit Sharing Program and the related non-qualified plans if the deferral had not occurred. 3.2 Company Profit Sharing Equalization Credits. Amounts deferred under this Plan are not considered as compensation under the Profit Sharing Program or the McCAP/McEqual Plans. Therefore, amounts deferred under this Plan shall be credited with an amount equal to the Company contribution that the Participant would have received under the Profit Sharing Program and/or McCAP/McEqual Plans if such deferral had not occurred ("Company Profit Sharing Equalization Credit"). If a Participant is not eligible to participate in the Profit Sharing Program or McCAP/McEqual Plans, or is not eligible to receive a Company contribution under such plans with respect to a deferred amount, no Company Profit Sharing Equalization Credit will be made. 3.3 Rules for Profit Sharing Equalization Amounts. Equalizations amounts under Sections 3.1 and 3.2 above (collectively referred to as "Equalization Amounts") shall be deferred until the Participant's Employment Termination Payment Date and cannot be withdrawn under Section 5.3. Equalization Amounts will become part of the Participant's Deferral Account for the year to which they relate and will be credited with earnings as part of that Deferral Account as described in Section 4.1. Section 4 Deferral Accounts 4.1 Deferral Accounts. A bookkeeping account shall be established in the Participant's name for each year for which a Participant files a Deferral Election.("Deferral Account"). Each year's deferral account may be further divided into: (a) amounts deferred pursuant to that year's Deferral Election and earnings thereon, (b) Company Profit Sharing Equalization Credits associated with that year's Deferral Election and earnings thereon; and (c) Participant 401(k) McDESOP Equalization amounts associated with that year's Deferral Election and earnings thereon. The Equalization Amounts described in Section 4.1(b) and (c) above shall not be eligible for early withdrawal under Section 5.3. The Committee may also authorize other divisions or subaccounts of the deferral accounts as may be necessary to reflect the terms of the plan as amended from time to time. Amounts deferred pursuant to a Deferral Election shall be credited to the Deferral Account as of the end of the month in which, in the absence of a Deferral Election, the Participant would otherwise have received the deferred amounts. Any Equalization Amounts shall be credited to the Deferral Account as of the end of the month in which the amount would have been allocated under the Profit Sharing Program or the McCAP/McEqual Plans if the deferral had not occurred. 4.2 Investment Elections and Earnings Credits. (a) When a Participant makes a Deferral Election, he or she shall also elect whether amounts credited to his or her Deferral Account for that year shall be credited with one of the following rates of return: (i) a rate of return based upon the McDonald's Common Stock Fund under the Profit Sharing Program, after adjustment for expenses ("McDonald's Common Stock" equivalent); (ii) a rate of return based upon the Insurance Contract Fund under the Profit Sharing Program, after adjustment for expenses ("Insurance Contract" equivalent); (iii)a rate of return based upon the Diversified Stock Fund under the Profit Sharing Program, after adjustment for expenses ("Diversified Stock" equivalent); or (iv) a rate of return based upon the Multi-Asset Fund under the Profit Sharing Program, after adjustment for expenses ("Multi-Asset" equivalent). If a Participant fails to make an investment election with respect to a Deferral Election, the amount deferred by that election shall be credited with the Insurance Contract based return. The rates of return described above shall be effective as of January 1, 1995. Effective January 1, 1995, participants shall be permitted to elect to change the rate of return credited to each year's Deferral Account on a prospective basis as of any January 1, April 1, July 1, and October 1 by filing an advance written request with the Committee at such time as the Committee may specify. (b) As of each March 31, June 30, September 30, and December 31 ("Valuation Date"), each Deferral Account shall be credited with earnings, gains and losses equal to the amount the Deferral Account would have earned, gained or lost, compounded on a monthly basis, since the prior Valuation Date. The Committee, in its discretion, may also request a special Valutation Date as of the end of any month. 4.3 Vesting. A Participant shall be fully vested at all times in the balance of his or her Deferral Account. Section 5 Payment of Benefits 5.1 Time and Method of Payment. Payments to a Participant, or the Participant's beneficiary if the Participant is deceased, shall automatically be paid in a lump sum within 30 days following the Payment Date, unless the Participant or the Participant's beneficiary files a written installment distribution election on or before December 31 of the calendar year preceding the Payment Date. An installment distribution election shall apply to all payments for that Payment Date and shall specify the period of years (up to a maximum of 15 years) over which payments are to be made. Installment payments shall be made in substantially equal installments over the installment period specified and shall commence within 30 days after the Payment Date. Each installment payment shall be computed by dividing the balance of the Deferral Account(s) that is to be paid in installments by the number of years remaining in the installment period. Once an installment election is filed for a payment date, it cannot be revoked. However, because the method of payment described above is more flexible, Deferral Elections made in 1993 which specified a five year installment payment shall be null and void, and shall be paid in a lump sum, unless the Participant or the Participant's beneficiary files a written installment election prior to December 31 of the calendar year preceding the Payment Date. 5.2 Form of Payment. All payments shall be made in cash. However, a Participant who has elected a McDonald's Common Stock based return may elect to receive payment in the form of shares of McDonald's Common Stock by filing a written request with the Committee prior to December 31 of the calendar year preceding the Payment Date. 5.3 Early Withdrawals and Acceleration of Installment Payments. A Participant shall have the right to withdraw in cash any portion of the balance of his or her Deferral Accounts (except for the Equalization Amounts of the Participant's Deferral Accounts under Sections 4.1(b) and (c) and amounts which were not withdrawable under the terms of the Plan prior to September 1, 1994) at any time prior to the applicable Payment Date, subject to the Committee's consent and a 10% forfeiture penalty on the amount requested. A Participant who is receiving installment payments may accelerate payment of any unpaid amount, subject to the Committee's consent and 10% forfeiture penalty on the amount accelerated. The withdrawal or accelerated installment (reduced by the 10% forfeiture penalty) shall be paid within 30 days of the March 31 or September 30 next following the date the election to withdraw or accelerate payments is approved by the Committee. Withdrawals and accelerated installments shall be made first from the earliest maturing Deferral Account and shall be taken pro rata from the investments in each year's Deferral Account based on the account balance of each investment to the total account balance for the applicable Payment Date. Withdrawals shall be subject to such procedures as the Committee shall establish from time to time. 5.4 Withholding of Taxes. The Company shall withhold any applicable Federal, state or local income tax from payments due under the Plan. Any Social Security taxes, including the Medicare portion of such taxes, shall be withheld and paid at the time incentive under the Target Incentive Plan or base salary would otherwise have been paid to the Participant. The Company shall also withhold any other employment taxes as necessary to comply with applicable laws. 5.5 Limitations For Section 16 Insiders. A "Section 16 Insider" shall include any Participant who has been deemed to be subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") by the Board of Directors of the Company. Notwithstanding any provision of the Plan to the contrary, the Deferral Account of each Section 16 Insider is subject to the following limitations: (a) An Eligible Employee who is a Section 16 Insider at the time he or she makes a Deferral Election may elect a McDonald's Common Stock based return and at the same time must also specify whether the payment will be in a lump sum or the specific installment period that will apply. The election of a McDonald's Common Stock based return is irrevocable and cannot be changed at the quarterly investment change dates nor at any other time. A Participant who is a Section 16 Insider may not make a withdrawal or accelerate installments under Section 5.3 of any Deferral Account(s) that are credited with a McDonald's Common Stock based return. Insiders who elected a McDonald's Common Stock based return and a five year installment in 1993 will not be able to change that election. (b) All amounts distributed to a Section 16 Insider shall be paid only in cash. However, to the extent that a former Section 16 Insider uses the distribution to purchase shares of McDonald's Common Stock on the open market in one or more transactions within seven months after the date such amounts are distributed, the Company shall reimburse the former Section 16 Insider for all reasonable brokerage fees and other transaction costs incurred in connection with such purchases upon presentation of satisfactory evidence thereof not later than 60 days after the date of each transaction. (c) If any Participant becomes a Section 16 Insider after making a Deferral Election under the Plan, any Deferral Account that is being credited with a McDonald's Common Stock based return shall automatically be converted to any non- McDonald's Common Stock based investment return specified by the Participant as of the Valuation Date immediately preceding the date the Participant is designated a Section 16 Insider by the Board of Directors. This automatic change to non-McDonald's Common Stock based returns will be made to preserve the Participant's right to early withdrawals and accelerated installments under Section 5.3 for such amounts. In addition, the Committee may take such other actions as are necessary so that transactions by Section 16 Insiders do not result in liability under Section 16(b) of the Exchange Act. 5.6 Beneficiary. A Participant shall have the right to name a beneficiary or beneficiaries who shall receive the balance of a Participant's Deferral Account in the event of the Participant's death prior to the payment of his or her entire Deferral Account. If no beneficiary is named by a Participant or if he or she survives all of the named beneficiaries, the Deferral Account shall be paid to the same beneficiary or beneficiaries to which the Deferral Account would have been paid if it were in the Participant's Profit Sharing Fund Account under the Profit Sharing Program as of the date of the Participant's death. To be effective, any beneficiary designation shall be filed in writing with the Committee. A Participant may revoke an existing beneficiary designation by filing another written beneficiary designation with the Committee. The latest beneficiary designation received by the Committee shall be controlling. Section 6 Miscellaneous 6.1 Funding. Benefits payable under the Plan to any Participant shall be paid directly by the Company. The Company shall not be required to fund, or otherwise segregate assets to be used for payment of benefits under the Plan. While the Company may, in the discretion of the Committee, make investments (a) in shares of McDonald's Common Stock through open market purchases or (b) in other investments in amounts equal or unequal to amounts payable hereunder, the Company shall not be under any obligation to make such investments and any such investment shall remain an asset of the Company subject to the claims of its general creditors. Notwithstanding the foregoing, the Company may maintain one or more trusts ("Trust") to hold assets to be used for payment of benefits under the Plan. Any payments by a Trust of benefits provided to a Participant under the Plan shall be considered payment by the Company and shall discharge the Company of any further liability under the Plan for such payments. 6.2 Account Statements. The Company shall provide Participants with annual statements of the balance of their Deferral Accounts hereunder as of the latest applicable Valuation Date. 6.3 Employment Rights. Establishment of the Plan shall not be construed to give any Eligible Employee the right to be retained in the Company's service or to any benefits not specifically provided by the Plan. 6.4 Interests Not Transferable. Except as to withholding of any tax under the laws of the United States or any state or locality and the provisions of Section 5.6, no benefit payable at any time under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, or other legal process, or encumbrance of any kind. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefits, whether currently or thereafter payable, shall be void. No person shall, in any manner, be liable for or subject to the debts or liabilities of any person entitled to such benefits. If any person shall attempt to, or shall alienate, sell, transfer, assign, pledge or otherwise encumber benefits under the Plan, or if by any reason of the Participant's bankruptcy or other event happening at any time, such benefits would devolve upon any other person or would not be enjoyed by the person entitled thereto under the Plan, then the Company, in its discretion, may terminate the interest in any such benefits of the person entitled thereto under the Plan and hold or apply them to or for the benefit of such person entitled thereto under the Plan or such individual's spouse, children or other dependents, or any of them, in such manner as the Company may deem proper. 6.5 Forfeitures and Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of the Deferral Accounts of a Participant that cannot be distributed because of the Committee's inability, after a reasonable search, to locate a Participant or the Participant's beneficiary, as applicable, within a period of two (2) years after the Payment Date upon which the payment of benefits become due. Unclaimed amounts shall be forfeited at the end of such two-year period. Penalties charged for withdrawals under Section 5.3 shall also be forfeited in the year in which the penalty is charged. These forfeitures will reduce the obligations of the Company under the Plan. After an unclaimed amount has been forfeited, the Participant or beneficiary, as applicable, shall have no further right to the Participant's Deferral Account. 6.6 Controlling Law. The law of Illinois, except its law with respect to choice of law, shall be controlling in all matters relating to the Plan to the extent not preempted by ERISA. 6.7 Action by the Company. Except as otherwise specifically provided herein, any action required of or permitted by the Company under the Plan shall be by resolution of the Board of Directors of the Company or by action of any member of the Committee or person(s) authorized by resolution of the Board of Directors of the Company. Section 7 Employer Participation 7.1 Adoption of Plan. Any subsidiary or affiliate of the Company ("Employer") may, with the approval of the Committee and under such terms and conditions as the Committee may prescribe, adopt the corresponding portions of the Plan by resolution of its board of directors. The Committee may amend the Plan as necessary or desirable to reflect the adoption of the Plan by an Employer, provided however, that an adopting Employer shall not have the authority to amend or terminate the Plan under Section 8. 7.2 Withdrawal from the Plan by Employer. Any such Employer shall have the right, at any time, upon the approval of and under such conditions as may be provided by the Committee, to withdraw from the Plan by delivering to the Committee written notice of its election so to withdraw. Upon receipt of such notice by the Committee, the portion of the Deferral Accounts of Participants and beneficiaries attributable to credits made while the Participants were employees of such withdrawing Employer, plus any net earnings, gains and losses or such credits, shall be distributed from the Trust at the direction of the Committee in cash at such time or times as the Committee, in its sole discretion, may deem to be in the best interest of such employees and their beneficiaries. To the extent the amounts held in the Trust for the benefit of such Participants and beneficiaries are not sufficient to satisfy the Employer's obligation to such Participants and their beneficiaries accrued on account of their employment with the Employer, the remaining amount necessary to satisfy such obligation shall be an obligation of the Employer, and the Company shall have no further obligation to such Participants and beneficiaries with respect to such amounts. Section 8 Amendment and Termination The Company intends the Plan to be permanent, but reserves the right at any time by action of its Board of Directors or by the Committee (in accordance with the restrictions in the following sentence) to modify, amend or terminate the Plan, provided however, that any amendment or termination of the Plan shall not reduce or eliminate any Deferral Account accrued through the date of such amendment or termination. The Committee shall have the same authority to adopt amendments to the Plan as the Board of Directors of the Company in the following circumstances: (a) to adopt amendments to the Plan which the Committee determines are necessary or desirable for the Plan to comply with or to obtain benefits or advantages under the provisions of applicable law, regulations or rulings or requirements of the Internal Revenue Service or other governmental or administrative agency or changes in such law, regulations, rulings or requirements; and (b) to adopt any other procedural or cosmetic amendment that the Committee determines to be necessary or desirable that does not materially change benefits to Participants or their beneficiaries or materially increase the Company's or adopting Employers' credits to the Plan. The Committee shall provide notice of amendments adopted by the Committee to the Board of Directors of the Company on a timely basis. Executed in multiple originals this 9th day of September, 1994. McDONALD'S CORPORATION /s/ Stanley R. Stein -------------------------------------- By: Stanley R. Stein Title: Senior Vice President EX-11 8 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 McDONALD'S CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (Dollars and shares in millions, except per common share data)
Year ended December 31, 1994 1993 1992 ---- ---- ---- Net Income $1,224.4 $1,082.5 $958.6 Preferred stock dividends (net of tax benefits of $3.7 for 1994, $4.1 for 1993 and $6.4 for 1992) (47.2) (46.9) (14.7) -------- -------- -------- Net income available after preferred stock dividends (A) 1,177.2 1,035.6 943.9 Common stock dividends on assumed conversion of preferred stock 1.2 1.2 1.8 -------- -------- -------- Net income available to common shareholders $1,178.4 $1,036.8 $945.7 ======== ======== ======== Weighted average number of common shares outstanding during the period (A) 701.8 711.8 726.5 Additional shares related to potentially dilutive securities 20.5 21.6 21.4 -------- -------- -------- Adjusted weighted average common shares 722.3 733.4 747.9 ======== ======== ======== Fully diluted net income per common share $1.63 $1.41 $1.26 ======== ======== ======== --------------------- (A) Refer to Consolidated statement of income and Financial comments on pages 33 and 53 from Part II, item 8 of this 1994 10-K for information concerning the computation of Net income per common share. /TABLE EX-12 9 COMPUTATION OF RATIOS Exhibit 12 McDONALD'S CORPORATION STATEMENT RE COMPUTATION OF RATIOS (Dollars in Millions)
Year Ended December 31, 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- EARNINGS AVAILABLE FOR FIXED CHARGES - Income before provision for income taxes $1,886.6 $1,675.7 $1,448.1 $1,299.4 $1,246.3 - Minority interest in operating results of majority-owned subsidiaries, less equity in undistributed operating results of less-than-50% owned affiliates 6.6 6.9 5.3 5.1 0.6 - Provision for income taxes of 50% owned affiliates included in consolidated income before provision for income taxes 34.9 34.2 29.4 34.1 28.8 - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* 83.4 71.6 70.1 67.9 59.0 - Interest expense, amortization of debt discount and issuance costs, and depreciation of capitalized interest* 346.0 358.0 413.8 433.9 411.9 -------------------------------------------------------------- $2,357.5 $2,146.4 $1,966.7 $1,840.4 $1,746.6 ============================================================== FIXED CHARGES - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* $83.4 $71.6 $70.1 $67.9 $59.0 - Interest expense and amortization of debt discount and issuance costs* 343.9 349.3 405.4 425.7 403.4 - Capitalized interest* 21.0 20.7 20.5 28.5 38.9 -------------------------------------------------------------- $448.3 $441.6 $496.0 $522.1 $501.3 ============================================================== RATIO OF EARNINGS TO FIXED CHARGES 5.26 4.86 3.96 3.53 3.48 ============================================================== *Includes amounts of the Registrant and its majority-owned subsidiaries, and one-half of the amounts of 50% owned affiliates. /TABLE EX-21 10 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 MCDONALD'S CORPORATION SUBSIDIARIES OF THE REGISTRANT NAME OF SUBSIDIARY (STATE OR COUNTRY OF INCORPORATION) DOMESTIC SUBSIDIARIES McDonald's Australian Property Corporation (Delaware) McDonald's Deutschland, Inc. (Delaware) McDonald's Restaurant Operations, Inc. (Delaware) McDonald's Property Company Limited (Delaware) McDonald's System of France, Inc. (Delaware) FOREIGN SUBSIDIARIES McDonald's Restaurants of Canada Limited (Canada) McDonald's Australia Limited (Australia) McDonald's Properties (Australia) Pty., Ltd. (Australia) McDonald's Immobilien GmbH (Germany) McDonald's GmbH (Germany) McDonald's Restaurants Limited (England) McDonald's France, S.A. (France) McDonald's Restaurants Limited (Hong Kong) McDonald's Nederland B.V. (Netherlands) McDonald's Restaurants Co., Ltd. (Taiwan) Restco Comercio de Alimentos Ltda. (Brazil-Sao Paulo) Realco Comercio de Alimentos Ltda. (Brazil-Rio de Janeiro) _______________________ The names of certain subsidiaries have been omitted as follows: (a) 47 wholly-owned subsidiaries of the Company, each of which operates one or more McDonald's restaurants within the United States. (b) Additional subsidiaries, including some foreign, other than those mentioned in (a), because considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. EX-23 11 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of McDonald's Corporation and in the related prospectuses of our report dated January 26, 1995, with respect to the consolidated financial statements of McDonald's Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1994: Commission File No. ------------------------------------------ Form S-8 Form S-3 ------------------------------------------ 33-09267 33-00001 33-24958 33-40194 33-49817 33-42642 33-50701 33-50025 33-58840 33-50695 ERNST & YOUNG LLP Chicago, Illinois March 29, 1995 EX-27 12 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 180 0 379 0 51 741 15,185 3,856 13,592 2,451 2,935 92 0 674 8,563 13,592 5,793 8,321 4,645 5,081 999 0 306 1,887 662 1,224 0 0 0 1,224 1.68 0