-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GFfAb/uSkUhXjKdDz9wMjSC794T8y2lLdUzIXCeR8kQdxZZc0ySBwcyZ2yKCFZ8/ lXbYA+7lSNcKub6aBXV7Ww== 0000063908-96-000016.txt : 19960329 0000063908-96-000016.hdr.sgml : 19960329 ACCESSION NUMBER: 0000063908-96-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDONALDS CORP CENTRAL INDEX KEY: 0000063908 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 362361282 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05231 FILM NUMBER: 96540100 BUSINESS ADDRESS: STREET 1: ONE MCDONALD'S PLZ CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085753000 10-K 1 MCDONALD'S 1995 10-K 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, 1995 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 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% Debentures due 2033 New York Stock Exchange 8.35% Subordinated Deferrable Interest Debentures due 2025 New York Stock Exchange 6-5/8% Notes due 2005 New York Stock Exchange 7.05% Debentures due 2025 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. /X/ The aggregate market value of voting stock held by nonaffiliates of the registrant is $35,081,751,496 and the number of shares of common stock outstanding is 700,433,950 as of January 31, 1996. 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, 1995. 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 1995, 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, 1995, 1994 and 1993 is included in Part II, item 8, page 44 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 is designed to assure 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, 1995, 1994 and 1993 in Part II, item 7, pages 27 through 30, and Part II, item 8, page 36 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 395,000 restaurants generate nearly $240 billion in annual sales. McDonald's accounts for about 2.9% of those restaurants and approximately 6.6% 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 1995, there were no material capital expenditures for environmental control facilities and no such material expenditures are anticipated. Number of employees During 1995, the Company's average number of employees worldwide, including company-operated restaurant employees, was approximately 212,000. (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 30 and Part II, item 8, page 44, 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 30 and Part II, item 8, pages 35, 36, 38, 39, 40, 43, 50 and 51, 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, 1996 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 1996 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 32 2 James R. Cantalupo President and 11/14/43 21 4 Chief Executive Officer-International Winston B. Christiansen Executive Vice President 07/31/47 25 0 Thomas S. Dentice Executive Vice President 01/12/39 30 11 Robert J. Doran Executive Vice President 07/17/46 29 0 USA Patrick J. Flynn Executive Vice President 05/01/42 34 8 Thomas W. Glasgow, Jr. Executive Vice President, 02/17/47 27 4 Chief Operations Officer Jack M. Greenberg Vice Chairman, Chief 09/28/42 14 4 Financial Officer Michael R. Quinlan Chairman, Chief 12/09/44 32 6 Executive Officer Edward H. Rensi President and Chief 08/15/44 30 4 Executive Officer-U.S.A. Paul D. Schrage Senior Executive Vice 02/25/35 28 11 President, Chief Marketing Officer James A. Skinner Executive Vice President 10/25/44 25 0 International Fred L. Turner Senior Chairman 01/06/33 39 6 Shelby Yastrow Executive Vice President 11/03/35 18 0 /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 1995 1994 ------------------------------------------------------------------------- Dividend Per Dividend Per High Low Common Share High Low Common Share ------------------------------------------------------------------------- First 35 3/4 28 5/8 .0600 31 1/4 27 1/4 .0538 Second 39 1/4 33 3/4 .0675 31 3/8 27 5/8 .0600 Third 41 1/2 35 7/8 .0675 29 3/4 25 5/8 .0600 Fourth 48 37 3/4 .0675 29 7/8 25 7/8 .0600 ------------------------------------------------------------------------- Year 48 28 5/8 .2625 31 3/8 25 5/8 .2338 ------------------------------------------------------------------------- The approximate number of shareholders of record and beneficial owners of the Company's common stock as of January 31, 1996 was estimated to be 798,500. 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 80 consecutive quarterly dividends on common stock through March 29, 1996, has increased the per share amount 21 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) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 - ------------------------------------------------------------------------------------------------------------------------------ Systemwide sales $29,914 25,987 23,587 21,885 19,928 18,759 17,333 16,064 14,330 12,432 11,001 U.S. $15,905 14,941 14,186 13,243 12,519 12,252 12,012 11,380 10,576 9,534 8,843 Outside of the U.S. $14,009 11,046 9,401 8,642 7,409 6,507 5,321 4,684 3,754 2,898 2,158 Systemwide sales by type Operated by franchisees $19,123 17,146 15,756 14,474 12,959 12,017 11,219 10,424 9,452 8,422 7,612 Operated by the Company $ 6,863 5,793 5,157 5,103 4,908 5,019 4,601 4,196 3,667 3,106 2,770 Operated by affiliates $ 3,928 3,048 2,674 2,308 2,061 1,723 1,513 1,444 1,211 904 619 Average sales by Systemwide restaurants open at least one year, in thousands $ 1,844 1,800 1,768 1,733 1,658 1,649 1,621 1,596 1,502 1,369 1,296 Revenues from franchised restaurants $ 2,931 2,528 2,251 2,031 1,787 1,621 1,465 1,325 1,186 1,037 924 Total revenues $ 9,795 8,321 7,408 7,133 6,695 6,640 6,066 5,521 4,853 4,143 3,694 Operating income $ 2,601 2,241 1,984 1,862 1,679 1,596 1,438 1,288 1,160 983 905 Income before provision for income taxes $ 2,169 1,887 1,676 1,448 1,299 1,246 1,157 1,046 959 848 782 Net income $ 1,427 1,224 1,083 959 860 802 727 646 549 * 480 433 Cash provided by operations $ 2,296 1,926 1,680 1,426 1,423 1,301 1,246 1,177 1,051 852 813 Financial position at year end Net property and equipment $12,811 11,328 10,081 9,597 9,559 9,047 7,758 6,800 5,820 4,878 4,164 Total assets $15,415 13,592 12,035 11,681 11,349 10,668 9,175 8,159 6,982 5,969 5,043 Total debt $ 4,836 4,351 3,713 3,857 4,615 4,792 4,036 3,269 2,784 2,321 1,768 Total shareholders' equity $ 7,861 6,885 6,274 5,892 4,835 4,182 3,550 3,413 2,917 2,506 2,245 Per common share Net income $ 1.97 1.68 1.45 1.30 1.17 1.10 .97 .86 .72 * .62 .55 Dividends declared $ .26 .23 .21 .20 .18 .17 .15 .14 .12 .11 .10 Total shareholders' equity at year end $ 10.72 9.20 8.12 7.39 6.73 5.82 4.90 4.55 3.86 3.22 2.84 Market price at year end $45 1/8 29 1/4 28 1/2 24 3/8 19 14 1/2 17 1/4 12 11 10 1/8 9 Restaurants at year end Systemwide Restaurants 18,380 15,950 14,163 13,093 12,418 11,803 11,162 10,513 9,911 9,410 8,901 U.S. 11,368 10,238 9,397 8,959 8,764 8,576 8,270 7,907 7,567 7,272 6,972 Outside of the U.S. 7,012 5,712 4,766 4,134 3,654 3,227 2,892 2,606 2,344 2,138 1,929 Traditional Restaurants 16,809 15,205 13,993 13,093 12,418 11,803 11,162 10,513 9,911 9,410 8,901 Operated by franchisees 11,240 10,458 9,832 9,237 8,735 8,131 7,573 7,110 6,760 6,406 6,150 Operated by the Company 3,513 3,083 2,699 2,551 2,547 2,643 2,691 2,600 2,399 2,301 2,165 Operated by affiliates 2,056 1,664 1,462 1,305 1,136 1,029 898 803 752 703 586 U.S. 10,341 9,744 9,283 8,959 8,764 8,576 8,270 7,907 7,567 7,272 6,972 Outside of the U.S. 6,468 5,461 4,710 4,134 3,654 3,227 2,892 2,606 2,344 2,138 1,929 Number of countries at year end 89 79 70 65 59 53 51 50 47 46 42 * Before the cumulative prior years' benefit from the change in accounting for income taxes. /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, 1995 1994 except per common share data) Amount % Amount % ----------------------------------------------------------------------- SYSTEMWIDE SALES $3,927 15 $2,401 10 ----------------------------------------------------------------------- REVENUES Sales by company-operated restaurants $1,071 18 $ 636 12 Revenues from franchised restaurants 403 16 277 12 ----------------------------------------------------------------------- TOTAL REVENUES 1,474 18 913 12 ----------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 903 19 481 12 Franchised restaurants 80 18 55 14 General, administrative and selling expenses 153 14 142 15 Other operating (income) expense--net (22) 26 (22) 35 ----------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 1,114 18 656 12 ----------------------------------------------------------------------- OPERATING INCOME 360 16 257 13 ----------------------------------------------------------------------- Interest expense 34 11 (10) (3) Nonoperating income (expense)--net (43) 88 (56) NM ----------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 283 15 211 13 ----------------------------------------------------------------------- Provision for income taxes 80 12 69 12 ----------------------------------------------------------------------- NET INCOME $ 203 17 $ 142 13 ======================================================================= NET INCOME PER COMMON SHARE $ .29 17 $ .23 16 ----------------------------------------------------------------------- NM - Not Meaningful 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 1995 and 1994 sales increases were primarily due to expansion. Stronger foreign currencies and higher sales at existing restaurants also contributed to these increases. Sales by Company-operated restaurants grew at a higher rate than Systemwide sales in 1995 and 1994. For both years, the number of Company-operated restaurants grew at a higher rate than Systemwide restaurants, and for 1995, Company-operated comparable sales were also stronger than Systemwide comparable sales. Average sales by Systemwide restaurants open at least one year were $1,844,000 in 1995, $44,000 higher than in 1994. Average sales improved due to stronger foreign currencies and higher sales at existing restaurants, partially offset by lower average sales for newer, smaller restaurants. The Company expects that average sales will continue to be affected by an increasing proportion of lower- volume sites. Profitable expansion into these sites, consistent with our Convenience Strategy to gain market share, has been made possible by a low-cost approach to restaurant development. Expansion continued at an accelerated pace as 2,430 restaurants were added Systemwide in 1995 (1,604 traditional and 826 satellites), compared with 1,787 in 1994 (1,212 traditional and 575 satellites) and 1,070 in 1993 (900 traditional and 170 satellites). Generally, satellite restaurants offer a simplified menu and are smaller in size and sales volume compared to traditional restaurants. McDonald's plans to add between 2,500 and 3,200 restaurants around the world annually in 1996 and 1997. Between 1,800 and 2,200 of the additions will be traditional restaurants, with approximately two thirds outside of the U.S. The remainder will be satellite restaurants, about half of which will be in the U.S. This higher level of openings is attributable to our low-cost approach to restaurant development as well as the potential of our alliances with major oil companies and retailers. Based on our experience with oil alliance sites, we have determined that the majority of future expansion for these venues will be traditional restaurants rather than satellite restaurants as originally planned. The consolidated financial statements reflect the operating results of satellite restaurants 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. Traditional restaurants opened during the year contributed $1,002 million to Systemwide sales in 1995, $799 million in 1994 and $572 million in 1993. Satellite restaurants opened during the year contributed $190 million to Systemwide sales in 1995 and $92 million in 1994. 13 TOTAL REVENUES Total revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees and affiliates based on a percent of sales with specified minimum payments. The minimum fee includes 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, the minimum fee generally was 12.0% for rent and service fees combined. Fees may vary depending on the type of site and the investment required on the part of the Company. Fees paid by franchisees outside of the U.S. vary according to local business conditions. Together with occupancy and operating rights, these fees are stipulated in franchise arrangements that generally have 20-year terms. Accordingly, these fees provide a stable, predictable revenue flow to the Company. Revenues grow as restaurants are added and as sales build in existing restaurants. Menu price adjustments affect revenues and sales; however, different pricing structures, new products, promotions and product mix variations among markets make quantifying the impact of menu price adjustments for the System as a whole impractical. Total revenues for 1995 and 1994 increased due to strong global operating results, positive comparable sales and an increase in the Company-operated restaurant base through expansion and changes in ownership. In 1995, 60% of sales by Company-operated restaurants and 40% of revenues from franchised restaurants were outside of the U.S., compared with 56% and 37%, respectively, in 1994. RESTAURANT MARGINS Company-operated restaurant margins were 19.2% of sales in 1995, compared with 19.8% in 1994 and 19.2% in 1993. As a percent of 1995 sales, food and paper as well as occupancy and other operating costs increased, while payroll costs remained relatively flat. As a percent of 1994 sales, food and paper as well as occupancy and other operating costs declined, while payroll costs increased. Franchised margin dollars comprised about two thirds of the combined operating margins, the same as in the prior year. Franchised restaurant margins were 82.4% of applicable 1995 revenues, compared with 82.8% in 1994 and 83.1% in 1993. The decreases reflected a higher proportion of leased sites, resulting from accelerated expansion and satellite development, which have financing costs embedded in rent expense; whereas, financing costs for owned sites are reflected in interest expense. 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, the resulting gains compensate the Company for the lower margins prior to exercise and are included in other operating (income) expense--net. At year-end 1995, 491 restaurants were operating under such arrangements, compared with 484 and 544 at year-end 1994 and 1993, respectively. The majority of these restaurants were operated outside of the U.S. 14 GENERAL, ADMINISTRATIVE AND SELLING EXPENSES The 1995 and 1994 increases were primarily due to strategic global investment spending to support the Convenience, Value and Execution Strategies. The 1995 increase was also affected by stronger foreign currencies while the 1994 increase included a one-time, noncash $15 million charge related to the implementation of a new accounting rule regarding the timing of expensing advertising production costs. These expenses as a percent of Systemwide sales have remained relatively constant and were 4.1% in 1995, 4.2% in 1994 and 4.0% in 1993. Corporate general, administrative and selling expenses which were not allocated to the geographic segments of the business were $48.2 million in 1995, $47.6 million in 1994 and $37.7 million in 1993. OTHER OPERATING (INCOME) EXPENSE--NET This category is comprised of transactions that 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 1995 income increase occurred because of greater income from affiliates, principally Japan, partially offset by higher losses on 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. 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 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 1995 and 1994 increases reflected higher combined operating margin dollars and stronger foreign currencies, partially offset by higher general, administrative and selling expenses. In addition, 1994 benefited from higher other operating income. INTEREST EXPENSE The 1995 increase was due to higher average debt levels and stronger foreign currencies, partially offset by lower average interest rates. The 1994 decrease was primarily due to lower average interest rates, partially offset by higher average debt levels and stronger 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. The 1995 amount included $60 million of unrealized losses associated with the Company's investment in Discovery Zone common stock. These losses were primarily responsible for the decline in 1995 U.S. and Corporate income before provision for income taxes shown on page 41. Also contributing to the 1995 consolidated results were higher charges associated with minority interests, partially offset by higher interest income and lower translation losses. The 1994 decrease in nonoperating income reflected higher translation losses, principally from Mexico and Brazil, losses on investments and higher minority interest charges. PROVISION FOR INCOME TAXES The effective income tax rate was 34.2% for 1995, compared with 35.1% for 1994 and 35.4% for 1993. The 1995 decrease was primarily due to a reduction in U.S. state income taxes and an increased proportion of earnings from foreign operations. The Company expects its 1996 effective income tax rate to be in the range of 32.5% to 33.5%, due to lower taxes related to foreign operations. Consolidated net deferred tax liabilities included tax assets, net of valuation allowance, of $308 million in 1995, and $233 million in 1994. Substantially all 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 17% each in 1995 and 13% and 16%, respectively, in 1994. The spread between the 1994 percent increase in net income and net income per common share reflected the impact of share repurchase. In 1995, the impact of share repurchase was offset by the conversion of 11 million shares of Series B and C preferred stock into 8.7 million shares of common stock. 16 IMPACT OF CHANGING FOREIGN CURRENCIES While 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 currency-denominated cash flows. Strengthening foreign currencies had a positive impact on 1995 Systemwide sales, revenues, operating income and net income. Strengthening foreign currencies had a positive impact on 1994 Systemwide sales and operating income; however, the currency impact on interest expense and higher translation losses in Latin America more than offset this benefit, resulting in a reduction in net income. Further discussion of our management of changing foreign currencies is on pages 28 and 29 in the commentary on financings and total shareholders' equity. ----------------------------------------------------------------------- (Dollars in millions) As reported As adjusted* ----------------------------------------------------------------------- 1995 ----------------------------------------------------------------------- Systemwide sales $29,914 15% $29,057 12% Revenues 9,795 18 9,531 15 Operating income 2,601 16 2,513 12 Net income 1,427 17 1,389 13 ----------------------------------------------------------------------- 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 ----------------------------------------------------------------------- *If exchange rates remained constant year-over-year. 17 ------------------------------------------------------------------------ U.S. OPERATIONS ------------------------------------------------------------------------ SALES Restaurant expansion was primarily responsible for increasing sales in 1995. In addition, positive comparable sales were driven by the Company's continued emphasis on value and customer satisfaction in the form of Extra Value Meals, Happy Meals and the three-tier value program in 1995 and 1994. Ongoing programs such as Operation Mac Attack -- our advertising campaign -- and Fast, Accurate and Friendly -- our initiative to improve customer satisfaction -- and promotions such as Monopoly also aided 1995 sales, as did various promotions in 1994. ------------------------------------------------------------------------ Five Ten years years (In millions of dollars) 1995 1994 1993 ago ago ------------------------------------------------------------------------ Operated by franchisees $12,474 $11,965 $11,435 $ 9,379 $6,781 Operated by the Company 2,725 2,550 2,420 2,655 2,000 Operated by affiliates 706 426 331 218 62 ------------------------------------------------------------------------ U.S. sales $15,905 $14,941 $14,186 $12,252 $8,843 ======================================================================== Average sales by total U.S. restaurants open at least one year were $1,538,000 in 1995 and $1,577,000 in 1994. RESTAURANTS There were 1,130 restaurants added in the U.S. in 1995 (597 traditional and 533 satellites) compared with 841 in 1994 (461 traditional and 380 satellites) and 306 (all traditional) five years ago. The U.S. accounted for just over one third of traditional restaurants added globally in 1995 and 1994, compared with about half five years ago. Of the worldwide satellite restaurant additions, about two thirds were in the U.S. in 1995 and 1994. ------------------------------------------------------------------------ Five Ten years years 1995 1994 1993 ago ago ------------------------------------------------------------------------ Operated by franchisees 8,180 7,849 7,628 6,780 5,390 Operated by the Company 1,634 1,546 1,433 1,632 1,534 Operated by affiliates 527 349 222 164 48 ------------------------------------------------------------------------ Traditional restaurants 10,341 9,744 9,283 8,576 6,972 Satellite restaurants 1,027 494 114 - - ------------------------------------------------------------------------ Total U.S. restaurants 11,368 10,238 9,397 8,576 6,972 ======================================================================== 18 About 84% of traditional U.S. restaurants were operated by franchisees and affiliates at year-end 1995 and 1994, compared with 81% five years ago. Approximately 80% of U.S. satellite restaurants were operated by franchisees and affiliates at year-end 1995. OPERATING RESULTS ------------------------------------------------------------------------ (In millions of dollars) 1995 1994 1993 1992 1991 ------------------------------------------------------------------------ REVENUES Sales by Company- operated restaurants $2,725 $2,550 $2,420 $2,353 $2,410 Revenues from franchised restaurants 1,749 1,606 1,511 1,396 1,300 ------------------------------------------------------------------------ TOTAL REVENUES 4,474 4,156 3,931 3,749 3,710 ------------------------------------------------------------------------ OPERATING COSTS AND EXPENSES Company-operated restaurants 2,244 2,066 1,977 1,920 2,000 Franchised restaurants 304 270 247 235 217 General, administrative and selling expenses* 682 628 569 507 499 Other operating (income) expense--net (8) (25) (18) (13) (56) ------------------------------------------------------------------------ TOTAL OPERATING COSTS AND EXPENSES* 3,222 2,939 2,775 2,649 2,660 ------------------------------------------------------------------------ U.S. OPERATING INCOME* $1,252 $1,217 $1,156 $1,100 $1,050 ======================================================================== *Operating income prior to 1995 has been restated to reflect a more meaningful allocation of general, administrative and selling expenses between the U.S. and international segments and includes an additional corporate category which is not allocated. U.S. revenues were positively impacted by expansion and positive comparable sales in 1995, 1994 and 1993, and reduced by the franchising of certain Company-operated restaurant businesses in 1992 and 1991. U.S. Company-operated margins decreased $3 million in 1995, as lower Company-operated comparable sales and higher costs more than offset the positive impact of the growth in the number of Company- operated restaurants. These margins were 17.7% of sales in 1995, compared with 19.0% in 1994 and 18.3% in 1993. In 1995, the margin decline was driven by higher payroll costs as a percent of sales resulting from an increase in the average hourly wage rate and increased staffing levels designed to improve customer satisfaction. In 1995 and 1994, the margin benefited from cost reduction efforts and lower commodity costs. 19 U.S. franchised margins rose $109 million or 8% in 1995, driven by expansion and positive comparable sales. These margins were 82.6% of applicable revenues in 1995, compared with 83.2% in 1994 and 83.6% in 1993. Franchised margins as a percent of revenues declined in 1995 and 1994 as the growth in rent expense, resulting from an increase in the proportion of new leased sites, particularly satellite locations, outpaced the growth in franchised revenues. With the current intensely competitive U.S. operating environment, we expect continuing pressure on Company-operated margins. However, while it is difficult to assess the potential effects of legislation and other factors that may affect the industry, the Company believes it can maintain annual operating margins as a percent of sales within the historical range of the past ten years by continuing to build sales and reduce costs. U.S. operating income rose $35 million or 3% in 1995 and $61 million or 5% in 1994, and was 48% and 54% of consolidated operating income in 1995 and 1994, respectively. The 1995 and 1994 increases resulted primarily from higher combined operating margins, partially offset by higher general, administrative and selling expenses in the form of higher employee costs, and other expenditures to support our Convenience, Value and Execution Strategies. 1994 U.S. operating income was also impacted by a one-time, $12 million charge related to the implementation of a new accounting rule for advertising costs. Operating income included depreciation and amortization of $398 million in 1995, $366 million in 1994 and $348 million in 1993. While the U.S. market remains intensely competitive, McDonald's is confident of continued growth in operating income over the long term through expansion, by controlling costs at the developmental, operational and administrative levels, and through a greater emphasis on value and customer satisfaction. ASSETS AND CAPITAL EXPENDITURES U.S. assets increased $547 million or 8% in 1995 and $293 million or 5% in 1994. These increases were due to accelerated expansion and increased reinvestment in existing restaurants during 1995. At year- end 1995, 46% of consolidated assets were located in the U.S., compared with 48% at year-end 1994. ------------------------------------------------------------------------- (In millions of dollars) 1995 1994 1993 1992 1991 ------------------------------------------------------------------------- U.S. assets $7,040 $6,493 $6,200 $5,995 $5,921 ------------------------------------------------------------------------- New restaurants $ 602 $ 472 $ 332 $ 196 $ 214 Existing restaurants 213 125 122 125 151 Other properties 104 113 130 76 45 ------------------------------------------------------------------------- U.S. capital expenditures $ 919 $ 710 $ 584 $ 397 $ 410 ========================================================================= 20 U.S. capital expenditures increased $209 million or 30% in 1995, and represented 44% of consolidated capital expenditures, compared with 47% five years ago. These amounts excluded initial investments made by franchisees in equipment, signs, seating and decor, as well as their ongoing reinvestment expenditures. New restaurant expenditures increased $130 million or 28%, primarily because of accelerated expansion. Expenditures for existing restaurants were made to achieve higher levels of customer satisfaction and implement technology to improve service and food quality. In 1995, strategic reinvestment to build sales included $57 million for indoor Ronald's Playplaces and $37 million for rebuilding and relocating restaurants to adjust to changing demographics, traffic patterns and market opportunities. Over the past five years, $188 million has been invested to replace older buildings with new lower-cost, more efficient restaurants. Other properties primarily included expenditures for office buildings and related furnishings. Traditional restaurants ------------------------------------------------------------------------- (In thousands of dollars) 1995 1994 1993 1992 1991 ------------------------------------------------------------------------- Land $ 348 $ 317 $ 328 $ 361 $ 433 Building 503 483 482 515 608 Equipment 300 295 317 361 362 ------------------------------------------------------------------------- U.S. average development costs $1,151 $1,095 $1,127 $1,237 $1,403 ========================================================================= U.S. average development costs increased in 1995 primarily due to higher site development and preparation costs combined with investments for indoor Ronald's Playplaces in more than 25% of new traditional restaurants. Construction efficiencies and a further shift toward smaller, lower-cost building designs partially offset these increases. Average development costs have decreased 26% from 1990 levels. Initiatives such as the Company's new joint venture to develop modular restaurant buildings serve as an example of our commitment to further reduce development costs through standardization, global sourcing and greater economies of scale. Our objective is to profitably expand into more locations, consistent with McDonald's goal of increasing market share with greater marketwide presence throughout the world. Because real estate ownership yields long-term benefits, including the ability to fix occupancy costs, the Company purchases new properties and acquires previously leased properties to the extent practical. The Company owned 68% of traditional U.S. sites at year-end 1995, compared with 69% five years ago. Most satellite restaurants are leased locations. 21 ---------------------------------------------------------------------- OPERATIONS OUTSIDE OF THE U.S. ---------------------------------------------------------------------- SALES Sales outside of the U.S. rose 27% in 1995 and 18% in 1994 due to aggressive expansion, stronger foreign currencies and higher local currency sales at existing restaurants in all geographic segments except Canada. This strong sales growth in 1995 was achieved despite weak economies in several markets. In 1995, 47% of Systemwide sales were from markets located outside of the U.S. compared with 43% in 1994 and 35% five years ago. ---------------------------------------------------------------------- Five Ten years years (In millions of dollars) 1995 1994 1993 ago ago ---------------------------------------------------------------------- Operated by franchisees $ 6,648 $ 5,182 $4,321 $2,638 $ 831 Operated by the Company 4,139 3,242 2,737 2,364 770 Operated by affiliates 3,222 2,622 2,343 1,505 557 ---------------------------------------------------------------------- Sales outside of the U.S. $14,009 $11,046 $9,401 $6,507 $2,158 ====================================================================== In Asia/Pacific, Australia, Japan, New Zealand, Singapore and Taiwan reported strong 1995 sales increases driven by Extra Value Meal marketing campaigns and rapid store expansion. In Europe, restaurant expansion continued to drive 1995 sales growth in Austria, England, France, Germany, the Netherlands and Spain. In Latin America, due to the mid-1994 economic reforms, Brazil's tremendous sales growth continued into 1995. Results in Mexico continued to be impacted by the weak economy and further peso devaluation. We currently anticipate this trend to continue through at least 1996; however, we believe this market offers long-term potential. Canada's 1995 sales growth was impacted by a slow economy and decreased consumer retail spending. Average sales by total restaurants outside of the U.S. open at least one year were $2,422,000 in 1995 and $2,254,000 in 1994. This increase reflected stronger foreign currencies and higher local currency sales. RESTAURANTS During the past five years, 56% of Systemwide and 64% of traditional restaurant additions have been outside of the U.S. Of the 1,007 traditional restaurants added outside of the U.S. in 1995, 42% were in the six largest markets -- Australia, Canada, England, France, Germany and Japan -- compared with 51% in 1994. Of the 293 satellite restaurants added in 1995, 86% were in the six largest markets compared with 74% in 1994. 22 In 1995, Japan added 313 total restaurants (109 traditional and 204 satellites), representing 24% of the total restaurants added outside of the U.S. Japan's profitable expansion was supported by significant reductions in average restaurant development costs achieved through standardization of building designs and utilization of smaller buildings. In 1996 and 1997, more than half of total restaurant additions outside of the U.S. are anticipated to be in the six largest markets while new and emerging markets, such as the Middle East, China and Central Europe are expected to represent a growing proportion of expansion. ---------------------------------------------------------------------- Five Ten years years 1995 1994 1993 ago ago ---------------------------------------------------------------------- Operated by franchisees 3,060 2,609 2,204 1,351 760 Operated by the Company 1,879 1,537 1,266 1,011 631 Operated by affiliates 1,529 1,315 1,240 865 538 ---------------------------------------------------------------------- Traditional restaurants 6,468 5,461 4,710 3,227 1,929 Satellite restaurants 544 251 56 ---------------------------------------------------------------------- Total restaurants outside of the U.S. 7,012 5,712 4,766 3,227 1,929 ====================================================================== At year-end 1995, 38% of Systemwide restaurants were outside of the U.S. compared with 36% in 1994 and 27% five years ago. Restaurants outside of the U.S. comprised 53% of traditional Company-operated restaurants and 27% of traditional franchised restaurants. About 29% of the traditional restaurants outside of the U.S. were Company- operated, 47% were franchised and 24% were operated by affiliates. Approximately 69% of traditional Company-operated restaurants were in England, Canada, Germany, Australia, Taiwan and Brazil. About 66% of traditional franchised restaurants were in Canada, Germany, Australia, France, England and the Netherlands. Restaurants operated by affiliates were principally located in Japan and other Asia/Pacific countries. Approximately 81% of satellite restaurants outside of the U.S. were operated by franchisees and affiliates at year-end 1995. The vast majority were located in Japan, Canada and Brazil. 23 OPERATING RESULTS ----------------------------------------------------------------------- (In millions of dollars) 1995 1994 1993 1992 1991 ----------------------------------------------------------------------- REVENUES Sales by Company- operated restaurants $4,139 $3,242 $2,737 $2,750 $2,499 Revenues from franchised restaurants 1,182 923 740 634 486 ----------------------------------------------------------------------- TOTAL REVENUES 5,321 4,165 3,477 3,384 2,985 ----------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 3,304 2,579 2,188 2,206 2,029 Franchised restaurants 211 165 133 114 90 General, administrative and selling expenses* 507 408 335 320 269 Other operating (income) expense--net (98) (59) (44) (51) (58) ----------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES* 3,924 3,093 2,612 2,589 2,330 ----------------------------------------------------------------------- OPERATING INCOME OUTSIDE OF THE U.S.* $1,397 $1,072 $ 865 $ 795 $ 655 ======================================================================= *Operating income prior to 1995 has been restated to reflect a more meaningful allocation of general, administrative and selling expenses between the U.S. and international segments and includes an additional corporate category which is not allocated. The growth in 1995 and 1994 revenue and operating income was driven by higher combined operating margin dollars resulting from expansion, positive comparable sales and stronger foreign currencies. The six largest markets accounted for about 75% of total operating income outside of the U.S. in 1995 and contributed 70% to operating income growth outside of the U.S. in 1995 compared with 53% in 1994. 24 Operations outside of the U.S. continued to contribute greater amounts to consolidated results as shown below: --------------------------------------------------------------------- (As a percent of consolidated) 1995 1994 1993 1992 1991 --------------------------------------------------------------------- Systemwide sales 47% 43% 40% 39% 37% Total revenues 54 50 47 47 45 Operating income* 54 48 44 43 39 Operating margins Company-operated 63 58 55 56 53 Franchised 40 36 32 31 27 Systemwide restaurants 38 36 34 32 29 Assets 53 51 47 45 46 --------------------------------------------------------------------- *Operating income prior to 1995 has been restated to reflect a more meaningful allocation of general, administrative and selling expenses between the U.S. and international segments and includes an additional corporate category which is not allocated. Company-operated margins increased $172 million or 26% in 1995. Company-operated margins accounted for 53% of the total operating income increase outside of the U.S. in 1995 and 55% of this increase in 1994. The six largest markets contributed about 68% to total Company-operated margin dollars outside of the U.S. in 1995 and accounted for 46% of the increase over 1994. Company-operated margins declined as a percent of sales in 1995 to 20.2% compared with 20.5% in 1994 and 20.1% in 1993. The 1995 decline resulted from a strategic decision to invest incremental margin dollars into our Value Strategy, designed to increase market share and customer satisfaction, coupled with a comparison to extremely strong results in the second half of 1994, primarily due to Brazil. The Company believes it can maintain these annual operating margins as a percent of sales within the historical range of the past ten years by continuing to build sales and reduce costs. Franchised margins grew $213 million or 28% in 1995. These margins were 82.1% of applicable revenues in 1995 and 1994 compared with 82.0% in 1993. Franchised margin dollar growth was driven by expansion and positive comparable sales. The 1995 and 1994 increases in general, administrative and selling expenses were caused principally by additional employee costs associated with rapid expansion in new and emerging markets, government-mandated payroll and social cost increases and stronger foreign currencies. Other operating income increased in 1995 primarily due to higher income from affiliates, principally Japan. Japan's increased income resulted from expansion as well as an aggressive value strategy emphasizing Extra Value Meals which resulted in strong comparable sales. 25 The Europe/Africa/Middle East segment accounted for 61% of revenues and 60% of operating income outside of the U.S. in 1995, growing $650 and $195 million, respectively in 1995 and $369 and $113 million, respectively, in 1994. Germany, England and France accounted for 83% of this segment's operating income in 1995, compared with 82% in 1994. Stronger currencies contributed about one third of this segment's operating income increase over 1994. This benefit diminished as the U.S. Dollar strengthened later in 1995. Asia/Pacific revenues grew $280 and $236 million and operating income increased $76 and $53 million in 1995 and 1994, respectively. Australia, Japan, Hong Kong and Taiwan contributed 86% of this segment's operating income in 1995. Japan's profits increased significantly compared to 1994 due to an aggressive value campaign and accelerated expansion. Australia experienced strong sales increases in 1995 from significant restaurant expansion and higher sales at existing restaurants through a continued emphasis on value. The Company's share of Taiwan's 1995 and 1994 revenues increased as a result of a change in ownership from a joint venture to a wholly-owned subsidiary in May 1994. The 1994 increases in revenues and operating income were also attributable to expansion and developing economies in many markets, with the exception of Japan, which suffered from a weak economy. Strong currencies contributed to this segment's 1995 operating income increase. As the U.S. Dollar strengthened against the Yen in the later part of the year, the currency benefit significantly decreased. Latin American revenues grew $223 and $95 million and operating income increased $57 and $35 million in 1995 and 1994, respectively. Brazil continued to be primarily responsible for the Latin American operating income increase due to expansion as well as significant sales increases from existing restaurants which began in mid-1994 due to economic reforms. Brazil's restaurant base grew by 25% in 1995 and 27% in 1994. Mexico continued to be negatively impacted by the economy and currency devaluation. Canadian revenues increased $2 million in 1995 and decreased $12 million in 1994, while operating income decreased $2 million in 1995 and increased $6 million in 1994. The 1995 results reflect lower sales at existing restaurants, caused by the slow economy, partially offset by new restaurant growth. 26 ASSETS AND CAPITAL EXPENDITURES Assets outside of the U.S. rose $1.3 billion or 19% in 1995 due to expansion and stronger foreign currencies. At year-end 1995, about 53% of consolidated assets were located outside of the U.S.; 57% of these assets were located in England, Germany, France, Australia and Canada. ----------------------------------------------------------------------- (In millions of dollars) 1995 1994 1993 1992 1991 ----------------------------------------------------------------------- Assets outside of the U.S. $8,206 $6,909 $5,650 $5,271 $5,195 ----------------------------------------------------------------------- New restaurants $ 941 $ 723 $ 609 $ 603 $ 612 Existing restaurants 142 87 94 91 94 Other properties 55 34 55 47 39 ----------------------------------------------------------------------- Capital expenditures outside of the U.S. $1,138 $ 844 $ 758 $ 741 $ 745 ======================================================================= In the past five years, $4.2 billion has been invested by the Company outside of the U.S. Capital expenditures outside of the U.S. rose $294 million or 35% in 1995 reflecting growth in all geographic segments. Approximately 66% of 1995 capital expenditures outside of the U.S. were invested in Europe -- primarily in Germany, France and England. Overall 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. These investments accommodate higher sales volumes and transaction counts. Since 1990, average development costs have decreased due to construction and design efficiencies, standardization, global sourcing and changes in the mix of openings. Expenditures for existing restaurants included dining room remodels to achieve increased levels of customer satisfaction and technology upgrades to improve service and food quality. The majority of these expenditures were in Europe. Expenditures for other properties were principally for office facilities. As in the U.S., the Company emphasizes restaurant property ownership outside of the U.S.; however, various laws and regulations make property acquisition and ownership much more difficult. Property is purchased when legally and economically feasible; otherwise, long- term leases are an alternative. In addition, certain markets have laws and customs that offer stronger tenancy rights than are available in the U.S. The Company owned 34% of traditional sites outside of the U.S. at year-end 1995, compared with 36% in 1994 and 35% five years ago. Capital expenditures made by affiliates -- which were not included in consolidated amounts -- were $258 million in 1995, compared with $203 million in 1994. The majority of the 1995 expenditures were for development in Japan, Sweden, Argentina, Russia and Singapore. 27 ----------------------------------------------------------------------- FINANCIAL POSITION ----------------------------------------------------------------------- TOTAL ASSETS AND CAPITAL EXPENDITURES Total assets grew approximately $1.8 billion or 13% in 1995; net property and equipment represented 83% of total assets and rose $1.5 billion. Capital expenditures increased $503 million or 32%, reflecting increased expansion, reinvestment in existing restaurants and stronger foreign currencies. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS In the first quarter of 1996, the Company will adopt Statement of Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This statement requires impairment losses be recognized for long-lived assets, whether these assets are held for disposal or continue to be used in operations, when indicators of impairment are present and the fair value of assets are estimated to be less than carrying amounts. After reviewing its assets for impairment, the Company anticipates a pre-tax charge to operating income of approximately $16 million related to restaurant sites in Mexico on adoption of this new accounting standard. CASH PROVIDED BY OPERATIONS Cash provided by operations increased $370 million or 19% in 1995, and $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 fifth consecutive 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 any short-term needs through commercial paper borrowings and line of credit agreements. Accordingly, a relatively low current ratio has been purposefully maintained; it was .53 at year-end 1995. 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. Cash provided by operations is expected to cover capital expenditures over the next several years, even as expansion continues to accelerate. ----------------------------------------------------------------------- (Dollars in millions) 1995 1994 1993 1992 1991 ----------------------------------------------------------------------- Cash provided by operations $2,296 $1,926 $1,680 $1,426 $1,423 Cash provided by operations less capital expenditures $ 233 $ 388 $ 363 $ 339 $ 294 Cash provided by operations as a percent of capital expenditures 111 125 128 131 126 Cash provided by operations as a percent of average total debt 49 48 44 33 31 ----------------------------------------------------------------------- 28 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. 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 currency-denominated debt has been used to lessen the impact of changing foreign currencies on net income and shareholders' equity by designating these borrowings as hedges of intercompany financings or the Company's long-term investments in its foreign subsidiaries and affiliates. Total foreign currency-denominated debt, including the effects of currency exchange agreements, was $4.3 and $4.0 billion at year-end 1995 and 1994, respectively. ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------------------------------------------------------------------- Fixed-rate debt as a percent of total debt 67% 64% 77% 75% 78% Weighted average annual interest rate 7.9 8.4 9.1 9.3 9.4 Foreign currency-denominated debt as a percent of total debt 89 92 86 72 61 Total debt as a percent of total capitalization (total debt and total shareholders' equity) 38 39 37 40 49 ----------------------------------------------------------------------- The Company manages its debt portfolio to respond to changes in interest rates and foreign currencies and accordingly, periodically retires, redeems, and repurchases debt; terminates exchange agreements; and uses derivatives. 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. 29 While changing foreign currencies affect reported results, the Company actively hedges selected foreign currencies, primarily to minimize the cash exposure of royalty and other payments received in the U.S. in local currencies. McDonald's restaurants also primarily purchase goods and services in local currencies resulting in natural hedges and McDonald's typically finances in local currencies creating economic hedges. The Company's exposure is diversified within a broad basket of currencies. At year-end 1995, assets in hyperinflationary markets and in Mexico were principally financed in U.S. Dollars. The Company's largest net asset exposures (defined as foreign currency assets less foreign currency liabilities) by foreign currency were as follows: ---------------------------------------------------------------------- (In millions of dollars) December 31, 1995 1994 ---------------------------------------------------------------------- Canadian Dollars $361 $311 British Pounds Sterling 356 330 Australian Dollars 240 212 French Francs 198 99 Hong Kong Dollars 115 52 Netherland Guilders 107 15 Austrian Schillings 106 84 ---------------------------------------------------------------------- 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 McDonald's 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 1995, the Company and its subsidiaries had $1.3 billion available under line of credit agreements and $785 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, the Company and its affiliates have leased properties related to 40% of U.S. traditional restaurant openings and 66% of traditional restaurant openings outside of the U.S. Since 1990, the Company has improved its balance sheet by reducing leverage while simultaneously increasing expansion and repurchasing shares. 30 TOTAL SHAREHOLDERS' EQUITY Total shareholders' equity rose $976 million or 14% in 1995, representing 51% of total assets at year-end. Stronger foreign currencies increased shareholders' equity by $28 million in 1995. One technique used to enhance common shareholder value is share repurchase using excess cash flow or debt capacity, while maintaining a strong equity base for future expansion. McDonald's has repurchased $2.8 billion of its common stock, representing 148 million shares, over the past 10 years. At year-end 1995, the market value of shares recorded as common stock in treasury was $6.3 billion, compared to the cost of $2.5 billion. In January 1996, the Company announced plans to repurchase $2.2 billion of its common stock within the next three years, including $200 million remaining under the three-year, $1 billion program announced in January 1994. In 1993, the Company completed a $700 million common share repurchase program begun in 1992. RETURNS Return on average assets is computed using operating income. Net income less preferred stock dividends (net of tax in 1995, 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. ---------------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------------------------------------------------------------------- Return on average assets 17.9% 17.6% 17.0% 16.4% 15.7% Return on average common equity 19.9 19.4 19.0 18.2 19.1 ---------------------------------------------------------------------- The improvements in return on average assets since 1991 reflected better global operating results and a slower rate of asset growth. The 1995, 1994 and 1993 improvements in return on average common equity reflected higher levels of share repurchase, whereas the decline in 1992 resulted from a lower level 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. 31 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reference --------- Management's report 32 Report of independent auditors 33 Consolidated statement of income for each of the three years in the period ended December 31, 1995 34 Consolidated balance sheet at December 31, 1995 and 1994 35 Consolidated statement of cash flows for each of the three years in the period ended December 31, 1995 36 Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 1995 37 Notes to consolidated financial statements (Financial comments) 38 - 56 Quarterly results (unaudited) 57 32 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, 1995, 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 below. The Board of Directors, operating through its Audit Committee composed entirely of independent 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 25, 1996 33 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 as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois January 25, 1996 34 McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF INCOME --------------------------------------------------------------------------
(In millions of dollars, except per common share data) Years ended December 31, 1995 1994 1993 -------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $6,863.5 $5,792.6 $5,157.2 Revenues from franchised restaurants 2,931.0 2,528.2 2,250.9 -------------------------------------------------------------------------- TOTAL REVENUES 9,794.5 8,320.8 7,408.1 -------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants Food and packaging 2,319.4 1,934.2 1,735.1 Payroll and other employee benefits 1,730.9 1,459.1 1,291.2 Occupancy and other operating expenses 1,497.4 1,251.7 1,138.3 -------------------------------------------------------------------------- 5,547.7 4,645.0 4,164.6 -------------------------------------------------------------------------- Franchised restaurants--occupancy expenses 514.9 435.5 380.4 General, administrative and selling expenses 1,236.3 1,083.0 941.1 Other operating (income) expense--net (105.7) (83.9) (62.0) -------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 7,193.2 6,079.6 5,424.1 -------------------------------------------------------------------------- OPERATING INCOME 2,601.3 2,241.2 1,984.0 -------------------------------------------------------------------------- Interest expense--net of capitalized interest of $22.5, $20.6 and $20.0 340.2 305.7 316.1 Nonoperating income (expense)--net (92.0) (48.9) 7.8 -------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 2,169.1 1,886.6 1,675.7 -------------------------------------------------------------------------- Provision for income taxes 741.8 662.2 593.2 -------------------------------------------------------------------------- NET INCOME $1,427.3 $1,224.4 $1,082.5 ========================================================================== NET INCOME PER COMMON SHARE $ 1.97 $ 1.68 $ 1.45 -------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .26 $ .23 $ .21 -------------------------------------------------------------------------- The accompanying Financial Comments are an integral part of the consolidated financial statements. /TABLE 35 McDONALD'S CORPORATION CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------- (In millions of dollars) December 31, 1995 1994 -------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and equivalents $ 334.8 $ 179.9 Accounts receivable 377.3 348.1 Notes receivable 36.3 31.2 Inventories, at cost, not in excess of market 58.0 50.5 Prepaid expenses and other current assets 149.4 131.0 -------------------------------------------------------------------- TOTAL CURRENT ASSETS 955.8 740.7 -------------------------------------------------------------------- OTHER ASSETS AND DEFERRED CHARGES Notes receivable due after one year 98.5 80.0 Investments in and advances to affiliates 656.9 579.3 Miscellaneous 357.3 380.4 -------------------------------------------------------------------- TOTAL OTHER ASSETS AND DEFERRED CHARGES 1,112.7 1,039.7 -------------------------------------------------------------------- PROPERTY AND EQUIPMENT Property and equipment, at cost 17,137.6 15,184.6 Accumulated depreciation and amortization (4,326.3) (3,856.2) -------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 12,811.3 11,328.4 -------------------------------------------------------------------- INTANGIBLE ASSETS--NET 534.8 483.1 -------------------------------------------------------------------- TOTAL ASSETS $15,414.6 $13,591.9 ==================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 413.0 $ 1,046.9 Accounts payable 564.3 509.4 Income taxes 55.4 25.0 Other taxes 127.1 102.1 Accrued interest 117.4 107.7 Other accrued liabilities 352.5 291.9 Current maturities of long-term debt 165.2 368.3 -------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,794.9 2,451.3 -------------------------------------------------------------------- LONG-TERM DEBT 4,257.8 2,935.4 OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 664.7 422.8 DEFERRED INCOME TAXES 835.9 840.8 COMMON EQUITY PUT OPTIONS 56.2 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized--165.0 million shares; issued--7.2 thousand and 11.2 million 358.0 674.2 Common stock, no par value; authorized--1.25 billion shares; issued--830.3 million 92.3 92.3 Additional paid-in capital 387.4 286.0 Guarantee of ESOP Notes (214.2) (234.4) Retained earnings 9,831.3 8,625.9 Foreign currency translation adjustment (87.1) (114.9) -------------------------------------------------------------------- 10,367.7 9,329.1 -------------------------------------------------------------------- Common stock in treasury, at cost; 130.6 and 136.6 million shares (2,506.4) (2,443.7) -------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 7,861.3 6,885.4 -------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,414.6 $13,591.9 ==================================================================== The accompanying Financial Comments are an integral part of the consolidated financial statements. /TABLE 36 McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------------------------------------- (In millions of dollars) Years ended December 31, 1995 1994 1993 -------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $1,427.3 $1,224.4 $1,082.5 Adjustments to reconcile to cash provided by operations Depreciation and amortization 709.0 628.6 568.4 Deferred income taxes (4.2) (5.6) 52.4 Changes in operating working capital items Accounts receivable increase (49.5) (51.6) (48.3) Inventories, prepaid expenses and other current assets increase (20.4) (15.0) (9.6) Accounts payable increase 52.6 105.4 45.4 Accrued interest increase (decrease) 13.0 (25.5) (5.1) Taxes and other liabilities increase 158.3 95.2 26.5 Other--net 10.1 (29.7) (32.4) -------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS 2,296.2 1,926.2 1,679.8 -------------------------------------------------------------------------- INVESTING ACTIVITIES Property and equipment expenditures (2,063.7) (1,538.6) (1,316.9) Purchases of restaurant businesses (110.1) (133.8) (64.2) Sales of restaurant businesses 151.6 151.5 114.2 Property sales 66.2 66.0 61.6 Notes receivable additions (33.4) (15.1) (33.1) Notes receivable reductions 31.5 56.7 75.7 Other (151.1) (92.6) (55.3) -------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (2,109.0) (1,505.9) (1,218.0) -------------------------------------------------------------------------- FINANCING ACTIVITIES Net short-term borrowings (repayments) (272.9) 521.7 (8.9) Long-term financing issuances 1,250.2 260.9 1,241.0 Long-term financing repayments (532.2) (536.9) (1,185.9) Treasury stock purchases (314.5) (495.6) (620.1) Common and preferred stock dividends (226.5) (215.7) (201.2) Other 63.6 39.4 62.6 -------------------------------------------------------------------------- CASH USED FOR FINANCING ACTIVITIES (32.3) (426.2) (712.5) -------------------------------------------------------------------------- CASH AND EQUIVALENTS INCREASE (DECREASE) 154.9 (5.9) (250.7) -------------------------------------------------------------------------- Cash and equivalents at beginning of year 179.9 185.8 436.5 -------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF YEAR $ 334.8 $ 179.9 $ 185.8 ========================================================================== SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid $ 331.0 $ 323.9 $ 312.2 Income taxes paid $ 667.6 $ 621.8 $ 521.7 -------------------------------------------------------------------------- The accompanying Financial Comments are an integral part of the consolidated financial statements. /TABLE 37 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, 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 (per share: $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 (per share: $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 $20.3) 28.8 1.7 3.8 27.1 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 11.2 674.2 830.3 92.3 286.0 (234.4) 8,625.9 (114.9) (136.6) (2,443.7) - ---------------------------------------------------------------------------------------------------------------------------------- Net income 1,427.3 Common stock cash dividends ($.26 per share) (181.4) Preferred stock cash dividends (per share: $1.01 for Series B, $1.16 for Series C and $1.93 for Series E depositary share), (net of tax benefits of $1.6) (40.5) Preferred stock conversion (11.2) (316.2) 25.3 8.8 144.6 ESOP Notes payment 19.0 Treasury stock acquisitions (8.8) (321.0) Translation adjustments (including taxes of $9.0) 27.8 Common equity put options expiration 56.2 Stock option exercises and other (including tax benefits of $42.2) 76.1 1.2 6.0 57.5 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 0.0* $358.0 830.3 $92.3 $387.4 $(214.2) $9,831.3 $ (87.1) (130.6) $(2,506.4) ================================================================================================================================== * At December 31, 1995, 7.2 thousand shares were outstanding. The accompanying Financial Comments are an integral part of the consolidated financial statements. /TABLE 38 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 affiliates, in which the Company owns 50% or less, are carried at equity in the companies' net assets. ESTIMATES IN FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION The functional currency of substantially all operations outside of the U.S. is the respective local currency, except for hyperinflationary countries where it is the U.S. Dollar. ADVERTISING COSTS Production costs for radio and television advertising are expensed as of the date the commercials are initially aired. Advertising expenses included in costs of Company-operated restaurants and general, administrative and selling expenses were (in millions): 1995--$431.0; 1994--$385.6; 1993--$353.8. STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock-Based Compensation, which is effective in 1996. As permitted by the new standard, the Company will continue applying accounting prescribed by APB Opinion No. 25 and include additional footnote disclosures. 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, consisting primarily of franchise rights reacquired from franchisees and affiliates, are amortized on the straight-line method over an average life of 30 years. 39 ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS In the first quarter of 1996, the Company will adopt Statement of Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This statement requires impairment losses be recognized for long-lived assets, whether these assets are held for disposal or continue to be used in operations, when indicators of impairment are present and the fair value of assets are estimated to be less than carrying amounts. After reviewing its assets, the Company anticipates a pre-tax charge to operating income of approximately $16 million related to restaurant sites in Mexico on adoption of this new accounting standard. 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 either long-term investments in or intercompany loans to foreign subsidiaries and affiliates. 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. Gains or losses from the early termination of interest rate swaps are amortized as an adjustment to interest expense over the shorter of the remaining life of the swap or the underlying debt being hedged. The Company also purchases foreign currency options (with little or no intrinsic value) to hedge future foreign currency-denominated royalty and other payments received in the U.S. The premiums paid for these options are amortized over the option life and are recorded in nonoperating expense. Any realized gains on exercised options are deferred and amortized over the period being hedged. Short-term forward foreign exchange contracts are also used to mitigate exposure on foreign currency-denominated cash flows received from affiliates and subsidiaries. These contracts are marked to market with the resulting gains or losses recorded in nonoperating income (expense). Gains and losses associated with these forward contracts have not been material. If a hedged item matures or is extinguished, the associated derivative is marked to market with the resulting gain or loss recognized immediately. The derivative then is redesignated as a hedge of some other item or terminated. The carrying amounts for cash and equivalents and notes receivable approximated fair value. No fair value was provided for noninterest- bearing security deposits by franchisees as these deposits are an integral part of the overall franchise arrangements. STATEMENT OF CASH FLOWS The Company considers short-term, highly liquid investments to be cash equivalents. The impact of changing foreign currencies on cash and equivalents was not material. 40 ---------------------------------------------------------------------- NUMBER OF RESTAURANTS IN OPERATION ---------------------------------------------------------------------- The Company, its franchisees and affiliates operate traditional and satellite restaurants. Satellite restaurants generally offer a simplified menu and are smaller in size and sales volume compared to traditional restaurants. ---------------------------------------------------------------------- December 31, 1995 1994 1993 ---------------------------------------------------------------------- Operated by franchisees 10,776 9,982 9,288 Operated under business facilities lease arrangements 464 476 544 Operated by the Company 3,513 3,083 2,699 Operated by 50% or less owned affiliates 2,056 1,664 1,462 ---------------------------------------------------------------------- Total traditional restaurants 16,809 15,205 13,993 ====================================================================== U.S. 1,027 494 114 Outside of the U.S. 544 251 56 ---------------------------------------------------------------------- Total satellite restaurants 1,571 745 170 ====================================================================== Franchisees operating under business facilities lease arrangements have options to purchase the businesses. In 1995, the Company purchased the remaining minority interest in its Hong Kong subsidiary. 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. ---------------------------------------------------------------------- OTHER OPERATING (INCOME) EXPENSE--NET ---------------------------------------------------------------------- (In millions of dollars) 1995 1994 1993 ---------------------------------------------------------------------- Gains on sales of restaurant businesses $ (63.9) $(67.1) $(48.2) Equity in earnings of unconsolidated affiliates (96.5) (47.0) (34.6) Net losses from property dispositions 49.2 20.0 15.5 Other--net 5.5 10.2 5.3 ---------------------------------------------------------------------- Other operating (income) expense--net $(105.7) $(83.9) $(62.0) ====================================================================== 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. The 1995 increase in equity in earnings of unconsolidated affiliates occurred because of greater income from affiliates, principally Japan. 41 --------------------------------------------------------------------- INCOME TAXES --------------------------------------------------------------------- Income before provision for income taxes, classified by source of income in the following table, was restated to reflect a more meaningful allocation of general, administrative and selling expenses between the U.S. and outside of the U.S. segments. --------------------------------------------------------------------- (In millions of dollars) 1995 1994 1993 --------------------------------------------------------------------- U.S. and Corporate $1,026.2 $1,084.9 $1,017.6 Outside of the U.S. 1,142.9 801.7 658.1 --------------------------------------------------------------------- Income before provision for income taxes $2,169.1 $1,886.6 $1,675.7 ===================================================================== The provision for income taxes, classified by the timing and location of payment, was as follows: --------------------------------------------------------------------- (In millions of dollars) 1995 1994 1993 --------------------------------------------------------------------- U.S. federal $363.7 $379.3 $331.6 U.S. state 60.5 71.1 62.0 Outside of the U.S. 321.8 217.4 147.2 --------------------------------------------------------------------- Current tax provision 746.0 667.8 540.8 --------------------------------------------------------------------- U.S. federal (17.6) (21.2) 21.9 U.S. state (3.9) (3.0) 3.4 Outside of the U.S. 17.3 18.6 27.1 --------------------------------------------------------------------- Deferred tax provision (4.2) (5.6) 52.4 --------------------------------------------------------------------- Provision for income taxes $741.8 $662.2 $593.2 ===================================================================== 42 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, 1995 1994 ------------------------------------------------------------------------- Property and equipment basis differences $ 898.6 $ 852.8 Other 197.8 178.3 ------------------------------------------------------------------------- Total deferred tax liabilities 1,096.4 1,031.1 ------------------------------------------------------------------------- Deferred tax assets before valuation allowance (1) (360.5) (274.7) Valuation allowance 52.7 41.4 ------------------------------------------------------------------------- Net deferred tax liabilities (2) $ 788.6 $ 797.8 ========================================================================= (1) Includes tax effects of loss carryforwards (in millions): 1995-- $56.1; 1994--$45.1. (2) Net of assets recorded in current income taxes (in millions): 1995--$47.3; 1994--$43.0. Reconciliations of the statutory U.S. federal income tax rates to the effective income tax rates were as follows: ------------------------------------------------------------------------- 1995 1994 1993 ------------------------------------------------------------------------- Statutory U.S. federal income tax rates 35.0% 35.0% 35.0% State income taxes, net of related federal income tax benefit 1.7 2.3 2.5 Benefits and taxes related to foreign operations (2.9) (2.7) (2.6) Other .4 .5 .5 ------------------------------------------------------------------------- Effective income tax rates 34.2% 35.1% 35.4% ========================================================================= 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 $915 million at December 31, 1995, and consisted primarily of undistributed earnings which are considered to be permanently invested in the businesses. If these earnings were not considered permanently invested, any incremental taxes that may need to be provided would not be material. 43 ------------------------------------------------------------------------ PROPERTY AND EQUIPMENT ------------------------------------------------------------------------ (In millions of dollars) December 31, 1995 1994 ------------------------------------------------------------------------ Land $ 3,251.5 $ 2,950.1 Buildings and improvements on owned land 6,419.7 5,814.7 Buildings and improvements on leased land 4,986.3 4,211.2 Equipment, signs and seating 1,942.3 1,727.8 Other 537.8 480.8 ------------------------------------------------------------------------ 17,137.6 15,184.6 ------------------------------------------------------------------------ Accumulated depreciation and amortization (4,326.3) (3,856.2) ------------------------------------------------------------------------ Net property and equipment $12,811.3 $11,328.4 ======================================================================== Depreciation and amortization were (in millions): 1995--$619.9; 1994-- $550.5; 1993--$492.8. Contractual obligations for the acquisition and construction of property amounted to $268.2 million at December 31, 1995. 44 ---------------------------------------------------------------------- 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 from subsidiaries outside of the U.S. were (in millions): 1995--$358.4; 1994--$268.9; 1993--$202.8. Segment operating income has been restated to reflect a more meaningful allocation of general, administrative and selling expenses between the U.S. and international segments and includes an additional corporate category. In addition, segment assets have been restated to reflect an additional corporate category, primarily comprised of corporate cash, investments, asset portions of financing instruments and certain intangibles. ---------------------------------------------------------------------- (In millions of dollars) 1995 1994 1993 ---------------------------------------------------------------------- U.S. $ 4,473.9 $ 4,155.5 $ 3,931.2 Europe/Africa/Middle East 3,255.1 2,604.7 2,235.9 Asia/Pacific 1,010.8 730.7 494.4 Canada 547.8 546.1 557.8 Latin America 506.9 283.8 188.8 ---------------------------------------------------------------------- Total revenues $ 9,794.5 $ 8,320.8 $ 7,408.1 ====================================================================== U.S. $ 1,252.4 $ 1,216.7 $ 1,156.4 Europe/Africa/Middle East 840.3 645.8 532.7 Asia/Pacific 309.6 233.5 180.1 Canada 114.5 116.8 111.2 Latin America 132.7 76.0 41.3 Corporate (48.2) (47.6) (37.7) ---------------------------------------------------------------------- Total Operating income $ 2,601.3 $ 2,241.2 $ 1,984.0 ====================================================================== U.S. $ 7,040.2 $ 6,492.7 $ 6,200.1 Europe/Africa/Middle East 5,069.2 4,257.5 3,473.2 Asia/Pacific 1,813.6 1,547.7 1,103.2 Canada 510.5 487.6 562.5 Latin America 812.5 616.4 510.9 Corporate 168.6 190.0 185.3 ---------------------------------------------------------------------- Total assets $15,414.6 $13,591.9 $12,035.2 ====================================================================== 45 ------------------------------------------------------------------------ DEBT FINANCING ------------------------------------------------------------------------ LINE OF CREDIT AGREEMENTS Effective April 19, 1995, the Company canceled its existing $700.0 million line of credit agreement and entered into a new $675.0 million five-year revolving credit agreement with various banks. Accordingly, $675.0 million of notes maturing within one year have been reclassified as long-term debt. In June 1995, the Company entered into an additional $25.0 million revolving credit agreement with various banks for a renewable term of 364 days. Both agreements, which remained unused at December 31, 1995, provide for fees of .07% per annum on the total commitment. Each borrowing under the agreements bears interest at one of several specified floating rates selected by the Company at the time of borrowing. In addition, certain subsidiaries outside of the U.S. had unused lines of credit totaling $550.5 million at December 31, 1995; 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 6.4% and 6.8% at December 31, 1995, and 1994, respectively. 46 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 $1.6 billion at December 31, 1995, and were denominated primarily in U.S. Dollars, Japanese Yen, Deutsche Marks and British Pounds Sterling. 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 purchased foreign currency options which were outstanding at December 31, 1995, with a notional amount equivalent to U.S. $187.7 million in various currencies, primarily Deutsche Marks, British Pounds Sterling and French Francs. At December 31, 1995, the unamortized premium related to these currency options was $4.9 million. There were no deferred gains related to these options at year end. Short-term forward foreign exchange contracts outstanding at December 31, 1995, had a U.S. Dollar equivalent of $27.6 million in various currencies, primarily Deutsche Marks, Japanese Yen and Swiss Francs. GUARANTEES The Company has guaranteed and included in total debt at December 31, 1995, $146.7 million of 7.4% ESOP Notes Series A and $77.1 million of 7.1% ESOP Notes Series B issued by the Leveraged Employee Stock Ownership Plan with payments through 2004 and 2006, respectively. Interest rates on the notes were adjusted in 1995 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 $60.6 million at December 31, 1995. The Company was a general partner in 92 domestic partnerships with total assets of $407.9 million and total liabilities of $232.5 million at December 31, 1995. 47 FAIR VALUES ---------------------------------------------------------------------- December 31, 1995 (In millions of dollars) Carrying amount Fair value ---------------------------------------------------------------------- Liabilities Debt $4,204.9 $4,399.9 Notes payable 413.0 413.0 Foreign currency exchange agreements 218.1 287.2 Interest-rate exchange agreements (1.1) ---------------------------------------------------------------------- Total liabilities 4,836.0 5,099.0 ---------------------------------------------------------------------- Assets Foreign currency exchange agreements 40.6 28.8 ---------------------------------------------------------------------- Net debt $4,795.4 $5,070.2 ====================================================================== Purchased foreign currency options $ 4.9 $ 5.3 ---------------------------------------------------------------------- Short-term forward foreign exchange contracts were recorded at their fair value of $27.6 million at December 31, 1995. The fair value of the debt and notes payable obligations (excluding capital leases), the currency and interest-rate exchange agreements, and the foreign currency options 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, 1995. DEBT OBLIGATIONS The Company has incurred debt obligations principally through 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. 48 DEBT OBLIGATIONS
Interest rates (1) Amounts outstanding Maturity December 31 December 31 Aggregate maturities by currency for 1995 balances dates 1995 1994 1995 1994 1996 1997 1998 1999 2000 Thereafter (In millions of U.S. Dollars) - --------------------------------------------------------------------------------------------------------------------------------- Fixed--original issue 7.5% 8.2% $2,172.6 $1,647.0 Fixed--converted via exchange agreements (2) 5.9 5.7 (1,844.2) (1,483.6) Floating 5.5 4.5 216.5 167.3 - --------------------------------------------------------------------------------------------------------------------------------- Total U.S. Dollars 1996-2033 544.9 330.7 $120.7 $(60.2) $(230.2) $(211.1) (46.6) $972.3 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 6.0 6.4 552.7 440.7 Floating 4.4 5.4 376.6 339.5 - --------------------------------------------------------------------------------------------------------------------------------- Total Deutsche Marks 1996-2007 929.3 780.2 231.7 130.7 280.0 139.3 147.3 0.3 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 7.8 8.3 727.3 527.2 Floating 5.8 6.0 177.4 292.3 - --------------------------------------------------------------------------------------------------------------------------------- Total French Francs 1996-2003 904.7 819.5 75.9 126.0 163.2 190.7 0.1 348.8 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 4.4 4.3 409.5 375.8 Floating 0.6 2.0 130.5 135.5 - --------------------------------------------------------------------------------------------------------------------------------- Total Japanese Yen 1996-2023 540.0 511.3 154.7 96.7 288.6 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 9.3 10.4 382.3 464.9 Floating 6.2 6.1 121.1 197.2 - --------------------------------------------------------------------------------------------------------------------------------- Total British Pounds Sterling 1996-2003 503.4 662.1 149.8 21.1 85.4 247.1 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 11.0 11.1 113.8 113.3 Floating 7.6 7.4 100.5 106.3 - --------------------------------------------------------------------------------------------------------------------------------- Total Australian Dollars 1996-2001 214.3 219.6 141.6 1.6 65.2 1.7 1.7 2.5 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 6.2 6.4 136.9 149.9 Floating 4.2 5.7 32.2 26.6 - --------------------------------------------------------------------------------------------------------------------------------- Total Netherland Guilders 1996-1999 169.1 176.5 7.3 108.8 53.0 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 9.0 11.8 130.3 114.5 Floating 6.0 6.0 22.0 39.3 - --------------------------------------------------------------------------------------------------------------------------------- Total Canadian Dollars 1996-2021 152.3 153.8 95.5 55.2 0.2 0.2 0.2 1.0 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.7 8.1 77.6 97.0 Floating 6.6 6.4 40.1 37.6 - --------------------------------------------------------------------------------------------------------------------------------- Total Hong Kong Dollars 1996-2008 117.7 134.6 38.4 30.6 17.6 11.1 11.2 8.8 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 4.7 4.4 81.1 97.6 Floating 2.3 30.4 - --------------------------------------------------------------------------------------------------------------------------------- Total Swiss Francs 1996-2000 111.5 97.6 16.1 34.7 60.7 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.5 8.0 43.9 41.0 Floating 7.9 8.2 65.3 69.6 - --------------------------------------------------------------------------------------------------------------------------------- Total New Taiwan Dollars 1996-2001 109.2 110.6 31.7 16.3 12.7 8.2 40.3 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 9.5 9.5 63.5 58.7 Floating 11.3 8.2 39.1 7.1 - --------------------------------------------------------------------------------------------------------------------------------- Total Spanish Pesetas 1997-1998 102.6 65.8 39.1 63.5 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.4 9.0 161.7 133.2 Floating 10.9 12.3 234.7 117.6 - --------------------------------------------------------------------------------------------------------------------------------- Total other currencies 1996-2016 396.4 250.8 163.7 116.8 19.8 51.1 11.8 33.2 - --------------------------------------------------------------------------------------------------------------------------------- Debt obligations including the net effects of currency and interest- rate exchange agreements 4,795.4 4,313.1 1,227.1 552.8 556.6 244.2 271.8 1,942.9 - --------------------------------------------------------------------------------------------------------------------------------- Obligations supported by long-term line of credit agreement (675.0) 675.0 - --------------------------------------------------------------------------------------------------------------------------------- Net asset positions of currency exchange agreements (included in miscellaneous other assets) 40.6 37.5 26.1 0.5 2.2 11.8 - --------------------------------------------------------------------------------------------------------------------------------- Total debt obligations $4,836.0 $4,350.6 $578.2 $552.8 $557.1 $246.4 $946.8 $1,954.7 ================================================================================================================================= (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 reflect the fixed rate on the receivable portion of the exchange agreements. All other obligations in this table reflect the gross effects of these and other exchange agreements. /TABLE 49 ------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS ------------------------------------------------------------------- (In millions of dollars) December 31, 1995 1994 ------------------------------------------------------------------- Security deposits by franchisees $155.0 $141.2 Preferred interests in consolidated subsidiaries 400.6 162.4 Minority interests in consolidated subsidiaries 33.2 50.3 Other 75.9 68.9 ------------------------------------------------------------------- Other long-term liabilities and minority interests $664.7 $422.8 =================================================================== Preferred interests in consolidated subsidiaries reflects preferred stock issued by Company subsidiaries. One subsidiary issued preferred stock denominated in British Pounds Sterling as follows: British Pounds 150 million of Series C, D and E at an average rate of 7.04% in 1995; British Pounds 25 million of 5.42% Series B in 1994; and British Pounds 50 million of 5.91% Series A 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. $349.4 million at December 31, 1995. Another subsidiary issued additional preferred stock in 1994 and 1993. At December 31, 1995, the preferred stock of this subsidiary had a dividend rate of 14.6% (adjusted annually) and was redeemable at the option of the holder at a redemption price totaling $51.2 million. 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. 50 --------------------------------------------------------------------- LEASING ARRANGEMENTS --------------------------------------------------------------------- At December 31, 1995, the Company was lessee at 2,976 locations under ground leases (the Company leases land and constructs and owns buildings) and at 4,204 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 satellite restaurants operate under improved leases which generally include percentage rent payments only and are of a shorter term. 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 are: --------------------------------------------------------------------- (In millions of dollars) Restaurant Other Total --------------------------------------------------------------------- 1996 $ 400.3 $ 45.0 $ 445.3 1997 392.7 41.9 434.6 1998 377.3 36.9 414.2 1999 359.0 28.0 387.0 2000 341.0 23.5 364.5 Thereafter 3,379.8 117.4 3,497.2 --------------------------------------------------------------------- Total minimum payments $5,250.1 $292.7 $5,542.8 ===================================================================== Rent expense was (in millions): 1995--$497.6; 1994--$394.4; 1993-- $339.0. 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): 1995--$73.5; 1994--$40.3; 1993--$29.0. 51 ---------------------------------------------------------------------- FRANCHISE ARRANGEMENTS ---------------------------------------------------------------------- Franchise arrangements include a lease and a license and generally provide for initial fees as well as continuing rent and service fee payments to the Company, based upon a percentage of sales with minimum rent payments. Franchisees are granted the right to operate a McDonald's restaurant using the McDonald's system. Additionally, franchisees are provided the use of a restaurant facility 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) 1995 1994 1993 ---------------------------------------------------------------------- Owned sites $ 708.6 $ 633.4 $ 573.6 Leased sites 521.4 446.0 381.7 ---------------------------------------------------------------------- Minimum rents 1,230.0 1,079.4 955.3 ---------------------------------------------------------------------- Percentage rent and service fees 1,638.4 1,411.8 1,272.1 Initial fees 62.6 37.0 23.5 ---------------------------------------------------------------------- Revenues from franchised restaurants $2,931.0 $2,528.2 $2,250.9 ====================================================================== Future minimum rent payments due to the Company under franchise arrangements are: ---------------------------------------------------------------------- Owned Leased (In millions of dollars) sites sites Total ---------------------------------------------------------------------- 1996 $ 787.9 $ 547.1 $ 1,335.0 1997 776.1 541.7 1,317.8 1998 780.7 542.3 1,323.0 1999 763.1 528.9 1,292.0 2000 745.7 512.5 1,258.2 Thereafter 6,937.0 4,825.4 11,762.4 ---------------------------------------------------------------------- Total minimum payments $10,790.5 $7,497.9 $18,288.4 ====================================================================== At December 31, 1995, net property and equipment under franchise arrangements totaled $7.3 billion (including land of $2.2 billion) after deducting accumulated depreciation and amortization of $2.2 billion. 52 ------------------------------------------------------------------------- PROFIT SHARING PROGRAM ------------------------------------------------------------------------- The Company has a program for U.S. employees which includes profit sharing, 401(k) (McDESOP), and leveraged employee stock ownership (LESOP) features. McDESOP allows participants to make contributions which are partially matched by the Company. Profit sharing assets and contributions made by McDESOP participants can be invested in McDonald's common stock or among several other investment alternatives. Company contributions to McDESOP are invested in McDonald's common stock. Due to the conversion of all remaining preferred shares in 1995, the LESOP is now invested only in McDonald's common stock. Staff, executives and restaurant managers participate in profit sharing contributions and shares released under the LESOP based on participant's 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 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 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) 1995 1994 1993 ------------------------------------------------------------------------- Profit sharing $14.2 $15.2 $13.5 LESOP 29.9 25.4 25.5 McDESOP 11.7 9.5 8.1 ------------------------------------------------------------------------- U.S. program costs $55.8 $50.1 $47.1 ========================================================================= 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): 1995 $26.6 1994--$18.1; 1993--$13.0. Profit sharing costs were restated to reflect a more meaningful allocation of program costs between the U.S. and outside of the U.S. segments. The Company does not provide any other postretirement benefits, and postemployment benefits were immaterial. 53 ------------------------------------------------------------------------- STOCK OPTIONS ------------------------------------------------------------------------- At December 31, 1995, the Company had three stock-based compensation plans which were accounted for under APB Opinion No. 25. Accordingly, no compensation cost has been recognized in the consolidated financial statements for these plans because options to purchase common stock are granted at prices not less than the fair market value of the stock on date of grant. Substantially all of the options under these plans become exercisable in four equal biennial installments, commencing one year from date of grant, and expire ten years from date of grant. At December 31, 1995, 105.1 and 37.0 million shares of common stock were reserved for issuance and for future grants, respectively, under these plans. ------------------------------------------------------------------------- Number of options Weighted average (in millions) exercise price ------------------------------------------------------------------------- 1995 1994 1993 1995 1994 1993 ------------------------------------------------------------------------- Options outstanding at January 1 62.3 55.1 50.3 $21.02 $18.16 $15.54 Options granted 13.7 13.6 12.0 33.24 29.90 26.25 Options exercised (6.0) (4.1) (5.3) 15.76 12.14 11.01 Options forfeited (1.9) (2.3) (1.9) 24.55 18.72 17.28 ------------------------------------------------------------------------- Options outstanding at December 31 68.1 62.3 55.1 $23.86 $21.02 $18.16 ========================================================================= Options exercisable at December 31 24.4 21.4 17.6 ------------------------------------------------------------------------- Options granted during each year were 1.96%, 1.94% and 1.69% of average common shares outstanding for 1995, 1994 and 1993, respectively. Stock options were granted to approximately 8,500, 7,700 and 6,800 employees in 1995, 1994 and 1993, respectively. Shares are issued from treasury stock to employees upon exercise of stock options. The potential dilution of common shares outstanding upon exercise of stock options shown in the following table 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 2.9%, 1.6% and 1.8% of shares outstanding at year-end 1995, 1994 and 1993, respectively. 54 ------------------------------------------------------------------------- (Shares in millions) 1995 1994 1993 ------------------------------------------------------------------------- Common shares outstanding at year end 699.8 693.7 707.3 Potential dilution of common shares outstanding from option exercises 20.4 11.4 12.6 Average option exercise price $15.76 $12.14 $11.01 Average cost of treasury stock issued for option exercises $ 7.16 $ 7.05 $ 6.65 ------------------------------------------------------------------------- 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. ---------------------------------------------------------------------- December 31, 1995 ---------------------------------------------------------------------- Options outstanding Options exercisable ---------------------------------------------------------------------- Weighted average Weighted Weighted Range of Number remaining average Number average exercise of options contractual exercise of options exercise prices in millions life (Years) price in millions price ---------------------------------------------------------------------- $ 9 to 12 5.5 2.0 $11.05 5.5 $11.05 14 to 18 17.0 5.0 15.42 9.2 15.30 21 to 30 32.1 7.4 26.58 9.6 25.71 33 to 42 13.5 9.3 33.27 .1 33.19 ---------------------------------------------------------------------- $ 9 to 42 68.1 6.7 $23.86 24.4 $18.50 ====================================================================== 55 ---------------------------------------------------------------------- CAPITAL STOCK ---------------------------------------------------------------------- PER COMMON SHARE INFORMATION Income used in the computation of per common share information was reduced by preferred stock cash dividends (net of tax benefits). In 1995, it was also reduced by $3.9 million for the one-time effect of the Company's offer to exchange its Series E 7.72% Cumulative Preferred Stock for subordinated debt securities completed on June 30, 1995, and by an additional $.4 million for the effect of the Company's repurchase of additional Series E preferred stock in the third quarter. Adjusted net income was divided by the weighted average shares of common stock outstanding during each year (in millions): 1995--701.5; 1994--701.8; 1993--711.8. Including the effect of potentially dilutive securities, fully diluted earnings per common share amounts and increases were: 1995--$1.92, 18%; 1994--$1.63, 16%; 1993--$1.41, 12%. 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. On June 30, 1995, the Company completed an exchange of approximately 5.2 million depositary shares, representing 2,600 shares of Series E 7.72% Cumulative Preferred Stock, for subordinated debt securities. In the third quarter of 1995, the Company repurchased approximately .5 million depositary shares equivalent to 250 shares of Series E 7.72% Cumulative Preferred Stock. 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 had a liquidation preference of $14.375 and $16.5625, respectively, and was convertible to a minimum of .7692 and .8 common share (conversion rate), respectively. Upon termination of employment, employees were 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 was entitled to one vote and was redeemable at the option of the Company. In 1992, 8.2 million Series B shares were converted into 6.4 million common shares. During 1995, the remaining 5.2 million Series B shares and 5.8 million Series C shares were converted into 8.7 million common shares. 56 COMMON EQUITY PUT OPTIONS During May and June 1995, the Company sold 1.5 million common equity put options which expired unexercised in August and September. In August 1995, the Company sold .5 million common equity put options of which .4 million were exercised and .1 million expired unexercised in October 1995. 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 February 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, 2.0 million common equity put options issued by the Company in December 1992, having an exercise price of $94.0 million, expired unexercised. In April 1993, the Company also sold 1.0 million common equity put options which expired unexercised in July 1993. 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, 1995, 2.1 million shares of the Series A Junior Participating Preferred Stock were reserved for issuance under this plan. 57 QUARTERLY RESULTS (UNAUDITED)
(In millions of dollars, except per common share data) - --------------------------------------------------------------------------------------------------------------------------------- Quarters ended December 31 September 30 June 30 March 31 1995 1994 1995 1994 1995 1994 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- SYSTEMWIDE SALES $7,734.4 $6,964.0 $7,866.6 $6,944.0 $7,641.3 $6,370.2 $6,671.6 $5,709.2 REVENUES Sales by Company-operated restaurants $1,812.2 $1,586.8 $1,811.9 $1,551.8 $1,727.8 $1,409.3 $1,511.6 $1,244.7 Revenues from franchised restaurants 773.3 683.3 768.2 673.6 739.8 620.0 649.7 551.3 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 2,585.5 2,270.1 2,580.1 2,225.4 2,467.6 2,029.3 2,161.3 1,796.0 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 1,476.8 1,267.7 1,448.0 1,231.3 1,389.7 1,128.6 1,233.2 1,017.4 Franchised restaurants 137.2 117.8 131.7 111.7 127.8 105.6 118.2 100.4 General, administrative and selling expenses 341.4 309.4 314.1 277.1 305.4 257.0 275.4 239.5 Other operating (income) expense--net (16.0) (0.6) (35.8) (32.6) (41.7) (30.3) (12.2) (20.4) - --------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 1,939.4 1,694.3 1,858.0 1,587.5 1,781.2 1,460.9 1,614.6 1,336.9 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 646.1 575.8 722.1 637.9 686.4 568.4 546.7 459.1 - --------------------------------------------------------------------------------------------------------------------------------- Interest expense 87.7 80.1 86.1 80.2 85.4 73.6 81.0 71.8 Nonoperating income (expense)--net (18.8) (24.1) (26.5) (16.6) (16.1) 1.7 (30.6) (9.9) - --------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 539.6 471.6 609.5 541.1 584.9 496.5 435.1 377.4 - --------------------------------------------------------------------------------------------------------------------------------- Provision for income taxes 172.8 162.7 209.4 191.3 205.2 174.2 154.4 134.0 - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 366.8 $ 308.9 $ 400.1 $ 349.8 $ 379.7 $ 322.3 $ 280.7 $ 243.4 ================================================================================================================================= NET INCOME PER COMMON SHARE $ .51 $ .43 $ .56 $ .48 $ .52 $ .44 $ .39 $ .33 - --------------------------------------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $.06 3/4 $ .06 $.06 3/4 $ .06 $.06 3/4 $ .06 $ .06 $.05 3/8 - --------------------------------------------------------------------------------------------------------------------------------- /TABLE 58 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, 1995. 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, 1995. 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, 1995. 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, 1995. 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. 59 McDonald's Corporation Exhibit Index (Item 14) Exhibit Number Description -------------- ----------- (3) Restated Certificate of Incorporation and By-Laws, dated as of November 15, 1994, incorporated herein by reference from Exhibit 3 of Form 10-K for the year ended December 31, 1994. (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) 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. (iii) 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. (iv) 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. (v) 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. 60 Exhibit Number Description -------------- ----------- (vi) 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. (vii) 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. (viii)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. (ix) 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. (x) Medium-Term Notes, Series E, due from nine months to 60 years from date of issue. Form of Supplemental Indenture No. 22, incorporated herein by reference from Exhibit (4) of Form 10-Q for the period ended June 30, 1995. (xi) 6-5/8% Notes due September 1, 2005. Form of Supplemental Indenture No. 23 incorporated herein by reference from Exhibit 4(a) of Form 8-K dated September 5, 1995. (xii) 7.05% Debentures due 2025. Form of Supplemental Indenture No. 24 incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated November 13, 1995. (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. 61 Exhibit Number Description -------------- ----------- (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. (f) 8.35% Subordinated Deferrable Interest Debentures due 2025. Indenture incorporated herein by reference from Exhibit 99.1 of Schedule 13E-4/A Amendment No. 2 dated July 14, 1995. (10) Material Contracts (a) Directors' Stock Plan, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1994.* (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, as amended and restated, attached hereto as an Exhibit.* (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) 1992 Stock Ownership Incentive Plan, incorporated herein by reference from Exhibit B on pages 29-41 of McDonald's 1995 Proxy Statement and Notice of 1995 Annual Meeting of Shareholders dated April 12, 1995*. 62 Exhibit Number Description -------------- ----------- (f) McDonald's Corporation Deferred Incentive Plan, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1994.* (g) Non-Employee Director Stock Option Plan, incorporated by reference from Exhibit A on pages 25-28 of McDonald's 1995 Proxy Statement and Notice of 1995 Annual Meeting of Shareholders dated April 12, 1995.* (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 The following reports on Form 8-K were filed for the last quarter covered by this report, and subsequently up to March 29, 1996. Financial Statements Date of Report Item Number Required to be Filed -------------- ----------- -------------------- 11/13/95 Item 5 No 10/19/95 Item 7 No 01/25/96 Item 7 No 63 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/s/ Jack M. Greenberg ---------------------- Jack M. Greenberg Vice Chairman, Chief Financial Officer Date March 29, 1996 ---------------------- 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 on the 29th day of March, 1996: Signature Title --------- ----- /s/ Hall Adams, Jr. ------------------------- Director Hall Adams, Jr. /s/ Robert M. Beavers, Jr. ------------------------- Senior Vice President Robert M. Beavers, Jr. and Director /s/ James R. Cantalupo ------------------------- President and Chief Executive James R. Cantalupo Officer-International and Director /s/ Gordon C. Gray ------------------------- Director Gordon C. Gray /s/ Jack M. Greenberg ------------------------- Vice Chairman, Jack M. Greenberg Chief Financial Officer and Director 64 Signature Title --------- ----- ------------------------- Director Donald R. Keough /s/ Donald G. Lubin ------------------------- Director Donald G. Lubin ------------------------- Director Andrew J. McKenna /s/ Michael R. Quinlan ------------------------- Chairman, Chief Executive Michael R. Quinlan Officer and Director /s/ Edward H. Rensi ------------------------- President and Chief Executive Edward H. Rensi Officer-U.S.A. and Director /s/ Terry L. Savage ------------------------- Director Terry L. Savage ------------------------- Senior Executive Vice Paul D. Schrage President, Chief Marketing Officer and Director ------------------------- Director Ballard F. Smith ------------------------- Director Roger W. Stone /s/ Robert N. Thurston ------------------------- Director Robert N. Thurston ------------------------- Senior Chairman and Director Fred L. Turner /s/ B. Blair Vedder, Jr. ------------------------- Director B. Blair Vedder, Jr. /s/ Michael L. Conley ------------------------- Senior Vice President, Michael L. Conley Controller EX-10 2 MCDONALD'S CORP PROFIT SHARING PROGRAM EXHIBIT 10(b) McDONALD'S CORPORATION PROFIT SHARING PROGRAM As amended and restated effective January 1, 1996 McDONALD'S CORPORATION PROFIT SHARING PROGRAM Summary of Contents Page ARTICLE I - DEFINITIONS 1.1 "Account"......................................... 3 1.2 "Active Participant".............................. 6 1.3 "Affiliated Service Group"........................ 7 1.4 "Authorized Leave of Absence"..................... 9 1.5 "Auxiliary ESOP".................................. 9 1.6 "Beneficiary"..................................... 9 1.7 "Board of Directors".............................. 9 1.8 "Break in Service"................................ 9 1.9 "Committee"....................................... 9 1.10 "Commonly Controlled Corporation"................. 9 1.11 "Commonly Controlled Entity"...................... 9 1.12 "Company"......................................... 9 1.13 "Company Stock"................................... 10 1.14 "Considered Compensation"......................... 10 1.15 "Credited Service"................................ 12 1.16 "Disability"...................................... 13 1.17 "Disqualified Person"............................. 13 1.18 "Domestic Affiliate".............................. 13 1.19 "Effective Date".................................. 13 1.20 "Eligibility Computation Period".................. 13 1.21 "Eligibility Service"............................. 14 1.22 "Employee"........................................ 13 1.23 "Employer"........................................ 14 1.24 "Employer Contributions".......................... 14 1.25 "Entry Date"...................................... 15 1.26 "ERISA"........................................... 15 1.27 "Five Percent Owner".............................. 15 1.28 "Foreign Affiliate"............................... 15 1.29 "Forfeiture"...................................... 15 1.30 "Highly Compensated Employee"..................... 15 1.31 "Hour of Service"................................. 17 1.32 "Internal Revenue Code"........................... 21 1.33 "Investment Fund"................................. 21 1.34 "Leased Employee"................................. 21 1.35 "Leveraged ESOP".................................. 21 1.36 "Leveraged ESOP Suspense Account.................. 21 1.37 "Licensee"........................................ 22 1.38 "McDESOP"......................................... 22 1.39 "Non-highly Compensated Employee"................. 22 1.40 "Parental Leave".................................. 22 1.41 "Participant"..................................... 22 1.42 "Participant Contributions"....................... 23 1.43 "Participant Elected Contributions"............... 23 1.44 "Party in Interest"............................... 23 1.45 "Program"......................................... 23 1.46 "Plan Administrator............................... 23 1.47 "Plan Year"....................................... 23 1.48 "Profit Sharing Plan"............................. 23 1.49 "Qualified Preretirement Survivor Annuity"........ 23 1.50 "Related Plan".................................... 24 1.51 "Required Beginning Date"......................... 24 1.52 "Rollover"........................................ 24 1.53 "STIF Fund"....................................... 24 1.54 "Stock Sharing"................................... 25 1.55 "Subsidiary"...................................... 25 1.56 "Termination of Employment"....................... 25 1.57 "Top Paid Group".................................. 25 1.58 "Trust"........................................... 25 1.59 "Trust Agreement"................................. 25 1.60 "Trustee"......................................... 26 1.61 "Trust Fund"...................................... 26 1.62 "Valuation Date".................................. 26 1.63 "Vesting Retirement Date"......................... 26 1.64 "Year of Credited Service"........................ 26 1.65 "Year of Eligibility Service"..................... 26 ARTICLE II - PARTICIPATION 2.1 Participation..................................... 27 2.2 Certification of Participation and Compensation to Committee...................................... 27 2.3 Termination of Employment, Break in Service, Reemployment and Change in Employment Status...... 27 2.4 Employees of Foreign or Domestic Affiliates....... 28 2.5 Leased Employee................................... 28 ARTICLE III - PROFIT SHARING PLAN EMPLOYER CONTRIBUTIONS 3.1 Profit Sharing Contributions...................... 29 3.2 Payment of Contributions Made Pursuant to Article III....................................... 30 ARTICLE IV - McDESOP EMPLOYER CONTRIBUTIONS 4.1 Amount of Employer Matching Contributions......... 31 4.2 Leveraged ESOP Contributions...................... 33 4.3 Annual Employer Contribution Elections............ 35 4.4 Additional Employer Contributions................. 36 4.5 Payment of Contributions Made Pursuant to Article IV........................................ 36 4.6 Form of Contributions............................. 37 ARTICLE V - PARTICIPANT ELECTED CONTRIBUTIONS 5.1 Participant Elected Contributions................. 38 5.2 Restrictions on Participant Elected Contributions. 39 5.3 Allocation of Income to Certain Distributed Amounts........................................... 42 5.4 Multiple Use of Alternative Limitations........... 43 5.5 Excess Compensation Reduction Elections........... 44 5.6 Deadline for Participant Elected Contributions.... 45 5.7 Application of the Limitations of Sections 5.2(c), 5.2(e), 4.1(c), 5.4 and 9.1............... 45 ARTICLE VI - LEVERAGED AUXILIARY ESOP PROVISIONS 6.1 Power to Borrow................................... 47 6.2 Accounting for Loan Proceeds and Leveraged ESOP Contributions..................................... 48 6.3 Release from Leveraged ESOP Suspense Account...... 48 6.4 Installment Payments on Exempt Loan............... 50 6.5 Non-Terminable Rights and Protections............. 51 6.6 Independent Appraisals Required................... 52 ARTICLE VII - ALLOCATIONS OF CONTRIBUTIONS 7.1 Profit Sharing Contribution Allocation Formula.... 53 7.2 Employer Matching Contributions, Additional Employer Contributions and Special Section 401(k) Employer Contributions............................ 54 7.3 Leveraged ESOP Contributions...................... 55 7.4 Participant Elected Contributions................. 56 7.5 Timing of Allocations............................. 56 ARTICLE VIII - ROLLOVER CONTRIBUTIONS AND TRUSTEE TRANSFERS 8.1 Participant Rollovers............................. 57 8.2 Limited Participation............................. 57 8.3 Withdrawal of Rollovers........................... 57 8.4 Rollover Not Forfeitable.......................... 57 ARTICLE IX - LIMITATIONS ON CONTRIBUTIONS BECAUSE OF FEDERAL LEGISLATION 9.1 Limitations on Contributions...................... 58 9.2 Employer Contribution Reductions.................. 62 ARTICLE X - TRUSTEE AND TRUST FUNDS 10.1 Trust Agreements.................................. 63 10.2 Trustee's Duties.................................. 63 10.3 Trust Expenses.................................... 63 10.4 Trust Entity...................................... 63 10.5 Right of the Employers to Trust Assets............ 63 10.6 Trust Investment Funds............................ 64 10.7 Investment of Participant's Employer Profit Sharing Contributions............................. 67 10.8 Investment Election with Regard to a Participant's Profit Sharing, Diversification, Investment Savings and Rollover Accounts............................. 67 10.9 Failure to Make an Investment Election............ 68 10.10 Diversification of McDESOP and Leveraged ESOP Contributions..................................... 69 10.11 Effective Date of Participant's Investment and Diversification Elections......................... 73 10.12 Trust Income...................................... 73 10.13 Adjustment of Participant Account Balances and Leveraged ESOP Suspense Accounts.................. 73 10.14 Allocation of Income to Holding Funds............. 75 10.15 Separate Accounting in the Trust Fund............. 75 10.16 Trust Investment.................................. 75 10.17 Separate Accounting for Leveraged ESOP Suspense Account........................................... 75 10.18 Correction of Error............................... 76 10.19 Statement of Accounts............................. 76 10.20 Purchase or Sale of Company Stock................. 76 10.21 Shareholder Rights in Company Stock............... 77 10.22 Cash Distributions with Respect to Company Stock.. 79 10.23 Holding Funds..................................... 79 ARTICLE XI - DISTRIBUTION OF BENEFITS 11.1 Distributions, General............................ 81 11.2 Payment of Net Balance Account on Disability, or on Retirement or Other Termination of Employment.. 81 11.3 Payment of Net Balance Account on Death of Participant....................................... 91 11.4 Vesting and Forfeitures...........................95 11.5 Payment of Employer Profit Sharing Contribution for Year of Termination of Employment.............98 11.6 Designation of Beneficiary and Form of Beneficiary Benefit...............................98 11.7 Incompetency, Distribution of Benefits............99 11.8 Deduction of Taxes from Accounts Payable..........100 11.9 Deadline for Payment of Benefits..................100 11.10 Spousal Consent to a Beneficiary or a Waiver......100 11.11 Single Sum Payment without Election...............101 11.12 Installment Payments..............................101 11.13 Required Minimum Distributions to Employed Participants......................................103 11.14 Transitional Rules................................104 11.15 Sale of Restaurant - Special Vesting Rules........104 11.16 In-Service Withdrawals............................105 11.17 Direct Rollovers..................................106 ARTICLE XII - SUBSIDIARY PARTICIPATION 12.1 Adoption of Program and Trust.....................109 12.2 Withdrawal from Program by Participating Employer..........................................109 ARTICLE XIII - ADMINISTRATION OF The Program 13.1 Appointment and Removal of, and Resignation by, Trustee...........................................111 13.2 Appointment of Committee; Tenure in Office........111 13.3 Named Fiduciaries.................................111 13.4 Delegation of Responsibilities....................112 13.5 Committee Duties..................................112 13.6 Committee Action by Majority -- Authorization of Members to Execute Documents......................113 13.7 Secretary.........................................114 13.8 Member as Participant.............................114 13.9 Rules and Decisions...............................114 13.10 Agents and Counsel................................114 13.11 Authorization of Benefit Distribution.............114 13.12 Claims Procedure..................................114 13.13 Information to be Furnished to Committee..........115 13.14 Plan Administrator................................116 13.15 Fiduciary as Participant..........................116 13.16 Fiduciary Responsibility..........................116 ARTICLE XIV - AMENDMENT, TERMINATION, MERGER AND CONSOLIDATION OF PLAN 14.1 Amendment.........................................117 14.2 Termination of Program By the Company.............117 14.3 Merger, Consolidation, or Transfer of Assets......118 14.4 Transfer of Assets from Plans of Subsidiaries.....118 ARTICLE XV - TOP HEAVY PROVISIONS 15.1 Application.......................................120 15.2 Special Top Heavy Definitions.....................120 15.3 Special Top Heavy Provisions......................127 ARTICLE XVI - MISCELLANEOUS PROVISIONS 16.1 Headings..........................................131 16.2 Indemnification...................................131 16.3 Employees' Trust..................................131 16.4 Nonalienation of Benefits.........................131 16.5 Qualified Domestic Relations Order................132 16.6 Unclaimed Amounts.................................133 16.7 Maximum Age Condition.............................135 16.8 Invalidity of Certain Provisions..................135 16.9 Gender and Number.................................135 16.10 Law Governing.....................................136 MCDONALD'S CORPORATION PROFIT SHARING PROGRAM History. 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 "Program"). The Program was subsequently amended from time to time and was amended and restated effective July 1, 1992. The McDonald's Stock Sharing Plan ("Stock Sharing Plan") was amended and restated effective January 1, 1989. The Stock Sharing Plan was merged into the Program effece after the close of business on December 2199995. After the merger, the Stock Sharing portion of the Program continued to be controlled by the McDonald's Stock Sharing Plan, as amended and restated effective JJaanuary 1, 1989 and the Profit Sharing portion of the Program continued to be controlled by the McDonald's Corporation Profit Sharing Program, as amended and restated effective January 1, 1992 until January 1, 1996, the effective date of this restatement. The assets of the McDonald's Stock Sharing Trust were transferred to the McDonald's Matching and Deferred Stock Ownership Trust on or after December 29, 1995 until such time as there were no remaining assets and the Trust ceased to exist. The Program is hereby amended and restated in one Plan document effective January 1, 1996, except as otherwise specifically provided herein. Structure and Purpose. The Program has four component portions, (1) 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, (2) the McDESOP portion which is intended to meet the requirements for a stock bonus plan and a cash or deferred arrangement under Sections 401(a) and 401(k) of the Internal Revenue Code, (3) the Leveraged ESOP portion which is intended to meet the requirements of a stock bonus plan and a leveraged employee stock ownership plan under Sections 401(a) and 4975(e)(7) of the Internal Revenue Code and (4) the Stock Sharing portion which is intended to meet the requirements of a stock bonus plan and a tax credit ESOP in accordance with Sections 401(a) and 409 of the Internal Revenue Code and Section 41 of the Internal Revenue Code before its repeal with respect to compensation paid or accrued after December 31, 1986. Each portion of the Program 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 Leveraged ESOP portion of the Program and the Stock Sharing portion of the Program shall be invested primarily in qualifying employer securities as defined in Section 409(l) of the Internal Revenue Code. Application of Provisions. 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 Program 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 Program as amended and restated herein applies to persons who are Employees on and after January 1, 1996. Eligibility, benefits, payment of benefits and the amount of benefits, if any, of a person whose employment with an Employer terminated before January 1, 1996, and who is not rehired by an Employer on or after January 1, 1996, shall, except as otherwise specifically provided herein, be determined in accordance with the provisions of the Program, the Stock Sharing 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. 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 Program, and the income, profits and increments thereon less all losses, expenses and distributions chargeable thereto. (a) Each Participant may have one or more of the following Accounts in the Profit Sharing portion of the Program ("Profit Sharing Accounts") which shall be held in the Trust Fund: (1) "Investment Savings Account," to which shall be credited the Participant's after tax Participant Contributions to the Profit Sharing Plan which were made before January 1, 1987. (2) "Profit Sharing Account," to which shall be credited each Participant's share of Employer Profit Sharing Contributions with respect to the Profit Sharing Plan allocated in accordance with Section 7.1. A Participant's Profit Sharing Account shall include his "Pre-Break Profit Sharing Account" and his "Post-Break Profit Sharing Account" pursuant to Section 11.4(e), if applicable. (3) "Profit Sharing Holding Account," to which shall be credited the Participant's share of Employer Profit Sharing Contributions until such contributions shall be removed and invested in accordance with Sections 10.7 and 10.8 as of each February 1. (4) "Rollover Account," to which shall be credited the balance of the Participant's Rollover Holding Account as of each Valuation Date. (5) "Rollover Holding Account," to which shall be credited the Participant's Rollover pursuant to Section 8.1 until such contributions are removed and credited to the Participant's Rollover Account at the next Valuation Date occurring at the end of a calendar month in which such contributions were made. (b) Each Participant may have one or more of the following Accounts in the McDESOP portion of the Program ("McDESOP Accounts") 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 Program 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 under the provisions of the Program before January 1, 1996), Additional Employer Contributions, Special Section 401(k) Employer Contributions and any Forfeitures allocated to the Participant in accordance with Section 7.2. (3) The "McDESOP Holding Account" to which shall be credited the Participants' Participant Elected Contributions to the Program until such contributions are credited to the Participants' Participant Elected Contribution Account. (4) The "Matching Contribution Holding Account" to which shall be credited the Participants' Employer Matching Contributions to the Program until such contributions are credited to the Participants' Employer Matching Contribution Account. (c) Each Participant shall have the following accounts in the Leveraged ESOP portion of the Program ("Leveraged ESOP Accounts") which shall be held in the Trust Fund and which shall include: (1) A "Per Capita Leveraged ESOP Contribution Account," to which were credited Company Stock and sssociated dividends attributable to Employer Contributions madn aa Per Capita Basis under the terms of the Program before January 1996. (2) A "Leveraged ESOP Account," to which shall be credited Company Stock released from the Leveraged 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 (3) An "Additional Leveraged ESOP Account," to which shall be credited, in accordance with Section 7.3(b) a Participant's Per Capita Additional Leveraged ESOP Contributions and Forfeitures therefrom and his Compensation Based Additional Leveraged ESOP Contributions and Forfeitures therefrom. (d) Each Participant who has an account in the Stock Sharing Plan may have the following Accounts in the Stock Sharing portion of the Program ("Stock Sharing Accounts") which shall be held in the Trust Fund: (1) A "Participant Contribution Stock Sharing Account," to which shall be credited Participant Matched Contributions made under the Stock Sharing Plan with respect to Plan Years ending on or before December 31, 1982, plus income and gains and less expenses and losses attributable thereto; (2) An "Unmatched Employer Contribution Stock Sharing Contribution Account," to which shall be credited Unmatched Employer Contributions contributed to the Stock Sharing Plan with respect to Plan Years ending on or before December 31, 1982, plus income and gains and less expenses and losses attributable thereto; (3) A "PAYSOP Stock Sharing Contribution Account," to which shall be credited Employer Contributions contributed to the Stock Sharing Plan with respect to Plan Years beginning on or after January 1, 1983 and before January 1, 1987, plus income and gains and less expenses and losses attributable thereto; (4) An "Employer Matching Contribution Account," to which shall be credited Employer Matching Contributions made by an Employer to the Program 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; (5) An "Additional Employer Contribution Account," to which shall be credited (A) 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 (B) with respect to contributions for Plan Years ending after December 31, 1982, contributions to the Stock Sharing Plan in excess of the amount which qualified for tax credit under Section 41(a)(2) of the Internal Revenue Code, plus income and gains and less expenses and losses attributable thereto. (e) Each Participant shall have the following accounts ("Diversification Accounts"), to which shall be credited the respective portions of a Participant's Leveraged ESOP Account, and McDESOP Account, transferred to his Diversification Account pursuant to a Diversification Election made in accordance with Section 10.10. A Participant's Diversification Account shall be part of the McDESOP and Leveraged ESOP portion of the Program, as applicable, but is held in the Profit Sharing Master Trust in order to implement Participant's diversification elections made in accordance with Section 10.10. The Diversification Account shall consist of two sub-accounts as follows: (1) "Leveraged ESOP Diversification Account," to which shall be credited the portions of a Participant's Leveraged ESOP Account transferred to his Leveraged ESOP Diversification Account pursuant to a Diversification Election made in accordance with Section 10.10(a); and (2) "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 Sections 10.10(b) and 10.10(c). (f) "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 Program; and (b) for the purpose of being eligible to share in allocations of Company Stock released from an Leveraged ESOP Suspense Account for a Plan Year, in accordance with Section 6.3(a), and of Additional Leveraged 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 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 Program; and (c) for purposes of the McDESOP portion of the Program, 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" means the Leveraged ESOP portion of the Program and the provisions applicable thereto. 1.6 "Beneficiary" means the person or persons designated by a Participant or the Program, as applicable, in accordance with the provisions of Section 11.3 or 11.6 to receive any benefit which shall be distributable under the Program 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 and any person or committee authorized to act on behalf of the Board of Directors. 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 Program and the Trust. 1.13 "Company Stock" means common or preferred stock of the Company which is a qualifying employer security as defined in (a) Section 4975(e)(8) of the Internal Revenue Code (for purposes of the Leveraged ESOP), (b) Section 409(l) of the Internal Revenue Code (for purposes of the Stock Sharing portion of the Program) and (c) Section 407(d)(5) of ERISA (for the purpose of all portions of the Program). 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 Program as reported in Box 1, for 1995, or the equivalent box on any comparable form for subsequent Plan Years, increased by (i) any amounts by which the Participant's compensation is reduced by Participant Elected Contributions under the McDESOP portion of the Program or any other portion of the Program, and under any portion of any Related Plan which meets the requirements of Section 401(k) of the Internal Revenue Code; and (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 excluding (I) provisions for life insurance; (II) reimbursement for or other payment for expenses related to, moving expenses (including the relocation bonuses); (III) any benefits under the Program 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 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; options, restricted stock, stock appreciation rights, performance units and stock bonuses awarded under the McDonald's 1992 Stock Ownership Incentive Plan, as amended and restated as of July 1, 1995; (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) 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 special termination bonus paid pursuant to a termination agreement and any severance pay; (b) for purposes of top heavy rules in Article XV (except for determining whether a Participant is a Key Employee pursuant to Section 15.2(d)) and for determining the limitations under Code Section 415 in 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, 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 Program 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 Program or any other portion of the Program 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 Program, 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 1, as revised for 1995, 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 Program or any other portion of the Program 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) 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 Program shall not exceed $150,000 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. 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 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 Account or his Leveraged ESOP 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 January 1, 1996. 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 Program, respectively, with respect to contributions to such portions of the Program 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 Program and other provisions of the Program as they relate to the Profit Sharing Plan portion of the Program 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, pursuant to Section 12.1, elects to adopt the Profit Sharing Plan portion of the Program; and (b) for purposes of the Leveraged ESOP portion of the Program, the Company and any Commonly Controlled Corporation which, pursuant to Section 12.1, elects to adopt the Leveraged ESOP portion of the Program on or after January 1, 1989; and (c) for purposes of the Stock Sharing portions of the Program, the Company and any Commonly Controlled Corporation which had adopted the McDonald's Stock Sharing Plan before January 1, 1989. 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); (b) "Employer Matching Contributions" made pursuant to Section 4.1; (c) "Special Section 401(k) Employer Contributions" made pursuant to Section 4.3(b); (d) "Leveraged ESOP Contributions" made pursuant to Section 4.2; (e) "Additional Employer Contributions" made pursuant to Section 4.4; (f) "Special Dividend Replacement Contributions" made pursuant to Section 4.2(d). (g) "Unmatched Employer Stock Sharing Contributions," "Employer Contributions", "Employer Matching Contributions," and "Additional Employer Contributions" made to the Stock Sharing Plan at various dates with respect to periods before January 1, 1987 as provided in Section 1.1(d). 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 Account which is forfeited as provided in Section 11.4, his Leveraged ESOP 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 $100,000 (for 1996, 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 $100,000 (for 1996, 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 $66,000 (for 1996, 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 ($120,000 in 1996, 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 $100,000 (for 1996, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate); (3) received Considered Compensation in excess of $66,000 (for 1996, 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 ($120,000 for 1996, 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) "$66,000" (in 1996, adjusted in subsequent years provided by the Secretary of the Treasury or his delegate) for "$100,000" (in 1996, 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 Program (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 Program. 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"). For the purposes of this Section 1.31(b)(1)(B), a sale of assets or stock to a Domestic or Foreign Affiliate that is not an Employer under the Program shall not be considered a Company Initiated Transfer with respect to employees employed solely with respect to such assets or stock who become employees of such purchasing Domestic or Foreign Affiliate immediately after such sale, provided that the decisions concerning such employment are made by an entity which is not more than 50 percent owned by an Employer. 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 Program 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 Profit Sharing Holding Fund pursuant to Section 10.23, (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 and Leveraged ESOP portions of the Trust Fund shall be held in the McDESOP McDonald's Common Stock Fund provided, however, that separate subaccounts shall be maintained of the amount of Company Stock held in the McDESOP McDonald's Common Stock Fund and allocated to Participants' Stock Sharing Accounts, Participant Elected Contribution Accounts, Employer Matching Contribution Accounts and Leveraged ESOP Accounts, in the latter case accounting separately for the Company Stock purchased with each Loan (or Company Stock into which the Company Stock purchased with the Loan has been converted). 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 "Leveraged ESOP" means the portion of the Program consisting of Participants' Leveraged ESOP Accounts, and Additional Leveraged ESOP Accounts. 1.36 "Leveraged ESOP Suspense Account" means the separate accounts maintained by the Committee pursuant to Section 6.2. All Employer Leveraged ESOP Contributions made with respect to a Loan and the dividends with respect to Employer Stock purchased with such Loan (and the Employer Stock into which such stock has been converted) including dividends which have been replaced in Participant's Leveraged ESOP Accounts by Dividend Replacement Contributions shall be held and accounted for within the separate Leveraged ESOP Suspense Account. 1.37 "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. 1.38 "McDESOP" means the portion of the Program consisting of Participants' Participant Elected Contribution Accounts and Employer Matching Contribution Accounts, McDESOP Holding Accounts, Matching Contribution Holding Account and McDESOP Diversification Accounts. 1.39 "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. 1.40 "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. 1.41 "Participant" means a person participating in the Program in accordance with the provisions of Article II. 1.42 "Participant Contributions" means (a) 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 Account and (b) Participant Matched Contributions made under the Stock Sharing Plan with respect to Plan Years ending on or before December 31, 1983 and credited to his Participant Contribution Stock Sharing Account. 1.43 "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. 1.44 "Party in Interest" means a person defined in Section 3(14) of ERISA. 1.45 "Program" means the McDonald's Corporation Profit Sharing Program as herein set forth, and as hereafter amended from time to time, including its four components: (i) the Profit Sharing Plan, McDESOP, the Leveraged ESOP and Stock Sharing. 1.46 "Plan Administrator" means the Plan Administrator appointed under or by the provisions of Section 13.14. 1.47 "Plan Year" means the 12-month period commencing on January 1 and ending on December 31. 1.48 "Profit Sharing Plan" means the portion of the Program consisting of Participants' Profit Sharing Accounts, Rollover Accounts, Rollover Holding Accounts, Investment Savings Accounts and of the Profit Sharing Holding Fund. 1.49 "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). 1.50 "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." 1.51 "Required Beginning Date" means April 1 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. 1.52 "Rollover" 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 Holding Fund Account, in accordance with Section 8.1., Rollovers 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 Rollovers made in compliance with Section 401(a)(31) of the Internal Revenue Code. 1.53 "STIF Fund" means the Northern Trust Company Collectively 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. 1.54 "Stock Sharing" means the portion of the Program consisting of Participants' Stock Sharing Accounts as identified in Section 1.1(d). 1.55 "Subsidiary" shall mean any corporation affiliated with the Company within the meaning of Section 1504 of the Internal Revenue Code. 1.56 "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. 1.57 "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. 1.58 "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, Rollovers, Participant Elected Contributions, the proceeds of any loan made pursuant to Article VI, Employer Leveraged ESOP Contributions the Leveraged ESOP Suspense Account, any Company Stock purchased therewith, amounts held in Participants' Stock Sharing Accounts and any net income and profits thereon shall be received, held, invested and distributed to or for the benefit of the Participants and Beneficiaries. 1.59 "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 ("McDESOP Trust") and effective after December 29, 1995, the McDonald's Stock Sharing Trust for so long as it holds assets of the Program ("Trust") and until such assets are transferred to the McDESOP Trust, as amended from time to time and such additional trust agreements as the Company and the Trustee shall establish under the Program. 1.60 "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. 1.61 "Trust Fund" means all property received and held by a Trustee pursuant to a Trust Agreement for the Program. 1.62 "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 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. 1.63 "Vesting Retirement Date" means the date on which a Participant attains age 55. 1.64 "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. 1.65 "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 Profit Sharing Program or the McDonald's Stock Sharing Plan on the day before the Effective Date, shall continue to be a Participant hereunder. Each other Employee shall become a Participant in the Program on the first Entry Date coinciding with or next following the date he completes one Year of Eligibility Service and attains age 21; provided that each Participant who is a certified swing manager, primary maintenance employee, crew member or other store hourly employee shall only become a Participant solely for purposes of the Profit Sharing Plan and the McDESOP portions of the Program. Admission to participation in the Program 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 for purposes other than being an Active Participant as provided in Sections 1.2(a) and 1.2(c) 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. Notwithstanding the foregoing, each Participant is a participant only with respect to the portions of the Program which have been adopted by his Employer and no additional Participants shall enter the Stock Sharing portion of the Plan. 2.2 Certification of Participation and Compensation to Committee. Each Employer shall certify to the Committee, within a reasonable time before 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 ("Rehired Employee"), and who completes one Year of Eligibility Service following such Break in Service shall become a Participant retroactively to the day of such Rehired Employee's Retroactive Participation Date (as defined in the following sentence) provided that such Rehired 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; and further 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. Notwithstanding the foregoing provisions of this Section 2.3, a Rehired Employee who has a Participant Elected Contribution Account shall have his Participant Elected Contributions reinstated at the same level as was in effect at the time of his Termination of Employment subject to any new election made by such Participant pursuant to Section 5.1 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. 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 Program 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, described in Section 3.1(a)(1), of all Employers; 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, described in Section 3.1(a)(2), of all Employers. 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, if any, for each Plan Year shall be held in the Profit Sharing Holding Fund and, if contributed in cash, invested in the STIF 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 Accounts and invest them in accordance with Section 10.7, 10.8 or 10.9(a), as applicable. ARTICLE IV McDESOP and LEVERAGED 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 after any charges to Forfeitures provided hereunder, (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. (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 and such amount of 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. Solely for purposes of the Average ACP test the Committee shall have the discretion to determine the portion of a Participant's (or selected group of Participant's) Employer Matching Contributions (and Forfeitures), Special Section 401(k) Employer Contributions or Participant Elected Contributions to be counted in calculating the Participant's average contribution percentage and in making such determination shall be under no obligation to treat similarly situated Participants in a like manner so long as the following requirements (to the extent applicable) are satisfied: (1) The amount of Special Section 401(k) Employer Contributions is non-discriminatory under Code Section 401(a)(4); (2) The amount of Participant Elected Contributions, including any Participant Elected Contributions counted for purposes in calculating Participants' average contribution percentages, shall satisfy the requirements of Code Section 401(k)(3); (3) The Special Section 401(k) Contributions are allocated to the Participant as of a date within the Plan Year and the Participant Elective Contributions satisfy the requirements of Treas. Reg. Section 1.401(k)-1(b)(4)(i) for the Plan Year. A Participant's Employer Matching Contributions, Special Section 401(k) Contributions or Participant Elected Contributions which are counted for purposes of the Required ADP Test pursuant to Section 5.2(e) shall not be counted for purposes of calculating such Participant's average contribution percentage. (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 not exceeding the amounts in both 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) or (c)(2) above. The Committee shall make any distributions necessary for the Program 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 Leveraged ESOP Contributions. Leveraged ESOP Contributions shall be made by Employers, as follows: (a) Company Leveraged 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 Leveraged ESOP Contributions, such amounts (if any) as shall be determined by the Board of Directors, provided, however, the Company's Leveraged 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 (including 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 (including Company Stock into which such shares have been converted) held in Participants' Leveraged ESOP Accounts acquired with the proceeds of such loan (or any Loan refinanced with such loan) and earnings attributable to such dividends and to Leveraged 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 Leveraged 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' Leveraged ESOP 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) Leveraged ESOP Contributions by Other Employers. Each Employer that has adopted the Leveraged ESOP portion of the Plan (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 Leveraged 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) Additional Leveraged ESOP Contributions. The Board of Directors may, in its discretion, determine that Additional leveraged ESOP Contributions shall be made for a Plan Year in Company Stock and designate such contributions as Per Capita Additional Leveraged ESOP Contributions or Compensation Based Additional Leveraged ESOP Contributions (collectively called "Additional Leveraged ESOP Contributions"). The Company shall make such Additional Leveraged ESOP Contributions in an amount equal to the total Additional Leveraged 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 Leveraged ESOP (other than the Company) shall contribute to the Trust as Additional Leveraged 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 Leveraged ESOP Contribution and the denominator of which is the Compensation paid by the Company to Employees while they were Active Participants. (d) 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 Leveraged 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. 4.3 Annual Employer Contribution Elections. (a) Minimum and Maximum Amount of Participant Elected Matched 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) six percent (6%) of the Participant's Considered Compensation if the Participant is a staff or an executive employee or a store manager, (2) ten percent (10%) of the Participant's Considered Compensation if the Participant is a Certified Swing Manager or primary maintenance employee, and (3) 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 Program 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 McDESOP and Leveraged ESOP Holding Fund until allocated to Participant's Accounts as provided in Sections 7.2(a), 7.2(b) and 7.2(c), respectively. Participant Elected Contributions shall be invested in the McDESOP McDonald's Common Stock Fund and held in the McDESOP and Leveraged ESOP 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 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. At each quarterly Valuation Date, the amount of a Participant's Participant Elected Matched Contributions shall be redetermined by recharacterizing any Participant Elected Unmatched Contributions as Participant Elected Matched Contributions to the extent in the Plan Year to date taking into account all of the Participant's Participant Elected Matched Contributions and his Considered Compensation in the Plan Year through the Valuation Date, the Participant has not made the maximum permitted Participant Elected Matched Contributions for Participants in the same category as the Participant. 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 Program 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 Program, 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 Program 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 $9,500 (in 1996 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 Program 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 Program, 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 amount 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. Solely for purposes of calculating the Average ADP the Committee shall have the discretion to determine the portion of a Participant's (or selected group of Participant's) Participant Elected Contributions, Employer Matching Contributions or Special Section 401(k) Employer Contributions to be counted in calculating the Participant's Actual Deferral Percentage and in making such determination shall be under no obligation to treat similarly situated Participants in a like manner so long as the following requirements (to the extent applicable) are satisfied: (1) The amount of Special Section 401(k) Employer Contributions treated as Participant Elected Contributions for purposes of calculating the Average Deferral Percentage shall satisfy the requirements of Section 401(a)(4); (2) The amount of Special Section 401(k) Employer Contributions treated as Participant Elected Contributions for purposes of the ADP test and those Special Section 401(k) Contributions counted in the calculation of the ACP Test satisfies the requirements of Code Section 401(a)(4); and (3) The Special Section 401(k) Contributions are allocated to Participant's Net Balance Account under the Program as of the last day of the Plan Year for which the ADP test is being calculated. (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 or a portion of the 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 Participant Elected Contribution Account or Employer Matching Contribution Account, in accordance with Section 10.13, 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 reduce prospectively the amount of the Participant Elected Contributions which may be made by an Employer to the McDESOP Trust on behalf of an Active Participant or any specified group of Active Participants who are Highly Compensated Employees by reducing the future contributions made with respect to such Participant's or Participants' elections to the extent the Committee reasonably determines it is necessary to satisfy Section 5.2(e) or 5.4. In making reductions to future Participant Elected Contributions hereunder the Committee, generally, shall have no obligation to treat similarly situated Participants who are Highly Compensated Employees in the same manner and, particularly, shall not be obligated to reduce Participant's future elections in any particular systematic manner based upon the amount of Participant Elected Contributions already made for the Plan Year, the percentage of a Participant's Considered Compensation which Participant Elected Contributions constitute, or the amount or percentage of Considered Compensation which a Participant's effective Participant Elected Contribution election constitutes. (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 Program, secondly, Section 5.2(e) shall be applied to contributions under the Program, thirdly, Section 4.1(c) shall be applied to contributions under the Program, fourthly, Section 5.4 shall be applied to contributions under the Program, and lastly, Section 9.1 shall be applied to contributions under the Program. ARTICLE VI LEVERAGED 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 Program 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 Program is liable. In the event the Trustee's borrowing shall cause a lending of money or other extension of credit to be made between the Program 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 Program, such loan or other extension of credit to the Program 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 Program 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 Program 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 Program other than the collateral, Leveraged 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 Leveraged 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' Leveraged ESOP Accounts; (e) In the event of a default upon the loan, the value of the Program 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 Program to the extent changes in applicable law require or permit. 6.2 Accounting for Loan Proceeds and Leveraged ESOP Contributions. The Committee shall establish with respect to each loan a separate Leveraged 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) Leveraged ESOP Contributions with respect to such loan, (c) any income, gains or losses allocated to the Leveraged 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 Leveraged 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 Leveraged 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 Leveraged 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 Leveraged 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 Leveraged ESOP Accounts, 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 Leveraged 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 Leveraged ESOP Suspense Account immediately before the release increased by the number of shares, if any, previously released from the Leveraged 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 Leveraged 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 Leveraged 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 Leveraged ESOP Suspense Account immediately before the release increased by the number of shares, if any, previously released from the Leveraged 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 Leveraged 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 Leveraged 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 Leveraged 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 Leveraged 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(d) with respect to the loan. (c) Any release from the Leveraged 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 Leveraged 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 Leveraged ESOP Suspense Account, from amounts of Leveraged 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 a Leveraged ESOP Suspense Account and allocated to Participants' Accounts and from dividends or other earnings with respect to the Leveraged ESOP Suspense Account maintained with respect to such loan. (b) Sale of Company Stock Held in Leveraged 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 a Leveraged ESOP Suspense Account are sold prior to release from such Leveraged 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 Program 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 Program 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 Program, whether or not the Program 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 subject to this provision pursuant to Section 11.2(k) 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 Program, 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 Program 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, the Profit Sharing Contributions made pursuant to Section 3.1(b)(1) and the net income gains and losses of the Profit Sharing Holding Fund as provided in Sections 10.13 and 10.14 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 Contributions made pursuant to Section 3.1(b)(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, the Profit Sharing Contributions made pursuant to Section 3.1(b)(2) and the net income gains and losses of the Profit Sharing Holding Fund as provided in Sections 10.13 and 10.14 shall be allocated to the Profit Sharing 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 Contributions made pursuant to Section 3.1(b)(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 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 Holding Fund until allocated to the Profit Sharing 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 Account as provided in Sections 10.7, 10.8 or 10.9. 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 held in the McDESOP and Leveraged ESOP 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 McDESOP and Leveraged ESOP 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 10.15) 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 Program 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. 7.3 Leveraged ESOP Contributions. (a) Leveraged 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 Leveraged ESOP Contributions (or a loan refinanced by such loan) and released from the Leveraged ESOP Suspense Accounts maintained with respect to such loan, any income from such Leveraged ESOP Suspense Accounts released pursuant to Sections 6.2 and 6.3, and any Forfeitures from Leveraged ESOP Accounts for the Plan Year shall be allocated to each Active Participant's Leveraged ESOP 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 Leveraged ESOP Suspense Account pursuant to Section 10.13(b) 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 Leveraged 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. (b) Additional Leveraged ESOP Contributions. Additional Leveraged ESOP Contributions for a Plan Year which were designated in accordance with Section 4.2(c) as Per Capita Additional Leveraged ESOP Contributions (and any Forfeitures therefrom) shall be allocated as of the last Valuation Date of the Plan Year to the Additional Leveraged ESOP Account of each Active Participant in an amount equal to the total amount of Per Capita Additional Leveraged ESOP Contributions (and any Forfeitures therefrom) for the Plan Year divided by the number of Active Participants. Additional Leveraged ESOP Contributions for a Plan Year which were designated in accordance with Section 4.2(c) as Compensation Based Additional Leveraged ESOP Contributions (and any Forfeitures therefrom) shall be allocated as of the last Valuation Date of such Plan Year to the Additional Leveraged ESOP Account of each Active Participant in an amount equal to the total amount of Additional Leveraged 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 Leveraged ESOP Contributions and Compensation Based Additional Employer Leveraged ESOP Contributions shall be separately accounted for in Participants' Additional Leveraged ESOP Accounts. (c) Special Dividend Replacement Contributions. Any Special Dividend Replacement Contributions made to the Program pursuant to Section 4.2(d) shall be credited to Participant's Accounts to replace dividends which pursuant to Section 6.3(b) are credited to the Leveraged 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 McDESOP and Leveraged ESOP 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 10.12, 10.13 and 10.14. Amounts contributed to the Program shall be credited as of the date of contribution to the following Accounts and Funds: Profit Sharing Holding Fund, McDESOP and Leveraged ESOP Holding Fund, and Rollover Holding Account as provided in Section 10.23 and the Leveraged ESOP Suspense Account as provided in Section 6.2. ARTICLE VIII ROLLOVERS AND TRUSTEE TRANSFERS 8.1 Participant Rollovers. A Participant may elect through procedures approved by the Committee to make Rollovers to the Program. If any Rollover includes property other than money, the Trustee may in its sole discretion refuse to accept such Rollover or may condition its acceptance of such Rollover on such terms and conditions as it deems reasonable. Each Participant's Rollover shall be held in his Rollover Holding Account until the next following Valuation Date at which time his Rollover Holding Account is transferred to the Participant's Rollover Account and invested in accordance with his investment elections provided for in Section 10.8. 8.2 Limited Participation. An Employee who is not eligible to participate in the Program 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 Program solely for the limited purpose of making a Rollover subject to the same conditions on such Rollovers as any other Participant. 8.3 Withdrawal of Rollovers. At the election of the Participant, amounts in his Rollover Account and Rollover Holding Account may be withdrawn as provided in Section 11.16. 8.4 Rollover Not Forfeitable. A Participant's Rollover Account and Rollover 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. Rollovers 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 allocated to his Profit Sharing 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 Leveraged ESOP Account) for such Plan Year allocated to the Participant's accounts for such Plan Year under the Program 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 Program 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 provided in Code Section 415(l)(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) $30,000, 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 under the Leveraged ESOP portion of the Program, 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 Leveraged ESOP Contributions used to repay each loan for the Plan Year, 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) 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 Leveraged ESOP 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 Ptiiccipant's Considered Compensation, multiplied by a fraction, the numerator of which is the Participant's allocation to his Leveraged ESOP Account for the Plan Year after applying the Annual Excess reduction provisions hereunder and the denominator of which is such allocation to his Leveraged ESOP 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 Leveraged ESOP Account under the McDESOP portion of the Program, and (B) the sum of the products of the Leveraged ESOP Contributions used to repay each loan for the Plan Year (including the amount used to repay interest on such loans), multiplied by (i) in the case of Leveraged 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 Leveraged ESOP 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 Leveraged ESOP Account for the Plan Year, after applying the Annual Excess reduction provisions hereunder and the denominator of which is such allocation to his Leveraged ESOP Account for the Plan Year before applying the Annual Excess reduction provisions hereunder. (3) The amount of Leveraged 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 Leveraged 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 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) 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. (4) 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. (5) 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. (6) If any Annual Excess remains after application of the preceding paragraph, the Participant's allocations to his Additional Leveraged ESOP Account shall be reduced to the extent such reductions reduce the amount of the Annual Excess. (7) If any Annual Excess remains after application of the preceding paragraph, any Special Dividend Replacement Contributions credited to the Participant's Leveraged ESOP 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 Program 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 Program 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 9.1anndd any such amounts which cannot be reallocad tto 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 Program or a Related Plan before January 1, 1987, shall be counted as Annual Additions only to the extent that they were counted under the Program 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 Program 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 Program, contributions to the Program 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 Program 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 Program, and any and all rights or benefits which may accrue to any person under the Program 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 Program either expressly or by implication shall be deemed to impose any additional powers, duties or responsibilities upon the Trustee. All Employer Contributions, Participant Contributions, Rollovers and Participant Elected Contributions shall be paid into a Trust and all withdrawals permitted and benefits payable under the Program 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 Program and the Trust and the Trustee's fees shall be paid by the Trust and shall be proportionately charged to the Profit Sharing, McDESOP, Leveraged ESOP, Stock Sharing 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 directly charged to that portion of the Trust Fund. 10.4 Trust Entity. The Trust under this Program 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 Program for the exclusive benefit of the Participants or their Beneficiaries and for defraying the reasonable expenses of administering the Program 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 Partipaannts with respect to which such contributions were made. Notwithstanding any other provision of ts SSection 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 Holding Funds, as provided in Section 10.23, assets of the Trust Fund shall be held as follows: (a) Profit Sharing Plan. The assets held in Participant's Profit Sharing Accounts and any amounts held in Participant's Diversification Accounts 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) in contracts issued by an insurance or other company (or companies), (ii) 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 (iii) 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 (iv) may be investment contracts or (v) may be investment management agreements which may provide separate book value guarantees pursuant to which the insurance or other company guarantees (A) the book value of a pool or segregated group of fixed income obligations held in the Insurance Contract Fund and (B) specified amounts of income under various conditions as provided in such agreement ((iv) and (v) collectively shall be referred to as "Assets Subject to Guarantee"). With respect to Assets Subject to Guarantee, the Program 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 according with such guidelines as the Board of Directors may from time to time approve; 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 those banks designated under the McDonald's Corporation Investment Policy. 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, the Insurance Contract Fund, the Money Market Fund, and the Multi-Asset Fund in cash, a short-term investment fund (a "STIF Fund"), 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 or custodian, if the Trustee or custodian is a bank, and common or commingled trust funds invested in such securities, including those of the Trustee or custodian). (b) Leveraged ESOP. The assets of the Leveraged ESOP portion of the Trust (other than any amounts which have been transferred to a Participant's Diversification Account pursuant to Section 10.10) shall be invested in Company Stock which is common stock of McDonald's Corporation held in the McDESOP McDonald's Common Stock Fund, provided that it shall at all times be possible to determine the number of such shares of Company Stock which are allocated to a Participant's Leveraged ESOP Accounts. In order to maintain adequate liquidity, pending the investment of funds, or the use of funds to make payments on a loan, or for funds which could not be appropriately invested eher because of the small amount involved or the orrtt time duration for which the investment is to be made, the Trustee is authorized to hold portions of the Leveraged ESOP in cash, a STIF Fund 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 or custodian, if the Trustee or custodian is a bank, and common or commingled trust funds invested in such securities, including those of the Trustee or custodian). (c) (1) 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 10.10) shall be held in the McDESOP McDonald's Common Stock Fund invested in Company Stock which is common stock of McDonald's Corporation. (2) McDESOP Diversification. Participant Elected Contributions which a Participant has elected to diversify pursuant to Section 10.10 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 10.11 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 10.10 and 10.11 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 10.10 shall be invested in the McDESOP McDonald's Common Stock Fund until the Diversification Election is implemented pursuant to Section 10.11. In the case of future contributions subject to a Diversification Election pursuant to Section 10.10, the Diversification Election shall be implemented as of the next date on which Investment Elections are implemented in accordance with Section 10.8 or 10.9(a), as applicable, after the date such contributions are made to the Program. 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 "Automatic McDonald's Stock Proportion" is a percentage, if any, announced by the Board of Directors for the Plan Year. 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 10.9, 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. (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 10.9, as applicable. 10.8 Investment Election with Regard to a Participant's Profit Sharing, Diversification, Investment Savings and Rollover Accounts. Four times each Plan Year (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 each of (a) his Profit Sharing 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, (b) his Investment Savings Account, or (c) his Rollover Account 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 from time to time 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 Leveraged ESOP Diversification Election, McDESOP Future Contribution Diversification Election, or McDESOP Diversification Election in accordance with Section 10.10, his Diversification Account, if any, shall be invested in accordance with his Profit Sharing Account investment election in effect at the time his diversification election is effective or in accordance with Section 10.9(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 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 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. 1100.9 Failure to Make an Investment Election. (a) Profit Sharing Account IIf a Participant fails to make an investment election for his Profit Sharing 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 Account, the Participant's LESOP Diversification Account and the McDESOP Diversification Account shall be invested one hundred percent (100%) in the Money Market Fund. (b) Investment Savings Fund Account and Rollover Account. If a Participant fails to make an investment election for his Investment Savings Account and/or his Rollover 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. 10.10 Diversification of McDESOP and Leveraged ESOP 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 during each Annual Election Period and, in addition, at the same times and subject to the same administrative requirements as apply to Investment Elections under Section 10.8 (other than the limitation that only four elections be made in a Plan Year), each Qualified Participant shall be permitted to make a diversification election with respect to his Qualified Account ("Leveraged ESOP Diversification Election"). (2) Definitions. As used in Section 10.10(a), the following terms shall have the meanings indicated: (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 Leveraged ESOP Account. (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) "Leveraged Diversification Election" means an election by a Qualified Participant to transfer to his Leveraged ESOP Diversification Account, 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 10.10 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 Leveraged ESOP Diversification Election and has not made a subsequent Leveraged ESOP Diversification Election with a lower percentage election than his prior Leveraged ESOP 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 Leveraged ESOP Diversification Election shall be transferred to the Participant's Leveraged ESOP Diversification Account. If a Participant who has made a Leveraged ESOP Diversification Election makes a new Leveraged ESOP Diversification Election at a percentage (including to zero) lower than the percentage of the earlier Leveraged ESOP 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 Leveraged ESOP 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 Leveraged ESOP Account. (3) Investment of Amounts Subject to Leveraged ESOP DDiversification Election. The amount subject to a Participant's Leveraged ESOP Diversification Election shall be transferred to the Participant's Leveraged ESOP Diversification Account under the Program and thereafter shall be invested in accordance with the Participant's elections pursuant to Section 10.8 or 10.9(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 Leveraged ESOP Diversification Election or at such earlier dates as the Committee, pursuant to Section 10.11 shall permit. (b) Diversification of McDESOP Future Participant Elected Contributions. A Participant may make an election ("McDESOP 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 5 percent, credited to his McDESOP Diversification Account. Once he has made a McDESOP Future Contribution Diversification Election, a Participant may change his election with respect to future Participant Elected Contributions, subject to Section 10.11, but each such change shall only effect Participant Elected Contributions made to the Program after the date the election is effective and before the date a new McDESOP Future Contribution Diversification Election becomes effective. (c) Age Diversification of McDESOP Accounts. 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 ("McDESOP Diversification Election") 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 10.11. 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 Program shall apply to amounts subject to a Diversification Election under Section 10.10 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 Account pursuant to Section 10.8 or as provided in Section 10.9(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 10.9(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. The foregoing provisions shall apply only to the extent that a Partipaannt does not receive distributions of amounts under Section 11.13(b) during a Qualified Election Period. 10.11 Effective Date of Participant's Investment and Diversification Elections. Each Participant's investment election or Diversification Election submitted by the 25th of a calendar month, pursuant to Section 10.8 and a Diversification Election made pursuant to Section 10.10, 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 10.10 shall be implemented the first day of the calendar month after the month in which such contributions are made to the Program or as soon thereafter as is administratively convenient. This Section 10.11 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. 10.12 Trust Income. As of the close of business on each Valuation Date, the Trustee shall determine the fair market value of the Trust Fund and of each separate Investment Fund. 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 and the Investment Funds shall be recorded and communicated in writing to the Committee by the Trustee. The Trustee's determination of fair market value shall be final and conclusive on all persons. 10.13 Adjustment of Participant Account Balances and Leveraged ESOP Suspense Accounts. 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 Leveraged ESOP Suspense Accounts to make the total of the portion of all such Account balances which are invested in an Investment Fund equal to the total value of that Investment Fund. (a) Valuation of the Portion of Profit Sharing Accounts, Investment Savings Accounts, Rollover Accounts, Diversification Accounts, Participant Elected Contribution Accounts and Employer Matching Contribution Accounts invested in an Investment Fund. The value of the portion of each of a Participant's Accounts invested in an Investment Fund 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 an Investment Fund as of the Valuation Date, and (2) is a fraction, the numerator of which is the value of the portion of each of a Participant's Accounts invested in such Investment Fund as of the Valuation Date reduced by any distributions therefrom on or 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 any distributions therefrom since the immediately preceding Valuation Date. (b) Valuation of the Portion of the Leveraged ESOP Suspense Account and of Participants' Leveraged ESOP Accounts and Stock Sharing Accounts invested in Company Stock. Each Valuation Date, Participants' Leveraged ESOP Accounts and Stock Sharing Accounts and the Leveraged ESOP Suspense Accounts shall be credited with the dividends and other distributions and earnings of shares of Company Stock credited thereto; provided that any dividends credited to Participants' Leveraged 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 Leveraged ESOP Suspense Account and held therein a separate account until used to repay a loan and further provided that the amount of such dividends transferred to the Leveraged 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' Leveraged ESOP Accounts pursuant to Section 6.3(b) for the Plan Year. Earnings on Forfeitures from the Leveraged ESOP portion of the Program shall be allocated to Participants' Leveraged ESOP Accounts as of each Valuation Date in the proportion that dividends and other distributions and earnings are allocated in accordance with the preceding sentence. The income under Section 16.6 (d) shall be allocated to Participant's Stock Sharing Accounts in the proportion that each Participants Stock Sharing Account balance is to the total of all Participants' Stock Sharing Account balances. Notwithstanding the foregoing, the records of such accounts may be maintained in cash provided that it is at all times possible to determine the number and the basis of the shares Company Stock credited to a Participant's Accounts in the Leveraged ESOP and the Stock Sharing Plan and to the Leveraged ESOP Suspense Account. The Accounts of Participants as adjusted according to Section 10.13 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. 10.14 Allocation of Income to Holding Funds. (a) Profit Sharing Holding Fund. Any net income and gains (after reduction by losses and by expenses not paid by an Employer) of the Profit Sharing Holding Fund for a Plan Year shall be allocated to each Participant's Profit Sharing Accounts in the proportion that the amount of Profit Sharing Contributions allocated to each Participant in accordance with Section 7.1 bears to the total amount of Profit Sharing Contributions allocated under Section 7.1 to all Participants. (b) McDESOP and Leveraged ESOP Holding Fund. Any net income and gains (after reduction by losses and by expenses not paid by an Employer) of the McDESOP and Leveraged ESOP Holding Fund for a Plan Year shall be allocated to Participants' Leveraged ESOP Accounts, Stock Sharing Accounts, and Participant Elected Contribution Accounts in the proportion that amounts identified with the McDESOP, Leveraged ESOP, and Stock Sharing portions of the Program are transferred to the McDESOP and Leveraged ESOP Holding Fund. The amounts so allocated with respect to Participants' McDESOP Accounts shall be allocated to individual Participant's Participant Elected Contribution Accounts by addingucchhmoouunts to the numerator of the fraction described in Section 10.13(a)(2) as of the last Valuation Date of the Plan Year for the purpose of determining the value of such accounts. The amounts allocated to Participants' Leveraged ESOP Accounts shall be added to earnings on Forfeitures from the Leveraged ESOP as of the last Valuation Date of the Plan Year and shall be allocated therewith in accordance with Section 10.13(b). The amounts allocated to the Stock Sharing Accounts shall be allocated in accordance with Section 10.13(b). (c) Rollover Holding Fund. Any net income and gains (after reduction by losses and by expenses not paid by an Employer) of the Rollover Holding Fund for a Plan Year shall be allocated to Participant's Profit Sharing Accounts pursuant to Section 10.13(a). 10.15 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. 10.16 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. 10.17 Separate Accounting for Leveraged ESOP Suspense Account. The Committee shall create and maintain a separate account, called an Leveraged 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 Leveraged ESOP Contributions to the Program to repay each such loan or extension of credit, (c) net income, gains or losses charged to such Leveraged ESOP Contributions and Leveraged ESOP Suspense Account under Sections 10.13 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. 10.18 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. Corrections of Participant Elected Contributions and Employer Matching Contributions which an individual should have been permitted to make, but because of an error in Program 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. 10.19 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. 10.20 Purchase or Sale of Company Stock. The Trustee, on behalf of the Program, 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. 10.21 Shareholder Rights in Company Stock. A fundamental purpose of the Program and the Trust 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 Program 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 the Program 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. The broad employee participation in the Program 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 beevveed that such Participants as a group are uniquely able to determine the best interests of future Participans who benefit from future allocations of Company Stock under the Program. 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 Account and Diversification Accounts), 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 Program 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 10.21(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 10.21(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 10.21(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 Program 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 10.21(a) and (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 is 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 Program and, with respect to shares of Company Stock voted pursuant to Section 10.21(b), he should consider the long-term interests of both current and future Participants and Beneficiaries in providing benefits under the Program and Trust rather than a short term gain. (d) Confidentiality. The Trustee shall solicit the directions of Participants and Beneficiaries in accordance with Section 10.21(a) or (b) 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. 10.22 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., accounts in the Profit Sharing portion of the Program, the Leveraged ESOP Accounts, McDESOP Accounts and Stock Sharing Accounts) which held the stock before sale or transfer as of the Valuation Date next following the sale or transfer. 10.23 Holding Funds. (a) Profit Sharing Holding Fund. Profit Sharing Contributions made to the Program shall be held in the Profit Sharing Holding Fund until allocated to Participant's accounts in accordance with Section 7.1. Such contributions as provided in Section 3.1(a) and 3.1(b) shall be separately accounted for. Amounts which in accordance with Article XI are currently distributable in cash to Participants or Beneficiaries with respect to the Profit Sharing portion of the Plan shall be transferred to the Profit Sharing Holding Fund during the calendar month next following the calendar month within which such amount became distributable. The Profit Sharing Holding Fund shall be held (a) in a checking account of the Trustee in the name of the Trust with, if the Trustee or custodian ia bbank or a Trust Company, th TTrrustee's orussttodian's banking department, or (b) in a STIF Fund or in such types of investments or pooled, common, commingled or collective trust funds, including, if the Trustee or custodian is a bank, those of the Trustee or custodian, 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. (b) McDESOP and Leveraged ESOP Holding Fund. Participant Elected Contributions and Matching Contributions made to the Program shall be held in the McDESOP and Leveraged ESOP Holding Fund until credited to Participant's accounts in accordance with Sections 7.4 and 7.2, respectively, and amounts which are distributable to a Participant or Beneficiary in cash from the McDESOP portion of the Program shall, at the direction of the Committee, be transferred to the McDESOP and Leveraged ESOP Holding Fund during the calendar month next following the calendar month within which such amount became distributable. The McDESOP and Leveraged ESOP Holding Fund shall be held (a) in a checking account of the Trustee in the name of the Trust with, if the Trustee or custodian is a bank, the banking department of the Trustee or custodian, or (b) in the STIF Fund or in such types of investments or pooled, common, commingled or collective trust funds including, if the Trustee or custodian is a bank, those of the Trustee or custodian, 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. (c) Rollover Holding Fund. Rollover Contributions to the Program made in a calendar month shall be held in the Rollover Holding fund until the next Valuation Date when such contributions shall be invested in accordance with the Participant's investment elections. (d) Committee Action. 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 Holding Funds 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 Holding Funds shall be determined separately from the remainder of the Trust and the net income or losses of the Holding Funds, for each Plan Year shall be added to the net income of the Trust Fund for such Plan Year as provided in Section 10.14 and any net losses of the Holding Funds 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 not later than his Required Beginning Date as provided in Section 11.13. (e) A Participant shall be entitled to elect to receive in-service withdrawals from Investment Savings Accounts, Rollover Accounts and Stock Sharing Accounts as provided in Section 11.16. 11.12 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 Program 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 determined in accordance with Section 11.12, either directly from the Program, 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) Ternaattion for assoons 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 subject to the Participant's election to receive nonperiodic or installment distributions, as follows: (A) Profit Sharing Account. The vested portion of the Participant's Profit Sharing 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. (B) Investment Savings Account. The Participant's Investment Savings 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. (C) Rollover Account and Rollover Holding Account. The Participant's Rollover Account and Rollover Holding 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. (D) 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. (E) Stock Sharing Accounts. The Participant's Stock Sharing Accounts, including the vested portion of all accounts identified in Section 1.1(d) shall be distributed to the Participant in cash or in McDonald's common stock as provided in Section 11.2(i) within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (F) 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, as defined in Section 11.12(d), and the amount determined under Section 11.2(d)(3), his entire vested Net Balance Account shall be distributed or 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, except as he may otherwise be entitled to receive in-service distributions pursuant to Section 11.16, 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, McDESOP leveraged ESOP, Stock Sharing, Rollover and Investment Savings portions of the Program, 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. (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 Applicable on Birthday in Calendar Year 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 Program, 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 Profit Sharing Plan portion of his vested Net Balance Account 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 Holding Fund in accordance with Section 10.23 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 Program 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 and 10.9, 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 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. (h) Leveraged ESOP Accounts. If the sum of the portion of a Participant's vested balance in his Leveraged ESOP Accounts and his Leveraged ESOP 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 Net Balance Account in his Leveraged ESOP Account and his Leveraged ESOP Diversification Account to the extent it is attributable to his Employer Leveraged 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. (i) Stock Sharing Accounts. If a distribution from a Participant's Stock Sharing Accounts has a value of $1500 or more as of the Valuation Date preceding the date of distribution, 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. If the amount to be distributed from a Participant's Stock Sharing Accounts has a value of less than $1500, the distribution shall be in the form of cash unless the Participant elects to receive payment in the form of shares of common stock of the Company. (j) 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 Holding Fund in accordance with Section 10.23, 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 10.10, and (B) any portion of his Net Balance Account remaining in the McDESOP, Leveraged ESOP or Stock Sharing portions of the Program shall continue to be invested in Company Stock and held therein. (k) Put Option. If any Company Stock distributed from a Participant's Participant Elected Contribution Account, Employer Matching Contribution Account, McDESOP Diversification Account, Leveraged ESOP Diversification Account or Stock Sharing 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. (l) 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 Program, except to the extent otherwise provided in Section 11.2(e)(2) in cases in which the Participant has elected an annuity form of distribution, 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 Program; 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's 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 Program 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, the Participant's 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 Program and (1) if the following requirements 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 Account; (2) his Rollover Account; (3) Rollover Holding Account; (4) Participant Elected Contribution Account; (5) Employer Matching Contribution Account; (6) McDESOP Diversification Account; and (7) Stock Sharing Account. Such Participant shall be vested in his Profit Sharing Account, Leveraged ESOP Account and Leveraged ESOP Diversification 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 Account, Leveraged ESOP Account and Leveraged ESOP Diversification 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 Account, Leveraged ESOP Account and Leveraged ESOP Diversification 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 Account, Leveraged ESOP Account and Leveraged ESOP Diversification 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 Account shall be credited to the McDESOP and Leveraged ESOP 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' Leveraged ESOP Accounts and Leveraged ESOP Diversification Account shall be allocated for the Plan Year among all Active Participants as provided in Section 7.3 for Forfeitures from Participants' Leveraged ESOP 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 Account, Leveraged ESOP Account and Leveraged ESOP Diversification Account as of the Valuation Date immediately following the date on which the Participant has a Termination of Employment or Break in Service. (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 Account, Leveraged ESOP Account and Leveraged ESOP Diversification 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 Program, 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 Holding Fund and the McDESOP and Leveraged ESOP Holding 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 Account, Leveraged ESOP Account or Leveraged ESOP Diversification 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 Account, Leveraged ESOP Account or Leveraged ESOP Diversification 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 Account, Leveraged ESOP Account or Leveraged ESOP Diversification 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 in such accounts upon Termination of Employment or Break in Service, then: (1) the Vested Percentage of the Participant's Profit Sharing Account, Leveraged ESOP Account or Leveraged ESOP Diversification Account at the time of Forfeiture which was not distributed shall be held in a "Pre-Break Profit Sharing Account," "Pre-Break Leveraged ESOP Account" or "Pre-Break Leveraged ESOP Diversification Account," respectively, which shall be 100% vested; and (2) the Participant's Profit Sharing Contributions and the net earnings thereon and Leveraged 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 Account," and "Post-Break Leveraged ESOP Account," respectively, which shall be vested in accordance with Section 11.4(b). Any amounts transferred to the Participant's Leveraged ESOP Diversification Account from the Participant's Pre-Break Leveraged ESOP Account shall be held in the Participant's Pre-Break Leveraged ESOP Diversification Account and amounts transferred from the Participant's Post-Break Leveraged ESOP Account shall be held in the Participant's Post-Break Leveraged ESOP Diversification Account. (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 Leveraged ESOP 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 Leveraged 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 respective Accounts 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 Program 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 and Leveraged ESOP portions of the Program. A beneficiary designation form filed with the Committee on or after January 1, 1989 and before January 1, 1996 shall be deemed to apply to the Profit Sharing, McDESOP and Leveraged ESOP portions of the Program and to replace all prior Beneficiary designations unless the Beneficiary designation provides otherwise. A Beneficiary designation filed by a Participant under the Stock Sharing Plan before January 1, 1996 shall be deemed to apply to the Stock Sharing portion of the Program. A Beneficiary designation filed with the Committee on or after January 1, 1996, shall be deemed to apply to the entire Program and to replace all prior Beneficiary designations except to the extent such Beneficiary designation provides otherwise. The Participant may submit separate Beneficiary designations for the Profit Sharing, McDESOP, Leveraged ESOP and Stock Sharing portions of the Program 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 Program, his Beneficiary designated under McDESOP portion of the Program; with respect to the McDESOP and Leveraged ESOP portion of the Program, his Beneficiary designated under the McDonald's Corporation Savings and Profit Sharing Plan or the Profit Sharing Plan portion of the Program; and with respect to the Stock Sharing portion of the Program, those persons designated by the Participant to receive his death benefits under the Participant's Group Life Insurance Program of the Employer or, in the absence of such designation, under the Profit Sharing Plan portion of the Program. (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 Program 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 the value of the vested portion of a Participant's Net Balance Account under the Program 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. If the Net Balance Account under the Program of an alternate payee under a Qualified Domestic Relations Order, as provided under Section 16.5, does not exceed $3,500, the Committee shall direct the immediate distribution of such benefit regardless of any election of the alternate payee absent a contrary provision in the Qualified Domestic Relations Order. 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 Program. 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. SubSection 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 Program, notwithstanding any other provision herein, distributions to Participants or Beneficiaries made from the Profit Sharing Plan portion of the Program, 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 Program, 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 Program 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 Account and his Leveraged ESOP 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 Account and his Leveraged ESOP 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 In-Service Withdrawals. (a) Investment Savings and Rollover Accounts. A Participant may, upon written notice to the Committee, given before the administrative cutoff date prior to the end of any calendar month, withdraw all or any portion of such Participant's Investment Savings Account, Rollover Account and Rollover Holding Account valued as of the Valuation Date of the calendar month in which such 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 Rollovers under this Section 11.16 provided, however, that in no event shall the Committee limit Participants' rights 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. (b) Stock Sharing Accounts. 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 cash or in shares of common stock of the Company, the shares which have been allocated to his Stock Sharing Account for eighty-four (84) months following the month in which such shares were allocated to his Stock Sharing Account, providedhaat such withdrawals shall consist of whole shas.. As of the Effective Date all shares of common stock of the Company purchased with contributions to the Stock Sharing Plan have been held for more than 84 months and therefore may be distributed. 11.17 Direct Rollovers. (a) Notwithstanding any provision of the Program to the contrary that would otherwise limit a Distributee's election under this Section 11.17, a Distributee whose benefit is distributable pursuant to another provision of the Program 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 Program, 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 Program to the Eligible Retirement Plan specified by the Distributee. ARTICLE XII SUBSIDIARY PARTICIPATION 12.1 Adoption of Program 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 Program 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 Leveraged ESOP portion of the Program 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 whi is part of a group of corporations in icchh 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 Program by Participating Employer. While it is not the present intention of any Employer to withdraw from the Program, 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 Program 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 Program 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 Program 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 Program 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 Program 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 Program (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 Program and the Trust shall administer and operate the Program and the Trust Agreement in accordance with the terms of the Program and the Trust Agreement and shall periodically report to the Board of Directors on the administration and operation of the Program. 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 Program'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 Program; (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 Program; (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 Program, 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 Program; (g) To have prepared and furnished to Participants or Beneficiaries all information required under Federal law or provisions of this Program 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 Program, 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 meeting at which some or all of the members of the Committee are present by telephone) 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 Program. 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 Program so long as such benefit is computed and paid on a basis that is consistent with the terms of the Program 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 Program. 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 Program 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 Program. All such directions shall be in accordance with the Program. 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 evaluedd 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 Program so long as such benefit is computed and paid on a basis that is consistent with the terms of the Program 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 Program 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 Program 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 Program 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 Program 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 Program with respect to contritiioons prevussly 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 Program and the Trust Agreement as the Board of Directors in the following circumstances: (a) to adopt amendments to the Program or Trust which the Committee determines are necessary or desirable for the Program 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 Program. The Committee shall provide notice of amendments adopted by the Committee to the Board of Directors on a timely basis. 14.2 Termination of Program By the Company. Although it is the intention of the Company that this Program be permanent, the Company reserves the right to terminate the Program 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 Program or permanent discontinuance of Employer Contributions to the Program, 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 Program, 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 Program 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 Program 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 Program 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 Program were terminated immediately after such action would not be less than the benefits which would have been payable to each such Participant if the Program 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 Program, 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 Rollovers as provided in Article VIII of the Program. (e) Each Participant's Transferred Assets shall be distributable in the same manner as a Participant's Rollover 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 Program, for any Plan Year in which the Program 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 Program is a multlee employer plan as described in Internal Revenue Code Section 413(c), the provisions of this ArticleV sshall 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 Program allocated for a Participant to the Program and employer contributions and forfeitures allocated for the Participant to all Related Defined Contribution Plans in the Aggregation Group; provided, however, that 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 Program, unless inclusion of Related Plans in the Permissive Aggregation Group in the Aggregation Group would prevent the Program from being a Top Heavy Plan, in which case "Aggregation Group" means the group of plans consisting of the Program and each other Related Plan in a Permissive Aggregation Group with the Program. (1) "Mandatory Aggregation Group" means each plan (considering the Program 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 Program 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 Program, 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 Program 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 Program. (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 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 ($120,000 in 1996, 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 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 in any Measurement Period, 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 1996 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 sh Plan Year, the largest percentage interests in the Employer, Commoy CControlled 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 Program 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 Program 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 Defin BBeenefit Plans or, if no single accrual meodd 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 Program or any plan in the Aggregation Group shall be included in determining the Present Value of Accrued Benefits: (i) Unrelated Transfers made from the Program or any plan in the Aggregation Group shall be included. (ii) Related Transfers made from the Program 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 Program 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 Program 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 Program. 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 Program 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 Program. (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 Program 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 Program is a Top Heavy Plan, the Employers shall make additional Employer Contributions to the Program 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 Program because: (1) he has failed to complete the requisite number of hours of service (if any) after becoming a Participant in the Program, (2) he is excluded from participation in the Prgram (or accrues no benefit) merely because his compensation is less than a stated amount, or (3) he is excluded from participation in the Program (or accrues no benefit) merely because of a failure to make mandatory employee contributions or because of a failure to make elective 401(k) contribution. (b) Vesting. For each Plan Year in which the Program 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 Program becomes a Top Heavy Plan to a percentage of his Profit Sharing Account and Employer Leveraged ESOP Account (to the extent such Accounts had not been forfeited prior to the Program'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 Program 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 Program 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 Program is a Top Heavy Plan and in which the Program 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 Program is a Top Heavy Plan and the Program 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 Program 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 Program 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 Program 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 Program. (g) Frozen Plans. If the Program becomes a Top Heavy Plan after contributions have ceased under the Program but all assets have not been distributed to participants or their beneficiaries, the provisions of Section 15.3 shall apply to the Program. ARTICLE XVI MISCELLANEOUS PROVISIONS 16.1 Headings. Headings of sections and subsections of the Program are inserted for convenience of reference and are neither part of the Program 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 Program 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 Program 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 Program is created for the exclusive purpose of providing benefits to the Participants in the Program 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. Benefits payable under this Program 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 Program; 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. 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 Program, 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 Program 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 Program, (2) require the Program 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) without regard to the Participant's attainment of ansppeecified age; (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 Program 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 Holding 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. (a) Unclaimed amounts with respect to Accounts held in the Profit Sharing Plan portion of the Program 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. (b) The Committee shall allocate Forfeitures with respect to Accounts held in the McDESOP portion of the Program to Participants' Participant Elected Contribution Accounts and Employer Matching Contribution Accounts by crediting such Forfeitures to the McDESOP and Leveraged ESOP 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. (c) Forfeitures arising in respect to a Leveraged ESOP Account to Participants' Leveraged ESOP Accounts shall be allocated in the same manner as Forfeitures under Section 7.3 are allocated to such Accounts. (d) As of the last day of the Plan Year, Forfeitures arising in respect to the Stock Sharing Accounts of Participants shall be charged with the expenses of the Stock Sharing portion of the Program without regard to the limitations on reimbursement for expenses prescribed by Section 409(l) of the Internal Revenue Code. Any net Forfeitures after such charges and charges pursuant to Section 16.6(e) shall be allocated as income of the Stock Sharing portion of the Program as provided in Section 10.13(b). (e) 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 Program for such year in an amount sufficient to pay such Reclaimed Amount, it shall be charged as follows: (1) 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 Program, it shall be charged against Forfeitures from the Profit Sharing portion of the Program and, if such Forfeitures are not sufficient, the remainder shall be treated as an expense of the Profit Sharing Plan portion of the Program during the Plan Year in which the Participant or Beneficiary makes such claim. (2) To the extent that the Reclaimed Amount originated as an unclaimed amount with respect to the amounts held in the McDESOP portion of the Program 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 the McDESOP portion of the Program. (3) To the extent that such Reclaimed Amount originated as an unclaimed amount in respect to an Leveraged ESOP 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' Leveraged ESOP Accounts and, to the extent such Forfeitures are not sufficient, shall be treated as an expense of the Leveraged ESOP portion of the Program. (4) To the extent that such Reclaimed Amount originated as an unclaimed amount with respect to a Stock Sharing Account, it shall be treated as a charge against Forfeitures arising under Section 16.6 for the Plan Year with respect to Participants' Stock Sharing Accounts and, to the extent that such Forfeitures are not sufficient, shall be treated as an expense of the Stock Sharing portion of the Program. 16.7 Maximum Age Condition. Anything to the contrary herein notwithstanding, eligibility to participate in the Program 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 Program shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Program 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 Program 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 18th day of December, 1995. McDonald's Corporation By: /s/ Stanley R. Stein ------------------------- Stanley R. Stein Its: Senior Vice President EX-10 3 MCD SUPPLEMENTAL EMPL BENEFIT EQUAL PLAN EXHIBIT 10(c)(i) McDONALD'S SUPPLEMENTAL EMPLOYEE BENEFIT EQUALIZATION PLAN ("McCAP II") McDONALD'S SUPPLEMENTAL EMPLOYEE BENEFIT EQUALIZATION PLAN (McCAP II) Section 1 Introduction 1.1 The Plan and Its Effective Date. The McDonald's Supplemental Employee Benefit Equalization Plan (formerly, the McDonald's 1986 Tax Reform Equalization Plan) as amended and restated, effective January 1, 1989 and again amended and restated January 1, 1990 (the "Plan" or "McCAP II") is hereby amended and restated, effective January 1, 1996, except as otherwise provided herein. The Plan provides certain benefits previously provided by McDonald's 1986 Tax Reform Equalization Plan with respect to years before January 1, 1989 and certain additional benefits. 1.2 Purpose. McDonald's Corporation ("McDonald's" or the "Company") maintains the McDonald's Corporation Profit Sharing Program ("Profit Sharing Program") which has four components, the Profit Sharing Plan, McDESOP, the Leveraged ESOP and the McDonald's Stock Sharing Plan which are intended to meet the requirements of a qualified plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Code Section 402(g) generally limits to $9,500 (in 1996, as adjusted in subsequent years by the Secretary of Treasury for cost of living adjustments in accordance with Code Section 402(g)(5)) the maximum amount of employee elective deferrals under a qualified plan ("Elective Contribution Limit"); Code Section 401(a)(17) limits to $150,000 (in 1996, as adjusted in subsequent years as provided by the Secretary of the Treasury) the amount of compensation which may be taken into account for a Plan Year under a qualified plan ("Compensation Limit"); and elective deferrals to a nonqualified plan are not taken into account in determining compensation and benefits under the qualified plans ("Elective Deferral Exclusions") (such limits and exclusion are collectively referred to herein as the "Limits"). However, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), permits the provision of benefits under an unfunded plan maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. The purpose of the Plan is to provide benefits to eligible employees which would be provided under the Profit Sharing Program as in effect on January 1, 1989, and thereafter, as from time to time amended, but which are not provided thereunder because of the Limits, subject to the requirement that the benefits provided under this Plan shall be determined as though the only employee elected deferrals of an Active Participant, as defined in Section 2.1, are the Participant Elected Contributions elected under the McDESOP portion of the Profit Sharing Program, the Profit Sharing Program Equalization Plan ("McEqual"), the McDonald's 1989 Executive Equalization Plan ("McCAP I") and under Section 2.4 hereof. In determining the amounts to be credited to the accounts of an Active Participant, as defined in Section 2.1, during a calendar year under the Plan, McEqual, McCAP I, and the Profit Sharing Program, the Committee may make assumptions based upon reasonable estimates and, as necessary, make subsequent adjustments to the extent the estimates prove to be incorrect. 1.3. Defined Terms. Except as otherwise indicated capitalized terms used in this plan document which are not defined herein have the same meaning as the same term in the McDonald's Profit Sharing Program. Section 2 Participation and Benefits 2.1 Eligibility for Benefits. Before the beginning of each calendar year, the Committee shall designate as eligible to be credited with benefits under the Plan for such year a select group of management or highly compensated employees of the Company or any other entity which has adopted the Plan in accordance with Section 4 who are not active participants under McCAP I for such year ("Active Participants"). Persons to be designated as Active Participants from the group of employees who first become participants in the Profit Sharing Program during a calendar year shall be designated by the Committee on or before their Profit Sharing Program Entry Date. A person who was a participant in McDonald's 1986 Tax Reform Equalization Plan for periods before January 1, 1989 or who becomes an Active Participant thereafter shall remain a participant ("Participant") until all amounts credited to his account under the Plan ("McCAP II Account") have been distributed. 2.2 Amount of Benefits. The amount credited to an Active Participant's McCAP II Account for a calendar year shall equal (a) the amount, if any, the Active Participant would have received under the Profit Sharing Program for that year (including, if the Active Participant pursuant to Section 2.4 so elects, the amount of any elections of Participant Elected Contributions made by the Active Participant and any associated Matching Contributions) in the absence of the limitations under Section 415 of the Code as stated in Article IX thereof ("415 Limits") and in the absence of the Limits reduced by (b) the sum of the amounts allocated to such Participant's accounts under the Profit Sharing Program and amounts credited to the Participant's account under McEqual for the calendar year ("Annual Benefit Credits"). Notwithstanding the foregoing, (1) any amount distributed to a participant in the Profit Sharing Program in accordance with Sections 4.1(c), 5.2(c), 5.2(e) or 5.4 of the Program shall be considered an amount which was received under the Profit Sharing Program in the calendar year for which the amount was contributed to the Profit Sharing Program (or would have been so contributed in the absence of the Limits) and (2) an Active Participant who does not have an election in effect under Section 2.4 for a calendar year shall not be credited with any Participant Elected Contributions or Employer Matching Contributions hereunder for that calendar year. 2.3 Accounts and Income Credits. Amounts credited to a Participant's McCAP II Account for periods before January 1, 1996 shall be credited to Participant's McCAP II Accounts as provided by the Plan as then in effect. Such amounts and amounts credited to a Participant's McCAP II Account with respect to periods after December 31, 1995 shall be credited with net earnings, gains and losses as described below: (a) McCAP II Profit Sharing Investment Account. The portion of a Participant's Annual Benefit Credits which, in the absence of the Limits, would have been Employer Profit Sharing Contributions to the Profit Sharing Plan portion of the Profit Sharing Program, shall be credited to the Participant's McCAP II Profit Sharing Investment Account for a calendar year. A Participant's McCAP II Profit Sharing Investment Account shall also be credited with any amounts with respect to which a Participant has made a Diversification Election, as provided in Section 2.5, and any amounts subject to any election made by the Participant pursuant to Section 2.6. A Participant's McCAP II Profit Sharing Investment Account shall be credited with net earnings, gains and losses as of each Valuation Date under the Profit Sharing Program in an amount equal to the amount which such account would have earned, gained or lost if at all times fully invested in the same manner as the Participant's Profit Sharing Fund Account under the Profit Sharing Program. (b) McCAP II McDonald's Common Stock Account. Subject to Section 2.5, the portion of a Participant's Annual Benefit Credits which, in the absence of the Limits, would have been credited to such Active Participant's accounts under the Profit Sharing Program with respect to Participant Elected Contributions, Employer Matching Contributions and Employer Leveraged ESOP Contributions shall be credited to the Participant's McCAP II McDonald's Common Stock Account for a calendar year. A Participant's McCAP II McDonald's Common Stock Account shall be credited with net earnings, gains and losses as of each Valuation Date under the Profit Sharing Program in an amount equal to the amount which such account would have earned, gained or lost if such amounts and the income credited thereon were at all times fully invested in the Profit Sharing McDonald's Common Stock Fund. 2.4 Deferral Elections. Each person who is a participant in the Profit Sharing Program and who is designated by the Committee as an Active Participant with respect to each calendar year may elect by filing a written election with the Committee, in accordance with such rules and procedures as the Committee shall establish, before the beginning of each subsequent calendar year, to have the Participant Elected Contributions and Employer Matching Contributions described in Section 2.2, if any, credited to his McCAP II Account. An employee who becomes a participant in the Profit Sharing Program during a year who is designated by the Committee as an Active Participant hereunder, may elect within 60 days of the date he becomes a participant in the Profit Sharing Program to have the Participant Elected Contributions and Employer Matching Contributions, if any, described in Section 2.2 credited to his McCAP II Account. If an Active Participant has an election pursuant to this Section 2.4 in effect for a calendar year, such election and the Active Participant's elected deferrals under McDESOP may not be changed during the year. If an Active Participant does not have an election in effect pursuant to this Section 2.4 for the calendar year, any amounts of Participant Elected Contributions in excess of the Elective Contribution Limit which are elected by such Participant under the McDESOP portion of the Profit Sharing Program either shall not be contributed or shall be returned to him as provided thereunder and no benefit shall be credited to him hereunder with respect to his Participant Elected Contributions and Employer Matching Contributions under the Profit Sharing Program. 2.5 Diversification of Investments. If a Participant makes a Diversification Election in accordance with Section 10.10 of the Profit Sharing Program (the "Diversification Election"), his corresponding McCAP II accounts and subaccounts containing the contributions and income with respect thereto which, if not for the Limits, would have been credited to his accounts under the McDESOP or the Leveraged ESOP portions of the Profit Sharing Program shall to the same extent be credited to the Participant's McCAP II Profit Sharing Investment Account and shall thereafter be credited with income as provided in Section 2.3(a). 2.6 Transfers to the Profit Sharing Investment Account. A Participant may make an irrevocable election to have all amounts which have been credited to his McCAP II McDonald's Common Stock Account through March 31, 1991, which represent amounts which except for the Limits would have been credited to the Profit Sharing Plan portion of the Profit Sharing Program and any accumulated income credited thereon, credited with earnings, gains and losses as of each Valuation Date, as defined in the McDonald's Profit Sharing Program, equal to the amount which such credited amounts would have earned, gained or lost if at all times after the effective date of such election such amounts and the income credited thereon had been fully invested in the Participant's McCAP II Profit Sharing Investment Account. Any election made pursuant to this Section shall be completed, delivered to the Committee and made effective in such manner and at such time as the Committee shall determine in accordance with its rules concerning the manner of making investment elections under the Profit Sharing Plan portion of the Profit Sharing Program. 2.7 Vesting. A Participant shall be vested in the portions of his McCAP II Account which in the absence of the Limits would have been allocated to his Profit Sharing Account under the Profit Sharing Program and the earnings, gains or losses thereon to the same extent he is vested in his Profit Sharing Account under the Profit Sharing Program. A Participant shall be vested in the portions of his McCAP II Account which in the absence of the Limits would have been allocated to his Leveraged ESOP Account under the Profit Sharing Program and the earnings, gains and losses thereon to the same extent he is vested in his Employer Leveraged ESOP Account under the Profit Sharing Program. All other amounts credited to a Participant's McCAP II Account and the earnings thereon shall be fully vested. 2.8 Payment of Benefits. Distributions of the McCAP II Account of a Participant who has not made a Delinking Election, as provided in Section 2.10(a) or 2.10(b), shall be made as follows: (a) McDESOP Portion of McCAP II Account. The portion of a Participant's McCAP II Account which in the absence of the Limits would have been benefits provided by the McDESOP portion of the Profit Sharing Program shall be paid to him in cash at the same time and in the same form (other than in the form of an annuity purchased from an insurance company) that his account under the McDESOP portion of the Profit Sharing Program is paid or commences to be paid. (b) Profit Sharing Plan Portion of McCAP II Account. The portion of a Participant's McCAP II Account which in the absence of the Limits would have been benefits provided by the Profit Sharing Plan portion of the Profit Sharing Program shall be paid to the Participant in cash at the same time and in the same form (other than in the form of an annuity purchased from an insurance company) that his account under the Profit Sharing Plan portion of the Profit Sharing Program is paid or commences to be paid. (c) Leveraged ESOP Portion of McCAP II Account. The portion of a Participant's McCap II Account which in the absence of the Limits would have been benefits provided by the Leveraged ESOP portion of the Profit Sharing Program shall be paid to him in cash at the same time and in the same form (other than in the form of an annuity contract purchased from an insurance company) that benefits are paid under the Leveraged ESOP portion of the Profit Sharing Program. (d) Annuity Elections. A participant in the Profit Sharing Program who elects to receive his accounts under the Profit Sharing Program in the form of an annuity shall receive payment of the same portions of his McCap II Accounts in installment payments over a period certain equal to the joint and last survivor life expectancy of the Participant and his beneficiary, if any, at the time that the annuity is purchased under the Profit Sharing Program. (e) Qualified Domestic Relations Order. Notwithstanding the foregoing, no distribution shall be made in accordance with Sections 2.8(a), 2.8(b) or 2.8(c) on account of the payment, under the Profit Sharing Program, of a distribution from the account of a participant who is, at the time of distribution, an active McDonald's employee, nor shall a distribution be made on account of a distribution made from the Profit Sharing Program in accordance with a qualified domestic relations order except as provided in Section 3.8. (f) Transaction Costs. To the extent that the amounts described in Section 2.3(b) are used by the Participant or former employee to purchase shares of McDonald's stock on the open market in one or more transactions within seven months after the date such amounts were distributed, the Company shall reimburse such Participant or former employee for all reasonable brokerage fees and other transaction costs incurred by him in connection with such purchases upon presentation to the Company not later than 60 days after the date of each transaction or satisfactory evidence thereof. 2.9 Beneficiary Designation. Absent a Beneficiary Delinking Election by a Participant under Section 2.10(c): (a) A Participant's McCap II Profit Sharing Account shall be paid to the beneficiary entitled to receive his Profit Sharing Accounts under the Profit Sharing Program in the same form and same time as distributions are made thereunder. (b) A Participant's McCap II McDESOP Account shall be paid to the beneficiary entitled to receive his McDESOP Accounts under the Profit Sharing Program in the same form and same time as distributions are made thereunder. (c) A Participant's McCap II Leveraged ESOP Account shall be paid to the beneficiary entitled to receive his Leveraged ESOP Accounts under the Profit Sharing Program in the same form and the same time as distributions are made thereunder. 2.10 Delinking Election. Distributions of McCap II Accounts pursuant to a Delinking Election, as provided in Sections 2.10(b) or 2.10(d), (the "Delinking Election") shall be made in accordance with this Section 2.10 rather than Section 2.8. A Participant's Delinking Election shall be irrevocable except to the extent provided in this Section 2.10. (a) Active Employees. Each Participant who has made a Delinking Election as to distributions to be made in his lifetime, as provided herein, shall receive distributions after he has a Termination of Employment and during his life in accordance with this Section 2.10(a) ("Lifetime Delinking Election"). (1) Time of Lifetime Delinking Election. A Participant who is an active employee on or after September 20, 1995, may make a Lifetime Delinking Election or a revised Lifetime Delinking Election to change the form or timing of distributions under his Lifetime Delinking Election at any time. (2) Complete Election. Each Lifetime Delinking Election shall designate the date on which the Participant's account balances are to be paid or commence to be paid and shall select whether payments are to be made in the form of a single sum payment or in installments. Installments may be paid monthly, quarterly or annually over a period designated in the Lifetime Delinking Election by the Participant which period which shall not exceed the period specified in Section 2.11(b). A Lifetime Delinking Election shall not be effective unless it is complete and includes an election as to the timing and form of the distribution or distributions. (3) Distribution Election. Each Participant who is an active employee and who has made a Lifetime Delinking Election shall be permitted to make a new Lifetime Delinking Election changing his elections as to the timing and form of his distribution. Each such Lifetime Delinking Election which is made before October 31, or such earlier date as the Committee shall designate by giving notice to Participants, shall become effective the next January 1 and shall remain effective through at least December 31 of such year. In the absence of a new Lifetime Delinking Election, the Participant's prior Lifetime Delinking Election shall stay in effect from year to year. The Lifetime Delinking Election of a Participant who has a Termination of Employment shall become irrevocable. (4) Qualified Domestic Relations Order. No distributions shall be made in accordance with Section 2.10 on account of the payment, under the Profit Sharing Program, of a distribution from the McCAP II Account of a Participant who is, at the time of distribution, an active McDonald's employee, nor shall such a distribution be made on account of a distribution made from the Profit Sharing Program in accordance with a qualified domestic relations order except as provided in Section 3.8. (b) Former Employees. Each Participant who was a former employee on September 20, 1995, may make a Lifetime Delinking Election or a Beneficiary Delinking Election, before October 31, 1995, with respect to his McCap I, McCAP II and McEqual account balances available for distribution after December 31, 1995. Such a Lifetime Delinking Election shall be irrevocable in all respects and shall designate both the form in which the distributions are to be made (a single sum distribution or monthly, quarterly or yearly installments paid over a period not to exceed the period specified in Section 2.11(b)), and the date on which distributions will be made, if in a single sum, or commence to be made, if in installments. Under a Beneficiary Delinking Election, the former employee's beneficiary designation under the Profit Sharing Program shall no longer apply to designate his beneficiary under McEqual, McCAP I and McCAP II and he shall complete a separate beneficiary designation which shall not name different beneficiaries to receive the Profit Sharing, McDESOP, leveraged ESOP and Stock Sharing portions of the McEqual, McCAP I and McCAP II. Except as provided in this Section 2.10(b), Lifetime Delinking Elections or Beneficiary Delinking Elections shall not be made by former employees. (c) Beneficiary Delinking Election. Effective on July 1, 1996 or at such earlier date as the Committee designates, each Participant who is an active employee may make an election to delink his beneficiary designation under the Plan, McEqual or McCAP I (a "Beneficiary Delinking Election") and may elect to designate beneficiaries to receive his McEqual, McCAP I and McCAP II Accounts which may or may not be different persons than the beneficiaries designated to receive his Net Balance Accounts under the Profit Sharing Program. Under a Beneficiary Delinking Election, a Participant shall not name different beneficiaries to receive the Profit Sharing, McDESOP, Leveraged ESOP and Stock Sharing portions of the Plan, McEqual and McCAP I. However, several beneficiaries can be designated to receive a proportion of the total of such benefits. (d) Beneficiary's Elections. Each beneficiary of a deceased Participant who before his death made a Beneficiary Delinking Election and each beneficiary who is the beneficiary of a Participant who died before September 20, 1995, shall have a one time opportunity to make an election designating the form (a single sum distribution or monthly, quarterly or yearly installments) and the date on which distributions will be made, if in a single sum, or commence to be made, if in installments (a "Form of Payment Delinking Election") as follows: (1) The beneficiary of a former employee who died before September 20, 1995, must make his Form of Payment Delinking Election hereunder not later than October 31, 1995 and such election shall be made with respect to amounts which otherwise would not be paid until after December 31, 1995. If such a beneficiary does not make a Delinking Election, distributions shall be made as provided in Section 2.8. (2) The beneficiary of a deceased Participant who had made a Beneficiary Delinking Election before his death shall make a Form of Payment Delinking Election within 183 days of the date of such Participant's death. Whether or not such a beneficiary makes a Delinking Election, distributions to such a beneficiary shall not commence any earlier than 90 days after the one year anniversary of the Participant's death. Distributions made to such a beneficiary in the form of installments shall be made over a period, not to exceed the period specified in Section 2.11(b). If the beneficiary of a deceased Participant, who had made a Beneficiary Delinking Election before his death, does not make a Form of Payment Delinking Election, his account balances shall be distributed in a single sum no sooner than the 90th day after the first anniversary of the Participant's death. The beneficiary of a Participant's beneficiary who was subject to a Beneficiary Delinking Election shall receive his benefits in a single sum payment as soon as administratively feasible after the Valuation Date immediately following the beneficiary's death and the administrative determination of the identity of such beneficiary's beneficiary. (3) If a deceased Participant who has made a Delinking Election fails to designate a beneficiary or designates as beneficiary an individual who predeceases the Participant or an entity which ceases to exist before the Participant's death, the Participant's beneficiary for purposes of the Plan shall be his Beneficiary as designated in the Profit Sharing Plan. 2.11 Installment Payments. (a) Order of Payment of Accounts. Installment distributions under a Delinking Election made pursuant to Section 2.10 shall be paid: (1) first, from the Participant's or beneficiary's leveraged ESOP account under McEqual, McCAP I and McCAP II, in that order; (2) second, from the Participant's or beneficiary's McDESOP account under McEqual, McCAP I and McCAP II, in that order; and (3) last, from the Participant's or beneficiary's Profit Sharing account under McEqual, McCAP I and McCAP II in that order. (b) Maximum Period of Payment. Participants or Beneficiaries electing to receive installment payments may elect to receive substantially equal payments over a fixed period of not more than 25 years or payments in a fixed dollar amount which shall not be less than the amount which at the time the election is made would be expected, assuming no interest and no mortality, to result in the payment of the Participants' accounts under McEqual, McCAP I and McCAP II in a period not in excess of 25 years. 2.12 Limitation on Elections and Payments. Notwithstanding any other provision of this Section 2: (a) no investment election or other election which is permitted hereunder to be made by any individual who is an officer or director of the Company for the purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the "Act"), shall be effective before the first date that such election could be made effective without being considered a nonexempt purchase or sale under Section 16(b) of the Act, and (b) no distribution from the Plan shall be made hereunder to any person who, at the time of distribution, is, or within the immediately preceding six months was, an officer or director of the Company for purposes of Section 16 of the Act before the first date that such distribution would not be a nonexempt purchase or sale under Section 16(b) of the Act. 2.13 Valuation of Accounts. The value of any portion of a Participant's McCap II Profit Sharing Account to be paid in cash shall be valued as of the Valuation Date, as defined in the McDonald's Profit Sharing Program, preceding the date of payment, based upon the value of the Investment Funds under the Profit Sharing Plan portion of the Profit Sharing Program. The value of any portion of a Participant's McCap II McDonald's Common Stock Account to be paid in cash shall be valued as of the Valuation Date, preceding the date of payment, using the same values of McDonald's Common Stock determined for the Profit Sharing McDonald's Common Stock Fund. 2.14 Funding. Benefits payable under the Plan to any person shall be paid directly by the Company or other adopting employer (collectively called "Employers") which employs such person. The Employers shall not be required to fund, or otherwise segregate assets to be used for payment of benefits under the Plan. While the Employers may, in the discretion of the Board of Directors, 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 Employers shall not be under any obligation to make such investments and any such investment shall remain an asset of the contributing Employer subject to the claims of its general creditors. Notwithstanding the foregoing, the Employers, in the discretion of the Company, 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 contributing Employer in an amount equal to the amount held in the trust multiplied by the percentage of all McCAP II Account balances which represent amounts credited to Participants on account of their being employees of such Employer in the event such Employer becomes insolvent or is subject to bankruptcy or insolvency proceedings. Any payments by such a trust of benefits provided to a Participant under the Plan shall be considered payment by the Participant's Employer and shall discharge such Employer of any further liability for the payments made by such trust. Section 3 Miscellaneous 3.1 Plan Administration. The Plan shall be administered by the Committee responsible for administration of the Profit Sharing Program ("Committee"). The Committee shall have, to the extent appropriate, the same powers, rights, duties and obligations with respect to the Plan as it has with respect to the Profit Sharing Program. 3.2 Employment Rights. Establishment of the Plan shall not be construed to give any employee the right to be retained in the Company's service or to any benefits not specifically provided by the Plan, nor shall the establishment of the Plan in any manner modify the Company's right to modify, amend or terminate the Profit Sharing Program, McEqual or McCAP I. 3.3 Interests Not Transferable. Except as to withholding of any tax under the laws of the United States or any state or locality or as provided in Section 3.8, 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 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 benefits under the Plan, or if by reason of his 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 spouse, children or other dependents, or any of them, in such manner as the Company may deem proper. 3.4 Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of the McCAP II Accounts of a Participant which cannot be distributed because of the Committee's inability, after a reasonable search, to locate the Participant or his beneficiary within a period of two (2) years after the payment of benefits becomes due. Unclaimed amounts shall be forfeited at the end of such two-year period. 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 his McCAP II Account. 3.5 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. 3.6 Gender and Number. Words in the masculine gender shall include the feminine, and the plural shall include the singular and the singular shall include the plural. 3.7 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 McDonald's Corporation or any member of the Committee or person(s) authorized by resolution of the Board of Directors of McDonald's Corporation. 3.8 Qualified Domestic Relations Order. (a) Notwithstanding Section 3.3, the Committee shall comply with the provisions of any order determined by the Committee to be a Qualified Relations Order. (b) "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 Accrued Benefit under the Plan; and (4) with respect to which the requirements of paragraphs (c) and (d) are met. (c) 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. (d) 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. (e) 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 3.8(d)(l) solely because such order requires that payment of benefits be made to an alternate payee: (1) without regard to the Participant's attainment of any specified age; (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. Section 4 Subsidiary Participation 4.1 Adoption of Plan. Any Commonly Controlled Entity, Commonly Controlled Corporation, Domestic Affiliate or Foreign Affiliate, as defined in the Profit Sharing Program, which has adopted a portion of the Profit Sharing Program 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. 4.2 Withdrawal from the Plan by Participating Employer. While it is not the present intention of any adopting employer to withdraw from the Plan, any such 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 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 McCAP II Accounts of Participants employed by the withdrawing employer as of the date of withdrawal shall be distributed by such employer in cash 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. Section 5 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 paragraph ) to modify, amend or terminate the Plan, notwithstanding that an amendment may change the timing or the optional form of benefit elected by a Participant in a Delinking Election or the timing or optional form of benefit in which a Participant's benefits would otherwise have been paid under Section 2, provided, however, that if a Participant has a McCAP II Account, benefits provided under Section 2.1 shall constitute an irrevocable obligation of the employer to the same extent that such McCAP II Account, had it been an account under the Profit Sharing Program, would have been an irrevocable obligation of the Profit Sharing Program. The Committee shall have the same authority with respect to the adoption of amendments to the Plan 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 governmental 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' contributions to the Plan. The Committee shall provide notice of amendments adopted by the Committee to the Board of Directors on a timely basis. Executed in multiple originals this 18th day of December, 1995. McDONALD'S CORPORATION By /s/ Stanley R. Stein __________________________________ Stanley R. Stein Senior Vice President EX-10 4 P/S PROGRAM EQUALIZATION PLAN EXHIBIT 10(c)(ii) McDONALD's PROFIT SHARING PROGRAM EQUALIZATION PLAN ("McEQUAL") McDONALD's PROFIT SHARING PROGRAM EQUALIZATION PLAN ("McEQUAL") Section 1 Introduction 1.1 The Plan and Its Effective Date. The McDonald's Profit Sharing Program Equalization Plan (the "Plan" or "McEqual"), was established effective January 1, 1989, by the merger, amendment and restatement of the McDonald's Supplemental Employee Benefit Equalization Plan, established effective January 1, 1983, approved by the shareholders on May 19, 1983, and amended and restated effective January 1, 1987, and the McDESOP Equalization Plan, established effective January 1, 1986, approved by the shareholders on May 23, 1986, and amended and restated effective January 1, 1987. The Plan which was further amended and restated effective January 1, 1989, and January 1, 1990 is hereby amended and restated effective January 1, 1996, except as otherwise provided herein. 1.2 Purpose. McDonald's Corporation ("McDonald's" or the "Company") maintains the McDonald's Corporation Profit Sharing Program ("Profit Sharing Program") which has four components, the Profit Sharing Plan, McDESOP, the Leveraged ESOP and the McDonald's Stock Sharing Plan which are intended to meet the requirements of a qualified plan under the Internal Revenue Code of 1986, as amended (the "Code"). While Code Section 415 places limitations on the maximum amount of contributions and benefits which may be paid under a qualified plan ("Limits"), the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), permits the payment under an "excess benefit plan" of the benefits which may not be paid under a qualified plan because of such Limits. The purpose of the Plan is to provide benefits which would be provided under the Profit Sharing Program, as presently in effect and as hereafter from time to time amended, but which are not provided thereunder because of the Limits. In determining the amounts to be credited to an Active Participant's accounts during a Plan Year under the Plan, the Profit Sharing Program, the McDonald's 1989 Executive Equalization Plan ("McCAP I") and the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II"), the Committee may make assumptions based upon reasonable estimates and, as necessary, make subsequent adjustments to the extent the estimates prove to be incorrect. 1.3 Defined Terms. Except as otherwise indicated capitalized terms used in this plan document which are not defined herein have the same meaning as the same term in the McDonald's Profit Sharing Program. Section 2 Participation and Benefits 2.1 Eligibility for and Amount of Benefits. Subject to the conditions and limitations of the Plan, if for any year an employee of the Company or any other entity which has adopted the Plan in accordance with Section 4 who is a participant in the Profit Sharing Program has the amount of employer contributions (including Participant Elected Contributions) and forfeitures which would have been allocated to his accounts under the Profit Sharing Program reduced pursuant to the Limits as stated in Article IX thereof, the amount of each such reduction shall be credited to such employee's "McEqual Account" hereunder ("Annual Benefit Credits") and he shall be an active participant for such year ("Active Participant"). Notwithstanding the foregoing, any amount distributed to a participant in the Profit Sharing Program in accordance with Sections 4.1(c), 5.2(c), 5.2(e) or 5.4 of the Profit Sharing Program shall be considered an amount which was received under the Profit Sharing Program in the calendar year for which the amount was contributed to the Profit Sharing Program (or would have been so contributed in the absence of the Limits). A person who was a participant in the McDonald's Supplemental Employee Benefit Equalization Plan or the McDESOP Equalization Plan before January 1, 1989 or who becomes an Active Participant thereafter shall remain a participant ("Participant") with respect to amounts credited to his McEqual Account until the amounts credited to his McEqual Account have been distributed. 2.2 Income Credits. Amounts credited to a Participant's McEqual Account for periods before January 1, 1996 shall be credited to Participant's McEqual Accounts as provided by the Plan as then in effect. Such amounts and amounts credited to a Participant's McEqual Account with respect to periods after December 31, 1995 shall be credited with earnings, gains and losses as described below: (a) McEqual Profit Sharing Investment Account. The portion of a Participant's Annual Benefit Credits which in the absence of the Limits would have been Employer Profit Sharing Contributions to the Profit Sharing portion of the Profit Sharing Program shall be credited to the Participant's McEqual Profit Sharing Investment Account for a calendar year. A Participant's McEqual Profit Sharing Investment Account shall also be credited with any amounts with respect to which a Participant has made a Diversification Election, as provided in Section 2.3 and any amounts subject to any election made by the Participant pursuant to Section 2.4. A Participant's McEqual Profit Sharing Investment Account shall be credited with net earnings, gains and losses as of the Valuation Date under the Profit Sharing Program in an amount equal to the amount which such account would have earned, gained or lost if at all times such amounts and the income credited thereon were fully invested in the same manner as the Participant's Employer Profit Sharing Contribution Account under the Profit Sharing Program. (b) McEqual McDonald's Common Stock Account. Subject to Section 2.3, the portion of a Participant's Annual Benefit Credits which, in the absence of the Limits, would have been credited to such Active Participant's accounts under the Profit Sharing Program with respect to Participant Elected Contributions, Employer Matching Contributions and Employer Leveraged ESOP Contributions shall be credited to the Participant's McEqual McDonald's Common Stock Account for a calendar year. A Participant's McEqual McDonald's Common Stock Account shall be credited with net earnings, gains and losses as of each Valuation Date under the Profit Sharing Program in an amount equal to the amount which such account would have earned, gained or lost if such amounts and the income credited thereon were at all times fully invested in the Profit Sharing McDonald's Common Stock Fund. 2.3 Diversification of Investments. If a Participant makes a Diversification Election in accordance with the provisions of Section 10.10 of the Profit Sharing Program (the "Diversification Election"), his corresponding McEqual accounts and subaccounts containing the contributions and income with respect thereto which, if not for the Limits, would have been credited to his accounts under the McDESOP or the Leveraged ESOP portions of the Profit Sharing Program shall to the same extent be credited to the Participant's McEqual Profit Sharing Account and shall thereafter be credited with income as provided in Section 2.2(a). 2.4 Transfers to the Profit Sharing Investment Account. A Participant may make an irrevocable election to have all amounts which have been credited to his McEqual McDonald's Common Stock Account through March 31, 1991, which represent amounts which except for the Limits would have been credited to the Profit Sharing Plan portion of the Profit Sharing Program and any accumulated income credited thereon, credited with earnings, gains and losses as of each Valuation Date, as defined in the McDonald's Profit Sharing Program, equal to the amount which such credited amounts would have earned, gained or lost if at all times after the effective date of such election such amounts and the income credited thereon had been fully invested in the McEqual Profit Sharing Investment Account. Any election made pursuant to this Section shall be completed, delivered to the Committee and made effective in such manner and at such time as the Committee shall determine in accordance with its rules concerning the manner of making investment elections under the Profit Sharing Plan portion of the Profit Sharing Program. 2.5 Vesting. A Participant shall be vested in the portion of his McEqual Account which in the absence of the Limits would have been allocated to his Profit Sharing Account under the Profit Sharing Program and the earnings, gains or losses thereon to the same extent he is vested in his Profit Sharing Account under the Profit Sharing Program. A Participant shall be vested in the portions of his McEqual Account which in the absence of the Limits would have been allocated to his Leveraged ESOP Account under the Profit Sharing Program and the earnings, gains or losses thereon to the same extent that he would have been vested in his Employer Leveraged ESOP Account under the Profit Sharing Program. All other amounts credited to a Participant's McEqual Account and the earnings thereon shall be fully vested. 2.6 Payment of Benefits. Distributions of the McEqual Account of a Participant who has not made a Delinking Election, as provided in Section 2.8, shall be made as follows: (a) McDESOP Portion of McEqual Account. The portion of a Participant's McEqual Account which in the absence of the Limits would have been benefits provided by the McDESOP portion of the Profit Sharing Program shall be paid to him in cash at the same time and in the same form (other than in the form of an annuity purchased from an insurance company) that his account under the McDESOP portion of the Profit Sharing Program is paid or commences to be paid. (b) Profit Sharing Plan Portion of McEqual Account. The portion of a Participant's McEqual Account which in the absence of the Limits would have been benefits provided by the Profit Sharing Plan portion of the Profit Sharing Program shall be paid to the Participant in cash at the same time and in the same form (other than in the form of an annuity purchased from an insurance company) that his accounts under the Profit Sharing Plan portion of the Profit Sharing Program are paid or commence to be paid. (c) Leveraged ESOP Portion of McEqual Account. The portion of a Participant's McEqual Account which in the absence of the Limits would have been benefits provided by the Leveraged ESOP portion of the Profit Sharing Program shall be paid to him in cash at the same time and in the same form (other than in the form of an annuity contract purchased from an insurance company) that benefits are paid under the Leveraged ESOP portion of the Profit Sharing Program. (d) Annuity Elections. A participant in the Profit Sharing Program who elects to receive his accounts under the Profit Sharing Program in the form of an annuity shall receive payment of the same portions of his McEqual Accounts in installment payments over a period certain equal to the joint and last survivor life expectancy of the Participant and his beneficiary, if any, at the time that the annuity is purchased under the Profit Sharing Program. (e) Qualified Domestic Relations Order. Notwithstanding the foregoing, no distribution shall be made in accordance with Sections 2.6(a), 2.6(b) or 2.6(c) on account of the payment, under the Profit Sharing Program, of a distribution from the account of a participant who is, at the time of distribution, an active McDonald's employee, nor shall such a distribution be made on account of a distribution made from the Profit Sharing Program in accordance with a qualified domestic relations order except as provided in Section 3.8. 2.7 Beneficiary Designation. Absent a Beneficiary Delinking Election by a Participant under Section 2.8(c): (a) A Participant's McEqual Profit Sharing Account shall be paid to the beneficiary entitled to receive his Profit Sharing Accounts under the Profit Sharing Program in the same form and same time as distributions are made thereunder. (b) A Participant's McEqual McDESOP Account shall be paid to the beneficiary entitled to receive his McDESOP Accounts under the Profit Sharing Program in the same form and same time as distributions are made thereunder. (c) A Participant's McEqual Leveraged ESOP Account shall be paid to the beneficiary entitled to receive his Leveraged ESOP Accounts under the Profit Sharing Program in the same form and the same time as distributions are made thereunder. If a beneficiary who is entitled to do so does not make a Delinking Election as provided in Section 2.8(d), the distribution of his accounts shall be made as provided in this Section 2.7 beginning no earlier than the applicable date provided in Section 2.8(d). 2.8 Delinking Election. Delinking elections shall only be made by Participants who are on the McDonald's Executive Payroll and the beneficiaries of such Participant as permitted below. Distributions of McEqual Accounts pursuant to a Delinking Election, as provided in Section 2.8(b) or 2.8(d), (the "Delinking Election") shall be made in accordance with this Section 2.8 rather than Section 2.6. A Participant's Delinking Election shall be irrevocable except to the extent provided in this Section 2.8. (a) Active Employees. Each Participant who has made a Delinking Election as to distributions to be made in his lifetime, as provided herein, shall receive distributions after he has a Termination of Employment and during his life in accordance with this Section 2.8(a) ("Lifetime Delinking Election"). (1) Time of Lifetime Delinking Election. A Participant who is an active employee on or after September 1, 1995, may make a Lifetime Delinking Election or a revised Lifetime Delinking Election to change the form or timing of distributions under his Lifetime Delinking Election at any time. (2) Complete Election. Each Lifetime Delinking Election shall designate the date on which the Participant's account balances are to be paid or commence to be paid and shall select whether payments are to be made in the form of a single sum payment or in installments. Installments may be paid monthly, quarterly or annually over a period designated in the Lifetime Delinking Election by the Participant which period which shall not exceed the period specified in Section 2.9(b). A Lifetime Delinking Election shall not be effective unless it is complete and includes an election as to the timing and form of the distribution or distributions. (3) Distribution Election. Each Participant who is an active employee and who has made a Lifetime Delinking Election shall be permitted to make a new Lifetime Delinking Election changing his elections as to the timing and form of his distribution. Each such Lifetime Delinking Election which is made before October 31, or such earlier date as the Committee shall designate by giving notice to Participants, shall be effective the next January 1 and shall remain effective through at least December 31 of such year. In the absence of a new Lifetime Delinking Election the Participant's prior Lifetime Delinking Election shall stay in effect from year to year. The Lifetime Delinking Election of a Participant who has a Termination of Employment shall become irrevocable. (4) Qualified Domestic Relations Order. No distributions shall be made in accordance with Section 2.9 on account of the payment, under the Profit Sharing Program, of a distribution from the McEqual Account of a Participant who is, at the time of distribution, an active McDonald's employee, nor shall such a distribution be made on account of a distribution made from the Profit Sharing Program in accordance with a qualified domestic relations order except as provided in Section 3.8. (b) Former Employees. Each Participant who was a former employee on September 20, 1995, may make a Lifetime Delinking Election or a Beneficiary Delinking Election, on or before October 31, 1995, with respect to his McEqual, McCAP I and McCAP II account balances available for distribution after December 31, 1995. Such a Lifetime Delinking Election shall be irrevocable in all respects and shall designate both the form in which the distributions are to be made (a single sum distribution or monthly, quarterly or yearly installments paid over a period not to exceed the period specified in Section 2.9(b), and the date on which distributions will be made, if in a single sum, or commence to be made, if in installments. Under a Beneficiary Delinking Election, the former employee's beneficiary designation under the Profit Sharing Program shall no longer apply to designate his beneficiary under McEqual, McCAP I and McCAP II and he shall complete a separate beneficiary designation which shall not name different beneficiaries to receive the Profit Sharing, McDESOP, leveraged ESOP and Stock Sharing portions of McEqual, McCAP I and McCAP II. Except as provided in this Section 2.8(b), Lifetime Delinking Elections or Beneficiary Delinking Elections shall not be made by former employees. (c) Beneficiary Delinking Election. Effective on July 1, 1996 or at such earlier date as the Committee designates, each Participant who is an active employee may make an election to delink his beneficiary designation under the Plan, McCAP I and McCAP II (a "Beneficiary Delinking Election") may elect to designate beneficiaries to receive his McEqual Accounts which may or may not be different persons than the beneficiaries designated to receive his Net Balance Accounts under the Profit Sharing Program. Under a Beneficiary Delinking Election, a Participant shall not name different beneficiaries to receive the Profit Sharing, McDESOP, Leveraged ESOP and Stock Sharing portions of the Plan, McEqual and McCAP II. However, several beneficiaries can be designated to receive a proportion of the total of such benefits. (d) Beneficiary's Elections. Each beneficiary of a deceased Participant who before his death made a Beneficiary Delinking Election and each beneficiary who is the beneficiary of a Participant who died before September 20, 1995, shall have a one time opportunity to make an election designating the form (a single sum distribution or monthly, quarterly or yearly installments) and the date on which distributions will be made, if in a single sum, or commence to be made, if in installments (a "Form of Payment Delinking Election") as follows: (1) The beneficiary of a former employee who died before September 20, 1995, must make his Form of Payment Delinking Election hereunder not later than October 31, 1995 and such election shall be made with respect to amounts which otherwise would not be paid until after December 31, 1995. If such a beneficiary does not make a Delinking Election, distributions shall be made as provided in Section 2.7. (2) The beneficiary of a deceased Participant who had made a Beneficiary Delinking Election before his death shall make a Form of Payment Delinking Election within 183 days of the date of such Participant's death. Whether or not such a beneficiary makes a Form of Payment Delinking Election, distributions to such a beneficiary shall not commence any earlier than 90 days after the one year anniversary of the Participant's death. Distributions made to such a beneficiary in the form of installments shall be made over a period, not to exceed the period specified in Section 2.9(b). If the beneficiary of a deceased Participant, who had made a Beneficiary Delinking Election before his death, does not make a Form of Payment Delinking Election, his account balances shall be distributed in a single sum no sooner than the 90th day after the first anniversary of the Participant's death. The beneficiary of a Participant's beneficiary who was subject to a Bbeneficiary Delinking Election shall receive his benefit in a single sum payment as soon as administratively feasible after the Valuation Date immediately following the beneficiary's death and the administrative determination of the identity of such beneficiary's beneficiary. (3) If a deceased Participant who has made a Delinking Election fails to designate a beneficiary or designates as beneficiary an individual who predeceases the Participant or an entity which ceases to exist before the Participant's death, the Participant's beneficiary for purposes of the Plan shall be his Beneficiary as designated in the Profit Sharing Plan. 2.9 Installment Payments. (a) Order of Payment of Accounts. Installment distributions under a Delinking Election made pursuant to Section 2.8 shall be paid: (1) first, from the Participant's or beneficiary's leveraged ESOP account under McEqual, McCAP I and McCAP II, in that order; (2) second, from the Participant's or beneficiary's McDESOP account under McEqual, McCAP I and McCAP II, in that order; and (3) last, from the Participant's or beneficiary's Profit Sharing account under McEqual, McCAP I and McCAP II in that order. (b) Minimum Period of Payment. Participants or Beneficiaries electing to receive installment payments may elect to receive substantially equal payments over a fixed period of not more than 25 years or payments in a fixed dollar amount which shall not be less than the amount which at the time the election is made would be expected, assuming no interest and no mortality, to result in the payment of the Participants' accounts under McEqual, McCAP I and McCAP II in a period not in excess of 25 years. 2.10 Limitation on Elections and Payments. Notwithstanding any other provision of this Section 2: (a) no investment election or other election which is permitted hereunder to be made by any individual who is an officer or director of the Company for the purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the "Act"), shall be effective before the first date that such election could be made effective without being considered a nonexempt purchase or sale under Section 16(b) of the Act, and (b) no distribution from the Plan shall be made hereunder to any person who, at the time of distribution, is, or within the immediately preceding six months was, an officer or director of the Company for purposes of Section 16 of the Act before the first date that such distribution would not be a nonexempt purchase or sale under Section 16(b) of the Act. 2.11 Valuation of Accounts. The value of any portion of a Participant's McEqual Profit Sharing Account to be paid in cash shall be valued as of the Valuation Date, as defined in the McDonald's Profit Sharing Program, preceding the date of payment, based upon the value of the Investment Funds under the Profit Sharing Plan portion of the Profit Sharing Program. The value of any portion of a Participant's McEqual McDonald's Common Stock Account to be paid in cash shall be valued as of the Valuation Date, preceding the date of payment, using the values of McDonald's Common Stock determined for the Profit Sharing McDonald's Common Stock Fund. 2.12 Funding. Benefits payable under the Plan to any person shall be paid directly by the Company or other adopting employer (collectively called "Employers") which employs such person. The Employers shall not be required to fund, or otherwise segregate assets to be used for payment of benefits under the Plan. While the Employers may, in the discretion of the Board of Directors, 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 Employers shall not be under any obligation to make such investments and any such investment shall remain an asset of the contributing Employer subject to the claims of its general creditors. Notwithstanding the foregoing, the Employers, in the discretion of the Company, 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 contributing Employer in an amount equal to the amount held in the trust multiplied by the percentage of all McEqual account balances which represent amounts credited to Participants on account of their being employees of such Employer in the event such Employer becomes insolvent or is subject to bankruptcy or insolvency proceedings. Any payments by such a trust of benefits provided to a Participant under the Plan shall be considered payment by the Participant's Employer and shall discharge such Employer of any further liability under the Plan for the payments made by such trust. Section 3 Miscellaneous 3.1 Plan Administration. The Plan shall be administered by the Committee responsible for administration of the Profit Sharing Program ("Committee"). The Committee shall have, to the extent appropriate, the same powers, rights, duties and obligations with respect to the Plan as it has with respect to the Profit Sharing Program. 3.2 Employment Rights. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the Company's service or to any benefits not specifically provided by the Plan, nor shall the establishment of the Plan in any manner modify the Company's right to modify, amend or terminate the Profit Sharing Program, McCAP I or McCAP II. 3.3 Interests Not Transferable. Except as to withholding of any tax under the laws of the United States or any state or locality or as provided in Section 3.8, 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 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 benefits under the Plan, or if by reason of his 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 spouse, children or other dependents, or any of them, in such manner as the Company may deem proper. 3.4 Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of the McEqual Accounts of a Participant 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 shall be forfeited at the end of such two-year period. 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 his McEqual Account. 3.5 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. 3.6 Gender and Number. Words in the masculine gender shall include the feminine, and the plural shall include the singular and the singular shall include the plural. 3.7 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 McDonald's Corporation or any member of the Committee or person(s) authorized by resolution of the Board of Directors of McDonald's Corporation. 3.8 Qualified Domestic Relations Order. (a) Notwithstanding Section 3.3, the Committee shall comply with the provisions of any order determined by the Committee to be a Qualified Relations Order. (b) "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 Accrued Benefit under the Plan; and (4) with respect to which the requirements of paragraphs (c) and (d) are met. (c) 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. (d) 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. (e) 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 3.8(d)(l) solely because such order requires that payment of benefits be made to an alternate payee: (1) without regard to the Participant's attainment of any specified age; (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. Section 4 Subsidiary Participation 4.1 Adoption of Plan. Any Commonly Controlled Entity, Commonly Controlled Corporation, Domestic Affiliate or Foreign Affiliate, as defined in the Profit Sharing Program, which has adopted a portion of the Profit Sharing Program 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. 4.2 Withdrawal from the Plan by Participating Employer. While it is not the present intention of any adopting employer to withdraw from the Plan, any such 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 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 McEqual Accounts of Participants employed by the withdrawing employer as of the date of withdrawal shall be distributed by such employer in cash 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. Section 5 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 paragraph) to modify, amend or terminate the Plan notwithstanding that an amendment may change the timing or the optional form of benefit elected by a Participant in a Delinking Election or the timing or optional form of benefit in which a Participant's benefits would otherwise have been paid under Section 2, provided, however, that if a Participant has a McEqual Account, benefits provided under Section 2.1 hereof shall constitute an irrevocable obligation of the employer to the same extent that such McEqual Account, had it been an account under the Profit Sharing Program, would have been an irrevocable obligation of the Profit Sharing Program. The Committee shall have the same authority with respect to the adoption of amendments to the Plan 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 governmental 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' contributions to the Plan. The Committee shall provide notice of amendments adopted by the Committee to the Board of Directors on a timely basis. Executed in multiple originals this 18th day of December, 1995. McDONALD'S CORPORATION By: /s/ Stanley R. Stein _________________________ Stanley R. Stein Senior Vice President EX-10 5 1989 EXECUTIVE EQUALIZATION PLAN EXHIBIT 10(c)(iii) McDONALD'S 1989 EXECUTIVE EQUALIZATION PLAN ("McCAP I") McDONALD'S 1989 EXECUTIVE EQUALIZATION PLAN ("McCAP I") Section 1 Introduction 1.1 The Plan and Its Effective Date. The McDonald's 1989 Executive Equalization Plan (the "Plan" or "McCAP I") as established by McDonald's Corporation ("McDonald's" or the "Company") effective January 1, 1989, and amended and restated effective January 1, 1990, and as amended from time to time thereafter is hereby again amended and restated effective January 1, 1996 except as otherwise provided herein. 1.2 Purpose. The Company maintains the McDonald's Corporation Profit Sharing Program ("Profit Sharing Program") which has four components, the Profit Sharing Plan, McDESOP, the Leveraged ESOP and the McDonald's Stock Sharing Plan which are intended to meet the requirements of a qualified plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Code Section 402(g) generally limits to $9,500 (in 1996, as adjusted in subsequent years for increases in the cost of living in accordance with Code Section 402(g)(5)) the maximum amount of employee elective deferrals under a qualified plan ("Elective Contribution Limit"); Code Section 401(a)(17) limits to $150,000 (in 1996, as adjusted in subsequent years as provided by the Secretary of the Treasury) the amount of compensation which may be taken into account for a Plan Year under a qualified plan ("Compensation Limit"); and elective deferrals to a nonqualified plan are not taken into account in determining compensation and benefits under the qualified plans ("Elective Deferral Exclusion") (such limits and exclusion are collectively referred to herein as the "Limits"). However, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), permits the provision of benefits under an unfunded plan maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. The purpose of the Plan is to provide benefits to eligible employees which would be provided under the Profit Sharing Program as in effect on January 1, 1989, and thereafter, as from time to time amended, but which are not provided thereunder because of the Limits, subject to the requirement that the benefits provided under this Plan shall be determined as though the only employee elected deferrals of an Active Participant, as defined in Section 2.1, are the Participant Elected Contributions elected under the McDESOP portion of the Profit Sharing Program, the McDonald's Profit Sharing Program Equalization Plan ("McEqual"), the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II"), and under Section 2.4 hereof. In determining the amounts to be credited to the accounts of an Active Participant, during a calendar year under the Plan, McEqual, McCAP II, and the Profit Sharing Program, the Committee may make assumptions based upon reasonable estimates and, as necessary, make subsequent adjustments to the extent the estimates prove to be incorrect. 1.3 Defined Terms. Except as otherwise indicated capitalized terms used in this plan document which are not defined herein have the same meaning as the same term in the McDonald's Profit Sharing Program. Section 2 Participation and Benefits 2.1 Eligibility for Benefits. Before the beginning of each calendar year, the Committee shall designate as eligible to be credited with benefits under the Plan for such calendar year employees of the Company or any other entity which has adopted the Plan in accordance with Section 4 who are at the pay level of director or higher or who are expected to earn $130,500 or more (in 1996, as adjusted in subsequent years for increases in the cost of living in such manner as the Committee shall determine) ("Active Participants"). Persons to be designated as Active Participants from the group of employees who first become participants in the Profit Sharing Program during a calendar year shall be designated by the Committee on or before their Profit Sharing Program Entry Date. A person who becomes an Active Participant shall remain a participant ("Participant") until all amounts credited to his account under the Plan ("McCAP I Account") have been distributed. 2.2 Amount of Benefits. The amount credited to an Active Participant's McCAP I Account for a calendar year shall equal (a) the amount, if any, the Active Participant would have received under the Profit Sharing Program for that year (including, if the Active Participant pursuant to Section 2.4 so elects, the amount of any elections of Participant Elected Contributions made by the Active Participant and any associated Matching Contributions) in the absence of the limitations under Section 415 of the Code as stated in Article IX thereof ("415 Limits") and in the absence of the Limits reduced by (b) the sum of the amounts allocated to such Participant's accounts under the Profit Sharing Program and amounts credited to the Participant's account under McEqual for the calendar year ("Annual Benefit Credits"). Notwithstanding the foregoing, (1) any amount distributed to a participant in the Profit Sharing Program in accordance with Sections 4.1(c), 5.2(c), 5.2(e) or 5.4 of the Program shall be considered an amount which was received under the Profit Sharing Program in the calendar year for which the amount was contributed to the Profit Sharing Program (or would have been so contributed in the absence of the Limits) and (2) an Active Participant who does not have an election in effect under Section 2.4 for a calendar year shall not be credited with any Participant Elected Contributions or Employer Matching Contributions hereunder for that calendar year. 2.3 Accounts and Income Credits. Except as otherwise provided herein, amounts credited to a Participant's McCAP I Account for periods before January 1, 1996 shall be credited to Participant's McCAP I Accounts as provided by the Plan as then in effect. Such amounts and amounts credited to a Participant's McCAP I Account with respect to periods after December 31, 1995 shall be credited with net earnings, gains and losses as described below: (a) McCAP I Profit Sharing Investment Account. The portion of a Participant's Annual Benefit Credits which, in the absence of the Limits, would have been Employer Profit Sharing Contributions to the Profit Sharing portion of the Profit Sharing Program shall be credited to the Participant's McCAP I Profit Sharing Investment Account for a calendar year. A Participant's McCAP I Profit Sharing Investment Account shall also be credited with any amounts with respect to which a Participant has made a Diversification Election, as provided in Section 2.5, or any election made by the Participant pursuant to Section 2.6. A Participant's McCAP I Profit Sharing Investment Account shall be credited with earnings, gains and losses as of each Valuation Date under the Profit Sharing Program in an amount equal to the amount which such account would have earned, gained or lost if at all times fully invested in the same manner as the Participant's Profit Sharing Fund Account under the Profit Sharing Program. (b) McCAP I McDonald's Common Stock Account. Subject to Section 2.5, the portion of a Participant's Annual Benefit Credits which, in the absence of the Limits, would have been credited to such Active Participant's Accounts under the Profit Sharing Program with respect to Participant Elected Contributions, Employer Matching Contributions and Employer Leveraged ESOP Contributions shall be credited to the Participant's McCap I McDonald's Common Stock Account for a calendar year. A Participant's McCAP I McDonald's Common Stock Account shall be credited with net earnings, gains and losses as of each Valuation Date under the Profit Sharing Program in an amount equal to the amount which such account would have earned, gained or lost if such amounts and the income credited thereon were at all times fully invested in the Profit Sharing McDonald's Common Stock Fund. 2.4 Deferral Elections. Each person who is a participant in the Profit Sharing Program and who is designated by the Committee as an Active Participant with respect to each calendar year may elect by filing a written election with the Committee, in accordance with such rules and procedures as the Committee shall establish, before the beginning of such calendar year, to have the Participant Elected Contributions and Employer Matching Contributions described in Section 2.2, if any, credited to his McCAP I Account. An employee who becomes a participant in the Profit Sharing Program during a year who is designated by the Committee as an Active Participant hereunder, may elect within 60 days of the date he becomes a participant in the Profit Sharing Program to have the Participant Elected Contributions and Employer Matching Contributions, if any, described in Section 2.2 credited to his McCAP I Account. If an Active Participant has an election pursuant to this Section 2.4 in effect for a calendar year, such election and the Active Participant's elected deferrals under McDESOP may not be changed during the year. If an Active Participant does not have an election in effect pursuant to this Section 2.4 for the calendar year, any amounts of Participant Elected Contributions in excess of the Elective Contribution Limit which are elected by such Participant under the McDESOP portion of the Profit Sharing Program either shall not be contributed or shall be returned to him as provided thereunder and no benefit shall be credited to him hereunder with respect to his Participant Elected Contributions and Employer Matching Contributions under the Profit Sharing Program. 2.5 Diversification of Investments. If a Participant makes a Diversification Election in accordance with Section 10.10 of the Profit Sharing Program (the "Diversification Election"), his corresponding McCAP I accounts and subaccounts containing the contributions and income with respect thereto which, if not for the Limits, would have been credited to his accounts under the McDESOP or the Leveraged ESOP portions of the Profit Sharing Program shall to the same extent be credited to the Participant's McCAP I Profit Sharing Investment Account and shall thereafter be credited with income as provided in Section 2.3(a). 2.6 Transfers to the Profit Sharing Investment Account. A Participant may make an irrevocable election to have all amounts which have been credited to his McCAP I McDonald's Common Stock Account through March 31, 1991, which represent amounts which except for the Limits would have been credited to the Profit Sharing Plan portion of the Profit Sharing Program, and any accumulated income credited thereon, credited with earnings, gains and losses as of each Valuation Date, as defined in the McDonald's Profit Sharing Program, equal to the amount which such credited amounts would have earned, gained or lost if at all times after the effective date of such election such amounts and the income credited thereon had been fully invested in the Participant's McCAP I Profit Sharing Investment Account. Any election made pursuant to this Section shall be completed, delivered to the Committee and made effective in such manner and at such time as the Committee shall determine in accordance with its rules concerning the manner of making investment elections under the Profit Sharing Plan portion of the Profit Sharing Program. 2.7 Vesting. A Participant shall be vested in the portions of his McCAP I Account which in the absence of the Limits would have been allocated to his Profit Sharing Account under the Profit Sharing Program and the earnings, gains or losses thereon to the same extent he is vested in his Profit Sharing Account under the Profit Sharing Program. A Participant shall be vested in the portions of his McCAP I Account which in the absence of the Limits would have been allocated to his Leveraged ESOP Account under the Profit Sharing Program and the earnings, gains and losses thereon to the same extent he is vested in his Leveraged ESOP Account under the Profit Sharing Program. All other amounts credited to a Participant's McCAP I Account and the earnings thereon shall be fully vested. 2.8 Payment of Benefits. Distributions of the McCAP I Account of a Participant who has not made a Delinking Election, as provided in Section 2.10(a) or 2.10(b), shall be made as follows: (a) McDESOP Portion of McCAP I Account. The portion of a Participant's McCAP I Account which in the absence of the Limits would have been benefits provided by the McDESOP portion of the Profit Sharing Program shall be paid to him in cash at the same time and in the same form (other than in the form of an annuity purchased from an insurance company) under the McDESOP portion of the Profit Sharing Program. (b) Profit Sharing Plan Portion of McCAP I Account. The portion of a Participant's McCAP I Account which in the absence of the Limits would have been benefits provided by the Profit Sharing Plan portion of the Profit Sharing Program shall be paid to the Participant in cash at the same time and in the same form (other than in the form of an annuity purchased from an insurance company) that his account under the Profit Sharing Plan portion of the Profit Sharing Program is paid or commences to be paid. (c) Leveraged ESOP Portion of McCAP I Account. The portion of a Participant's McCAP I Account which in the absence of the Limits would have been benefits provided by the Leveraged ESOP portion of the Profit Sharing Program shall be paid to him in cash at the same time and in the same form (other than in the form of an annuity contract purchased from an insurance company) that benefits are paid under the Leveraged ESOP portion of the Profit Sharing Program. (d) Annuity Elections. A participant in the Profit Sharing Program who elects to receive his accounts under the Profit Sharing Program in the form of an annuity shall receive payment of the same portions of his McCAP I Accounts in installment payments over a period certain equal to the joint and last survivor life expectancy of the Participant and his beneficiary, if any, at the time that the annuity is purchased under the Profit Sharing Program. (e) Qualified Domestic Relations Order. Notwithstand- ing the foregoing, no distribution shall be made in accordance with Sections 2.8(a), 2.8(b) or 2.8(c) on account of the payment, under the Profit Sharing Program, of a distribution from the account of a participant who is, at the time of distribution, an active McDonald's employee, nor shall such a distribution be made on account of a distribution made from the Profit Sharing Program in accordance with a qualified domestic relations order except as provided in Section 3.8. (f) Transaction Costs. To the extent that the amounts described in Section 2.3(b) are distributed to the Participant and are used by the Participant or former employee to purchase shares of McDonald's stock on the open market in one or more transactions within seven months after the date such amounts were distributed, the Company shall reimburse such Participant or former employee for all reasonable brokerage fees and other transaction costs incurred by him in connection with such purchases upon presentation to the Company not later than 60 days after the date of each transaction or satisfactory evidence thereof. 2.9 Beneficiary Designation. Absent a Beneficiary Delinking Election by a Participant under Section 2.10(c): (a) A Participant's McCAP I Profit Sharing Account shall be paid to the beneficiary entitled to receive his Profit Sharing Accounts under the Profit Sharing Program in the same form and same time as distributions are made thereunder. (b) A Participant's McCAP I McDESOP Account shall be paid to the beneficiary entitled to receive his McDESOP Accounts under the Profit Sharing Program in the same form and same time as distributions are made thereunder. (c) A Participant's McCAP I Leveraged ESOP Account shall be paid to the beneficiary entitled to receive his Leveraged ESOP Accounts under the Profit Sharing Program in the same form and the same time as distributions are made thereunder. 2.10 Delinking Election. Distributions of McCAP I Accounts pursuant to a Delinking Election as provided in Section 2.10(b) or 2.10(d) (the "Delinking Election") shall be made in accordance with this Section 2.10 rather than Section 2.8. A Participant's Delinking Election shall be irrevocable except to the extent provided in this Section 2.10. (a) Active Employees. Each Participant who has made a Delinking Election as to distributions to be made in his lifetime, as provided herein, shall receive distributions after he has a termination of Employment and during his life in accordance with this Section 2.10(a) ("Lifetime Delinking Election"). (1) Time of Lifetime Delinking Election. A Participant who is an active employee on or after September 20, 1995, may make a Lifetime Delinking Election or a revised Lifetime Delinking Election to change the form or timing of distributions under his Lifetime Delinking Election at any time. (2) Complete Election. Each Lifetime Delinking Election shall designate the date on which the Participant's account balances are to be paid or commence to be paid and shall select whether payments are to be made in the form of a single sum payment or in installments. Installments may be paid monthly, quarterly or annually over a period designated in the Lifetime Delinking Election by the Participant which period shall not exceed the period specified in Section 2.11(b). A Lifetime Delinking Election shall not be effective unless it is complete and includes an election as to the timing and form of the distribution or distributions. (3) Distribution Election. Each Participant who is an active employee and who has made a Lifetime Delinking Election shall be permitted to make a new Lifetime Delinking Election changing his elections as to the timing and form of his distribution. Each such Lifetime Delinking Election which is made before October 31, or such earlier date as the Committee shall designate by giving notice to Participants, shall be effective the next January 1 and shall remain effective through at least December 31 of such year. In the absence of a new Lifetime Delinking Election the Participant's prior Lifetime Delinking Election shall stay in effect from year to year. The Lifetime Delinking Election of a Participant who has a Termination of Employment shall become irrevocable. (4) Qualified Domestic Relations Order. No distributions shall be made in accordance with Section 2.10 on account of the payment, under the Profit Sharing Program, of a distribution from the McCAP I Account of a Participant who is, at the time of distribution, an active McDonald's employee, nor shall such a distribution be made on account of a distribution made from the Profit Sharing Program in accordance with a qualified domestic relations order except as provided in Section 3.8. (b) Former Employees. Each Participant who was a former employee on September 20, 1995, may make a Lifetime Delinking Election or a Beneficiary Delinking Election, on or before October 31, 1995, with respect to his McCAP I, McCAP II and McEqual account balances available for distribution after December 31, 1995. Such a Lifetime Delinking Election shall be irrevocable in all respects and shall designate both the form in which the distributions are to be made (a single sum distribution or monthly, quarterly or yearly installments paid over a period not to exceed the period specified in Section 2.11(b)), and the date on which distributions will be made, if in a single sum, or commence to be made, if in installments. Under a Beneficiary Delinking Election, the former employee's beneficiary designation under the Profit Sharing Program shall no longer apply to designate his beneficiary under McEqual, McCAP I and McCAP II and he shall complete a separate beneficiary designation which shall not name different beneficiaries to receive the Profit Sharing, McDESOP, leveraged ESOP and Stock Sharing portions of the Plan, McEqual, McCAP II. Except as provided in this Section 2.10(b), Lifetime Delinking Elections or Beneficiary Delinking Elections shall not be made by former employees. (c) Beneficiary Delinking Election. Effective at July 1, 1996 or such earlier date as the Committee designates, each Participant who is an active employee may make an election to delink his beneficiary designation under the Plan, McEqual or McCAP II (a "Beneficiary Delinking Election") and may elect to designate beneficiaries to receive his McEqual, McCAP I, and McCAP II Accounts which may or may not be different persons than the beneficiaries designated to receive his Net Balance Accounts under the Profit Sharing Program. Under a Beneficiary Delinking Election, a Participant shall not name different beneficiaries to receive the Profit Sharing, McDESOP, Leveraged ESOP and Stock Sharing portions of the Plan, McEqual and McCAP II. However, several beneficiaries can be designated to receive a proportion of the total of such benefits. (d) Beneficiary's Elections. Each beneficiary of a deceased Participant who before his death has made a Beneficiary Delinking Election and each beneficiary who is the beneficiary of a Participant who died before September 20, 1995, shall have a one time opportunity to make a Delinking Election designating the form (a single sum distribution or monthly, quarterly or yearly installments) and the date on which distributions will be made, if in a single sum, or commence to be made, if in installments (a "Form of Payment Delinking Election") as follows: (1) The beneficiary of a former employee who died before September 20, 1995, must make his Form of Payment Delinking Election hereunder not later than October 31, 1995 and such election shall be made with respect to amounts which otherwise would not be paid until after December 31, 1995. If such a beneficiary does not make a Form of Payment Delinking Election, distributions shall be made as provided in Section 2.8. (2) The beneficiary of a deceased Participant who had made a Beneficiary Delinking Election before his death shall make a Form of Payment Delinking Election within 183 days of the date of such Participant's death. Whether or not such a beneficiary makes a Form of Payment Delinking Election, distributions to such a beneficiary shall not commence any earlier than 90 days after the one year anniversary of the Participant's death. Distributions made to such a beneficiary in the form of installments shall be made over a period not to exceed the period specified in Section 2.11(b). If the beneficiary of a deceased Participant who had made a Beneficiary Delinking Election before his death does not make a Form of Payment Delinking Election, his account balances shall be distributed in a single sum no sooner than the 90th day after the first anniversary of the Participant's death. The beneficiary of a beneficiary who was subject to a Beneficiary Delinking Election shall receive his benefits in a single sum payment as soon as administratively feasible after the Valuation Date immediately following the beneficiary's death and the administrative determination of the identity of such beneficiary's beneficiary. (3) If a deceased Participant who has made a Delinking Election fails to designate a beneficiary or designates as beneficiary an individual who predeceases the Participant or an entity which ceases to exist before the Participant's death, the Participant's beneficiary for purposes of the Plan shall be his Beneficiary as designated in the Profit Sharing Plan. 2.11 Installment Payments. (a) Order of Payment of Accounts. Installment distributions, under a Delinking Election made pursuant to Section 2.10, shall be paid: (1) first, from the Participant's or beneficiary's leveraged ESOP account under McEqual, McCAP I and McCAP II, in that order; (2) second, from the Participant's or beneficiary's McDESOP account under McEqual, McCAP I and McCAP II, in that order; and (3) last, from the Participant's or beneficiary's Profit Sharing account under McEqual, McCAP I and McCAP II in that order. (b) Maximum Period of Payment. Participants or Beneficiaries electing to receive installment payments may elect to receive substantially equal payments over a fixed period of not more than 25 years or payments in a fixed dollar amount which shall not be less than the amount which at the time the election is made would be expected, assuming no interest and no mortality, to result in the payment of the Participants' accounts under McEqual, McCAP I and McCAP II in a period not in excess of 25 years. 2.12 Limitation on Elections and Payments. Notwithstanding any other provision of this Section 2: (a) no investment election or other election which is permitted hereunder to be made by any individual who is an officer or director of the Company for the purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the "Act"), shall be effective before the first date that such election could be made effective without being considered a nonexempt purchase or sale under Section 16(b) of the Act, and (b) no distribution from the Plan shall be made hereunder to any person who, at the time of distribution, is, or within the immediately preceding six months was, an officer or director of the Company for purposes of Section 16 of the Act before the first date that such distribution would not be a nonexempt purchase or sale under Section 16(b) of the Act. 2.13 Valuation of Accounts. The value of any portion of a Participant's McCAP I Profit Sharing Account to be paid in cash shall be valued as of the Valuation Date, as defined in the McDonald's Profit Sharing Program, preceding the date of payment, based upon the value of the Investment Funds under the Profit Sharing Plan portion of the Profit Sharing Program. The value of any portion of a Participant's McCAP I McDonald's Common Stock Account to be paid in cash shall be valued as of the Valuation Date, preceding the date of payment, using the value of McDonald's Common Stock determined for the Profit Sharing McDonald's Common Stock Fund. 2.14 Funding. Benefits payable under the Plan to any person shall be paid directly by the Company or other adopting employer (collectively called "Employers") which employs such person. The Employers shall not be required to fund, or otherwise segregate assets to be used for payment of benefits under the Plan. While the Employers may, in the discretion of the Board of Directors, 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 Employer shall not be under any obligation to make such investments and any such investment shall remain an asset of the contributing Employer subject to the claims of its general creditors. Notwithstanding the foregoing, the Employers, in the discretion of the Company, 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 contributing Employer in an amount equal to the amount held in the trust multiplied by the percentage of all McCAP I Account balances which represent amounts credited to Participants on account of their being employees of such Employer in the event such Employer becomes insolvent or is subject to bankruptcy or insolvency proceedings. Any payments by such a trust of benefits provided to a Participant under the Plan shall be considered payment by the Participant's Employer and shall discharge such Employer of any further liability for the payments made by such trust. Section 3 Miscellaneous 3.1 Plan Administration. The Plan shall be administered by the Committee responsible for administration of the Profit Sharing Plan ("Committee"). The Committee shall have, to the extent appropriate, the same powers, rights, duties and obligations with respect to the Plan as it has with respect to the Profit Sharing Program. 3.2 Employment Rights. Establishment of the Plan shall not be construed to give any employee the right to be retained in the Company's service or to any benefits not specifically provided by the Plan, nor shall the establishment of the Plan in any manner modify the Company's right to modify, amend or terminate the Profit Sharing Program McEqual or McCAP II. 3.3 Interests Not Transferable. Except as to withholding of any tax under the laws of the United States or any state or locality or as provided in Section 3.8, 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 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 benefits under the Plan, or if by reason of his 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 spouse, children or other dependents, or any of them, in such manner as the Company may deem proper. 3.4 Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of the McCAP I Accounts of a Participant which cannot be distributed because of the Committee's inability, after a reasonable search within a period of two (2) years after the payment of benefits becomes due. Unclaimed amounts shall be forfeited at the end of such two-year period. 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 his McCAP I Account. 3.5 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. 3.6 Gender and Number. Words in the masculine gender shall include the feminine, and the plural shall include the singular and the singular shall include the plural. 3.7 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 McDonald's Corporation or any member of the Committee or person(s) authorized by resolution of the Board of Directors of McDonald's Corporation. 3.8 Qualified Domestic Relations Order. (a) Notwithstanding Section 3.3, the Committee shall comply with the provisions of any order determined by the Committee to be a Qualified Relations Order. (b) "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 Accrued Benefit under the Plan; and (4) with respect to which the requirements of paragraphs (c) and (d) are met. (c) 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. (d) 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. (e) 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 3.8(d)(l) solely because such order requires that payment of benefits be made to an alternate payee: (1) without regard to the Participant's attainment of any specified age; (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. Section 4 Subsidiary Participation 4.1 Adoption of Plan. Any Commonly Controlled Entity, Commonly Controlled Corporation, Domestic Affiliate or Foreign Affiliate, as defined in the Profit Sharing Program, which has adopted a portion of the Profit Sharing Program 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. 4.2 Withdrawal from the Plan by Participating Employer. While it is not the present intention of any adopting employer to withdraw from the Plan, any such 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 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 McCAP I Accounts of Participants employed by the withdrawing employer as of the date of withdrawal shall be distributed by such employer in cash 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. Section 5 Amendment and Termination 5.1 Company Authority to Amend. 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 paragraph) to modify, amend or terminate the Plan, notwithstanding that an amendment may change the timing or the optional form of benefit elected by a Participant in a Delinking Election or the timing or optional form of benefit in which a Participant's or beneficiary's benefits would otherwise have been paid under Section 2, provided, however, that if a Participant has a McCAP I Account, benefits provided under Section 2.1 shall constitute an irrevocable obligation of the employer to the same extent that such McCAP I Account, had it been an account under the Profit Sharing Program, would have been an irrevocable obligation of the Profit Sharing Program. 5.2 Committee Authority to Amend. The Committee shall have the same authority with respect to the adoption of amendments to the Plan 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 governmental 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' contributions to the Plan. The Committee shall provide notice of amendments adopted by the Committee to the Board of Directors on a timely basis. Executed in multiple originals this 18th day of December, 1995. McDONALD'S CORPORATION By /s/ Stanley R. Stein ______________________________ Stanley R. Stein Senior Vice President EX-11 6 STATEMENT RE 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)
Years ended December 31, 1995 1994 1993 ---- ---- ---- Net Income $1,427.3 $1,224.4 $1,082.5 Preferred stock dividends (net of tax benefits) (40.5) (47.2) (46.9) -------- -------- -------- Net income available after preferred stock dividends (A) 1,386.8 1,177.2 1,035.6 Effect of preferred stock exchange* (4.3) .0 .0 Common stock dividends on assumed conversion of preferred stock .6 1.2 1.2 -------- -------- -------- Net income available to common shareholders $1,383.1 $1,178.4 $1,036.8 ======== ======== ======== Weighted average number of common shares outstanding during the period (A) 701.5 701.8 711.8 Additional shares related to potentially dilutive securities 20.5 20.5 21.6 -------- -------- -------- Adjusted weighted average common shares 722.0 722.3 733.4 ======== ======== ======== Fully diluted net income per common share $1.92 $1.63 $1.41 ======== ======== ======== Increase in fully diluted net income per common share over prior year 18% 16% 12% ======== ======== ======== --------------------- * The 1995 period includes $3.9 million for the effect of the Company's exchange of Series E Cumulative Preferred Stock for subordinated debt securities completed in June, 1995, and an additional .4 million for the effect of the Company's repurchase of additional Series E preferred stock in the third quarter. (A) Refer to Consolidated statement of income and Financial comments on pages 33 and 53 from Part II, item 8 of this 1995 10-K for information concerning the computation of Net income per common share. /TABLE EX-12 7 STATEMENT RE COMPUTATION OF RATIOS Exhibit 12 McDONALD'S CORPORATION STATEMENT RE COMPUTATION OF RATIOS (Dollars in Millions)
Years Ended December 31, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- EARNINGS AVAILABLE FOR FIXED CHARGES - Income before provision for income taxes $2,169.1 $1,886.6 $1,675.7 $1,448.1 $1,299.4 - Minority interest in operating results of majority-owned subsidiaries, including fixed charges related to redeemable preferred stock, less equity in undistributed operating results of less-than-50% owned affiliates 19.6 6.6 6.9 5.3 5.1 - Provision for income taxes of 50% owned affiliates included in consolidated income before provision for income taxes 73.3 34.9 34.2 29.4 34.1 - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* 103.8 83.4 71.6 70.1 67.9 - Interest expense, amortization of debt discount and issuance costs, and depreciation of capitalized interest* 388.8 346.0 358.0 413.8 433.9 -------------------------------------------------------------- $2,754.6 $2,357.5 $2,146.4 $1,966.7 $1,840.4 ============================================================== FIXED CHARGES - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* $103.8 $83.4 $71.6 $70.1 $67.9 - Interest expense, amortization of debt discount and issuance costs, and fixed charges related to redeemable preferred stock* 403.4 343.9 349.3 405.4 425.7 - Capitalized interest* 22.8 21.0 20.7 20.5 28.5 -------------------------------------------------------------- $530.0 $448.3 $441.6 $496.0 $522.1 ============================================================== RATIO OF EARNINGS TO FIXED CHARGES 5.20 5.26 4.86 3.96 3.53 ============================================================== *Includes amounts of the Registrant and its majority-owned subsidiaries, and one-half of the amounts of 50% owned affiliates. /TABLE EX-21 8 SUBSIDIARIES OF 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) McDonald's Systems of Espana, 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) McDonald's Restaurants (Swisse) S.A. (Switzerland) 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 9 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 25, 1996, 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, 1995: Commission File No. ------------------------------------------ Form S-8 Form S-3 ------------------------------------------ 33-09267 33-00001 33-24958 33-42642 33-49817 33-50025 33-50701 33-50695 33-58840 33-64873 33-60939 ERNST & YOUNG LLP Chicago, Illinois March 28, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
5 Exhibit 27 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 335 0 414 0 58 956 17,137 4,326 15,415 1,795 4,258 0 358 92 9,918 15,415 6,864 9,795 5,548 6,062 (106) 0 340 2,169 742 1,427 0 0 0 1,427 1.97 0
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