<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from __________ to
__________
Commission File Number 1-5231
McDONALD'S CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 36-2361282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
McDonald's Plaza
Oak Brook, Illinois 60523
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (630) 623-3000
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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
------ ------
1,354,687,353
--------------------
(Number of shares of common stock
outstanding as of June 30, 1999)
================================================================================
<PAGE>
McDONALD'S CORPORATION
----------------------
INDEX
-----
<TABLE>
<CAPTION>
Page Reference
<S> <C> <C>
Part I. Financial Information
Item 1 - Financial Statements
Condensed consolidated balance sheet,
June 30, 1999 (unaudited) and
December 31, 1998 3
Condensed consolidated statement of
income (unaudited), quarters and six months ended
June 30, 1999 and 1998 4
Condensed consolidated statement of
cash flows (unaudited), quarters and six months
ended June 30, 1999 and 1998 5
Financial comments (unaudited) 6
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Item 3 - Quantitative & Qualitative Disclosures
About Market Risk 16
Part II. Other Information
Item 4 - Submission of Matters to a Vote of
Security Holders 16
Item 6 - Exhibits and Reports on Form 8-K 17
(a) Exhibits
The exhibits listed in the
accompanying Exhibit Index are
filed as part of this report 17
(b) Reports on Form 8-K 19
Signature 20
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
In millions June 30, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 407.8 $ 299.2
Accounts and notes receivable 643.6 609.4
Inventories, at cost, not in excess of market 71.9 77.3
Prepaid expenses and other current assets 297.2 323.5
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,420.5 1,309.4
- -----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 2,716.9 2,433.4
PROPERTY AND EQUIPMENT
Property and equipment, at cost 21,581.0 21,758.0
Accumulated depreciation and amortization (5,873.0) (5,716.4)
- -----------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 15,708.0 16,041.6
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $19,845.4 $19,784.4
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 560.8 $ 686.8
Accounts payable 422.0 621.3
Income taxes 168.0 94.2
Other taxes 154.3 143.5
Accrued interest 122.6 132.3
Other accrued liabilities 652.5 651.0
Current maturities of long-term debt 150.2 168.0
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,230.4 2,497.1
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 6,203.1 6,188.6
OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 512.2 492.6
DEFERRED INCOME TAXES 1,117.7 1,081.9
COMMON EQUITY PUT OPTIONS 725.0 59.5
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized - 165.0 million shares;
issued - none
Common stock, $.01 par value; authorized - 3.5 billion shares;
issued - 1,660.6 million 16.6 16.6
Additional paid-in capital 1,117.7 989.2
Guarantee of ESOP notes (148.9) (148.7)
Retained earnings 14,667.9 13,879.6
Accumulated other comprehensive income (841.6) (522.5)
Common stock in treasury, at cost; 305.9 and 304.4 million shares (5,754.7) (4,749.5)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 9,057.0 9,464.7
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,845.4 $19,784.4
=======================================================================================================================
</TABLE>
See accompanying Financial comments.
3
<PAGE>
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters ended Six months ended
In millions, except June 30 June 30
per common share data 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Sales by Company-operated restaurants $2,434.1 $2,270.4 $4,613.2 $4,284.7
Revenues from franchised and affiliated restaurants 973.0 910.4 1,829.0 1,701.0
- -----------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,407.1 3,180.8 6,442.2 5,985.7
- -----------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,985.2 1,843.7 3,803.2 3,507.1
Franchised restaurants - occupancy expenses 180.4 166.5 359.2 324.6
Selling, general, and administrative expenses 365.5 364.9 705.4 707.9
Other operating (income) expense (13.6) (6.1) (31.0) (8.4)
Made for You costs 6.1 5.0 10.3 5.0
Special charge - 160.0 - 160.0
- -----------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,523.6 2,534.0 4,847.1 4,696.2
- -----------------------------------------------------------------------------------------------------
OPERATING INCOME 883.5 646.8 1,595.1 1,289.5
- -----------------------------------------------------------------------------------------------------
Interest expense 97.5 106.4 202.7 209.2
Nonoperating (income) expense 13.2 6.6 18.9 6.3
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 772.8 533.8 1,373.5 1,074.0
- -----------------------------------------------------------------------------------------------------
Provision for income taxes 254.7 176.6 452.7 354.6
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 518.1 $ 357.2 $ 920.8 $ 719.4
=====================================================================================================
NET INCOME PER COMMON SHARE $ 0.38 $ .26 $ 0.68 $ .52
NET INCOME PER COMMON SHARE - DILUTED 0.37 .25 0.65 .51
- -----------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ .04875 $ .04500 $ .09750 $ .08625
- -----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES 1,355.5 1,372.1 1,356.4 1,372.4
WEIGHTED AVERAGE SHARES - DILUTED 1,405.6 1,415.1 1,407.1 1,409.4
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Financial comments.
4
<PAGE>
- ----------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Quarters ended Six months ended
June 30 June 30
In millions 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 518.1 $ 357.2 $ 920.8 $ 719.4
Adjustments to reconcile to cash provided by operations
Depreciation and amortization 237.7 216.6 471.8 420.5
Changes in operating working capital items (35.8) 114.7 37.1 59.8
Other 45.9 (14.5) 53.1 (4.3)
- ---------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 765.9 674.0 1,482.8 1,195.4
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (417.8) (455.6) (754.0) (857.5)
Purchases and sales of restaurant businesses and
sales of property 77.1 4.3 49.9 11.5
Other 20.5 (35.0) (260.0) (71.7)
- ---------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (320.2) (486.3) (964.1) (917.7)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable and long-term financing issuances and
repayments (344.0) 160.2 (27.0) 182.2
Treasury stock purchases (283.6) (404.1) (441.3) (504.8)
Common stock dividends (66.0) (61.7) (132.3) (118.3)
Other 95.5 89.0 190.5 146.7
- ---------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES (598.1) (216.6) (410.1) (294.2)
- ---------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE (DECREASE) (152.4) (28.9) 108.6 (16.5)
- ---------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of period 560.2 353.8 299.2 341.4
- ---------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 407.8 $ 324.9 $ 407.8 $ 324.9
===================================================================================================
</TABLE>
See accompanying Financial comments.
5
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL COMMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Basis of Presentation
The accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements in the Company's 1998
Annual Report to Shareholders. In the opinion of the Company, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation have
been included. The results for the quarter and six months ended June 30, 1999
do not necessarily indicate the results that may be expected for the full year.
The results of operations of restaurant businesses purchased and sold were not
material to the condensed consolidated financial statements for periods prior to
purchase and sale.
Comprehensive Income
Comprehensive income consists of net income and foreign currency translation
adjustments and totaled $459.6 million and $283.9 million for the second
quarters of 1999 and 1998, respectively, and $601.7 million and $606.4 million
for the six months ended June 30, 1999 and 1998, respectively.
Per Common Share Information
Common share amounts included in the accompanying financial statements have
been restated for the 2-for-1 common stock split in March, 1999. Diluted net
income per common share is calculated using net income divided by weighted
average shares on a diluted basis. Weighted average shares on a diluted basis
include weighted average shares outstanding plus the dilutive effect of stock
options, calculated using the treasury stock method, of 50.1 million shares and
43.0 million shares for the second quarters of 1999 and 1998, respectively, and
50.7 million shares and 36.9 million shares for the six months ended June 30,
1999 and 1998, respectively.
Common Equity Put Options
At June 30, 1999, 17.3 million of common equity put options were outstanding,
which expire at various dates through November 2000. The $725.0 million
exercise price of the options outstanding was classified in common equity put
options at June 30, 1999, and the related offset was recorded in common stock in
treasury, net of premiums received.
Special Charge
In the second quarter 1998, the Company recorded a $160 million pre-tax
special charge related to the results of the Company's home office productivity
initiative. The Company's home office productivity plan is designed to improve
staff alignment, focus and productivity and reduce ongoing selling, general and
administrative expenses. As a result of this initiative, the Company has
reduced home office staffing by approximately 525 positions, is consolidating
certain home office facilities and reduced other expenditures in a variety of
areas. The $160 million charge was primarily comprised of costs associated with
employee severance and outplacement and with the facilities consolidation.
As of June 30, 1999, the remaining accrual, primarily for employee related
costs, was approximately $73 million and is included in Other accrued
liabilities in the Condensed Consolidated Balance Sheet. No significant
adjustments have been made to the original plan approved by management in second
quarter 1998.
New Accounting Standard - Financial Instruments
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, subsequently
amended by Statement No. 137, which is required to be adopted in years beginning
after June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged item
through earnings or recognized in other comprehensive income until the hedged
item is
6
<PAGE>
recognized in earnings. The Company expects to adopt the new Statement effective
January 1, 2001. Management does not anticipate that the adoption will have a
significant effect on the Company's results of operations or financial position.
Segment Information
The following table presents the Company's revenues and operating income by
geographic segment:
<TABLE>
<CAPTION>
Quarters ended Six Months ended
June 30 June 30
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
U.S. $1,379.8 $1,316.8 $2,531.1 $2,418.8
Europe 1,237.1 1,097.9 2,393.3 2,088.2
Asia/Pacific 448.7 398.6 870.3 774.9
Latin America 165.8 196.8 329.4 389.7
Other 175.7 170.7 318.1 314.1
- -------------------------------------------------------------------------------------------------
TOTAL REVENUES $3,407.1 $3,180.8 $6,442.2 $5,985.7
- -------------------------------------------------------------------------------------------------
OPERATING INCOME
U.S. $ 427.8 $ 219.0(1) $ 741.9 $ 495.7(1)
Europe 303.5 278.6 556.3 502.4
Asia/Pacific 93.9 76.0 185.2 155.8
Latin America 25.7 39.1 57.6 78.1
Other 32.6 34.1 54.1 57.5
- -------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME* $ 883.5 $ 646.8 $1,595.1 $1,289.5
- -------------------------------------------------------------------------------------------------
</TABLE>
* Corporate selling, general & administrative expenses (costs related to home
office support of the Company's global business) were allocated to the
various geographic segments, beginning in 1999. Prior year amounts have been
restated to conform to this presentation.
(1) Includes the $160 million special charge related to the home office
productivity initiative recorded in the second quarter 1998.
7
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
- --------------------------------------------------------------------------------
OPERATING RESULTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dollars in millions, except
per common share data Quarter ended June 30, 1999 Six months ended June 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------
% Increase/ % Increase/
(Decrease) (Decrease)
-------------- ---------------
Amount Reported Adj/(1)/ Amount Reported Adj/(1)/
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SYSTEMWIDE SALES $9,920.4 7% 7% $18,743.2 8% 8%
- -----------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants 2,434.1 7 7 4,613.2 8 8
Revenues from franchised and affiliated restaurants 973.0 7 7 1,829.0 8 8
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,407.1 7 7 6,442.2 8 8
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,985.2 8 8 3,803.2 8 8
Franchised restaurants - occupancy costs 180.4 8 8 359.2 11 11
Selling, general, and administrative expenses 365.5 - - 705.4 - -
Other operating (income) expense (13.6) N/M N/M (31.0) N/M N/M
Made for You costs 6.1 N/M N/M 10.3 N/M N/M
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,523.6 - 6 4,847.1 3 7
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 883.5 37 10 1,595.1 24 10
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense 97.5 (8) (8) 202.7 (3) (3)
Nonoperating (income) expense 13.2 N/M N/M 18.9 N/M N/M
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME
TAXES 772.8 45 11 1,373.5 28 11
- -----------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 254.7 44 12 452.7 28 12
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 518.1 45% 11% $ 920.8 28% 11%
=============================================================================================================================
NET INCOME PER COMMON SHARE $ 0.38 46% 12% $ 0.68 31% 13%
NET INCOME PER COMMON SHARE-DILUTED 0.37 48 12 0.65 27 10
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M Not meaningful
(1) Excluding the second quarter 1998 $160 million special charge ($110
million after tax or $.08 per share) related to the home office
productivity initiative.
CONSOLIDATED OPERATING RESULTS
Net Income and Net Income per Common Share
Excluding the second quarter 1998 special charge related to the home office
productivity initiative of $160 million ($110 million after tax or $.08 per
diluted share), net income increased 11 percent for the quarter and six months
(13 and 12 percent in constant currencies, respectively). Diluted net income per
common share increased 12 percent for the quarter and 10 percent for the six
months (15 and 12 percent in constant currencies, respectively). Information in
constant currencies excludes the effect of foreign currency translation on
reported results. Reported net income and diluted net income per common share,
including the second quarter 1998 special charge, increased 45 percent and 48
percent for the quarter and 28 percent and 27 percent for the six months,
respectively.
Weighted average shares outstanding for the second quarter and the six
months were lower compared with the prior year primarily due to the Company's
share repurchase program. During the first six months of 1999, the Company
repurchased 12.8 million shares of its common stock for approximately $450
million, under its three-year, $3.5 billion program which is to be completed by
the end of 2001. In the first six months of 1999, the Company granted 21.0
million stock options to its employees, including the annual grant, compared
with 32.7 million for the first six months of 1998.
8
<PAGE>
Systemwide Sales and Revenues
Systemwide sales represent sales by Company-operated, franchised and
affiliated restaurants. Total revenues include sales by Company-operated
restaurants and fees from restaurants operated by franchisees and affiliates.
These fees include rent, service fees and royalties that are based on a percent
of sales with specified minimum payments along with initial fees.
On a global basis, the increases in sales and revenues for the quarter and six
months were due to expansion and positive comparable sales. Foreign currency
translation had a slightly negative effect on the Systemwide sales growth rate
for the quarter, but had no impact on the growth rate for the six months.
The negative impact of foreign currency translation on revenues was greater
than that on Systemwide sales for both periods primarily because the stronger
Japanese Yen had a greater positive currency translation effect on sales
compared to revenues. This is due to our affiliate structure in Japan. Under
this structure, we record a service fee in revenues based on a percentage of
Japan's sales, whereas 100 percent of its sales are included in Systemwide
sales. On a constant currency basis, revenues increased at a higher rate than
sales in both periods due to the higher unit growth rate of Company-operated
restaurants outside the U.S. relative to Systemwide restaurants.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Systemwide sales
Dollars in millions 1999 1998 Increase/(Decrease)
- ---------------------------------------------------------------------------------------------------------------------
As In Constant
Reported Currencies*
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quarters ended June 30
- --------------------------------------------------------------------------------------------------------------------
U.S. $ 5,175.6 $ 4,919.6 5% n/a
- --------------------------------------------------------------------------------------------------------------------
Europe 2,387.3 2,182.1 9 13%
- --------------------------------------------------------------------------------------------------------------------
Asia/Pacific 1,502.3 1,296.9 16 8
- --------------------------------------------------------------------------------------------------------------------
Latin America 402.1 420.2 (4) 15
- --------------------------------------------------------------------------------------------------------------------
Other 453.1 428.8 6 8
- --------------------------------------------------------------------------------------------------------------------
Total Systemwide sales $ 9,920.4 $ 9,247.6 7% 8%
- ---------------------------------------------------------------------------------------------------------------------
Six months ended June 30
- ---------------------------------------------------------------------------------------------------------------------
U.S. $ 9,463.0 $ 9,038.8 5% n/a
- --------------------------------------------------------------------------------------------------------------------
Europe 4,649.1 4,132.0 13 13%
- --------------------------------------------------------------------------------------------------------------------
Asia/Pacific 3,013.6 2,630.9 15 8
- --------------------------------------------------------------------------------------------------------------------
Latin America 795.7 830.8 (4) 16
- --------------------------------------------------------------------------------------------------------------------
Other 821.8 784.8 5 9
- --------------------------------------------------------------------------------------------------------------------
Total Systemwide sales $18,743.2 $17,417.3 8% 8%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results
n/a Not applicable
U.S. sales increased due to positive comparable sales and restaurant expansion
in both periods. Successful promotions such as Furby, Teenie Beanie Babies,
Winnie the Pooh and Tarzan, combined with local market initiatives, such as our
bagel launch in 45 percent of the U.S., contributed to the sales increase.
In Europe, positive comparable sales and expansion drove the constant currency
sales increases in both periods. Strong performances in Germany, Italy, Spain
and the U.K. drove these increases. Sales growth in France also contributed to
these increases.
In Asia/Pacific, the constant currency sales increases were driven by
expansion, partly offset by negative comparable sales for the quarter and six
months. Positive comparable sales in Australia, expansion in Japan, and double-
digit comparable sales growth in South Korea contributed to the segment's sales
increases in both periods.
In Latin America, constant currency sales increases for the quarter and six
months were driven by expansion, partly offset by negative comparable sales.
Sales in this segment continue to be negatively affected by the economic turmoil
in Brazil, including the significant devaluation of the Brazilian Real. Strong
positive comparable sales in Mexico and Venezuela in both periods contributed to
the segment's increases.
9
<PAGE>
Combined Operating Margins
<TABLE>
<CAPTION>
Combined operating margins Quarters ended Six months ended
June 30 June 30
---------------------------------------------------------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Dollars in millions
- --------------------------------------------------------------------------------------------------------------------------
Company-operated $ 448.9 $ 426.7 $ 810.0 $ 777.6
- --------------------------------------------------------------------------------------------------------------------------
Franchised 792.6 743.9 1,469.8 1,376.4
- --------------------------------------------------------------------------------------------------------------------------
Combined operating margins $1,241.5 $1,170.6 $2,279.8 $2,154.0
- --------------------------------------------------------------------------------------------------------------------------
Percent of sales/revenues
- --------------------------------------------------------------------------------------------------------------------------
Company-operated 18.4% 18.8% 17.6% 18.1%
- --------------------------------------------------------------------------------------------------------------------------
Franchised 81.5 81.7 80.4 80.9
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Combined operating margin dollars increased $71 million for the quarter and
$126 million for the six months, a six percent increase in both periods. These
increases were primarily driven by expansion and positive comparable sales.
Company-operated margins as a percent of sales decreased for both periods.
Food & paper costs as a percent of sales increased for the quarter and decreased
for the six months, while occupancy & other expenses as a percent of sales
decreased for the quarter and increased for the six months. Payroll costs
increased as a percent of sales for both periods.
As a percent of sales, U.S. Company-operated margins increased for the quarter
and six months. Lower food & paper costs and occupancy & other operating
expenses were partly offset by higher payroll costs as a percent of sales for
both periods.
Outside the U.S., Company-operated margins decreased as a percent of sales for
the quarter and six months. However, the second quarter trend was better than
the first quarter. As a percent of sales, food & paper and payroll costs
increased for the quarter and six months, while occupancy & other operating
expenses were flat for the quarter and increased for the six months. Economic
difficulties in Brazil and Russia negatively impacted the Company-operated
margin percent outside the U.S., accounting for about 80 percent of the decline
in both periods.
Franchised margin dollars comprised more than 60 percent of the combined
operating margins for both periods, the same as in the prior year. Franchised
margin dollars increased seven percent for the quarter and the six months, while
franchised margins as a percent of applicable revenues declined.
As a percent of revenues, U.S. franchised margins increased slightly for the
quarter and decreased slightly for the six months, reflecting higher occupancy
costs, including rent expense, driven by an increase in the number of leased
sites. Higher occupancy costs and the consolidation, for financial reporting
purposes, of Sweden in 1999 negatively affected the franchised margin percent
outside the U.S. in both periods. As with Company-operated margins the second
quarter trend in the franchised margin percent outside the U.S. also improved
compared with the first quarter.
Selling, General & Administrative Expenses
Selling, general & administrative expenses were flat for the quarter and the
six months. In the U.S., selling, general & administrative expenses decreased
for both periods due to savings as a result of the home office productivity
initiative. Outside the U.S., selling, general & administrative expenses
increased at a rate substantially less than the sales growth rates for both
periods. The consolidation, for financial reporting purposes, of Sweden in 1999
and spending to support restaurant development primarily drove the increases.
As a result of the home office productivity initiative, the Company expects to
save about $100 million of selling, general & administrative expenses per year,
beginning in 2000, with about two-thirds of the annual savings expected to be
realized in 1999. About $15 million of these savings were realized in 1998.
10
<PAGE>
Other Operating (Income) Expense
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Other operating (income) expense Quarters ended Six months ended
June 30 June 30
---------------------------------------------------------------------------------
Dollars in millions 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gains on sales of restaurant businesses $(11.1) $(14.0) $(22.4) $(22.0)
- -------------------------------------------------------------------------------------------------------------------------------
Equity in earnings of unconsolidated
affiliates (52.2) (22.0) (73.9) (34.4)
- -------------------------------------------------------------------------------------------------------------------------------
Other (income) expense 49.7 29.9 65.3 48.0
- -------------------------------------------------------------------------------------------------------------------------------
Other operating (income) expense $(13.6) $ (6.1) $(31.0) $ (8.4)
- -------------------------------------------------------------------------------------------------------------------------------
Made for You costs $ 6.1 $ 5.0 $ 10.3 $ 5.0
- -------------------------------------------------------------------------------------------------------------------------------
Special charge - $160.0 - $160.0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other operating (income) expense consists of transactions related to
franchising and the food service business. The increase for both the quarter
and the six months in equity in earnings of unconsolidated affiliates was
primarily due to a gain from the sale of real estate in a U.S. partnership.
Results in Japan, which benefited from a lower effective tax rate and the
stronger Japanese Yen, also contributed to the increases. Other (income)
expense increased for the quarter and six months primarily due to the write-off
of software not used in the business. Costs associated with implementation of
the Made for You food preparation system related primarily to accelerated
depreciation on equipment being replaced in U.S. Company-operated restaurants.
Also, the special charge in the second quarter 1998 reflected employee severance
and outplacement, consolidation of facilities and other costs in connection with
the home office productivity initiative.
Operating Income
Excluding the second quarter 1998 special charge, consolidated operating
income increased $77 million, or 10 percent for the quarter, and $146 million,
or 10 percent for the six months. For both periods, these increases were driven
by higher combined operating margin dollars and higher other operating income.
Selling, general & administrative expenses were flat for both periods.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Operating Income** 1999 1998 Increase/(Decrease)
----------------------------------------------------------------------------------
Excluding 1998
special charge/(1)/
- -------------------------------------------------------------------------------------------------------------------------
Dollars in millions
As In Constant
Reported Adjusted Currencies*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Quarters ended June 30
- -------------------------------------------------------------------------------------------------------------------------
U.S. $ 427.8 $ 219.0 95% 13% n/a
- -------------------------------------------------------------------------------------------------------------------------
Europe 303.5 278.6 9 9 13%
- -------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 93.9 76.0 24 24 16
- -------------------------------------------------------------------------------------------------------------------------
Latin America 25.7 39.1 (34) (34) (16)
- -------------------------------------------------------------------------------------------------------------------------
Other 32.6 34.1 (4) (4) (3)
- -------------------------------------------------------------------------------------------------------------------------
Total operating income $ 883.5 $ 646.8 37% 10% 11%
- -------------------------------------------------------------------------------------------------------------------------
Six months ended June 30
- -------------------------------------------------------------------------------------------------------------------------
U.S. $ 741.9 $ 495.7 50% 13% n/a
- -------------------------------------------------------------------------------------------------------------------------
Europe 556.3 502.4 11 11 12%
- -------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 185.2 155.8 19 19 14
- -------------------------------------------------------------------------------------------------------------------------
Latin America 57.6 78.1 (26) (26) (7)
- -------------------------------------------------------------------------------------------------------------------------
Other 54.1 57.5 (6) (6) (3)
- -------------------------------------------------------------------------------------------------------------------------
Total operating income $1,595.1 $1,289.5 24% 10% 11%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results.
** For financial reporting purposes, Corporate selling, general &
administrative expenses (costs related to home office support of the
Company's global business) were allocated to the various geographic
segments, beginning in 1999. Prior year amounts have been restated to
conform to this presentation.
(1) Excluding the second quarter 1998 $160 million special charge related to
the home office productivity initiative.
n/a Not applicable
Excluding the second quarter 1998 special charge, U.S. operating income
increased $49 million, or 13 percent for the quarter and $86 million, or 13
percent for the six months. The increases in both periods were driven by higher
combined operating margin dollars, higher other operating income and lower
selling, general & administrative expenses.
11
<PAGE>
Europe's operating income increased 13 percent for the quarter and 12 percent
for the six months in constant currencies. The strong results of Germany,
Italy, Spain and the U.K. drove this segment's performance in both periods.
Additionally, Europe's operating income benefited from the consolidation of
Sweden, due to an increase in ownership, but was dampened by the difficult
economic conditions in Russia, which began at the end of the third quarter 1998.
Excluding Russia, Europe's constant currency operating income increased 18
percent for the quarter and 17 percent for the six months.
Operating income in Asia/Pacific increased 16 percent for the quarter and 14
percent for the six months in constant currencies. The increases were driven by
Japan, which benefited from a lower effective tax rate, and improved results in
several Southeast Asian markets.
Latin America's operating income decreased 16 percent for the quarter and
seven percent for the six months in constant currencies. Difficult economic
conditions in Brazil and other parts of the region, along with Brazil's currency
devaluation, had a significant adverse effect on this segment's operating
results. Strong results in Mexico and Venezuela partly offset the decrease in
both periods. We are cautiously optimistic that improvements in the Brazilian
economy and actions we have taken will lessen the negative effect in the second
half of 1999.
Interest, Nonoperating and Income Taxes
Lower interest expense in both periods reflected lower average interest rates,
partly offset by higher average debt levels. In addition, weaker foreign
currencies contributed to the decrease for the quarter.
Nonoperating (income) expense in both periods reflected translation losses in
1999 compared with translation gains in 1998.
The effective income tax rate was 33.0 percent for both periods of 1999 and
1998.
IMPACT OF FOREIGN CURRENCIES ON REPORTED RESULTS
While changing foreign currencies affect reported results, McDonald's lessens
exposures, where practical, by financing in local currencies, hedging certain
foreign-denominated cash flows and by purchasing goods and services in local
currencies.
The primary currencies positively affecting reported results were the Japanese
Yen in both periods as well as the Southeast Asian currencies for the six
months. The Brazilian Real and British Pound had a negative effect on reported
results in both periods, while the Euro, which encompasses 11 of our European
markets including Germany and France, negatively affected results for the
quarter.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency translation on worldwide Increase
reported results excluding the 1998 special charge Over Prior Period/(1)/
- ---------------------------------------------------------------------------------------------------------------------------
Dollars in millions, except per As In Constant As In Constant
common share data Reported Currencies* Change Reported Currencies*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Quarters ended June 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Systemwide sales $ 9,920.4 $ 9,987.0 $ 66.6 7% 8%
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 3,407.1 3,489.5 82.4 7 10
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 883.5 896.6 13.1 10 11
- ---------------------------------------------------------------------------------------------------------------------------
Net income 518.1 529.1 11.0 11 13
- ---------------------------------------------------------------------------------------------------------------------------
Net income per common share - diluted .37 .38 .01 12 15
- ---------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Systemwide sales $18,743.2 $18,788.9 $ 45.7 8% 8%
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 6,442.2 6,559.3 117.1 8 10
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 1,595.1 1,608.0 12.9 10 11
- ---------------------------------------------------------------------------------------------------------------------------
Net income 920.8 931.1 10.3 11 12
- ---------------------------------------------------------------------------------------------------------------------------
Net income per common share - diluted .65 .66 .01 10 12
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results.
(1) Excluding the second quarter 1998 $160 million special charge ($110
million after tax or $.08 per diluted share) related to the home office
productivity initiative.
12
<PAGE>
MADE FOR YOU SYSTEM
In 1998, the Company announced the introduction of Made for You, a new food
preparation system that is expected to be installed in virtually all restaurants
in the U.S. and Canada by the end of 1999. Nearly 9,500 restaurants, including
all Canadian and about two-thirds of U.S. restaurants, are currently using the
new system. Through advances in equipment and technology, the new system allows
us to serve fresher, better-tasting food at the speed of McDonald's. The system
also supports future growth through product development because it can more
easily accommodate an expanded menu. The Company is providing financial
incentives of up to $12,500 per restaurant to owner/operators to defray the cost
of equipment made obsolete as a result of converting to the new system. The
Company is also making additional payments in special cases where the conversion
to Made for You is more extensive.
In 1999, the Company expects to incur about $30 million related to the
implementation of Made for You, consisting of about $15 million of incentive
payments and $15 million of accelerated depreciation on equipment being replaced
in Company-operated restaurants. The Company incurred $6.1 million in the
second quarter and $10.3 million for the six months, primarily related to
accelerated depreciation. The Company expects to use cash provided by
operations to fund the financial incentive payments provided to owner/operators.
SPECIAL CHARGE
In the second quarter 1998, the Company recorded a $160 million pre-tax
special charge related to the results of the Company's home office productivity
initiative. The Company's home office productivity plan is designed to improve
staff alignment, focus and productivity and reduce ongoing selling, general and
administrative expenses. As a result of this initiative, the Company has
reduced home office staffing by approximately 525 positions, is consolidating
certain home office facilities and reduced other expenditures in a variety of
areas. The $160 million charge was primarily comprised of costs associated with
employee severance and outplacement and with the facilities consolidation. The
Company expects to use cash provided by operations to fund the remaining
severance payments and other cash costs related to the productivity initiative.
FINANCIAL POSITION
Free cash flow - cash provided by operations less capital expenditures -- for
the six months ended June 30, 1999 increased $391 million to $729 million.
Together with other sources of cash such as borrowings, free cash flow was used
primarily for share repurchases, debt repayments, and dividends. The
consolidated capital expenditure decrease of 12.1% for the six months ended June
30, 1999 was primarily due to fewer restaurant additions, weaker foreign
currencies and the continued focus on more efficient capital deployment. The
Company expects to add about 1,750 restaurants this year, with approximately 90
percent in locations outside the U.S.
NEW ACCOUNTING STANDARD - FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, subsequently
amended by Statement No. 137, which is required to be adopted in years beginning
after June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged item,
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The Company expects to adopt the new Statement
effective January 1, 2001. Management does not anticipate that the adoption will
have a significant effect on the Company's results of operations or financial
position.
YEAR 2000
The Company has assessed its computerized systems to determine their ability
to correctly identify the Year 2000 and is devoting the necessary internal and
external resources to replace, upgrade or modify all significant systems which
do not correctly identify the Year 2000. All necessary modifications, testing
and replacements of significant systems have been completed, with one exception.
For the remaining system, the Company has completed a majority of the
modification and testing and has a planned completion date of October.
In addition, the Company has assessed the extent to which its operations may
be affected by the compliance efforts of its significant suppliers and
owner/operators and is taking the necessary steps to minimize potential
problems. The Company has implemented a Systemwide supply chain compliance
monitoring program, which encompasses supplier risk assessment and compliance
13
<PAGE>
validation for significant suppliers. The assessment and compliance validation
process has been completed for all key U.S. and global suppliers. The assessment
and validation efforts are in progress for significant local suppliers in many
of the Company's international markets and are scheduled to be completed by the
end of the third quarter 1999. In addition, the Company has communicated the
business risks associated with the Year 2000 to its owner/operators and is
providing technical support to assist them in determining and resolving any Year
2000 issues experienced.
Management does not expect Year 2000 issues relating to internal systems, its
owner/operators or suppliers to pose significant operational or financial
difficulties for the Company; however, in the unlikely event McDonald's, a
significant number of its owner/operators or a significant number of its key
suppliers are unable to resolve these issues in a timely manner, such matters
could have a material impact on the Company's results of operations. In
addition, failures related to Year 2000 issues by providers of infrastructure
services could have a material adverse effect on results of operations.
Contingency plans are being developed, to the extent feasible, to address Year
2000 issues that might arise at the Company, with its owner/operators, within
the supply chain or by infrastructure service providers. The Company has
completed contingency plans for all critical lines of business in home office
and expects to complete the remaining plans for local markets by the end of the
third quarter 1999. The plans include certain suppliers maintaining an increased
inventory of critical products and equipment to ensure there is an adequate
supply, developing alternative methods of transportation to deliver products to
the restaurants and increasing restaurant support. In addition, the Company is
establishing a global crisis management process to ensure the rapid response to
and resolution of any unforeseen Year 2000 problems that may occur. The Company
has also put a technology freeze in place, whereby no new systems or
enhancements to existing systems will be implemented, from October 1, 1999
through February 15, 2000 to minimize the risk of unplanned disruptions to
critical year-end processes.
Modification and testing costs are expensed as incurred, while the costs of
new systems are capitalized. The Company expects its total Year 2000 costs to
be about $80 million, of which $77 million was spent through June 30, 1999,
including $25 million of capitalized costs related to new systems. The total
Year 2000 costs have not and are not expected to have a material adverse impact
on the Company's financial position, results of operations or cash flows.
All Year 2000 statements contained herein are designated as "Year 2000
Readiness Disclosures" pursuant to the Year 2000 Information and Readiness
Disclosure Act of 1998.
EURO CONVERSION
On January 1, 1999, 11 member countries of the European Union established
fixed conversion rates between their existing currencies ("legacy currencies")
and one common currency, the Euro. The Euro is now trading on currency
exchanges and may be used in certain transactions such as electronic payments.
Beginning in January 2002, new Euro-denominated notes and coins will be issued,
and legacy currencies will be withdrawn from circulation. The conversion to the
Euro has eliminated currency exchange rate risk for transactions between the
member countries, which for the Company, primarily consist of payments to
suppliers. In addition, since the Company uses foreign-denominated debt and
derivatives to meet its financing requirements and to minimize its foreign
currency risks, certain of these financial instruments are now being denominated
in Euros.
The Company has restaurants located in all member countries and has been
preparing for the introduction of the Euro for the past several years. The
Company is currently addressing the issues involved with the new currency, which
include converting information technology systems, recalculating currency risk,
recalibrating derivatives and other financial instruments and revising processes
for preparing accounting and taxation records. Based on the work to date, the
Company does not believe the Euro conversion will have a significant impact on
the Company's financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are included in this report. They use such
words as "may," "will," "expect," "believe," "plan" and other similar
terminology. These statements reflect management's current expectations and
involve a number of risks and uncertainties. Actual results could differ
materially due to the effectiveness of operating initiatives, advertising and
promotional efforts, and Year 2000 compliance and Euro conversion efforts of the
Company, its owner/operators, suppliers and service providers, as well as
changes in: global and local business and economic conditions; currency
exchange and interest rates; food, labor and other operating costs; political or
economic instability in local markets; competition; consumer preferences,
spending patterns and demographic trends; availability and cost of land and
construction; legislation and government regulation; and accounting policies and
practices.
14
<PAGE>
- --------------------------------------------------------------------------------
SECOND QUARTER AND SIX MONTHS HIGHLIGHTS
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarters ended Six months ended
June 30 June 30
Dollars in millions 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Systemwide sales by type
Operated by franchisees $6,258.6 $5,831.5 $11,698.5 $10,861.7
Operated by the Company 2,434.1 2,270.4 4,613.2 4,284.7
Operated by affiliates 1,227.7 1,145.7 2,431.5 2,270.9
- ---------------------------------------------------------------------------------------------------
Systemwide sales 9,920.4 9,247.6 18,743.2 17,417.3
- ---------------------------------------------------------------------------------------------------
Restaurant margins
Company-operated
----------------
U.S. 19.4% 18.9% 18.1% 17.8%
Outside the U.S. 18.0% 18.7% 17.3% 18.3%
Franchised
----------
U.S. 82.5% 82.4% 81.3% 81.4%
Outside the U.S. 80.0% 80.7% 79.1% 80.3%
- ---------------------------------------------------------------------------------------------------
Operating income (1) $ 883.5 $ 646.8 $ 1,595.1 $ 1,289.5
Income before provision for income taxes (1) 772.8 533.8 1,373.5 1,074.0
Net income (1) 518.1 357.2 920.8 719.4
Net income per common share (1) 0.38 0.26* 0.68 0.52*
Net income per common share - diluted (1) 0.37 0.25* 0.65 0.51*
- ---------------------------------------------------------------------------------------------------
Cash provided by operations $ 765.9 $ 674.0 $ 1,482.8 $ 1,195.4
Property and equipment expenditures 417.8 455.6 754.0 857.5
Free cash flow 348.1 218.4 728.8 337.9
- ---------------------------------------------------------------------------------------------------
Total assets $19,845.4 $18,849.6
Total shareholders' equity 9,057.0 8,851.7
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Restated for 2-for-1 common stock split in March 1999.
(1) Includes the $160 million pre-tax special charge ($110 million after tax or
$.08 per share) related to the home office productivity initiative
recorded in second quarter 1998.
RESTAURANTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At June 30, 1999 1998
- --------------------------------------------------------------------------------
By type
<S> <C> <C>
Operated by franchisees 15,565 14,556
Operated by the Company 5,725 5,283
Operated by affiliates 4,051 3,887
- ---------------------------------------------------------------------------------
Systemwide restaurants 25,341 23,726
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarters ended Six months ended
June 30 June 30
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Additions
U.S. 28 (7) 18 26
Europe 88 133 137 190
Asia/Pacific 132 177 206 268
Latin America 121 51 149 69
Other 17 26 31 41
- --------------------------------------------------------------------------------------------------------
Systemwide additions 386 380 541 594
- --------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There are no material changes to the disclosure made in the Annual Report on
Form 10-K for the year ended December 31, 1998 regarding this matter.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 20, 1999.
(b) Not Applicable.
(c) At the Annual Meeting of Shareholders, the shareholders voted on the
following matters: (1) the election of four directors to serve until the
2002 Annual Meeting of Shareholders, (2) the approval of auditors and (3) a
shareholder proposal to declassify the Board of Directors. The voting
results are as follows:
(1) Each nominee was elected by a vote of the shareholders as follows:
<TABLE>
<CAPTION>
Director For Withheld
------- --- --------
<S> <C> <C>
Hall Adams, Jr 1,178,046,219 6,949,141
Gordon C. Gray 1,177,558,893 7,436,467
Terry L. Savage 1,178,212,155 6,783,205
Fred L. Turner 1,178,450,625 6,544,735
</TABLE>
Additional Directors, whose terms of office as Directors continued
after the meeting, are as follows:
<TABLE>
<CAPTION>
Term Expiring in 2000 Term Expiring in 2001
--------------------- ---------------------
<S> <C>
James R. Cantalupo Jack M. Greenberg
Enrique Hernandez, Jr. Donald G. Lubin
Donald R. Keough Walter E. Massey
Michael R. Quinlan Andrew J. McKenna
B. Blair Vedder Roger W. Stone
Robert N. Thurston
</TABLE>
(2) The proposal to approve the appointment of independent auditors was
approved by shareholders as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
1,179,520,132 1,903,309 3,571,919
</TABLE>
(3) The shareholder proposal to declassify the board was not approved by
shareholders as follows:
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
444,673,383 536,919,196 12,119,939 191,282,842
</TABLE>
(d) Not Applicable.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
(3) Restated Certificate of Incorporation, effective as of March 24, 1998,
incorporated herein by reference from Form 8-K dated April 17, 1998.
By-Laws, effective as of July 8, 1998, incorporated herein by
reference from Form 10-Q for the quarter ended June 30, 1998.
(4) Instruments defining the rights of security holders, including
Indentures (A):
(a) Senior Debt Securities Indenture dated as of October 19, 1996
incorporated herein by reference from Exhibit 4(a) of Form S-3
Registration Statement (File No. 333-14141).
(i) 6 3/8% Debentures due January 8, 2028. Supplemental
Indenture No. 1 dated as of January 8, 1998, incorporated
herein by reference from Exhibit (4)(a) of Form 8-K dated
January 5, 1998.
(ii) 5.90% REset Put Securities due 2011. Supplemental Indenture
No. 2 dated as of May 11, 1998, incorporated herein by
reference from Exhibit 4(a) of Form 8-K dated May 6, 1998.
(iii) 6% REset Put Securities due 2012. Supplemental Indenture
No. 3 dated as of June 23, 1998, incorporated herein by
reference from Exhibit 4(a) of Form 8-K dated June 18, 1998.
(iv) Medium-Term Notes, Series F, due from 1 year to 60 years
from the Date of Issue. Supplemental Indenture No. 4
incorporated herein by reference from Exhibit (4) (c) of
Form S-3 Registration Statement (File No. 333-59145), dated
July 15, 1998.
(b) Subordinated Debt Securities Indenture dated as of October 18,
1996, incorporated herein by reference from Form 8-K dated
October 18, 1996.
(i) 7 1/2% Subordinated Deferrable Interest Debentures due 2036.
Supplemental Indenture No. 1 dated as of November 5, 1996,
incorporated herein by reference from Exhibit (4)(b) of Form
8-K dated October 18, 1996.
(ii) 7 1/2% Subordinated Deferrable Interest Debentures due 2037.
Supplemental Indenture No. 2 dated as of January 14, 1997,
incorporated herein by reference from Exhibit (4)(b) of Form
8-K dated January 9, 1997.
(iii) 7.31% Subordinated Deferrable Interest Debentures due
2027. Supplemental Indenture No. 3 dated September 24, 1997,
incorporated herein by reference from Exhibit (4)(b) of Form
8-K dated September 19, 1997.
(c) Debt Securities. Indenture dated as of March 1, 1987
incorporated herein by reference from Exhibit 4(a) of Form S-3
Registration Statement (File No. 33-12364).
(i) 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.
(ii) 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 (File No. 33-34762), dated
May 14, 1990.
(iii) 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.
17
<PAGE>
Exhibit Number Description
- -------------- -----------
(iv) 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.
(v) 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 (File No. 33-42642), dated
September 10, 1991.
(vi) 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.
(vii) 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.
(viii) Medium-Term Notes, Series E, due from nine months (U.S.
Issue)/ 184 days (Euro Issue) to 60 years from the Date
of Issue. Supplemental Indenture No. 22 incorporated
herein by reference from Exhibit 4(b) of Form S-3
Registration Statement (File No. 33-60939), dated
July 13, 1995.
(ix) 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.
(x) 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.
(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.
(10) Material Contracts
(a) Directors' Stock Plan, as amended and restated, incorporated
herein by reference from Exhibit 10(a) of Form 10-Q for the
quarter ended September 30, 1997.*
(b) Profit Sharing Program, as amended and restated, incorporated by
reference from Form 10-K for the year ended December 31, 1998.*
(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,
incorporated herein by reference from Form 10-K for the year
ended December 31, 1995.*
(d) 1975 Stock Ownership Option Plan, as amended and restated, filed
herewith.*
(e) 1992 Stock Ownership Incentive Plan, as amended and restated,
filed herewith.*
(f) McDonald's Corporation Deferred Income Plan, as amended and
restated, incorporated by reference from Form 10-K for the year
ended December 31, 1998.*
(g) 1999 Non-Employee Director Stock Option Plan, filed herewith.*
(h) Executive Retention Plan, incorporated by reference from Form
10-K for the year ended December 31, 1998.*
(12) Statement re: Computation of Ratios
(27) Financial Data Schedule
18
<PAGE>
_______________________
* Denotes compensatory plan.
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 through August 12, 1999.
<TABLE>
<CAPTION>
Financial Statements
Date of Report Item Number Required to be Filed
-------------- ----------- --------------------
<S> <C> <C>
4/23/99 Item 7 No
</TABLE>
19
<PAGE>
SIGNATURE
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
McDONALD'S CORPORATION
(Registrant)
By Michael L. Conley
---------------------
(Signature)
Michael L. Conley
Executive Vice President,
Chief Financial Officer
August 12, 1999
- ---------------
20
<PAGE>
Exhibit 10(d)
McDONALD'S CORPORATION
1975 STOCK OWNERSHIP OPTION PLAN
AS AMENDED AND RESTATED
-----------------------
THE PLAN
- --------
McDonald's Corporation (the "Company") hereby amends and restates the
McDonald's Corporation 1975 Stock Ownership Option Plan, effective May 1, 1999.
As so amended and restated, the McDonald's Corporation 1975 Stock Ownership
Option Plan is hereinafter called the "Plan". The terms of options granted
prior to the effective date of this amendment shall not be adversely affected in
any way by this amendment.
1. Purpose. The purpose of this Plan is to advance the interest of the
Company by encouraging and enabling the acquisition of a larger personal
financial interest in the Company by those employees upon whose judgment and
efforts the Company is largely dependent for the successful conduct of its
operations. It is anticipated that the acquisition of such financial interest
will stimulate the efforts of such employees on behalf of the Company,
strengthen their desire to continue in the service of the Company and encourage
shareholder and entrepreneurial perspectives through employee stock ownership.
It is also anticipated that the opportunity to obtain such financial interest
will prove attractive to promising new managerial and executive talent and will
assist the Company in attracting such employees. The options granted hereunder
shall not constitute incentive stock options as such term is defined in Section
422A of the Internal Revenue Code.
2. Scope of the Plan. An aggregate of 121,780,788 of the Company's
authorized but unissued shares of common stock, $.01 par value per share or
shares acquired by purchase as described in the paragraph below or any
combination of shares from both sources are hereby made available, and shall be
reserved for issuance, under the Plan. The aggregate number of shares available
under this Plan shall be subject to adjustment on the occurrence of any of the
events and in the manner set forth in Section 11 hereof. If an option shall
expire or terminate for any reason, without having been exercised in full, the
unpurchased shares subject thereto shall (unless the Plan shall have terminated
or unless all or a part of such shares were issued under the Company's 1978
Incentive Plan) become available for other options under the Plan.
The Board of Directors (called the "Board") or such person or persons that
the Board shall specifically authorize or direct to act on its behalf shall also
have the authority to purchase from time to time, in such amounts and at such
prices as it, in its discretion, shall deem advisable or appropriate, shares of
the common stock of the Company, to be held as treasury shares and reserved and
used solely for issuance at the discretion of the Option Committee, as set forth
in Section 3 hereof, upon exercise of options granted under this Plan and in
accordance with the provisions of the preceding paragraph.
<PAGE>
3. Administration. Except as herein expressly reserved by the Board and
not delegated by the Board to the Committee, the Plan shall be administered by a
Committee, to be known as the Option Committee (called the "Committee"), which
will include not less than three Directors of the Company, who shall be
appointed, from time to time, by the Board. Except as herein expressly reserved
by the Board and not delegated by the Board to the Committee, the Committee
shall have full and final authority, in its discretion, but subject to the
express provisions of the Plan: (a) to determine the purchase price of the
common stock covered by each option, and the individuals to whom, and the time
or times at which, options shall be granted and the number of shares to be
covered by each option; (b) to interpret the Plan; (c) to prescribe, amend and
rescind rules and regulations relating to the Plan; (d) to determine the terms,
provisions, and any restrictions or conditions (including but not limited to
restrictions with respect to stock acquired upon exercise of the option which
may continue beyond the date of the optionee's termination of employment) of the
respective option agreements (which need not be identical) by which options
shall be evidenced and, with the consent of the optionee, to modify the terms,
provisions, restrictions or conditions of any option agreement; (e) to cancel,
with the consent of the optionee, outstanding options and to grant new options
in substitution therefor; (f) to authorize foreign subsidiaries to adopt plans
as provided in Section 17; (g) to delegate its duties and responsibilities under
the Plan with respect to such foreign subsidiary plans, except its duties and
responsibilities with respect to grants of options to persons who, under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Act"), are
treated (in the opinion of counsel for the Company) as officers or directors of
the Company, to such individuals or committees as the Committee in its sole
discretion may approve and (i) the acts thereunder by such individuals or
committees shall be treated hereunder as acts of the Committee and (ii) such
individuals or committees shall report to the Committee regarding the delegated
duties and responsibilities; and (h) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
4. Eligibility. With the exception of clerical employees and with the
further exception of persons (other than managers) employed in Company-owned
restaurants, options may be granted to (a) any employees of the Company or its
domestic subsidiaries, or (b) any employees, officers and directors of the
Company's foreign subsidiaries. Any entity in which the Company directly or
through intervening subsidiaries owns twenty-five percent (25%) or more of the
total combined voting power or value of all classes of stock or, in the case of
an unincorporated entity, a twenty-five percent (25%) or more interest in the
capital and profits, shall be treated as a subsidiary. In selecting the
individuals to whom options shall be granted, as well as in determining the
number of shares subject to each option, the Committee shall take into
consideration such factors as it deems relevant in connection with accomplishing
the purpose of the Plan. Subject to the provisions of Section 2 hereof, an
individual who has been granted an option may, if he is otherwise eligible, be
granted additional options if the Committee shall so determine.
5. Option price. The purchase price of the stock covered by each option
shall not be less than the fair market value of such stock on the date the
option is granted (herein called the "Option Date"). For the purposes hereof
the fair market value shall be deemed to be the closing price of said stock on
the New York Stock Exchange Composite Tape on the Option Date or, if
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no sales of said stock appear on such Tape on that date, on the next preceding
date on which there were such sales. Such price shall be subject to adjustment
as provided in Section 11 hereof.
6. Terms of employment. No obligation of the Company as to the length of
employment shall be implied by the terms of this Plan or any option granted
hereunder. The Company reserves the same rights to terminate employment of any
employee as existed prior to the date hereof.
7. Non-transferability of options. An option granted hereunder shall, by
its terms, not be transferable other than by will or the laws of descent and
distribution and may be exercised, during his lifetime, only by the optionee;
provided, however, that an optionee may, in a manner specified by the Committee,
designate in writing an individual beneficiary or beneficiaries to exercise an
option granted hereunder after the optionee's death.
8. Restricted stock. Upon granting an option or a substituted option or
upon accelerating the exercise date of an option pursuant to Section 16 or, with
respect to previously granted outstanding options, upon consent of the optionee,
the Committee may provide that shares granted upon exercise of the option shall
be subject to such restrictions as it may from time to time deem appropriate.
Specifically, but without limitation, the Committee may provide that shares
granted upon exercise of the option shall be restricted for such period after
the date of exercise as the Committee may determine, and shall be non-
transferable during such period, provided that with respect to options which are
accelerated, the restriction period shall not extend beyond the earliest date on
which the option or portion thereof could have been exercised prior to
acceleration. The restriction shall provide that if the optionee's employment
is terminated for reasons other than death, permanent disability or any other
reason specified by the Committee during the restriction period, the optionee
shall resell the restricted stock to the Company at the lesser of the option
exercise price paid or the fair market value on the date of termination of
employment. Any such shares shall bear an appropriate legend specifying that
such shares are subject to such restrictions. The Committee shall have
authority, in its discretion, to accelerate the time at which any or all of the
restrictions may lapse prior to the expiration of the restrictions or to remove
any or all of the restrictions. After the expiration of the restrictions, the
Committee shall cause shares free of the restrictions to be reissued without a
legend. Notwithstanding the foregoing, such restrictions shall not apply to
shares issued upon exercise after termination of employment by reason of death
or permanent disability pursuant to Subsection 9(a) and 9(b) hereof and, with
respect to shares issued subject to such restrictions, such restrictions shall
be cancelled by the Committee upon submission to the Committee of proof that the
termination of the optionee's employment occurred by reason of the optionee's
death, permanent disability (as defined in Section 9) or other reasons specified
by the Committee.
9. Termination of employment. An unexercised option, or any unexercised
installment thereof, shall terminate if the employment of the optionee by the
Company or any of its subsidiaries shall be terminated for any reason; except
that (a) if such employment is so terminated by death of the optionee, any
unexercised portion of the option (whether or not currently exercisable) at the
date of death may be exercised, in whole or in part, at any time within three
years after the date of death, by the optionee's personal representative or by
the
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<PAGE>
person to whom the option is transferred by will or the applicable laws of
descent and distribution, and any such option which by its terms would otherwise
expire after the optionee's death but prior to the end of such three-year period
following the optionee's death, shall be extended so as to permit any
unexercised portion thereof to be exercised at any time within such three-year
period, provided that in no event shall any option be exercised after 13 years
from the Option Date; or (b) if such employment is terminated as a result of the
permanent disability of the optionee, the unexercised portion of the option
(whether or not currently exercisable) at the date of such termination of
employment may be exercised, in whole or in part, at any time within three years
after the date of such termination, and any such option which by its terms would
otherwise expire after the optionee's termination of employment by reason of
permanent disability but prior to the end of the three-year period following the
optionee's termination of employment, shall be extended so as to permit any
unexercised portion thereof to be exercised at any time within such three-year
period, provided that in no event shall any option be exercised after 13 years
from the Option Date; (c) if such employment is terminated on account of
retirement after attaining age 60 with at least 20 years of Company service, any
unexercised portion of an option or an installment which is then exercisable or
which becomes exercisable within three years following the date of retirement
may be exercised at any time within three years after such retirement, provided
that in no event shall any option be exercised after 10 years from the Option
Date; (d) if such employment is terminated on account of retirement after
attaining age 60 with less than 20 years of Company service, any unexercised
portion of an option or an installment which is then exercisable may be
exercised at any time within one year after such retirement, provided that in no
event shall any option be exercised after 10 years from the Option Date; (e) if
such employment is terminated on account of retirement with combined age and
years of Company service equal to or greater than 70, any unexercised option,
which was granted on or after May 1, 1999 and that is then exercisable or which
would become exercisable within three years of such retirement if the optionee
remained employed by the Company or a Subsidiary throughout such three-year
period, may be exercised, in whole or in part, by the optionee, at any time
within three years after the optionee's retirement; provided that in no event
shall any option be exercised after 10 years from the Option Date; and further
provided that the optionee executes and delivers to the Company a two-year non-
competition agreement (in a form reasonably satisfactory to the Company); and
further provided that the optionee provides one-year's prior written notice of
the optionee's intention to retire to the officer in charge of the Benefits and
Compensation Department in Oak Brook Illinois; (f) if an optionee terminates
employment to become an owner-operator of a McDonald's restaurant or if an
optionee terminates after January 15, 2000 as a result of a job elimination, the
optionee will receive an extension of time to exercise any unexercised options
granted on or after May 1, 1999 and accelerated vesting of these options based
on the following rules that incorporate age and years of Company service:
<TABLE>
<CAPTION>
Age & Years of Additional Vesting and Time to Exercise
Company Service Options Granted On or After May 1, 1999
- ------------------------------------ -----------------------------------------
<C> <S>
70 plus years 3 Years
60 to 69 years 2 Years
50 to 59 years 1 Year;
</TABLE>
provided that in no event shall any option be exercised after 10 years from the
Option Date or; (g) if such employment is terminated for any other reason
excluding termination for cause, the unexercised portion of the option (to the
extent exercisable on the date such employment is
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terminated) shall be exercisable at any time within 30 days after the date of
such termination, provided that in no event shall any option be exercised after
10 years from the Option Date. Permanent disability shall mean a mental or
physical condition which renders an optionee 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. Job elimination shall include, without limitation,
terminations of employment by the Company due to corporate restructuring or
reorganization, job restructuring, reductions in force, outsourcing or
replacement of jobs by technology.
If the optionee violates the provisions of the non-competition agreement
described in Section 9(e) during the two-year period following retirement, all
unexercised options granted on or after May 1, 1999 will immediately terminate
and will not be exercisable.
10. Time of granting options. The Option Date under the Plan shall be the
date on which such option shall be duly granted by or on behalf of the Company.
11. Adjustments. Notwithstanding any other provision or the Plan, option
agreements entered into hereunder shall contain such provisions as the Committee
shall determine for adjustment of the number and class of shares covered
thereby, or of the option prices, or both, to reflect a stock dividend, stock
split-up, share combination, recapitalization, merger, consolidation,
acquisition of property or shares, separation, reorganization, liquidation or
the like, of or by the Company. In any such event, the aggregate number of
class of shares available under the Plan, shall be appropriately adjusted.
12. Termination and amendment of the Plan. This Plan shall terminate on
May 4, 2010. The Plan may be terminated at such earlier time, or be further
extended until such time, as the Board may determine. A termination shall not
affect any options then outstanding under the Plan.
The Board may make modifications of the Plan as it shall deem
advisable, without further approval of the stockholders of the Company, except
as such stockholder approval may be required under (i) Rule 16b-3 (or any
successor provision) under the Act or (ii) the listing requirements of any
securities exchange registered under the Act on which are listed any of the
Company's equity securities.
13. Change in Control. All unexercised options granted on or after May 1,
1999, which are held by an optionee shall become exercisable upon the occurrence
of a Change in Control. A Change in Control shall be deemed to have occurred at
such time as:
(i) any "person" (as that term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) (other than any subsidiary of the Company, any employee
benefit plan of the Company or any of its subsidiaries, or any related trust) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities representing 20% or more of the
combined voting power for election of directors of the then outstanding
securities of the Company or any successor of the Company;
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<PAGE>
(ii) during any period of two consecutive years or less, individuals
who at the beginning of such period constituted the Board of Directors of the
Company cease, for any reason, to constitute at least a majority of the Board of
Directors, unless the election or nomination for election of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period or whose election or
nomination for election was so approved; or
(iii) the stockholders of the Company approve any a merger,
reorganization, consolidation, or similar transaction, a plan or agreement for
the sale or other disposition of assets which, as of the date of the Company's
most recent annual or quarterly consolidated financial statements, accounted for
50% or more of the net book value of the Company's consolidated assets or 50% or
more of the Company's consolidated revenues, or a plan of liquidation of the
Company (any of the foregoing, a "Reorganization Transaction") that, based on
information included in the proxy and other materials distributed by the Company
to its stockholders in connection with the solicitation of such stockholder
approval, is not expected to qualify as an Exempt Reorganization Transaction.
"Exempt Reorganization Transaction" means a Reorganization Transaction that
results in the persons who were the direct or indirect owners of the outstanding
voting securities of the Company immediately before such Reorganization
Transaction becoming, immediately after the consummation of such Reorganization
Transaction, the direct or indirect beneficial owners of voting securities
representing more than 70% of the combined voting power of the then-outstanding
voting securities of the surviving corporation, in substantially the same
respective proportions as such persons' ownership of the voting securities of
the Company immediately before such Reorganization Transaction.
14. Stock purchased for investment. Shares purchased under the options
shall be purchased for investment and without present intention of resale,
unless, in the opinion of counsel for the Company, the shares may be purchased
without investment representation. Where an investment representation or other
restrictive representation or agreement is deemed necessary, the Committee may
require a written representation or agreement to that effect by the optionee at
the time the option is granted or exercised.
15. Term of options. Except as provided in Subsections 9(a) and 9(b), the
term of each option granted hereunder shall be for a period of no more than 10
years from the Option Date, and shall be subject to earlier termination as
hereinbefore provided.
16. Exercise of options.
(a) Subject to the provisions of Section 9 and Subsections 16(b) and
16(c), each option granted hereunder shall be exercisable in four equal biennial
installments, commencing on the first anniversary of the date of grant.
(b) The Board (or if delegated by the Board to the Committee, the
Committee) may specify a different exercise schedule or schedules for all or any
group or groups of employees to whom grants are made hereunder.
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<PAGE>
(c) The Committee, in its sole discretion, shall have the authority to
accelerate on an individual by individual basis, the time at which options or
any part thereof become exercisable to such earlier date or dates as determined
by the Committee. The Board (or if delegated by the Board to the Committee, the
Committee) shall have the authority to accelerate the time or times at which all
or any part of the options of all or any group of employees may be exercised.
(d) The Committee, in its sole discretion, shall have the authority to
extend on an individual by individual basis the period of time during which
options or installments or any part thereof which have not been exercised may be
exercised. The Board (or if delegated by the Board to the Committee, the
Committee) shall have the authority to extend the period of time during which
all or any part of the options or installments of all or any group of employees
may be exercised.
(e) An optionee may exercise the option (or a part thereof) in whole
or in part at any time commencing on the date the option (or such part) becomes
exercisable. An option shall be exercised by delivery of notice of intent to
exercise the option with respect to a specific number of option shares. Such
notice shall be in a manner specified by the Company. Except as provided in
Section 18 hereof, the purchase of any shares as to which an option shall be
exercised shall be paid in full at the time of the purchase. Payment of the
option exercise price shall be made in cash or, in whole or in part, in common
stock of the Company valued at fair market value.
An optionee shall not, by reason of any option granted hereunder,
have any right of a stockholder of the Company with respect to the shares
covered by his option until such shares have been issued to him. Any of the
provisions of this Section 16 to the contrary notwithstanding, except as
provided in Subsections 9(a) or 9(b), in no event shall any option be exercised
after 10 years from the Option Date.
17. Stock option plans of foreign subsidiaries. The Committee may, in its
sole discretion, authorize any foreign subsidiary to adopt a plan for granting
options to purchase shares of common stock of the Company ("Foreign Option
Plan"). All grants of options under such Foreign Option Plans shall be treated
as grants under the Plan. Such Foreign Option Plans shall have such terms and
provisions as the Committee permits not inconsistent with the provisions of the
Plan and which may be more restrictive than those contained in the Plan.
Options granted under such Foreign Option Plans shall be governed by the terms
of the Plan except to the extent that the provisions of the Foreign Option Plans
are more restrictive than the terms of the Plan in which cash such terms of the
Foreign Option Plans shall control.
18. Loans and guarantees. The Board (or, if delegated by the Board to the
Committee, the Committee) may, in its discretion, allow an optionee to defer all
or any portion of the option exercise price or may cause the Company to
guarantee a loan from a third party to the optionee, in an amount equal to all
or any portion of the option exercise price. Any such payment deferral by the
Company pursuant to this Section 18 shall be for such periods, at such interest
rates and on such other terms and conditions as the Board (or, if delegated to
the Committee, the
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<PAGE>
Committee) may determine. Notwithstanding the foregoing, an optionee shall not
be entitled to defer the payment of the option exercise price unless the
optionee (a) has a binding obligation to pay the portion of the option exercise
price which is deferred and (b) pays at the time of exercise a minimum amount,
with respect to the shares to be granted upon exercise, equal to the amount
determined pursuant to resolution of the Board to be capital within the meaning
of Section 154 of the Delaware General Corporation Law.
19. Substituted options. In the event the Committee cancels with the
consent of an optionees any option granted under this Plan or any other Stock
Option Plan, and a new option is substituted therefor, the Option Date of the
cancelled option shall be the date used to determine the exercisability of the
new substituted option under Section 16 hereof so that the optionee may exercise
the substituted option in the same percentages and at the same times as if the
optionee has held the substituted option since the Option Date of the cancelled
option. This Section 19 shall be effective with respect to all options granted
on or after October 25, 1976, in substitution of cancelled options.
20. Elective Share Withholding.
(a) Subject to Section 20(b), an optionee may elect the withholding
("Share Withholding") by the Company of a portion of the shares otherwise
deliverable to such optionee upon the exercise of an option (each a "Taxable
Event") having a fair market value equal to the minimum amount necessary to
satisfy required federal, state, or local withholding tax liability attributable
to the Taxable Event.
(b) Each Share Withholding election by an optionee shall be subject to
the following restrictions:
(i) any optionee's election shall be subject to the Committee's
right to revoke such election of Share Withholding by such optionee at any time
before the optionee's election if the Committee has reserved the right to do so
in the option agreement; and
(ii) the optionee's election shall be irrevocable.
Executed this 6th day of August, 1999.
McDONALD'S CORPORATION
By: /s/ Gloria Santona
------------------
Vice President
-8-
<PAGE>
Exhibit 10(e)
McDONALD'S CORPORATION 1992 STOCK OWNERSHIP INCENTIVE PLAN AS AMENDED AND
RESTATED
- -------------------------------------------------------------------------------
THE PLAN
McDonald's Corporation, a Delaware corporation (the "Company") established the
McDonald's Corporation 1992 Stock Ownership Incentive Plan (the "Plan")
effective as of June 1, 1992. The Plan was first amended and restated, effective
as of June 1, 1995 and was subsequently amended and restated effective as of
March 19, 1997, January 20, 1998 and May 1, 1999. Unless specifically provided
for in an Award (as defined herein) to the contrary, an Award shall be governed
by and subject to the applicable provisions of the Plan in effect on the date
such Award was granted, or in the case of an amended Award, the date the Award
was amended.
1. Purpose
The purpose of this Plan is to advance the interest of the Company by
encouraging and enabling the acquisition of a larger personal financial interest
in the Company by those employees upon whose judgment and efforts the Company is
largely dependent for the successful conduct of its operations. An additional
purpose of this Plan is to provide a means by which employees of the Company and
its Subsidiaries can acquire and maintain Stock ownership, thereby strengthening
their commitment to the success of the Company and their desire to remain
employed by the Company and its Subsidiaries. It is anticipated that the
acquisition of such financial interest and Stock ownership will stimulate the
efforts of such employees on behalf of the Company, strengthen their desire to
continue in the service of the Company and encourage shareholder and
entrepreneurial perspectives through employee stock ownership. It is also
anticipated that the opportunity to obtain such financial interest and Stock
ownership will prove attractive to promising new employees and will assist the
Company in attracting such employees.
2. Definitions
As used in this Plan, terms defined parenthetically immediately after their use
shall have the respective meanings provided by such definitions and the terms
set forth below shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Award" means options, shares of restricted stock, stock appreciation
rights, performance units or stock bonuses granted under this Plan.
(b) "Award Agreement" has the meaning specified in Section 4(c)(v).
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" includes termination based on the commission of any act or
acts involving dishonesty, fraud, illegality or moral turpitude.
(e) "Change in Control" shall be deemed to have occurred at such time as:
(i) any "person" (as that term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) (other than any subsidiary of the Company, any employee
benefit plan of the Company or any of its subsidiaries, or any related trust) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities representing 20% or more of the
combined voting power
<PAGE>
for election of directors of the then outstanding securities of the Company or
any successor of the Company;
(ii) during any period of two consecutive years or less, individuals
who at the beginning of such period constituted the Board of Directors of the
Company cease, for any reason, to constitute at least a majority of the Board of
Directors, unless the election or nomination for election of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period or whose election or
nomination for election was so approved; or
(iii) the stockholders of the Company approve any a merger,
reorganization, consolidation, or similar transaction, a plan or agreement for
the sale or other disposition of assets which, as of the date of the Company's
most recent annual or quarterly consolidated financial statements, accounted for
50% or more of the net book value of the Company's consolidated assets or 50% or
more of the Company's consolidated revenues, or a plan of liquidation of the
Company (any of the foregoing, a "Reorganization Transaction") that, based on
information included in the proxy and other materials distributed by the Company
to its stockholders in connection with the solicitation of such stockholder
approval, is not expected to qualify as an Exempt Reorganization Transaction.
(f) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations and rulings thereunder. References to a particular section of the
Code shall include references to successor provisions.
(g) "Committee" means the committee of the Board appointed pursuant to
Section 4.
(h) "Company" has the meaning set forth in the introductory paragraph.
(i) "Disability" means, as relates to the exercise of an incentive stock
option after termination of employment, a disability within the meaning of
Section 22(e)(3) of the Code, and for all other purposes, a mental or physical
condition which, in the opinion of the Committee, renders a Grantee unable or
incompetent to carry out the job responsibilities which such Grantee held or the
tasks to which such Grantee was assigned at the time the disability was
incurred, and which is expected to be permanent or for an indefinite duration
exceeding one year.
(j) "Effective Date" means June 1, 1992.
(k) "Exempt Reorganization Transaction" means a Reorganization Transaction
that results in the persons who were the direct or indirect owners of the
outstanding voting securities of the Company immediately before such
Reorganization Transaction becoming, immediately after the consummation of such
Reorganization Transaction, the direct or indirect beneficial owners of voting
securities representing more than 70% of the combined voting power of the then-
outstanding voting securities of the surviving corporation, in substantially the
same respective proportions as such persons' ownership of the voting securities
of the Company immediately before such Reorganization Transaction.
(l) "Fair Market Value" of any security of the Company means, as of
any applicable date the price, regular way, of the security as reported on the
New York Stock Exchange Composite Tape, or if no such reported sale of the
security shall have occurred on such date, on the next preceding date on which
there was such a reported sale.
(m) "Grant Date" means the date on which an Award shall be duly granted, as
determined in accordance with Section 6(a)(i).
(n) "Grantee" means an individual who has been granted an Award.
(o) "including" or "includes" means "including, without limitation," or
"includes, without limitation."
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<PAGE>
(p) "Job Elimination" includes terminations of employment by the
Company due to corporate restructuring or reorganization, job restructuring,
reductions in force, outsourcing or replacement of jobs by technology.
(q) "Measuring Period" has the meaning specified in Section 6(f)(i)(B).
(r) "Minimum Consideration" means $.01 per share or such larger amount
determined pursuant to resolution of the Board to be capital within the meaning
of Section 154 of the Delaware General Corporation law.
(s) "1934 Act" means the Securities Exchange Act of 1934, as amended.
References to a particular section of, or rule under, the 1934 Act shall include
references to successor provisions.
(t) "Option Price" means the per share purchase price of Stock subject to
an option.
(u) "Performance Percentage" has the meaning specified in Section
6(f)(i)(C).
(v) "Plan" means the McDonald's Corporation 1992 Stock Ownership Incentive
Plan, as amended and restated in the manner set forth in the introductory
paragraph.
(w) "Retirement" means a termination of employment with the Company
and its Subsidiaries any time after attaining age 60 with at least 20 years of
Company service. For options granted on or after May 1, 1999, Retirement shall
also mean a termination of employment with the Company and its Subsidiaries with
combined age and years of service equal to or greater than 70.
(x) "SEC" means the Securities and Exchange Commission.
(y) "Section 16 Grantee" means a person subject to potential liability
under Section 16(b) of the 1934 Act with respect to transactions involving
equity securities of the Company.
(z) "Stock" means the common stock of the Company, par value $.01 per
share.
(aa) "Subsidiary" means (i) with respect to incentive stock options, a
corporation as defined in Section 424(f) of the Code with the Company being
treated as the employer corporation for purposes of this definition, and (ii)
for all other purposes any entity in which the Company directly or through
intervening subsidiaries owns twenty-five percent (25%) or more of the total
combined voting power or value of all classes of stock or, in the case of an
unincorporated entity, a twenty-five percent (25%) or more interest in the
capital and profits.
(bb) "10% Owner" means a person who owns stock (including stock treated as
owned under Section 424(d) of the Code) possessing more than 10% of the total
combined voting power of all classes of stock of the Company.
3. Scope of this Plan
(a) The number of shares of Stock which represented five percent (5%) of
the number of issued and outstanding shares of Stock as of June 1, 1992 was made
available and reserved for delivery on account of the exercise of Awards and
payment of benefits in connection with Awards. Effective June 1, 1995, January
20, 1998 and May 20, 1999, an additional 64 million, 30 million and 10 million
shares of Stock, respectively were made available and were reserved for delivery
on account of the exercise of Awards and payment of benefits in connection with
Awards. Such shares may be treasury shares or newly issued shares, as may be
determined from time to time by the Board or the Committee.
3
<PAGE>
(b) Subject to adjustment as provided in Section 22, the maximum number of
Shares of Stock for which Awards may be granted to any Grantee in any three-year
period shall not exceed 5,000,000.
(c) Subject to Section 3(a) and (b) (as to the maximum number of shares of
Stock available for delivery in connection with Awards) and to Section 3(d), up
to 10,000,000 shares of restricted stock, and up to 400,000 bonus shares of
Stock may be granted under this Plan.
(d) If and to the extent an Award shall expire or terminate for any
reason without having been exercised in full, or shall be forfeited, without, in
either case, the Grantee having enjoyed any of the benefits of stock ownership
(other than voting rights or dividends that are likewise forfeited), the shares
of Stock (including restricted stock) associated with such Award shall become
available for other Awards.
4. Administration
(a) Subject to Section 4(b), this Plan shall be administered by a
committee ("Committee") of the Board of Directors. All members of the Committee
shall be "Outside Directors" as defined or interpreted for purposes of Section
162(m) of the Code. The composition of the Committee shall also be subject to
such limitations as the Board deems appropriate to permit transactions in Stock
pursuant to this Plan to be exempt from liability under Rule 16b-3 under the
1934 Act.
(b) The Board may, in its discretion, reserve to itself or delegate to
another committee of the Board any or all of the authority and responsibility of
the Committee with respect to Awards to Grantees who are not Section 16 Grantees
at the time any such delegated authority or responsibility is exercised. Such
other committee may consist of two or more directors who may, but need not be,
officers or employees of the Company or of any of its Subsidiaries. To the
extent that the Board has reserved to itself or delegated to such other
committee the authority and responsibility of the Committee, all references to
the Committee in this Plan shall be to the Board or such other committee.
(c) The Committee shall have full and final authority, in its discretion,
but subject to the express provisions of this Plan, as follows:
(i) to grant Awards,
(ii) to determine (A) when Awards may be granted, and (B) whether or
not specific Awards shall be identified with other specific Awards, and if so
whether they shall be exercisable cumulatively with or alternatively to such
other specific Awards,
(iii) to interpret this Plan and to make all determinations necessary
or advisable for the administration of this Plan,
(iv) to prescribe, amend, and rescind rules and regulations relating
to this Plan, including rules with respect to the exercisability and
nonforfeitability of Awards upon the termination of employment of a Grantee,
(v) to determine the terms and provisions and any restrictions or
conditions (including specifying such performance criteria as the Committee
deems appropriate, and imposing restrictions with respect to stock acquired upon
exercise of an option, which restrictions may continue beyond the Grantee's
termination of employment) of the written agreements by which all Awards shall
be evidenced ("Award Agreements") which need not be identical and, with the
consent of the Grantee, to modify any such Award Agreement at any time,
(vi) to authorize foreign Subsidiaries to adopt plans as provided in
Section 15,
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(vii) to delegate its duties and responsibilities under this Plan with
respect to such foreign Subsidiary plans, except its duties and responsibilities
with respect to Section 16 Grantees, and (A) the acts of such delegates shall be
treated hereunder as acts of the Committee and (B) such delegates shall report
to the Committee regarding the delegated duties and responsibilities,
(viii) to accelerate the exercisability of, and to accelerate or waive
any or all of the restrictions and conditions applicable to, any Award, or any
group of Awards for any reason,
(ix) subject to Section 6(a)(ii), to extend the time during
which any Award or group of Awards may be exercised,
(x) to make such adjustments or modifications to Awards to Grantees
working outside the United States as are necessary and advisable to fulfill the
purposes of this Plan,
(xi) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Awards as the Committee
may, before or concurrently with the grant thereof, deem appropriate, including
requiring simultaneous exercise of related identified Awards, and limiting the
percentage of Awards which may from time to time be exercised by a Grantee, and
(xii) to prescribe rules and regulations concerning the
transferability of any Awards granted on or after June 1, 1995 and to make such
adjustments or modifications to Awards transferable pursuant to Section 8 as are
necessary and advisable to fulfill the purposes of this Plan.
The determination of the Committee on all matters relating to this Plan or
any Award Agreement shall be conclusive and final. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to this Plan or any Award.
5. Eligibility
Awards may be granted to any full-time employee (including any officer) of the
Company or any of its domestic Subsidiaries, or any employee, officer or
director of any of the Company's foreign Subsidiaries. In selecting the
individuals to whom Awards may be granted, as well as in determining the number
of shares of Stock subject to, and the other terms and conditions applicable to,
each Award, the Committee shall take into consideration such factors as it deems
relevant in promoting the purposes of this Plan.
6. Conditions to Grants
(a) General conditions.
(i) The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified in advance by the
Committee.
(ii) The term of each Award (subject to Section 6(c) with respect to
incentive stock options) shall be a period of not more than 15 years from the
Grant Date, and shall be subject to earlier termination as herein provided.
(iii) A Grantee may, if otherwise eligible, be granted
additional Awards in any combination.
(b) Grant of options and option price. No later than the Grant Date of any
option, the Committee shall determine the Option Price of such option. The
Option Price of an option shall not be less than 100% of the Fair Market Value
of the Stock on the Grant Date. Such price shall be subject to adjustment as
provided in Section 22. The Award Agreement may provide that the option shall be
exercisable for restricted stock.
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(c) Grant of incentive stock options. At the time of the grant of any
option, the Committee may designate that such option shall be made subject to
additional restrictions to permit it to qualify as an "incentive stock option"
under the requirements of Section 422 of the Code. Any option designated as an
incentive stock option:
(i) shall not be granted to a 10% Owner;
(ii) shall be for a period of not more than 10 years from the Grant
Date, and shall be subject to earlier termination as provided herein or in the
applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value (determined for
each incentive stock option at its Grant Date) of Stock with respect to which
incentive stock options are exercisable for the first time by such Grantee
during any calendar year (under this Plan and any other employee stock option
plan of the Grantee's employer or any parent or Subsidiary thereof ("Other
Plans")), determined in accordance with the provisions of Section 422 of the
Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) shall, if the aggregate Fair Market Value of Stock (determined on
the Grant Date) with respect to all incentive stock options previously granted
under this Plan and any Other Plans ("Prior Grants") and any incentive stock
options under such grant (the "Current Grant") which are exercisable for the
first time during any calendar year would exceed the $100,000 Limit, be
exercisable as follows:
(A) the portion of the Current Grant exercisable for the first
time by the Grantee during any calendar year which would, when added to any
portions of any Prior Grants, be exercisable for the first time by the Grantee
during such calendar year with respect to Stock which would have an aggregate
Fair Market Value (determined as of the respective Grant Date for such options)
in excess of the $100,000 Limit shall, notwithstanding the terms of the Current
Grant, be exercisable for the first time by the Grantee in the first subsequent
calendar year or years in which it could be exercisable for the first time by
the Grantee when added to all Prior Grants without exceeding the $100,000 Limit;
and
(B) if, viewed as of the date of the Current Grant, any portion
of a Current Grant could not be exercised under the provisions of the
immediately preceding sentence during any calendar year commencing with the
calendar year in which it is first exercisable through and including the last
calendar year in which it may by its terms be exercised, such portion of the
Current Grant shall not be an incentive stock option, but shall be exercisable
as a separate option at such date or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the date this
Plan is adopted or the date this Plan is approved by the stockholders of the
Company;
(vi) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the incentive stock
option under the circumstances described in Section 421(b) of the Code (relating
to certain disqualifying dispositions), within 10 days of such disposition; and
(vii) shall by its terms not be assignable or transferable other than
by will or the laws of descent and distribution and may be exercised, during the
Grantee's lifetime, only by the Grantee; provided, however, that the Grantee
may, to the extent provided in this Plan and in a manner specified by the
Committee, designate in writing a beneficiary to exercise his incentive stock
option after the Grantee's death.
Notwithstanding the foregoing and Section 4(c)(v), the Committee may,
without the consent of the Grantee, at any time before the exercise of an option
(whether or not an incentive stock option), take any action necessary to prevent
such option from being treated as an incentive stock option.
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(d) Grant of Shares of Restricted Stock.
(i) The Committee may, in its discretion grant shares of restricted
stock to any individual eligible under Section 5 to receive Awards.
(ii) The Committee shall, in its discretion, determine the amount, if
any, that a Grantee shall pay for shares of restricted stock, subject to the
following sentence. Except with respect to shares of restricted stock that are
treasury shares, for which no payment need be required, the Committee shall
require the Grantee to pay at least the Minimum Consideration for each share of
restricted stock granted to such Grantee. Such payment shall be made in full by
the Grantee before the delivery of the shares and in any event no later than 10
days after the Grant Date for such shares. In the discretion of the Committee
and to the extent permitted by law, payment may also be made in accordance with
Section 10.
(iii) The Committee may, but need not, provide that all or any portion
of a Grantee's Award of restricted stock, or restricted stock acquired upon
exercise of an option shall be forfeited:
(A) except as otherwise specified in the Award Agreement, upon
the Grantee's termination of employment for reasons other than death, disability
or any other reason specified in the Award Agreement within a specified time
period after the Grant Date, or
(B) if the Company or the Grantee does not achieve specified
performance goals (if any) within a specified time period after the Grant Date
and before the Grantee's termination of employment, or
(C) upon failure to satisfy such other restrictions as the
Committee may specify in the Award Agreement; provided that subject to Sections
4(c)(viii) and 14, in no case shall such Award become nonforfeitable before the
first anniversary of the Grant Date.
(iv) If a share of restricted stock is forfeited, then (A) if the
Grantee was required to pay for such share or acquired such restricted stock
upon the exercise of an option, the Grantee shall be deemed to have resold such
share of restricted stock to the Company at the lesser of (1) the amount paid
or, if the restricted stock was acquired on exercise of an option, the Option
Price paid by the Grantee for such share of restricted stock, or (2) the Fair
Market Value of a share of Stock on the date of such forfeiture; (B) the Company
shall pay to the Grantee the amount determined under clause (A) of this sentence
as soon as is administratively practical; and such share of restricted stock
shall cease to be outstanding, and shall no longer confer on the Grantee thereof
any rights as a stockholder of the Company, from and after the later of the date
the event causing the forfeiture occurred or the date of the Company's tender of
the payment specified in clause (B) of this sentence, whether or not such tender
is accepted by the Grantee.
(v) The Committee may provide that any share of restricted stock
shall be held (together with a stock power executed in blank by the Grantee) in
escrow by the Secretary of the Company until such shares become nonforfeitable
or are forfeited. Any share of restricted stock shall bear an appropriate legend
specifying that such share is non-transferable and subject to the restrictions
set forth in this Plan and the Award Agreement. If any shares of restricted
stock become nonforfeitable, the Company shall cause certificates for such
shares to be issued or reissued without such legend.
(e) Grant of Stock Appreciation Rights. When granted, stock
appreciation rights may, but need not, be identified with shares of Stock
subject to a specific option, specific shares of restricted stock, or specific
performance units of the Grantee (including any option, shares of restricted
stock, or performance units granted on or before the Grant Date of the stock
appreciation rights) in a number equal to or different from the number of stock
appreciation rights so granted. If stock appreciation rights are identified with
shares of Stock subject to an option, with shares of restricted stock, or with
performance units, then, unless otherwise provided in the applicable Award
Agreement, the Grantee's associated stock appreciation rights shall terminate
upon (i) the expiration, termination, forfeiture or cancellation of such option,
shares of restricted stock, or performance units, (ii) the exercise of such
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<PAGE>
option or performance units, or (iii) the date such shares of restricted stock
become nonforfeitable.
(f) Grant of Performance Units.
(i) Before the grant of any performance unit, the Committee shall:
(A) determine performance goals applicable to such grant,
(B) designate a period, of not less than one year nor more
than seven years, for the measurement of the extent to which performance goals
are attained, which period may begin prior to the Grant Date (the "Measuring
Period"), and
(C) assign a "Performance Percentage" to each level of
attainment of performance goals during the Measuring Period, with the percentage
applicable to minimum attainment being zero percent (0%) and the percentage
applicable to maximum attainment to be determined by the Committee from time to
time.
(ii) In establishing performance goals, the Committee may consider
any performance factor or factors it deems appropriate, including net income,
growth in net income, earnings per share, growth of earnings per share, return
on equity or return on capital, remaining employed for a specified period, or
any other factor. The Committee may, at any time, in its discretion, modify
performance goals in order to facilitate their attainment for any reason,
including recognition of unusual or nonrecurring events affecting the Company or
a Subsidiary or changes in applicable laws, regulations or accounting
principles. If a Grantee is promoted, demoted or transferred to a different
business unit of the Company during a Measuring Period, then, to the extent the
Committee determines the performance goals or Measuring Period are no longer
appropriate, (A) the Committee may adjust, change or eliminate the performance
goals or the applicable Measuring Period as it deems appropriate in order to
make them appropriate and comparable to the initial performance goals or
Measuring Period; or (B) make a cash payment to the Grantee in an amount
determined in accordance with the method described in Section 14(b)(iii),
substituting the effective date of such promotion, demotion or transfer for the
termination of employment referred to in Section 14(b)(iii).
(iii) When granted, performance units may, but need not, be identified
with shares of Stock subject to a specific option, specific shares of restricted
stock, or specific stock appreciation rights of the Grantee granted under this
Plan in a number equal to or different from the number of the performance units
so granted. If performance units are identified with shares of Stock subject to
an option, shares of restricted stock, or stock appreciation rights, then,
unless otherwise provided in the applicable Award Agreement, the Grantee's
associated performance units shall terminate upon (A) the expiration,
termination, forfeiture or cancellation of such option, shares of restricted
stock, or stock appreciation rights, (B) the exercise of such option or stock
appreciation rights, or (C) the date such shares of restricted stock become
nonforfeitable.
(iv) If a Grantee commences employment after the performance goals of
a particular Measuring Period are established, the Committee may grant an Award
that is proportionately adjusted based on the period of actual service during
the Measuring Period.
(g) Grant of Stock Bonuses. The Committee may, in its discretion,
grant shares of Stock to any individual eligible under Section 5 to receive
Awards, other than executive officers of the Company.
7. Grantee's Agreement to Serve
Each Grantee who is granted an Award shall, by executing such Grantee's Award
Agreement, agree that such Grantee will remain in the employ of the Company or
any of its Subsidiaries for at least one year after the Grant Date. No
obligation of the Company or any of its Subsidiaries as to the length of any
Grantee's employment shall be implied by the terms of this Plan, any grant of an
Award hereunder or any
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Award Agreement. The Company and its Subsidiaries reserve the same rights to
terminate employment of any Grantee as existed before the Effective Date.
8. Non-Transferability
Each Award (other than restricted stock) granted hereunder shall not be
assignable or transferable other than by will or the laws of descent and
distribution; provided, however, that a Grantee may, in a manner specified by
the Committee and to the extent provided in this Plan: (a) designate in writing
a beneficiary to exercise his Award after the Grantee's death; (b) transfer an
option (other than an incentive stock option), stock appreciation right or
performance unit to a revocable inter vivos trust as to which the Grantee is
both the settlor and the trustee; and (c) if the Award Agreement expressly
permits, transfer an Award (other than restricted stock or an incentive stock
option) for no consideration to any of the following permissible transferees
(each a "Permissible Transferee"): (w) any member of the Immediate Family of the
Grantee to whom such Award was granted, (x) any trust for the benefit of members
of the Grantee's Immediate Family, (y) any partnership whose partners are
members of the Grantee's Immediate Family or (z) Ronald McDonald Children's
Charities or any Ronald McDonald House; and further provided that (i) the
transferee shall remain subject to all of the terms and conditions applicable to
such Award prior to such transfer; (ii) any such transfer shall be subject to
and in accordance with the rules and regulations prescribed by the Committee in
accordance with Section 4(c)(xii) (the "Transfer Rules") and (iii) except as
otherwise expressly provided for in the Plan or in the Transfer Rules, a
Permissible Transferee shall have all the rights and obligations of the Grantee
hereunder and the Grantee shall not retain any rights with respect to the
transferred Award and further provided that the payment of any tax attributable
to the exercise of an Award shall remain the obligation of the Grantee and the
period during which an Award shall remain exercisable under Section 14 shall
depend upon the time and nature of the Grantee's termination of employment. For
purposes of this Section 8, "Immediate Family" includes, such Grantee's spouse,
children, grandchildren, stepchildren, parents, stepparents, grandparents,
siblings , nieces, nephews and in-laws. Notwithstanding the foregoing, the
Committee may, from time to time, in its sole discretion designate additional
individuals, persons or classes as Permissible Transferees.
Each share of restricted stock shall be non-transferable until such share
becomes nonforfeitable.
9. Exercise
(a) Exercise of Options. Subject to Sections 4(c)(viii) and 14 and such
terms and conditions as the Committee may impose, each option shall be
exercisable in one or more installments commencing not earlier than the first
anniversary of the Grant Date of such option.
Each option shall be exercised by delivery of notice of intent to purchase
a specific number of shares of Stock subject to the option. Such notice shall be
in a manner specified by the Company. The Option Price of any shares of Stock or
shares of restricted stock as to which an option shall be exercised shall be
paid in full at the time of the exercise. Payment may, at the election of the
Grantee, be made in any one or any combination of the following:
(i) cash,
(ii) Stock held by the Grantee for at least 6 months prior to
exercise of the option, valued at its Fair Market Value at the time of exercise,
(iii) with the approval of the Committee, shares of restricted stock
held by the Grantee for at least 6 months prior to exercise of the option, each
valued at the Fair Market Value of a share of Stock at the time of exercise, or
(iv) through simultaneous sale through a broker of shares acquired on
exercise, as permitted under Regulation T of the Federal Reserve Board.
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<PAGE>
In the discretion of the Committee and to the extent permitted by law,
payment may also be made in accordance with Section 10.
If restricted stock ("Tendered Restricted Stock") is used to pay the Option
Price for Stock subject to an option, then the Committee may, but need not,
specify that (i) all the shares of Stock acquired on exercise of the option
shall be subject to the same restrictions as the Tendered Restricted Stock,
determined as of the date of exercise of the option, or (ii) a number of shares
of Stock acquired on exercise of the option equal to the number of shares of
Tendered Restricted Stock shall, unless the Committee provides otherwise, be
subject to the same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the option.
(b) Exercise of Stock Appreciation Rights. Subject to Sections 4(c)(viii)
and 14 and such terms and conditions as the Committee may impose, each stock
appreciation right shall be exercisable not earlier than the first anniversary
of the Grant Date of such stock appreciation right, to the extent the option
with which it is identified, if any, may be exercised, to the extent the
restricted stock with which it is identified, if any, is nonforfeitable, or to
the extent the performance unit with which it is identified, if any, may be
exercised unless otherwise provided by the Committee. Stock appreciation rights
shall be exercised by delivery to the Company of written notice of intent to
exercise a specific number of stock appreciation rights. Unless otherwise
provided in the applicable Award Agreement, the exercise of stock appreciation
rights which are identified with shares of Stock subject to an option, shares of
restricted stock or performance units shall result in the cancellation or
forfeiture of such option, shares of restricted stock or performance units, as
the case may be, to the extent of such exercise.
The benefit for each stock appreciation right exercised shall be equal to:
(i) the Fair Market Value of a share of Stock on the date of such
exercise, reduced by
(ii) an amount equal to:
(A) for any stock appreciation right identified with shares of
Stock subject to an option, the Option Price of such option, unless the
Committee in the grant of the stock appreciation right specified a higher amount
or
(B) for any other stock appreciation right, the Fair Market
Value of a share of Stock on the Grant Date of such stock appreciation right,
unless the Committee in the grant of the stock appreciation right specified a
higher amount; provided that the Committee, in its discretion, may provide that
the benefit for any stock appreciation right shall not exceed such percentage of
the Fair Market Value of a share of Stock on such Grant Date as the Committee
shall specify. The benefit upon the exercise of a stock appreciation right shall
be payable in cash, except that the Committee, may, in its discretion, provide
in the Award Agreement that benefits, with respect to any particular exercise,
may be paid wholly or partly in Stock.
(c) Exercise of Performance Units.
(i) Subject to Section 14 and such terms and conditions as the
Committee may impose, if, with respect to any performance unit, the minimum
performance goals have been achieved during the applicable Measuring Period,
then such performance unit shall vest and be exercisable commencing on the later
of (A) the first anniversary of the Grant Date or (B) the first day after the
end of the applicable Measuring Period. Performance units shall be exercised by
delivery to the Company of written notice of intent to exercise a specific
number of performance units; provided, however, that performance units not
identified with shares of Stock subject to an option, shares of restricted stock
or stock appreciation rights shall be deemed exercised on the date on which they
first become exercisable. Unless otherwise provided in the applicable Award
Agreement, the exercise of performance units which are identified with shares of
Stock subject to an option, shares of restricted stock or stock appreciation
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<PAGE>
rights shall result in the cancellation or forfeiture of such shares of Stock
subject to option, shares of restricted stock or stock appreciation rights as
the case may be, to the extent of such exercise.
(ii) The benefit for each performance unit exercised shall be an
amount equal to the product of:
(A) the Unit Value (as defined below) multiplied by
(B) the Performance Percentage attained during the Measuring
Period for such performance unit.
(iii) The Unit Value shall be, as specified by the
Committee,
(A) a dollar amount,
(B) an amount equal to the Fair Market Value of a share of
Stock on the Grant Date,
(C) an amount equal to the Fair Market Value of a share of
Stock on the exercise date of the performance unit, including, if so provided in
the Award Agreement, an amount ("Dividend Equivalent Amount") equal to the value
that would result if dividends paid on a share of Stock on or after the Grant
Date and on or before the exercise date were invested in shares of Stock as of
each respective dividend payment date, or
(D) an amount equal to the Fair Market Value of a share of
Stock on the exercise date of the performance unit (plus, if so specified in the
Award Agreement a Dividend Equivalent Amount), reduced by the Fair Market Value
of a share of Stock on the Grant Date of the performance unit.
(iv) Unless expressly provided for in the Award Agreement, the benefit
upon the exercise of a performance unit shall be payable on or about April 1st
following the close of the Measuring Period.
(v) Benefits upon exercise of a performance unit shall be payable in
cash (unless deferred under the terms and conditions of the Company's Deferred
Income Plan or in accordance with such other rules and regulations as the
Committee may approve), except that the Committee, may, in its discretion,
provide in the Award Agreement that benefits, with respect to any particular
exercise, may be paid wholly or partly in Stock. In the event the Award
Agreement provides that the benefit may be paid wholly in Stock unless the
Committee, in its discretion, specifies at the time of exercise that the benefit
shall be paid partly or wholly in cash, the number of shares of Stock payable in
lieu of cash shall be determined by valuing the Stock at its Fair Market Value
on the date such benefit is to be paid.
10. Loans and Guarantees
The Committee may, in its discretion:
(a) allow a Grantee to defer payment to the Company of all or any portion
of (i) the Option Price of an option, (ii) the purchase price of a share of
restricted stock, or (iii) any taxes associated with a benefit hereunder which
is not a cash benefit at the time such benefit is so taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such Option Price, purchase
price, or any related taxes.
Any such payment deferral or guarantee by the Company pursuant to this
Section 10 shall be on such terms and conditions as the Committee may determine;
provided that the interest rate applicable to any such payment deferral shall be
not more favorable to the Grantee than the terms applicable to funds borrowed by
the Company. Notwithstanding the foregoing, a Grantee shall not be entitled to
defer the
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payment of such Option Price, purchase price or any related taxes unless the
Grantee (i) enters into a binding obligation to pay the deferred amount and (ii)
except with respect to treasury shares, pays upon exercise of an option or grant
of shares of restricted stock, as the case may be, an amount equal to or greater
than the Minimum Consideration thereof. If the Committee has permitted a payment
deferral or caused the Company to guarantee a loan pursuant to this Section 10,
then the Committee may, in its discretion, require the immediate payment of such
deferred amount or the immediate release of such guarantee upon the Grantee's
termination of employment or if the Grantee sells or otherwise transfers the
Grantee's shares of Stock purchased pursuant to such deferral or guarantee.
11. Notification under Section 83(b)
The Committee may, on the Grant Date or any later date, prohibit a Grantee from
making the election described below. If the Committee has not prohibited such
Grantee from making such election, and the Grantee shall, in connection with the
exercise of any option, or the grant of any share of restricted stock, make the
election permitted under Section 83(b) of the Code (i.e., an election to include
in such Grantee's gross income in the year of transfer the amounts specified in
Section 83(b) of the Code), such Grantee shall notify the Company of such
election within 10 days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Section 83(b) of the Code.
12. Mandatory Withholding Taxes
(a) Whenever under this Plan, cash or shares of Stock are to be
delivered upon exercise or payment of an Award or upon a share of restricted
stock becoming nonforfeitable, or any other event with respect to rights and
benefits hereunder, the Company shall be entitled to require as a condition of
delivery (i) that the Grantee remit an amount sufficient to satisfy all federal,
state, and local withholding tax requirements related thereto, (ii) the
withholding of such sums from compensation otherwise due to the Grantee or from
any shares of Stock due to the Grantee under this Plan or (iii) any combination
of the foregoing provided, however, that no amount shall be withheld from any
cash payment or shares of Stock relating to an Award which was transferred by
the Grantee in accordance with this Plan and such cash payment or delivery to
such Permissible Transferee shall in no way be conditioned upon the Grantee's
remittance obligation described herein.
(b) If any disqualifying disposition described in Section 6(c)(vi) is
made with respect to shares of Stock acquired under an incentive stock option
granted pursuant to this Plan or any election described in Section 11 is made,
then the person making such disqualifying disposition or election shall remit to
the Company an amount sufficient to satisfy all federal, state, and local
withholding taxes thereby incurred; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such sums from
compensation otherwise due to the Grantee or from any shares of Stock due to the
Grantee under this Plan.
13. Elective Share Withholding
(a) Subject to Section 13(b), a Grantee may elect the withholding ("Share
Withholding") by the Company of a portion of the shares of Stock otherwise
deliverable to such Grantee upon the exercise or payment of an Award or upon a
share of restricted stock becoming nonforfeitable (each a "Taxable Event")
having a Fair Market Value equal to the minimum amount necessary to satisfy
required federal, state, or local withholding tax liability attributable to the
Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject to the
following restrictions:
(i) any Grantee's election shall be subject to the Committee's right
to revoke such election of Share Withholding by such Grantee at any time before
the Grantee's election if the Committee has reserved the right to do so in the
Award Agreement;
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(ii) the Grantee's election shall be irrevocable;
(iii) provided, however, that no election to have shares of Stock
withheld from any Award shall be effective with respect to an Award which was
transferred by the Grantee in accordance with this Plan.
14. Termination of Employment
(a) For Cause. If a Grantee has a termination of employment for
Cause,
(i) the Grantee's shares of restricted stock that are forfeitable
shall thereupon be forfeited, subject to the provisions of Section 6(d)(iv)
regarding repayment of certain amounts to the Grantee; and
(ii) any unexercised option, stock appreciation right, or
performance unit shall terminate upon such termination.
(b) On Account of Death or Disability. If a Grantee has a termination of
employment on account of the Grantee's death or Disability, then, except as
otherwise provided in the Award Agreement,
(i) the Grantee's shares of restricted stock that were
forfeitable shall thereupon become nonforfeitable;
(ii) any unexercised option or stock appreciation right, whether or
not exercisable on the date of such termination of employment may be exercised,
in whole or in part, at any time within three years after such termination of
employment by the Grantee, or after the Grantee's death, by (A) his personal
representative or by the person to whom the option or stock appreciation right
is transferred by will or the applicable laws of descent and distribution, (B)
the Grantee's beneficiary designated in accordance with Sections 6(c)(vii) or 8,
(C) the then-acting trustee of the trust described in clause (b) in the first
paragraph of Section 8 (the "Trust"); or (D) a Permissible Transferee of an
Award assigned or transferred in accordance with Section 8; and
(iii) any unexercised performance unit shall be deemed exercised upon
such termination of employment by the Grantee (or, if applicable, an individual
or entity as specified in Section 14(b)(ii)) as follows: (A) the value of any
vested performance units shall be payable at the same time that payments for
that Measuring Period are made to other Grantees under the Plan; and (B) the
value of any unvested performance units shall be payable on or about April 1st
of the year following the year of such termination; provided that the value of
any unvested performance unit shall be equal to the product of the Unit Value
multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of months
(including as a whole month any partial month) that have elapsed since the
beginning of such Measuring Period until the date of such termination of
employment and the denominator of which is the number of months (including as a
whole month any partial month) in the Measuring Period (the "Time Proration
Factor"); and
(2) the percentage that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the performance goals
are achieved as of December 31 following termination would continue until the
end of the Measuring Period (the "Performance Percentage Factor").
(c) On Account of Retirement. (i) If a Grantee has a termination of
employment on account of Retirement after age 60 with 20 years or more of
Company service, any unexercised option or stock appreciation right (other than
a stock appreciation right identified with a share of restricted stock or a
performance unit) which is then exercisable or which would become exercisable
within three years of such Retirement if the Grantee remained employed by the
Company or a Subsidiary throughout such three-year
13
<PAGE>
period, may be exercised, in whole or in part, by the Grantee or Permissible
Transferee of an Award assigned or transferred in accordance with Section 8, at
any time within three years after the Grantee's Retirement. (ii) If a Grantee
has a termination of employment on account of Retirement with combined age and
years of Company service equal to or greater than 70, any unexercised option,
which was granted on or after May 1, 1999 and that is then exercisable or which
would become exercisable within three years of such Retirement if the Grantee
remained employed by the Company or a Subsidiary throughout such three-year
period, may be exercised, in whole or in part, by the Grantee or Permissible
Transferee of an Award assigned or transferred in accordance with Section 8, at
any time within three years after the Grantee's Retirement; provided that the
Grantee executes and delivers to the Company a two-year non-competition
agreement (in a form reasonably satisfactory to the Company); and further
provided that the Grantee provides one-year's prior written notice of the
Grantee's intention to retire to the officer in charge of the Benefits and
Compensation Department in Oak Brook Illinois. If the Grantee violates the
provisions of the non-competition agreement during the two-year period following
Retirement, all unexercised options granted on or after May 1, 1999 will
immediately terminate and will not be exercisable.
The nonforfeitability and exercisability of the Grantee's restricted stock (and
any stock appreciation rights identified therewith) shall be determined under
Section 14(f). The vesting and exercisability of the Grantee's performance
units shall be determined under Section 14(b)(iii).
(d) On Account of Termination of Employment After Age 60. If a Grantee has
a termination of employment after attaining age 60, other than a termination of
employment on account of death, Disability or Retirement, any unexercised option
or stock appreciation right (other than a stock appreciation right identified
with a share of restricted stock or a performance unit) to the extent
exercisable on the date of such termination of employment, may be exercised, in
whole or in part by the Grantee or Permissible Transferee of an Award assigned
or transferred in accordance with Section 8, at any time within one year after
the Grantee's termination of employment. The nonforfeitability and
exercisability of the Grantee's restricted stock (and any stock appreciation
rights identified therewith) shall be determined under Section 14(f). The
vesting and exercisability of the Grantee's performance units shall be
determined under Section 14(b)(iii).
(e) Special Circumstances. If a Grantee terminates employment to become an
owner-operator of a McDonald's restaurant or if a Grantee terminates after
January 15, 2000 as a result of a Job Elimination, the Grantee or Permissible
Transferee of an Award assigned or transferred in accordance with Section 8 will
receive an extension of time to exercise any unexercised Options granted on or
after May 1, 1999 and accelerated vesting of these Options based on the
following rules that incorporate age and years of Company service:
<TABLE>
<CAPTION>
Age & Years of Additional Vesting and Time to Exercise
Company Service Options Granted On or After May 1, 1999
--------------- ---------------------------------------
<C> <S>
70 plus years 3 Years
60 to 69 years 2 Years
50 to 59 years 1 Year
</TABLE>
(f) Any Other Reason. If a Grantee has a termination of employment for a
reason other than those specified in this Section 14,
(i) the Grantee's shares of restricted stock (and any stock
appreciation rights identified therewith), to the extent forfeitable on the date
of the Grantee's termination of employment, shall be forfeited on such date;
(ii) any unexercised option or stock appreciation right (other than a
stock appreciation right identified with a share of restricted stock or
performance unit) to the extent exercisable on the date of the Grantee's
termination of employment, may be exercised in whole or in part by the Grantee
or Permissible Transferee of an Award assigned or transferred in accordance with
Section 8, not later than the 30th day following the Grantee's termination of
employment; provided that if such 30th day is
14
<PAGE>
not a business day, such option or stock appreciation right may be exercised not
later than the first business day following such 30th day; and
(iii) the Grantee's performance units (and any stock appreciation
rights identified therewith) shall not vest further and may not be exercised in
whole or in part by the Grantee or Permissible Transferee of an Award assigned
or transferred in accordance with Section 8; provided that the value of any
vested performance units shall be payable to the Grantee at the same time that
payments for that Measuring Period are made to other Grantees under the Plan.
(g) Extension of Term. In the event of termination of employment other than
for Cause, the term of any Award (except for an Award of performance units)
which by its terms would otherwise expire after the Grantee's termination of
employment but prior to the end of the period following the Grantee's
termination of employment described in Sections (b), (c)(i), (d), and (f) above
for exercise of Awards shall be extended so as to permit any unexercised portion
thereof to be exercised at any time by the Grantee or Permissible Transferee of
an Award assigned or transferred in accordance with Section 8 within such
period; provided, however, that in no event may the term of any Award expire
more than 15 years after the Grant Date of such Award.
15. Equity Incentive Plans of Foreign Subsidiaries
The Committee may authorize any foreign Subsidiary to adopt a plan for granting
Awards ("Foreign Equity Incentive Plan"). All awards granted under such Foreign
Equity Incentive Plans shall be treated as grants under this Plan. Such Foreign
Equity Incentive Plans shall have such terms and provisions as the Committee
permits not inconsistent with the provisions of this Plan and which may be more
restrictive than those contained in this Plan. Awards granted under such
Foreign Equity Incentive Plans shall be governed by the terms of this Plan
except to the extent that the provisions of the Foreign Equity Incentive Plans
are more restrictive than the terms of this Plan, in which case such terms of
the Foreign Equity Incentive Plans shall control.
16. Securities Law Matters
(a) If the Committee deems necessary to comply with the Securities Act of
1933, the Committee may require a written investment intent representation by
the Grantee and may require that a restrictive legend be affixed to certificates
for shares of Stock.
(b) If based upon the opinion of counsel for the Company, the Committee
determines that the exercise or nonforfeitability of, or delivery of benefits
pursuant to, any Award would violate any applicable provision of (i) federal or
state securities law or (ii) the listing requirements of any national securities
exchange on which are listed any of the Company's equity securities, then the
Committee may postpone any such exercise, nonforfeitability or delivery, as the
case may be, but the Company shall use its best efforts to cause such exercise,
nonforfeitability or delivery to comply with all such provisions at the earliest
practicable date.
17. Funding
Benefits payable under this Plan to any person shall be paid directly by the
Company. The Company shall not be required to fund, or otherwise segregate
assets to be used for payment of, benefits under this Plan.
18. No Employment Rights
Neither the establishment of this Plan, nor the granting of any Award shall be
construed to (a) give any Grantee the right to remain employed by the Company or
any of its Subsidiaries or to any benefits not specifically provided by this
Plan or (b) in any manner modify the right of the Company or any of its
Subsidiaries to modify, amend, or terminate any of its employee benefit plans.
15
<PAGE>
19. Rights as a Stockholder
A Grantee shall not, by reason of any Award (other than restricted stock) have
any right as a stockholder of the Company with respect to the shares of Stock
which may be deliverable upon exercise or payment of such Award until such
shares have been delivered to him. Shares of restricted stock held by a Grantee
or held in escrow by the Secretary of the Company shall confer on the Grantee
all rights of a stockholder of the Company, except as otherwise provided in this
Plan. The Committee, in its discretion, at the time of grant of restricted
stock, may permit or require the payment of cash dividends thereon to be
deferred and, if the Committee so determines, reinvested in additional
restricted stock to the extent shares are available under Section 3 or otherwise
reinvested. Stock dividends and deferred cash dividends issued with respect to
restricted stock shall be treated as additional shares of restricted stock that
are subject to the same restrictions and other terms as apply to the shares with
respect to which such dividends are issued. The Committee may, in its
discretion, provide for crediting to and payment of interest on deferred cash
dividends.
20. Nature of Payments
Any and all grants, payments of cash, or deliveries of shares of Stock hereunder
shall constitute special incentive payments to the Grantee and shall not be
taken into account in computing the amount of salary or compensation of the
Grantee for the purposes of determining any pension, retirement, death or other
benefits under (a) any pension, retirement, profit-sharing, bonus, life
insurance or other employee benefit plan of the Company or any of its
Subsidiaries or (b) any agreement between the Company or any Subsidiary, on the
one hand, and the Grantee, on the other hand, except as such plan or agreement
shall otherwise expressly provide.
21. Non-Uniform Determinations
Neither the Committee's nor the Board's determinations under this Plan need be
uniform and may be made by the Committee or the Board selectively among persons
who receive, or are eligible to receive, Awards (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Committee shall be entitled, among other things, to make non-uniform and
selective determinations, to enter into non-uniform and selective Award
Agreements as to (a) the identity of the Grantees, (b) the terms and provisions
of Awards, and (c) the treatment, under Section 14, of terminations of
employment. Notwithstanding the foregoing, the Committee's interpretation of
Plan provisions shall be uniform as to similarly situated Grantees.
22. Adjustments
The Committee shall make equitable adjustment of:
(a) the aggregate numbers of shares of Stock, shares of restricted
stock, and bonus stock available under Sections 3(a) and 3(c),
(b) the number of shares of Stock, shares of restricted stock, stock
appreciation rights or performance units covered by an Award,
(c) the Option Price,
(d) the Fair Market Value of Stock to be used to determine the amount
of the benefit payable upon exercise of stock appreciation rights or performance
units, and
(e) the maximum number of shares of Stock for which Awards may be
granted to any Grantee in any three year period under Section 3(b),
16
<PAGE>
to reflect a stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, acquisition of property or
shares, separation, asset spin-off, reorganization, stock rights offering,
liquidation or similar event, of or by the Company.
All unexercised Options granted on or after May 1, 1999, which are held by a
Grantee shall become immediately exercisable upon the occurrence of a Change in
Control. Upon the approval by the stockholders of the Company of a plan of
liquidation for the Company, any unexercised options, stock appreciation rights
and performance units theretofore granted shall thereupon become exercisable,
and any shares of restricted stock that have not become nonforfeitable shall
become nonforfeitable.
23. Amendment of this Plan
The Board may from time to time in its discretion amend or modify this Plan
without the approval of the stockholders of the Company, except as such
stockholder approval may be required (a) to permit the grant of Awards under,
and transactions in Stock pursuant to, this Plan to be exempt from liability
under Section 16(b) of the 1934 Act or (b) under the listing requirements of any
national securities exchange on which are listed any of the Company's equity
securities.
24. Termination of this Plan
This Plan shall terminate on the tenth (10th) anniversary of the Effective Date
or at such earlier time as the Board may determine. Any termination, whether in
whole or in part, shall not affect any Award then outstanding under this Plan.
25. No Illegal Transactions
This Plan and all Awards granted pursuant to it are subject to all laws and
regulations of any governmental authority which may be applicable thereto; and
notwithstanding any provision of this Plan or any Award, Grantees shall not be
entitled to exercise Awards or receive the benefits thereof and the Company
shall not be obligated to deliver any Stock or pay any benefits to a Grantee if
such exercise, delivery, receipt or payment of benefits would constitute a
violation by the Grantee or the Company of any provision of any such law or
regulation.
26. Controlling Law
The law of the State of Illinois, except its law with respect to choice of law,
shall be controlling in all matters relating to this Plan.
27. Severability
If all or any part of this Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
serve to invalidate any portion of this Plan not declared to be unlawful or
invalid. Any Section or part of a Section so declared to be unlawful or invalid
shall, if possible, be construed in a manner which will give effect to the terms
of such Section or part of a Section to the fullest extent possible while
remaining lawful and valid.
Executed this 6th day of August, 1999.
McDONALD'S CORPORATION
By: /s/ Gloria Santona
------------------
Vice President
17
<PAGE>
Exhibit 10(g)
McDONALD'S CORPORATION
1999 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
SECTION 1. Purpose; Definitions.
The purposes of the Plan are to promote the long-term success of the
Company by enhancing the long-term mutuality of interests between the Non-
Employee Directors and shareholders of the Company and to provide a means
through which the Company may attract able persons as directors of the Company.
For purposes of the Plan, the following terms are defined as set forth
below:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
"Common Stock" means the common stock of the Company, par value $.01 per
share.
"Company" means McDonald's Corporation, a Delaware corporation.
"Disability" with respect to a Participant means a physical or mental
condition that prevents the Participant from performing his or her duties as a
member of the Board, and which is expected to be permanent or for an indefinite
duration exceeding one year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor thereto.
"Fair Market Value" means the price of the Common Stock as reported on the
New York Stock Exchange Composite Tape.
"Non-Employee Director" means a person who as of any applicable date is a
member of the Board and is not an officer or employee of the Company or any
subsidiary of the Company.
"Optionee" means a Participant or any permissible transferee as described
in Section 5(e)(v).
"Participant" means a Non-Employee Director who is granted a Stock Option
hereunder.
<PAGE>
"Plan" means the McDonald's Corporation 1999 Non-Employee Director Stock
Option Plan as set forth herein and as hereafter amended from time to time.
"Retirement" means termination of an individual's directorship with at
least ten years of service as a member of the Board or after age 70.
"Stock Option" means a non-qualified option to purchase shares of Common
Stock.
"Termination of Directorship" means the date upon which any Participant
ceases to be a member of the Board for any reason whatsoever.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. Administration.
The Plan shall be administered by the Board or by a duly appointed
committee of the Board having such powers as shall be specified by the Board.
The Board (or such committee) shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Stock Option issued under the Plan (and any
agreement relating thereto) and to otherwise supervise the administration of the
Plan.
The determination of the Board (or such committee) on all matters relating
to the Plan or any agreement relating thereto shall be conclusive and final. No
member of the Board (or such committee) shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Option.
SECTION 3. Stock Subject to Plan.
Subject to adjustment as provided herein, the total number of shares of
Common Stock of the Company available for grant under the Plan while it is in
effect shall not exceed 200,000. Such shares may be treasury shares or newly
issued shares, as may be determined from time to time by the Board (or the
designated committee). The shares of Common Stock related to the unexercised
or undistributed portion of any terminated, expired or forfeited Stock Option
shall be made available in connection with future Stock Option grants under the
Plan.
In the event of any stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, acquisition of property or
shares, separation, asset spin-off, reorganization, stock rights offering,
liquidation or similar event, of or by the Company, the aggregate number of
shares of Common Stock reserved for issuance under the Plan, the number and
option price of shares of Common Stock subject to outstanding Stock Options and
the Grant Amounts specified in Section 5 shall be appropriately adjusted to the
extent that such adjustment is necessary to preserve the economic value of the
unexercised Stock Options and of any future Stock Option grants; provided,
however, that the number of shares subject to any Stock Option
-2-
<PAGE>
shall always be a whole number. Share amounts shall be rounded up to the nearest
whole number.
SECTION 4. Eligibility.
Only individuals who are Non-Employee Directors are eligible to be granted
Stock Options under the Plan.
SECTION 5. Stock Options.
(a) Initial Grants. As of the effective date of the Plan, a Stock Option
to purchase 3,000 shares of Common Stock (the "Initial Grant Amount") is granted
to each person who on that date is an incumbent Non-Employee Director.
(b) Subsequent Grants. With respect to each person who first becomes a
Non-Employee Director after the effective date of the Plan, a Stock Option to
purchase 3,000 shares of Common Stock (the "Subsequent Grant Amount") is granted
as of the date such person is elected or appointed as a Non-Employee Director.
Such subsequent grant shall be in addition to any annual grants of Stock Options
as described in Section 5(c) below.
(c) Annual Grants. On the date of each annual meeting of the Company's
shareholders following the effective date of the Plan, each person who is a Non-
Employee Director immediately following such meeting (regardless of whether
elected, re-elected or retained as a Non-Employee Director at such meeting)
shall automatically be granted a Stock Option to purchase 3,000 shares of Common
Stock (the "Annual Grant Amount") as of such meeting date. (The Initial Grant
Amount, the Subsequent Grant Amount and the Annual Grant Amount shall sometimes
be referred to herein collectively as the "Grant Amounts".)
(d) Available Shares. In the event that the number of shares of Common
Stock available for future grant under the Plan is insufficient to make all
automatic grants required to be made on a given date, then all Non-Employee
Directors entitled to a grant on such date shall share ratably in the number of
Stock Options on shares available for grant under the Plan.
(e) Terms. Stock Options granted under the Plan shall be subject to the
following terms and conditions in addition to those set forth above.
(i) Option Term. The term of each Stock Option shall be 10 years
from the date the Stock Option is granted, subject to extension or earlier
termination as provided herein.
(ii) Exercisability. Subject to the express provisions of this
Section 5(e), Stock Options shall be exercisable as follows:
(A) beginning on the first anniversary of the date of grant,
for whole shares up to one-third of the shares of Common
Stock covered by the Stock Option;
-3-
<PAGE>
(B) beginning on the second anniversary of the date of grant,
for whole shares up to two-thirds of such shares; and
(C) beginning on the third anniversary of the date of grant and
thereafter until the expiration of the term of the Stock
Option, for whole shares up to 100% of such shares.
Notwithstanding any of the provisions of this Section 5(e), no Stock Option
shall be exercisable during the first six months after the grant date, unless
compliance with such holding period is not required to qualify for an exemption
from potential liability under Section 16 of the Exchange Act.
Notwithstanding the foregoing, upon approval by the shareholders of the
Company of a plan of liquidation for the Company, any unexercised options
theretofore granted shall thereupon become exercisable.
(iii) Option Price. The option price per share of Common Stock
covered by a Stock Option shall be the closing price, regular way, of the Common
Stock on the date of grant as reported on the New York Stock Exchange Composite
Tape or, if no such reported sale of Common Stock shall have occurred on such
date, on the preceding date on which there was such a reported sale. Such price
shall be subject to adjustment as provided in Section 3.
(iv) Methods of Exercise. Subject to the provisions of this Section
5, Stock Options may be exercised, in whole or in part, at any time during the
option term by giving notice of exercise to the Company specifying the number of
shares of Common Stock subject to the Stock Option to be purchased. Such notice
shall be accompanied by payment in full of the purchase price. Payment of the
purchase price may, at the election of the Optionee, be made in any one or any
combination of the following: (A) cash, (B) Common Stock held for at least six
months prior to exercise of the Stock Option, valued at its Fair Market Value as
of the time of exercise, (C) through simultaneous sale through a broker of
shares acquired on exercise, as permitted under Regulation T of the Federal
Reserve Board.
No shares of Common Stock shall be issued until full payment therefor
has been made. An Optionee shall have all rights as a shareholder of the Company
holding Common Stock as soon as practicable following notice of exercise,
payment in full for such shares and the Company's receipt of the representation
described in Section 7(a), if applicable.
(v) Non-transferability of Stock Options. All Stock Options shall be
exercisable during the Participant's lifetime, only by the Participant or by the
guardian or legal representative of the Participant. No Stock Option shall be
transferable by the Participant other than by will or by the laws of descent and
distribution; provided, however, that if the award agreement expressly permits,
a Stock Option may be transferred for no consideration to any of the following
permissible transferees: (w) any member of the Immediate Family of the
Participant to whom such Stock Option was granted, (x) any trust solely for the
benefit of members of the Participant's Immediate Family, (y) any partnership
whose only partners are members of the Participant's Immediate Family or (z)
Ronald McDonald Children's Charities or
-4-
<PAGE>
any Ronald McDonald House, and (ii) the transferee shall remain subject to all
of the terms and conditions applicable to such Stock Option prior to such
transfer. "Immediate Family" means, with respect to a particular Participant,
such Participant's spouse, children and grandchildren.
(vi) Termination for Cause. If a Termination of Directorship occurs
for cause pursuant to Article Thirteenth (c) of the Company's Restated
Certificate of Incorporation, any unexercised Stock Option shall thereupon
terminate.
(vii) Termination by Reason of Death or Disability. If a Termination
of Directorship occurs by reason of the death or Disability of a Participant,
any unexercised option, whether or not exercisable on the date of such
Termination of Directorship, may be exercised, in whole or in part, at any time
within three years after such Termination of Directorship by the Participant, a
permissible transferee (as such term is described in Section 5(e)(v)) or by the
Participant's personal representative after the Participant's death.
(viii) Termination On Account of Retirement. If a Termination of
Directorship occurs by reason of Retirement, any unexercised option, whether or
not exercisable on the date of such Termination of Directorship, may be
exercised, in whole or in part, for a period of three years from the
Participant's Retirement or until the expiration of the stated term of such
Stock Option, whichever period is the shorter.
(ix) Other Termination. If a Termination of Directorship occurs for
any reason other than for cause (as described in Section 5(e)(vi) above) or the
death, Disability or Retirement of a Participant, any unexercised option to the
extent exercisable on the date of Termination of Directorship, may be exercised,
in whole or in part, at any time within one year after the Participant's
Termination of Directorship.
(x) Extension of Term. Upon Termination of Directorship by reason of
death or Disability, the term of any Stock Option which by its terms would
otherwise expire after the Participant's Termination of Directorship but prior
to the end of the period following the Participant's Termination of Directorship
described in Section 5(e)(vii) above for exercise of Stock Options shall be
extended so as to permit any unexercised portion thereof to be exercised at any
time within such period; provided, however, that in no event may the term of any
Stock Option expire more than 13 years after the grant date of such Stock
Option.
SECTION 6. Term, Amendment and Termination.
The Plan will terminate on the tenth anniversary of the effective date or
at such earlier date as the Board may determine. Termination of the Plan shall
not affect any Stock Options then outstanding under the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (a) impair the rights of
an Optionee under a Stock Option without the Optionee's consent, except such an
amendment made to cause grants and other transactions under the Plan to qualify
for the exemption provided by Rule 16b-3; or (b) disqualify grants and other
transactions under the Plan from the exemption provided by Rule
-5-
<PAGE>
16b-3; provided, however no amendment shall be made without the approval of the
Company's shareholders to the extent such approval is required by law or
agreement.
SECTION 7. General Provisions.
(a) Unless the shares have been registered under the Securities Act of
1933, as amended, each person purchasing or receiving shares of Common Stock
pursuant to a Stock Option shall represent to and agree with the Company in
writing that such person is acquiring the shares of Common Stock without a view
to the distribution thereof. Any certificates for such shares of Common Stock
shall include an appropriate legend to reflect the restrictions on transfer.
(b) Nothing contained in the Plan shall prevent the Company or any
subsidiary from adopting other or additional compensation arrangements for its
Non-Employee Directors.
(c) The Plan and all Stock Options awarded and actions taken with respect
thereto shall be governed by and construed in accordance with the laws of the
State of Illinois except its law with respect to choice of law.
(d) Benefits payable under the Plan to any person shall be paid directly
by the Company. The Company shall not be required to fund, or otherwise
segregate assets to be used for payment of, benefits under the Plan.
(e) Nothing in the Plan, or any Stock Option granted under the Plan, shall
confer any right to any person to continue as a director of the Company or
interfere in any way with the rights of the shareholders of the Company or the
Board to elect and remove directors.
SECTION 8. Effective Date of Plan.
The Plan has been adopted by the Board and has become effective on May 20,
1999.
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<PAGE>
Exhibit 12
McDONALD'S CORPORATION
STATEMENT RE: COMPUTATION OF RATIOS
Dollars In Millions
<TABLE>
<CAPTION>
Six months
ended June 30, Years ended December 31,
1999 1998 1998 1997 1996 1995 1994
------------------- -------------------------------------------------------
EARNINGS AVAILABLE FOR FIXED CHARGES
<S> <C> <C> <C> <C> <C> <C> <C>
- - Income before provision for income taxes $1,373.5 $1,074.0/(1)/ $2,307.4/(2)/ $2,407.3 $2,251.0 $2,169.1 $1,886.6
- - 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 11.0 10.0 23.7 28.3 39.6 19.6 6.6
- - Provision for income taxes of 50% owned
affiliates included in consolidated income
before provision for income taxes 25.7 28.2 99.9 69.0 73.2 73.3 34.9
- - Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* 86.2 81.6 161.3 145.9 130.9 103.8 83.4
- - Interest expense, amortization of debt
discount and issuance costs, and
depreciation of capitalized interest* 221.5 234.2 461.9 424.8 392.2 388.8 346.0
------------------- -------------------------------------------------------
$1,717.9 $1,428.0 $3,054.2 $3,075.3 $2,886.9 $2,754.6 $2,357.5
=================== =======================================================
FIXED CHARGES
- - Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* $ 86.2 $ 81.6 $ 161.3 $ 145.9 $ 130.9 $ 103.8 $ 83.4
- - Interest expense, amortization of debt
discount and issuance costs, and fixed
charges related to redeemable preferred
stock* 217.1 231.4 453.4 426.1 410.4 403.4 343.9
- - Capitalized interest* 6.7 8.7 18.3 23.7 23.5 22.8 21.0
------------------- -------------------------------------------------------
$ 310.0 $ 321.7 $ 633.0 $ 595.7 $ 564.8 $ 530.0 $ 448.3
=================== =======================================================
RATIO OF EARNINGS TO FIXED CHARGES 5.54 4.44/(3)/ 4.82/(4)/ 5.16 5.11 5.20 5.26
=================== =======================================================
</TABLE>
*Includes amounts of the Registrant and its majority-owned subsidiaries, and
one-half of the amounts of 50%-owned affiliates.
(1) Includes $160.0 million pre-tax special charge related to the home office
productivity initiative recorded during second quarter of 1998.
(2) Includes $160.0 million pre-tax special charge and $161.6 million of Made
for You costs for a pre-tax total of $321.6 million.
(3) Excluding the special charge, the ratio of earnings to fixed charges for
the six months ended June 30, 1998 was 4.94.
(4) Excluding the special charge and Made for You costs, the ratio of earnings
to fixed charges for the year ended December 31, 1998 was 5.33.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Company's Form 10-Q for the quarterly period ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
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0
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