<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-5231
McDONALD'S CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2361282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
McDonald's Plaza
Oak Brook, Illinois 60523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 623-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
- --------------------------------------------------------------------------------
Common stock, $.01 par value New York Stock Exchange
Chicago Stock Exchange
8-7/8% Debentures due 2011 New York Stock Exchange
7-3/8% Notes due 2002 New York Stock Exchange
6-3/4% Notes due 2003 New York Stock Exchange
7-3/8% Debentures due 2033 New York Stock Exchange
6-5/8% Notes due 2005 New York Stock Exchange
7.05% Debentures due 2025 New York Stock Exchange
7-1/2% Subordinated Deferrable Interest
Debentures due 2036 New York Stock Exchange
7-1/2% Subordinated Deferrable Interest
Debentures due 2037 New York Stock Exchange
7.31% Subordinated Deferrable Interest
Debentures due 2027 New York Stock Exchange
6-3/8% Debentures due 2028 New York Stock Exchange
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant is $50,334,959,192 and the number of shares of common stock
outstanding is 1,349,816,028 as of January 31, 2000.
Documents incorporated by reference. Part III of this 10-K incorporates
information by reference from the registrant's 2000 definitive proxy statement
which will be filed no later than 120 days after December 31, 1999.
<PAGE>
Part I
Item 1. Business
McDonald's Corporation, the registrant, together with its subsidiaries, is
referred to herein as the "Company".
(a) General development of business
There have been no significant changes to the Company's corporate structure
during 1999, or material changes in the Company's method of conducting business.
(b) Financial information about industry segments
Industry segment data for the years ended December 31, 1999, 1998 and 1997 is
included in Part II, Item 8, page 25 of this Form 10-K.
(c) Narrative description of business
General
The Company develops, operates, franchises and services a worldwide system of
restaurants that prepare, assemble, package and sell a limited menu of value-
priced foods. All restaurants are operated by the Company or, under the terms of
franchise arrangements, by franchisees who are independent third parties, or by
affiliates operating under joint-venture agreements between the Company and
local businesspeople.
The Company operates primarily in the quick-service hamburger restaurant
business. Beginning in 1999, the Company also operates other restaurant
concepts: Aroma Cafe', a small chain of coffeehouses serving prepared sandwiches
and pastries in the UK; Chipotle Mexican Grill, a fresh-mex grill located in the
United States serving gourmet burritos and tacos; and Donatos Pizza, a
restaurant business located in the United States that sells pizza, subs and
salads. Since McDonald's restaurant business comprises virtually all of the
Company's consolidated operating results, this narrative primarily relates to
McDonald's restaurant business.
The Company's franchising program for McDonald's restaurants is designed to
assure consistency and quality. The Company is selective in granting franchises
and is not in the practice of franchising to investor groups or passive
investors. Under the conventional franchise arrangement, franchisees supply
capital--initially, by purchasing equipment, signs, seating and decor, and over
the long term, by reinvesting in the business. The Company shares the investment
by owning or leasing the land and building. Beginning in 1998, the Company
generally provides franchisees in the United States the option to own new
restaurant buildings. Franchisees contribute to the Company's revenues through
payment of rent and service fees based upon a percent of sales, with specified
minimum payments. The conventional franchise arrangement typically lasts 20
years and franchising practices are generally consistent throughout the world.
Further discussion regarding site selection is included in Part I, Item 2, page
4 of this Form 10-K.
Training begins at the McDonald's restaurant with one-on-one instruction and
videotapes. Aspiring restaurant managers progress through a development program
of classes in management and basic and intermediate operations, as well as
learning computer skills. Assistant managers are eligible to attend the advanced
operations and management class at one of the six Hamburger University (H.U.)
campuses in Australia, Brazil, England, Germany, Japan or the U.S. The
curriculum at H.U. concentrates on skills and practices essential to driving the
Company's strategies of delivering customer satisfaction and increasing market
share.
McDonald's global brand is well-known. Marketing and promotional activities are
designed to nurture this brand image and differentiate the Company from
competitors by focusing on value, taste and customer satisfaction. Funding for
promotions is generally handled at the local restaurant level; funding for
regional and national efforts is generally handled through advertising
cooperatives. Franchised, Company-operated and affiliated restaurants throughout
the world make voluntary contributions to cooperatives that purchase media.
Production costs for certain advertising efforts are borne by the Company.
Products
McDonald's restaurants offer a substantially uniform menu consisting of
hamburgers and cheeseburgers, including the Big Mac and Quarter Pounder with
Cheese, the Filet-O-Fish, several chicken sandwiches, french fries, Chicken
McNuggets, salads, milk shakes, McFlurries, sundaes and cones, pies, cookies and
soft drinks and other beverages. In addition, the restaurants sell a variety of
other products during limited promotional time periods. McDonald's restaurants
operating in the United States and certain international markets are open during
breakfast hours and offer a full or limited breakfast menu including the Egg
McMuffin and the Sausage McMuffin with Egg sandwiches, hotcakes and sausage,
three varieties of biscuit sandwiches, bagel sandwiches and Apple-Bran muffins.
The Company tests new products on an ongoing basis.
The Company, its franchisees and affiliates purchase McDonald's food products
and packaging from numerous independent suppliers. Quality specifications for
both raw and cooked food products are established and strictly enforced.
Alternative sources of these items are generally available. Quality assurance
labs in the U.S., Europe and Asia/Pacific work to ensure that the Company's high
standards are consistently met. The quality assurance process involves ongoing
testing and on-site inspections of suppliers' facilities. Independently owned
and operated distribution centers distribute products and supplies to most
McDonald's restaurants. The restaurants then prepare, assemble and package these
products using specially designed production techniques and equipment to obtain
uniform standards of quality.
2
<PAGE>
Food preparation
During 1999 the Company completed the installation of its Made For You food
preparation system in virtually all McDonald's restaurants in the United States
and Canada. Made For You is based on a just-in-time production philosophy where
each sandwich is made to order. Through advances in equipment and technology,
the new system aims to provide customers with fresher, better-tasting food. In
addition, the new system can support future growth through product development
because it can more easily accommodate an expanded menu.
Trademarks and patents
The Company has registered trademarks and service marks, some of which,
including "McDonald's", "Ronald McDonald" and other related marks, are of
material importance to the Company's business. The Company also has certain
patents on restaurant equipment which, while valuable, are not material to its
business.
Seasonal operations
The Company does not consider its operations to be seasonal to any material
degree.
Working capital practices
Information about the Company's working capital practices is incorporated herein
by reference to Management's discussion and analysis of financial condition and
results of operations for the years ended December 31, 1999, 1998 and 1997 in
Part II, Item 7, pages 7 through 17, and the Consolidated statement of cash
flows for the years ended December 31, 1999, 1998 and 1997 in Part II, Item 8,
page 21 of this Form 10-K.
Customers
The Company's business is not dependent upon a single customer or small group
of customers.
Backlog
Company-operated restaurants have no backlog orders.
Government contracts
No material portion of the business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the U.S. government.
Competition
McDonald's restaurants compete with international, national, regional, and local
retailers of food products. The Company competes on the basis of price,
convenience and service and by offering quality food products. The Company's
competition in the broadest perspective includes restaurants, quick-service
eating establishments, pizza parlors, coffee shops, street vendors, convenience
food stores, delicatessens, and supermarkets.
In the U.S., the quick service restaurant business consists of about
465,000 restaurants that generate nearly $261 billion in annual sales.
McDonald's accounts for about 2.7% of those restaurants and approximately 7.3%
of those sales. No reasonable estimate can be made of the number of competitors
outside the U.S.; however, the Company's business in foreign markets continues
to grow.
Research and development
The Company operates research and development facilities in Illinois. While
research and development activities are important to the Company's business,
these expenditures are not material. Independent suppliers also conduct research
activities for the benefit of the McDonald's System, which includes franchisees
and suppliers, as well as McDonald's, its subsidiaries and joint ventures.
Environmental matters
The Company is not aware of any federal, state or local environmental laws or
regulations that will materially affect its earnings or competitive position, or
result in material capital expenditures; however, the Company cannot predict the
effect on its operations of possible future environmental legislation or
regulations. During 1999, there were no material capital expenditures for
environmental control facilities and no such material expenditures are
anticipated.
Number of employees
During 1999, the Company's average number of employees worldwide, including
Company-operated restaurant employees, was approximately 314,000. This includes
McDonald's restaurants as well as other restaurant concepts operated by the
Company.
(d) Financial information about foreign and domestic operations
Financial information about foreign and domestic markets is incorporated herein
by reference to Management's discussion and analysis of financial condition and
results of operations in Part II, Item 7, pages 7 through 17 and Segment and
geographic information in Part II, Item 8, page 25 of this Form 10-K.
3
<PAGE>
Item 2. Properties
The Company identifies and develops sites that offer convenience to customers
and provide for long-term sales and profit potential. To assess potential, the
Company analyzes traffic and walking patterns, census data, school enrollments
and other relevant data. The Company's experience and access to advanced
technology aids in evaluating this information. The Company generally owns or
secures long-term land and building leases for restaurant sites, which ensures
long-term occupancy rights and helps control related costs. Restaurant
profitability for both the Company and franchisees is important; therefore,
ongoing efforts are made to control average development costs through
construction and design efficiencies, standardization and by leveraging the
Company's global sourcing system. Additional information about the Company's
properties is included in Management's discussion and analysis of financial
condition and results of operations in Part II, Item 7, pages 7 through 17 and
in Financial statements and supplementary data in Part II, Item 8, pages 18
through 32 of this Form 10-K.
Item 3. Legal proceedings
The Company has pending a number of lawsuits which have been filed from time to
time in various jurisdictions. These lawsuits cover a broad variety of
allegations spanning the Company's entire business. The following is a brief
description of the more significant of these categories of lawsuits. In
addition, the Company is subject to various federal, state and local regulations
that impact various aspects of its business, as discussed below. The Company
does not believe that any such claims, lawsuits or regulations, will have a
material adverse effect on its financial condition or results of operations.
Franchising
A substantial number of McDonald's restaurants are franchised to independent
businesspeople operating under arrangements with the Company. In the course of
the franchise relationship, occasional disputes arise between the Company and
its franchisees relating to a broad range of subjects including, without
limitation, quality, service and cleanliness issues, contentions regarding
grants or terminations of franchises, franchisee claims for additional
franchises or rewrites of franchises, and delinquent payments. Additionally, on
occasion, disputes arise between the Company and individuals who claim they
should have been granted a McDonald's franchise.
Suppliers
The Company purchases food, paper and related items from numerous independent
suppliers throughout the world. These suppliers are required to meet and
maintain the Company's standards and specifications. On occasion, disputes arise
between the Company and its suppliers on a number of issues including, by way of
example, compliance with product specifications and the Company's business
relationship with suppliers. Additionally, on occasion disputes arise on a
number of issues between the Company and individuals or entities who claim that
they should be (or should have been) granted the opportunity to supply products
or services to McDonald's restaurants.
Employees
Thousands of persons are employed by the Company and in restaurants owned and
operated by subsidiaries of the Company. In addition, thousands of persons, from
time to time, seek employment in such restaurants. In the ordinary course of
business, disputes arise regarding hiring, firing and promotion practices.
Customers
McDonald's restaurants serve a large cross-section of the public and in the
course of serving so many people, disputes arise as to products, service,
accidents and other matters typical of an extensive restaurant business such as
that of the Company.
Intellectual property
The Company has registered trademarks and service marks, some of which are of
material importance to the Company's business. The Company also has certain
patents on restaurant equipment, which while valuable, are not material to its
business. From time to time, the Company may become involved in litigation to
defend and protect its use of its intellectual property.
Government regulations
Local, state and federal governments have adopted laws and regulations involving
various aspects of the restaurant business, including, but not limited to,
franchising, health, safety, environment, zoning and employment. The Company
does not believe that it is in violation of any existing statutory or
administrative rules, but it cannot predict the effect on its operations from
the promulgation of additional requirements in the future.
Item 4. Submission of matters to a vote of shareholders
None
4
<PAGE>
Executive Officers of the registrant
All of the executive officers of the Company as of March 1, 2000 are shown
below. Unless otherwise indicated, each of the executive officers has been
continuously employed by the Company for at least five years and has a term of
office until the May 2000 Board of Directors' meeting.
<TABLE>
<CAPTION>
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Number Number
of years of years
Date of with in present
Name and office birth Company position
- -------------------------------------------------------------------
<S> <C> <C> <C>
Claire H. Babrowski 7/25/57 22 1
Executive Vice President
James R. Cantalupo 11/14/43 25 *
Vice Chairman and President
Michael L. Conley 3/28/48 25 3
Executive Vice President
and Chief Financial Officer
Alan D. Feldman 3/6/52 5 1
President--McDonald's USA
Jack M. Greenberg 9/28/42 18 *
Chairman and
Chief Executive Officer
Jeffrey B. Kindler (1) 5/13/55 4 2
Executive Vice President,
Corporate General Counsel
Christopher Pieszko 12/2/55 21 2
Senior Vice President and
Corporate Controller
Michael R. Quinlan 12/9/44 36 *
Chairman of the
Executive Committee
James A. Skinner 10/25/44 29 2
President--Europe Group
Stanley R. Stein 4/17/42 25 2
Executive Vice President
Fred L. Turner 1/6/33 43 10
Senior Chairman
</TABLE>
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* Less than one year in current position.
(1) Mr. Kindler joined the Company in 1996 as Senior Vice President, General
Counsel. He assumed his current position in 1997. Prior thereto, Mr.
Kindler served as Vice President, Senior Counsel of General Electric
Company.
Part II
Item 5. Market for registrant's common equity and related shareholder matters
The Company's common stock trades under the symbol MCD and is listed on the
following stock exchanges in the United States: New York and Chicago.
The following table sets forth the common stock price range on the New York
Stock Exchange composite tape and dividends declared per common share.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1999 1998
----------------------- ------------------------
Dividend Dividend
per per
common common
Quarter High Low share High Low share
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 47 3/8 35 15/16 .04875 30 1/8 22 5/16 .04125
Second 47 1/16 37 3/4 .04875 35 28 9/16 .04500
Third 45 1/4 38 15/16 .04875 37 1/2 26 3/4 .04500
Fourth 49 9/16 38 5/16 .04875 39 3/4 28 1/8 .04500
- -----------------------------------------------------------------
Year 49 9/16 35 15/16 .19500 39 3/4 22 5/16 .17625
- -----------------------------------------------------------------
</TABLE>
The approximate number of shareholders of record and beneficial owners of
the Company's common stock as of January 31, 2000 was estimated to be 899,100.
Given the Company's returns on equity and assets, management believes it is
prudent to reinvest a significant portion of earnings back into the business and
use free cash flow for share repurchase. Accordingly, the common stock dividend
yield is modest. However, the Company has paid dividends on common stock for 24
consecutive years through 1999 and has increased the dividend amount at least
once every year. Additional dividend increases will be considered after
reviewing returns to shareholders, profitability expectations and financing
needs. In November 1999, the Company announced that it intends to pay cash
dividends on an annual, instead of quarterly, basis beginning in 2000. Future
dividends declared at the discretion of the Company's Board of Directors will be
paid annually in December.
5
<PAGE>
Item 6. Selected financial data
<TABLE>
<CAPTION>
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11-year summary
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per
share data) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Systemwide sales $ 38,491 35,979 33,638 31,812 29,914 25,987 23,587 21,885 19,928 18,759 17,333
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Systemwide sales by type
Operated by franchisees $ 23,830 22,330 20,863 19,969 19,123 17,146 15,756 14,474 12,959 12,017 11,219
Operated by the Company $ 9,512 8,895 8,136 7,571 6,863 5,793 5,157 5,103 4,908 5,019 4,601
Operated by affiliates $ 5,149 4,754 4,639 4,272 3,928 3,048 2,674 2,308 2,061 1,723 1,513
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 13,259 12,421 11,409 10,687 9,795 8,321 7,408 7,133 6,695 6,640 6,066
Operating income $ 3,320 2,762(1) 2,808 2,633 2,601 2,241 1,984 1,862 1,679 1,596 1,438
Income before provision
for income taxes $ 2,884 2,307(1) 2,407 2,251 2,169 1,887 1,676 1,448 1,299 1,246 1,157
Net income $ 1,948 1,550(1) 1,642 1,573 1,427 1,224 1,083 959 860 802 727
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by operations $ 3,009 2,766 2,442 2,461 2,296 1,926 1,680 1,426 1,423 1,301 1,246
Capital expenditures $ 1,868 1,879 2,111 2,375 2,064 1,539 1,317 1,087 1,129 1,571 1,555
Free cash flow $ 1,141 887 331 86 232 387 363 339 294 (270) (309)
Treasury stock purchases $ 933 1,162 765 605 321 500 628 92 117 157 497
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Financial position at year end
Net property and equipment $ 16,324 16,042 14,961 14,352 12,811 11,328 10,081 9,597 9,559 9,047 7,758
Total assets $ 20,983 19,784 18,242 17,386 15,415 13,592 12,035 11,681 11,349 10,668 9,175
Total debt $ 7,252 7,043 6,463 5,523 4,836 4,351 3,713 3,857 4,615 4,792 4,036
Total shareholders' equity $ 9,639 9,465 8,852 8,718 7,861 6,885 6,274 5,892 4,835 4,182 3,550
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Per common share
Net income $ 1.44 1.14(1) 1.17 1.11 .99 .84 .73 .65 .59 .55 .49
Net income--diluted $ 1.39 1.10(1) 1.15 1.08 .97 .82 .71 .63 .57 .54 .48
Dividends declared $ .20 .18 .16 .15 .13 .12 .11 .10 .09 .09 .08
Market price at year end $40 5/16 38 7/16 23 7/8 22 11/16 22 9/16 14 5/8 14 1/4 12 3/16 9 1/2 7 1/4 8 5/8
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Systemwide restaurants at year end 26,806 24,818 23,132 21,022 18,380 15,950 14,163 13,093 12,418 11,803 11,162
Systemwide restaurants by type
Operated by franchisees 16,265 15,281 14,265 13,428 12,217 10,965 9,933 9,237 8,735 8,131 7,573
Operated by the Company 6,213 5,525 5,000 4,357 3,816 3,238 2,746 2,551 2,547 2,643 2,691
Operated by affiliates 4,328 4,012 3,867 3,237 2,347 1,747 1,484 1,305 1,136 1,029 898
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Number of countries at year end 118 114 109 101 89 79 70 65 59 53 51
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Number of shareholders at year end
(in thousands) 899.5 888.2 880.2 904.6 769.7 609.2 464.5 398.3 371.7 362.6 330.5
==================================================================================================================================
</TABLE>
(1) Including $162 million of Made For You costs and the $160 million special
charge related to the home office productivity initiative for a pre-tax
total of $322 million ($219 million after tax or $0.16 per share).
6
<PAGE>
Item 7. Management's discussion and analysis of financial condition and results
of operations
<TABLE>
<CAPTION>
Consolidated operating results
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Operating results
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1999 1998 1997
-------------------- --------------------- --------
Percent Percent
increase/ increase/
(Dollars in millions, except per share data) Amount (decrease) Amount (decrease) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Systemwide sales $38,491 7% $35,979 7% $33,638
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues
Sales by Company-operated restaurants $ 9,512 7% $ 8,895 9% $ 8,136
Revenues from franchised and affiliated restaurants 3,747 6 3,526 8 3,273
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 13,259 7 12,421 9 11,409
- ------------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses
Company-operated restaurants 7,829 8 7,261 9 6,650
Franchised restaurants 738 9 678 10 614
Selling, general and administrative expenses 1,477 1 1,458 1,451
Other operating (income) expense (124) nm (60) nm (114)
Made For You costs 19 nm 162 nm
Special charge nm 160 nm
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 9,939 3 9,659 12 8,601
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income(1) 3,320 20 2,762 (2) 2,808
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense 396 (4) 414 14 364
Nonoperating (income) expense 40 (2) 41 11 37
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes(1) 2,884 25 2,307 (4) 2,407
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes(1) 936 24 757 (1) 765
- ------------------------------------------------------------------------------------------------------------------------------------
Net income(1) $ 1,948 26% $ 1,550 (6)% $ 1,642
====================================================================================================================================
Net income per common share(1) $ 1.44 26% $ 1.14 (3)% $ 1.17
Net income per common share-diluted(1) 1.39 26 1.10 (4) 1.15
====================================================================================================================================
</TABLE>
(1) The 1998 results include $162 million of Made For You costs and the $160
million special charge discussed on page 12, for a pre-tax total of $322
million ($219 million after tax or $0.16 per share).
nm Not meaningful
The following table presents the growth rates for reported results; results
adjusted for 1998 Made For You costs and the 1998 special charge; and the
adjusted results on a constant currency basis. All information in constant
currencies excludes the effect of foreign currency translation on reported
results, except for hyperinflationary economies, such as Russia, whose
functional currency is the U.S. Dollar.
Constant currency operating results
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------------------------------------- -----------------------------------------
Percent increase/(decrease) Percent increase/(decrease)
----------------------------------------- -----------------------------------------
As Constant As Constant
reported Adjusted(1) currency(1,2) reported Adjusted(1) currency(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Systemwide sales 7% 7% 8% 7% 7% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 7 7 10 9 9 12
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 20 8 10 (2) 10 12
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 26 10 13 (6) 8 10
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per common share 26 11 13 (3) 11 14
Net income per common share--diluted 26 10 13 (4) 10 12
====================================================================================================================================
</TABLE>
(1) Excluding 1998 Made For You costs and the 1998 special charge.
(2) Excluding the effect of foreign currency translation.
7
<PAGE>
In 1999, net income and diluted net income per common share increased 10% (13%
for both in constant currencies), excluding 1998 Made For You costs and the 1998
special charge. In 1998, net income increased 8% and diluted net income per
common share increased 10% (10% and 12% in constant currencies, respectively),
excluding 1998 Made For You costs and the 1998 special charge. Including these
items, reported net income and diluted net income per common share both
increased 26% in 1999 and decreased 6% and 4%, respectively, in 1998. The spread
between the percent change in net income and net income per common share in 1998
was primarily due to the absence of preferred dividends, since we retired our
remaining Series E Preferred Stock in December 1997.
The primary currencies negatively affecting reported results in 1999 were
the Brazilian Real, the British Pound Sterling and the Euro, partly offset by
the stronger Australian Dollar, Japanese Yen and Southeast Asian currencies. In
1998, the Australian Dollar, Brazilian Real, Canadian Dollar, Japanese Yen and
to a lesser extent, the Euro-based currencies, negatively affected reported
results.
Nature of business
McDonald's operates primarily in the quick-service hamburger restaurant
business. Beginning in 1999, the Company also operates other restaurant
concepts: Aroma Cafe, Chipotle Mexican Grill and Donatos Pizza. Collectively
these three businesses are referred to as "Other Brands." Throughout this
discussion, Other Brands financial information is included in the Other segment,
except where specifically noted.
In December 1999, the Company announced its intention to acquire certain
assets related to the Boston Market brand. The transaction is expected to close
in mid-2000.
Systemwide sales
Systemwide sales include sales by all restaurants, whether operated by the
Company, by franchisees or by affiliates operating under joint-venture
agreements. We continue to focus on increasing market share through expansion
and comparable sales increases with an emphasis on increasing customer
satisfaction through quality, service, cleanliness and value. Constant currency
sales increases in 1999 and 1998 were primarily due to restaurant expansion and
positive comparable sales.
In 1999, the stronger Japanese Yen had a greater positive currency
translation effect on sales compared with revenues. This is due to our affiliate
structure in Japan. Under this structure, we record a royalty in revenues based
on a percentage of Japan's sales, whereas all of Japan's sales are included in
Systemwide sales. For this reason, 1999 Systemwide sales were less negatively
affected by foreign currency translation than were revenues.
In 1999, 1998 and 1997, more than 80% of Systemwide sales were in the
following eight markets--Australia, Brazil, Canada, France, Germany, Japan, the
U.K. and the U.S. (referred to as the major markets).
In the U.S. and Europe, expansion and positive comparable sales drove sales
increases in 1999 and 1998. In the U.S., successful promotions combined with
local market initiatives and new product introductions contributed to the
increases in both years. In Europe, successful promotions and value campaigns in
France, Germany, Spain and the U.K. drove the increases in both years. Europe's
results were dampened in 1999 by the difficult economic conditions in Russia.
In Asia/Pacific, the 1999 and 1998 constant currency sales increases were
driven by expansion, partly offset by negative comparable sales. In 1999, China,
South Korea and the Southeast Asian markets were the primary contributors to the
increase. In addition, expansion in Japan and positive comparable sales in
Australia contributed to the increase.
In Latin America, expansion drove the 1999 constant currency sales
increase, which was partly offset by negative comparable sales. Expansion in
Brazil and positive double-digit comparable sales in Mexico and Venezuela helped
drive the increase. In 1998, sales increased due to expansion and positive
comparable sales.
In the Other segment, Canada's positive comparable sales in both years
drove the constant currency sales increases. Also, the addition of Other Brands
contributed $91 million to the 1999 sales increase.
Systemwide sales
<TABLE>
<CAPTION>
========================================================================================================================
1999 1998 1997
------------------------------- -------------------------------- -------
Percent increase/ Percent increase/
(decrease) (decrease)
---------------------- ----------------------
As Constant As Constant
(Dollars in millions) Amount reported currency/(1)/ Amount reported currency/(1)/ Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. $19,006 5% na $18,123 6% na $17,125
Europe 9,557 7 12% 8,909 14 15% 7,835
Asia/Pacific 6,436 15 6 5,579 (1) 12 5,616
Latin America 1,665 (5) 15 1,761 17 22 1,511
Other 1,827 14 15 1,607 4 10 1,551
- ------------------------------------------------------------------------------------------------------------------------
Total $38,491 7% 8% $35,979 7% 10% $33,638
========================================================================================================================
</TABLE>
(1) Excluding the effect of foreign currency translation.
na Not applicable
8
<PAGE>
Average annual sales per restaurant(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------- ------
Percent increase/ Percent increase/
(decrease) (decrease)
--------------------- ---------------------
As Constant As Constant
(Dollars in thousands) Amount reported currency/(2)/ Amount reported currency(2) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Traditional $ 1,625 3% na $ 1,584 4% na $ 1,523
Satellite 473 3 na 459 3 na 445
Outside the U.S.
Traditional 1,725 (4) (2)% 1,801 (8) (3)% 1,966
Satellite 483 7 (2) 450 (2) 6 457
====================================================================================================================================
</TABLE>
(1) McDonald's restaurants in operation at least 13 consecutive months.
(2) Excluding the effect of foreign currency translation.
na Not applicable
Average sales are affected by several factors: comparable sales and the size,
location and number of new restaurants. The number of new restaurants affects
average sales as new restaurants historically have taken a few years to reach
long-term volumes. In addition, over the last several years we have opened more
restaurants in lower density areas outside the U.S. and in countries with lower
average sales volumes. For these reasons, our focus is primarily on sales-to-
investment ratios on individual sites and building comparable sales, rather than
on average sales.
In 1999 and 1998, positive comparable sales drove the increases in U.S.
average annual sales per restaurant. Outside the U.S., the decreases in average
annual sales per traditional restaurant on a constant currency basis were due to
the significant number of new restaurants added. In 1999 and 1998, average
annual sales volumes of existing restaurants (restaurants opened more than 25
months) increased over the prior year on a constant currency basis.
In 1999, average annual sales for satellite restaurants located in Brazil,
Canada and Japan, which comprise substantially all satellites outside the U.S.,
declined slightly in constant currencies, primarily due to an increase in the
number of satellites in Brazil, which serve only desserts. Satellite restaurants
generally have significantly lower development costs and sales volumes than
traditional restaurants. The utilization of these small, often limited-menu
restaurants has allowed profitable expansion into areas that would otherwise not
have been feasible.
Average annual sales per new restaurant (1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------- ------
Percent increase/ Percent increase/
(decrease) (decrease)
----------------------- ------------------------
As Constant As Constant
(Dollars in thousands) Amount reported currency/(2)/ Amount reported currency/(2)/ Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Traditional $ 1,473 11% na $ 1,332 8% na $ 1,237
Outside the U.S.
Traditional 1,345 (1) 2% 1,357 (5) 1% 1,431
Satellite 446 - (9) 446 (2) 6 453
====================================================================================================================================
</TABLE>
(1) McDonald's restaurants in operation at least 13 months but not more than 25
months.
(2) Excluding the effect of foreign currency translation.
na Not applicable
9
<PAGE>
In 1999 and 1998, the increases in average sales per new U.S. traditional
restaurant were due to selective expansion in higher volume locations and the
development of larger facilities that support higher average sales. On a
constant currency basis, the average annual sales for new traditional
restaurants outside the U.S. increased 2% in 1999 and 1% in 1998. In 1999,
average annual sales for new satellite restaurants outside the U.S. decreased 9%
in constant currencies, primarily due to proportionally more satellites in
Brazil.
Total revenues
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. Fees vary by type of site and
investment by the Company, and also according to local business conditions.
These fees, along with occupancy and operating rights, are stipulated in
franchise agreements that generally have 20-year terms.
Revenues grow as new restaurants are added and as sales build in existing
restaurants. Menu price changes also affect revenues and sales, but it is
impractical to quantify their impact because of different pricing structures,
new products, promotions and product-mix variations among restaurants and
markets.
On a constant currency basis, total revenues increased at a higher rate than
sales in 1999 and 1998, due to the higher unit growth rate of Company-operated
restaurants relative to Systemwide restaurants. In both years, this was
primarily due to expansion in Europe and the consolidation of several affiliate
markets due to an increase in ownership.
U.S. revenues increased $225 million in 1999 and $265 million in 1998 and
accounted for almost 40% of consolidated revenues in both years. The revenue
growth in both years was primarily due to positive comparable sales and
expansion.
Europe's reported revenues grew $458 million in 1999 and $535 million in
1998 and accounted for more than 35% of consolidated revenues in both years. On
a constant currency basis, Europe's revenues increased $657 million in 1999 and
$560 million in 1998. The increases in both years were driven by expansion and
positive comparable sales for the segment and strong sales performances in
France, Germany and the U.K. In addition, the 1999 increase benefited from the
consolidation of Sweden for financial reporting purposes.
Reported revenues in Asia/Pacific increased $199 million in 1999 and $110
million in 1998. On a constant currency basis, these revenues increased $146
million and $341 million in 1999 and 1998, respectively. The increase in 1999
was driven primarily by strong sales in China and South Korea. Positive
comparable sales in Australia also contributed to the increase. The increase in
1998 was primarily due to the consolidation of several affiliate markets as a
result of an increase in ownership.
Latin America's reported revenues declined $134 million in 1999 compared
with an increase of $105 million in 1998. The reported decline in 1999 was
primarily due to the currency devaluation in Brazil that occurred in early 1999,
and the resultant difficult economic conditions in several markets. In constant
currencies, Latin America's revenues increased $77 million in 1999 and $158
million in 1998. Positive comparable sales in Mexico and Venezuela, along with
expansion in Brazil, contributed to the constant currency increase in 1999. The
increase in 1998 was primarily due to expansion in Brazil and positive
comparable sales for this segment.
Operating margins
Operating margin information and discussions relate to McDonald's restaurant
business only and exclude Other Brands.
Company-operated margins
Company-operated margin dollars are equal to sales by Company-operated
restaurants less the operating costs of these restaurants. Company-operated
margin dollars increased $40 million or 2% in 1999 and $148 million or 10% in
1998. In constant currencies, the increases were $88 million or 5% in 1999 and
$194 million or 13% in 1998. The increases were primarily driven by expansion.
Company-operated margins were 17.7% of sales in 1999, 18.4% in 1998 and
18.3% in 1997. Operating cost trends as a percent of sales were as follows: food
& paper costs were flat in 1999 and decreased in 1998; payroll costs increased
in 1999 and were flat in 1998; and occupancy & other operating costs increased
in both years.
<TABLE>
<CAPTION>
Company-operated margins(1)
- --------------------------------------------------------------------------------------------
(Dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ 516 $ 490 $ 445
Europe 743 703 615
Asia/Pacific 267 242 231
Latin America 70 118 116
Other 78 81 79
- --------------------------------------------------------------------------------------------
Total $1,674 $1,634 $1,486
============================================================================================
(Percent of sales)
- --------------------------------------------------------------------------------------------
U.S. 17.5% 17.3% 16.5%
Europe 19.2 20.0 19.9
Asia/Pacific 16.6 16.9 17.8
Latin America 14.1 19.1 21.3
Other 14.9 16.0 15.6
- --------------------------------------------------------------------------------------------
Total 17.7% 18.4% 18.3%
=+==========================================================================================
(1) Relates to McDonald's restaurant business only and excludes Other Brands.
</TABLE>
U.S. Company-operated margins increased as a percent of sales in 1999 due to
lower food & paper costs as a result of less waste (partly due to the
implementation of our Made For You food preparation system) and lower commodity
costs, as well as lower occupancy & other operating costs. These cost reductions
were partly offset by higher payroll costs, due to an increase in
10
<PAGE>
average hourly rates. U.S. Company-operated margins as a percent of sales in
1998 reflected lower food & paper costs, primarily due to lower commodity costs,
and higher payroll costs, due to increased average hourly rates.
Europe's Company-operated margins as a percent of sales declined in 1999 as
payroll costs increased, food & paper costs decreased, and occupancy & other
operating expenses were flat. The difficult economic conditions in Russia
accounted for more than half of the decline in Europe's margin percent from
1998.
In Asia/Pacific and Latin America, Company-operated margins declined as a
percent of sales in 1999 and 1998. The September 1999 earthquake in Taiwan
resulted in a temporary reduction in consumer spending. In addition, a difficult
comparison to strong 1998 promotions in Hong Kong contributed to Asia/Pacific's
1999 decline. In Latin America, the margin declines were due to difficult
economic conditions in several markets and negative comparable sales in 1999.
While Brazil was the primary contributor to the decline in both years, its
margin trends improved during the second half of 1999 compared with the first
half of the year. In 1998, weaker foreign currencies in both Asia/Pacific and
Latin America lowered margins as food & paper costs were negatively affected in
markets where we import products.
Franchised margins
Franchised margin dollars are equal to revenues from franchised and affiliated
restaurants less the Company's occupancy costs (rent and depreciation)
associated with these sites. Franchised margin dollars represented more than 60%
of the combined operating margins in 1999, 1998 and 1997. Franchised margin
dollars increased $160 million or 6% in 1999 and $189 million or 7% in 1998. In
constant currencies, the increases were $220 million or 8% in 1999 and $247
million or 9% in 1998. The increases were primarily driven by expansion and
positive comparable sales.
<TABLE>
<CAPTION>
Franchised margins(1)
- -------------------------------------------------------------------------------------------
(Dollars in millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $1,730 $1,650 $1,551
Europe 828 758 673
Asia/Pacific 187 173 197
Latin America 144 155 129
Other 119 112 109
- -------------------------------------------------------------------------------------------
Total $3,008 $2,848 $2,659
============================================================================================
(Percent of revenues)
- --------------------------------------------------------------------------------------------
U.S. 81.0% 80.9% 81.1%
Europe 79.0 80.0 80.2
Asia/Pacific 83.6 84.3 88.0
Latin America 77.5 79.7 79.6
Other 78.5 80.2 80.8
- --------------------------------------------------------------------------------------------
Total 80.3% 80.8% 81.2%
============================================================================================
(1) Relates to McDonald's restaurant business only and excludes Other Brands.
</TABLE>
Franchised margins were 80.3% of applicable revenues in 1999, 80.8% in 1998
and 81.2% in 1997. The declines in consolidated margin percents reflected higher
occupancy costs due to an increased number of leased sites in all geographic
segments. Our strategy of leasing a higher proportion of new sites over the past
few years has reduced initial capital requirements and related interest expense,
resulting in higher returns on capital invested. However, as anticipated,
franchised margins as a percent of applicable revenues have been negatively
impacted because financing costs implicit in the lease are included in rent
expense, which affects these margins; for owned sites, financing costs are
reflected in interest expense, which does not affect these margins. The higher
occupancy costs were partly offset by positive comparable sales in 1999 and
1998.
Also, our purchase of a majority interest in several affiliate markets in
1999 and 1998 shifted revenues from franchised and affiliated restaurants to
Company-operated restaurants, reducing the franchised restaurant margin percents
outside the U.S. This was the primary cause for the decline in Europe's margin
percent in 1999 and in Asia/Pacific's margin percent in 1998.
Selling, general and administrative expenses
Consolidated selling, general and administrative expenses increased 1% in 1999
while decreasing to 3.8% of sales from 4.1% of sales in 1998 and 4.3% of sales
in 1997. The increase in 1999 was due to the consolidation of Sweden for
financial reporting purposes, spending to support McDonald's restaurant
development and the addition of Other Brands. U.S. selling, general and
administrative expenses decreased due to savings realized from the home office
productivity initiative. In 1998, consolidated selling, general and
administrative expenses were flat, due to lower advertising costs and home
office productivity savings in the U.S. offsetting increased spending to support
international restaurant development.
As a result of the home office productivity initiative, the Company expects
to save about $100 million of selling, general and administrative expenses
annually in 2000 and thereafter. About two-thirds of these savings were realized
through 1999.
Other operating income and expense
Other operating income and expense includes gains on sales of restaurant
businesses, equity in earnings of unconsolidated affiliates, net gains or losses
from property dispositions and other transactions related to the food service
business.
<TABLE>
<CAPTION>
Other operating income and expense
- ----------------------------------------------------------------
(Dollars in millions) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Gains on sales of restaurant businesses $ 75 $ 61 $ 59
Equity in earnings of unconsolidated
affiliates 138 89 73
Net losses from property dispositions (71) (71) (29)
Other (18) (19) 11
- ----------------------------------------------------------------
Total $ 124 $ 60 $ 114
================================================================
Made For You costs $ (19) $(162)
Special charge $(160)
================================================================
</TABLE>
11
<PAGE>
Gains on sales of restaurant businesses include gains from sales of Company-
operated restaurants as well as gains from exercises of purchase options by
franchisees with business facilities lease arrangements (arrangements where the
Company leases the businesses, including equipment, to owner/operators who have
options to purchase the businesses). The Company's purchases and sales of
businesses with its franchisees and affiliates are aimed at achieving an optimal
ownership mix in each market. These transactions are an integral part of our
franchising business and resulting gains are recorded in operating income.
Equity in earnings of unconsolidated affiliates--businesses in which the Company
actively participates, but does not control--is reported after interest expense
and income taxes, except for U.S. restaurant partnerships, which are reported
before income taxes. Net gains or losses from property dispositions result from
disposals of properties due to restaurant closings, relocations and other
transactions.
Equity in earnings from unconsolidated affiliates in 1999 included a $21
million 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 increase. Net losses from property dispositions
reflected the write-off of $24 million of software not used in the business in
1999 and a higher number of restaurant closings in 1998.
Made For You costs
During 1999, the Company completed the installation of the new Made For You food
preparation system in virtually all restaurants in the U.S. and Canada. 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. As part of the plan to introduce this system, the Company
provided financial incentives during 1999 and 1998 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 also made additional
payments in special cases where the conversion to Made For You was more
extensive.
The Company incurred $19 million of Made For You costs in 1999 and $162
million in 1998, primarily consisting of incentive payments made to
owner/operators as well as accelerated depreciation on equipment replaced in
Company-operated restaurants.
Special charge
In second quarter 1998, the Company recorded a $160 million pre-tax special
charge related to the Company's home office productivity initiative. The
productivity plan was designed to improve staff alignment, focus and
productivity and reduce ongoing selling, general and administrative expenses. As
a result, the Company reduced home office staffing by approximately 500
positions, consolidated certain home office facilities and reduced other
expenditures in a variety of areas. The special charge was comprised of $86
million of employee severance and outplacement costs, $41 million of lease
cancellation and other facilities-related costs, $18 million of costs for the
write-off of technology investments made obsolete as a result of the
productivity initiative, and $15 million of other cash payments made in 1998.
The initiatives identified in the home office productivity plan were
completed as of December 31, 1999, and no significant adjustments were made to
the original plan. The remaining liability, primarily related to employee
severance paid in semi-monthly installments over a period up to one year after
termination, was approximately $31 million at December 31, 1999.
Operating income
Operating income increased $236 million or 8% to $3.3 billion in 1999 and $276
million or 10% to $3.1 billion in 1998, excluding 1998 Made For You costs and
the 1998 special charge. In constant currencies, these increases were $303
million or 10% in 1999 and $347 million or 12% in 1998. The increases in 1999
and 1998 were primarily due to higher combined operating margin dollars. Higher
other operating income also contributed to the increase in 1999. Including 1998
Made For You costs and the 1998 special charge, reported operating income
increased 20% in 1999 and decreased 2% in 1998.
Operating income from the major markets accounted for more than 85% of
consolidated operating income in 1999, 1998 and 1997, excluding 1998 Made For
You costs and the 1998 special charge.
12
<PAGE>
<TABLE>
<CAPTION>
Operating income(1)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------- -------------------------------- ------
Percent increase/ Percent increase/
(decrease) (decrease)
------------------------- ----------------------
As Constant As Constant
(Dollars in millions) Amount reported currency(2) Amount reported currency(2) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. $1,472 46% 11%(3) $1,006(4) (15) % 13%(3) $1,180
Europe 1,203 8 13 1,115 13 14 989
Asia/Pacific 404 18 10 344 (5) 8 362
Latin America 128 (29) (8) 181 11 17 163
Other 113 (3) (2) 116 2 8 114
- ------------------------------------------------------------------------------------------------------------------------------------
Total $3,320 20% 10%(3) $2,762(4) (2) % 12%(3) $2,808
====================================================================================================================================
(1) For financial reporting purposes, corporate selling, general and 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.
(2) Excluding the effect of foreign currency translation.
(3) Excluding 1998 Made For You costs and the 1998 special charge.
(4) Including Made For You costs of $162 million and the special charge of $160 million, for a total of $322 million.
</TABLE>
U.S. operating income increased $144 million or 11% in 1999 and $148 million or
13% in 1998, accounting for over 40% of consolidated operating income in both
years, adjusted for 1998 Made For You costs and the 1998 special charge. The
increases in both years were due to higher combined operating margin dollars and
lower selling, general and administrative expenses. Higher other operating
income also contributed to the 1999 increase. Including 1998 Made For You costs
and the 1998 special charge, U.S. operating income increased $466 million or 46%
in 1999 and decreased $174 million or 15% in 1998.
Europe's operating income grew $88 million or 8% in 1999 compared with $126
million or 13% in 1998, accounting for over 35% of consolidated adjusted
operating income in both years. In constant currencies, these increases were 13%
in 1999 and 14% in 1998. Strong operating results in France, Germany, Spain and
the U.K. drove the increases in operating income in both years. In addition,
Europe's operating income growth in 1999 benefited from the consolidation of
Sweden, due to our purchase of majority ownership. The economic difficulties in
Russia dampened this segment's operating results in both years. France, Germany
and the U.K. accounted for about 80% of Europe's operating income in 1999, 1998
and 1997.
Asia/Pacific's operating income increased $60 million or 18% in 1999 compared
with a decrease of $18 million or 5% in 1998. On a constant currency basis, this
segment's operating income increased 10% and 8% in 1999 and 1998, respectively.
The increase in 1999 was driven primarily by Japan, which benefited from a lower
effective tax rate, and strong results in South Korea. In addition, improved
results in several Southeast Asian markets contributed to the increase. The
September 1999 earthquake in Taiwan caused a temporary reduction in consumer
spending and tempered the segment's results. In 1998, Hong Kong and Japan were
the primary contributors to the constant currency increase. Australia and Japan
contributed about two-thirds of Asia/Pacific's operating income in 1999, 1998
and 1997.
Latin America's operating income declined $53 million or 29% in 1999 compared
with an increase of $18 million or 11% in 1998. On a constant currency basis,
this segment's operating income decreased 8% in 1999 and increased 17% in 1998.
Results in 1999 were negatively impacted by the difficult economic conditions
experienced by several markets in the segment. Partly offsetting the decrease
were the strong performances in Mexico and Venezuela. While Brazil's results
have improved since the first half of 1999, it is still experiencing the
negative effects of the currency devaluation that occurred in early 1999.
Expansion and positive comparable sales drove improved results across this
segment in 1998. Brazil has accounted for approximately 70% of Latin America's
operating income in constant currencies in each of the past three years.
13
<PAGE>
Interest expense
Interest expense decreased in 1999 due to lower average interest rates and
weaker foreign currencies, partly offset by higher average debt levels. In 1998,
higher average debt levels more than offset the weaker foreign currencies and
lower average interest rates, causing an increase in interest expense. Lower
average interest rates in both years were partly due to the Company's use of
interest rate exchange agreements.
Nonoperating (income) expense
Nonoperating (income) expense includes miscellaneous income and expense items
such as interest income, minority interests and gains and losses related to
other investments, financings and translation. Results in 1999 reflected lower
translation losses than 1998. Results in 1997 reflected translation gains.
Provision for income taxes
The effective income tax rate was 32.5% for 1999, compared with 32.8% for 1998
and 31.8% for 1997. The Company expects its 2000 effective income tax rate to be
about 32.0%.
Consolidated net deferred tax liabilities included tax assets, net of
valuation allowance, of $557 million in 1999 and $516 million in 1998.
Substantially all of the tax assets arose in the U.S. and other profitable
markets, and a majority of them are expected to be realized in future U.S.
income tax returns.
Restaurants
McDonald's continues to focus on managing capital outlays more effectively
through prudent and selective expansion. In 1999, the Company added 1,790
McDonald's restaurants Systemwide, compared with 1,668 in 1998 and 2,110 in
1997. In 2000, the Company expects to add between 1,800 and 1,900 McDonald's
restaurants, with a continued emphasis on traditional restaurants primarily in
locations outside the U.S. Restaurant additions for Other Brands are anticipated
to be between 160 and 180 in 2000.
In the U.S., a more selective restaurant development process reduced gross
openings in 1999 and 1998 compared with 1997. Also in 1998, more low-volume
satellites were closed, further reducing net additions.
Asia/Pacific's percent of total restaurants has grown primarily due to
Japan's significant expansion. Japan added 406 restaurants in 1999 and 415 in
1998, representing more than 20% of restaurant additions in both years.
Approximately 50% of Japan's restaurant additions in 1999 and about 60% in 1998
were satellites. These units have significantly lower development costs and
sales volumes, compared with traditional restaurants. Therefore, these additions
contribute significantly more to unit growth than sales growth.
Approximately 80% of Systemwide restaurants were in the major markets at the
end of both 1999 and 1998. In 1999, 55% of restaurant additions were in these
major markets, and we anticipate a similar percent for 2000. Longer term, China,
Italy, Mexico, South Korea and Spain, which together represented more than 10%
of McDonald's additions in 1999, are expected to represent a growing proportion
of restaurant additions.
<TABLE>
<CAPTION>
Systemwide restaurants
- -------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. 12,629 12,472 12,380
Europe 4,943 4,421 3,886
Asia/Pacific 5,655 5,055 4,456
Latin America 1,789 1,405 1,091
Other 1,790 1,465 1,319
- -------------------------------------------------------------------------
Total 26,806 24,818 23,132
=========================================================================
</TABLE>
Almost 65% of Company-operated restaurants and nearly 85% of franchised
restaurants were located in the major markets at the end of 1999. Franchisees
and affiliates operated 77% of restaurants at year-end 1999. That percentage has
remained relatively constant over the past three years.
Satellite units at December 31, 1999 were as follows: U.S.--1,048; Europe--
44; Asia/Pacific (primarily Japan)--1,351; Latin America (primarily Brazil)--
532; and Other (primarily Canada)--269.
Financial position and capital resources
- ----------------------------------------
Total assets and capital expenditures
Total assets grew $1.2 billion or 6% in 1999 and $1.5 billion or 8% in 1998. At
year-end 1999 and 1998, about 70% of consolidated assets were located in our
major markets excluding our affiliate in Japan. Net property and equipment rose
$283 million in 1999 and represented 78% of total assets at year end.
Capital expenditures decreased $11 million or 1% in 1999 and decreased $232
million or 11% in 1998, reflecting our strategy of leasing a higher proportion
of new sites; the U.S. new building program that gives owner/operators the
option to own new restaurant facilities; weaker foreign currencies; and in 1998,
fewer restaurant additions. Capital expenditures in 1999 included increased
capital outlays for existing U.S. Company-operated restaurants related to
implementation of the new Made For You food preparation system, and spending to
update and refresh existing U.S. restaurants. More than 85% of qualifying new
and rebuilt U.S. traditional restaurant buildings opened in 1999 are owned by
owner/operators. In addition, the Company leased the land for over 90% of new
U.S. traditional restaurants opened in 1999. The new building program, combined
with our decision to lease more land, saved the Company approximately $230
million in capital outlays in 1999.
More than 70% of capital expenditures was invested in markets outside the
U.S. in 1999, 1998 and 1997, and more than 65% was invested in our major markets
excluding Japan in all three years.
14
<PAGE>
<TABLE>
<CAPTION>
Capital expenditures
- --------------------------------------------------
(Dollars in millions) 1999 1998 1997
- --------------------------------------------------
<S> <C> <C> <C>
New restaurants $ 1,231 $ 1,357 $ 1,531
Existing restaurants 515 398 433
Other properties 122 124 147
- --------------------------------------------------
Total $ 1,868 $ 1,879 $ 2,111
==================================================
Total assets $20,983 $19,784 $18,242
==================================================
</TABLE>
Expenditures for existing restaurants were made to achieve higher levels of
customer satisfaction, including technology to improve service and food quality
such as the Made For You food preparation system in the U.S. and Canada, and to
enhance older facilities. Other properties primarily included expenditures for
office buildings and related computer equipment and furnishings.
The Company's expenditures for new restaurants in the U.S. were minimal as a
result of the building and leasing programs previously discussed. For new
franchised and affiliated restaurants, which represent about 85% of all U.S.
restaurants, the Company generally incurs no capital expenditures. However, the
Company still has long-term occupancy rights for the land and receives related
rental income. For new Company-operated restaurants, the Company generally
leases the land and owns the restaurant building and equipment.
Average development costs outside the U.S. vary widely by market depending
on the types of restaurants built and the real estate and construction costs
within each market. These costs, which include land, buildings and equipment
owned by the Company, are managed through the use of right-sized restaurants,
construction and design efficiencies, standardization and global sourcing. In
addition, foreign currency fluctuations affect average development costs,
especially in those markets where construction materials cannot be obtained
locally.
Average development costs for traditional restaurants in major markets
outside the U.S., excluding our Japan affiliate, were approximately $1.8 million
in 1999, $1.9 million in 1998 and $1.8 million in 1997. Average annual sales per
new traditional restaurant for the same markets were approximately $1.7 million
in 1999, $1.8 million in 1998 and $1.7 million in 1997. Average development
costs for satellite restaurants located in Brazil, Canada and Japan were
approximately $200,000 in each of the last three years. The utilization of these
small, often limited-menu restaurants has allowed expansion into areas that
would otherwise not have been feasible.
Including affiliates, total land ownership was 42% and 44% of total
restaurant sites at year-end 1999 and 1998, respectively.
Capital expenditures by affiliates, which were not included in consolidated
amounts, were approximately $259 million in 1999, compared with $295 million in
1998. The decrease was primarily due to increased ownership in Sweden, partly
offset by stronger foreign currencies, primarily the Japanese Yen.
Cash provided by operations
The Company generates significant cash from operations and has substantial
borrowing capacity to meet its operating and discretionary spending
requirements. Free cash flow (cash from operations less capital expenditures)
increased 29% to $1.14 billion in 1999, compared with $887 million in 1998. Cash
provided by operations was reduced by approximately $135 million of Made For You
incentive payments in 1998 and $110 million of U.S. franchisee security deposit
refunds in 1997. Cash provided by operations, along with other sources of cash
such as borrowings, was used for capital expenditures, share repurchase,
dividends and debt repayments.
<TABLE>
<CAPTION>
Cash provided by operations
- -------------------------------------------------------------
(Dollars in millions) 1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by operations $3,009 $2,766 $2,442
Free cash flow 1,141 887 331
Cash provided by operations as a
percent of capital expenditures 161% 147% 116%
Cash provided by operations as a
percent of average total debt 42 41 41
=============================================================
</TABLE>
In addition to its free cash flow, the Company can meet short-term needs
through commercial paper borrowings and line of credit agreements. Accordingly,
the Company strategically and purposefully maintains a relatively low current
ratio--.48 at year-end 1999.
Financings and market risk
The Company is exposed to the impact of interest-rate changes and foreign
currency fluctuations. McDonald's strives to minimize these risks by employing
established risk management policies and procedures and by financing with debt
in the currencies in which assets are denominated. See summary of significant
accounting policies on page 23 for additional information regarding our use of
financial instruments and the impact of the new accounting standard on
derivatives.
The Company uses major capital markets and various techniques to meet its
financing requirements and reduce interest expense. For example, currency
exchange agreements in conjunction with borrowings help obtain desired
currencies at attractive rates and maturities. Interest-rate exchange agreements
effectively convert fixed-rate to floating-rate debt, or vice versa. The Company
also manages the level of fixed-rate debt to take advantage of changes in
interest rates.
The Company uses foreign currency debt and derivatives to hedge certain
foreign currency royalties, intercompany financings and long-term investments in
foreign subsidiaries and affiliates. This reduces the impact of fluctuating
foreign currencies on net income and shareholders' equity. The high proportion
of foreign-dominated debt has lessened the impact of recently rising U.S.
interest rates. Total foreign-denominated debt, including the effects of
currency exchange agreements, was $5.3 billion and $5.2 billion at year-end 1999
and 1998, respectively.
15
<PAGE>
<TABLE>
<CAPTION>
Debt highlights
- ----------------------------------------------------------------------
(As a percent) 1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-rate debt as a percent of total debt 70% 67% 49%
Weighted-average annual interest rate
of total debt 5.9 6.6 6.8
Foreign currency-denominated debt
as a percent of total debt 76 75 80
Total debt as a percent of total capitalization
(total debt and total shareholders' equity) 43 43 42
======================================================================
</TABLE>
Moody's and Standard & Poor's have rated McDonald's debt Aa2 and AA,
respectively, since 1982. Duff & Phelps began rating the debt in 1990 and
currently rates it AA+. A strong rating is important to the Company because of
its global development plans. The Company has not experienced, and does not
expect to experience, difficulty in obtaining financing or refinancing existing
debt. At year-end 1999, the Company and its subsidiaries had $1.5 billion
available under committed line of credit agreements and $1.1 billion under shelf
registrations for future debt issuance. In early 2000, the Company reduced the
amount available under committed line of credit agreements to $1.0 billion and
issued British Pounds Sterling Medium-Term Notes under one of the shelf
registrations, in the equivalent of $200 million at a rate of 6.38%, due 2020.
The Company manages its debt portfolio in response to changes in interest
rates and foreign currency rates by periodically retiring, redeeming and
repurchasing debt, terminating exchange agreements and using derivatives. The
Company does not use derivatives with a level of complexity or with a risk
higher than the exposures to be hedged and does not hold or issue derivatives
for trading purposes. All exchange agreements are over-the-counter instruments.
The Company actively hedges selected currencies to minimize the effect of
fluctuating foreign currencies on reported results and to minimize the cash
exposure of foreign currency royalty and other payments received in the U.S. In
addition, where practical, McDonald's restaurants purchase goods and services in
local currencies resulting in natural hedges, and the Company typically finances
in local currencies, creating economic hedges.
The Company's exposure is diversified among a broad basket of currencies. At
year-end 1999 and 1998, assets in hyperinflationary markets were principally
financed in U.S. Dollars. The Company's largest net asset exposures (defined as
foreign currency assets less foreign currency liabilities) at year end were as
follows:
<TABLE>
<CAPTION>
Foreign currency exposures
- --------------------------------------------------------------------------
(In millions of U.S. Dollars) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Euro-based currencies $1,059 $1,072
Canadian Dollars 797 749
British Pounds Sterling 669(1) 447
Australian Dollars 394 322
Brazilian Reais 124 302
Hong Kong Dollars 100 80
==========================================================================
(1) Does not reflect the $200 million debt issuance in February 2000.
</TABLE>
The Company prepared sensitivity analyses of its financial instruments to
determine the impact of hypothetical changes in interest rates and foreign
currency exchange rates on the Company's results of operations, cash flows and
the fair value of its financial instruments. The interest-rate analysis assumed
a one percentage point adverse change in interest rates on all financial
instruments but did not consider the effects of the reduced level of economic
activity that could exist in such an environment. The foreign currency rate
analysis assumed that each foreign currency rate would change by 10% in the same
direction relative to the U.S. Dollar on all financial instruments; however, the
analysis did not include the potential impact on sales levels or local currency
prices or the effect of fluctuating currencies on the Company's anticipated
foreign currency royalties and other payments received in the U.S. Based on the
results of these analyses of the Company's financial instruments, neither a one
percentage point adverse change in interest rates from year-end 1999 levels nor
a 10% adverse change in foreign currency rates from year-end 1999 levels would
materially affect the Company's results of operations, cash flows or the fair
value of its financial instruments.
Total shareholders' equity
The Company uses free cash flow and debt capacity to repurchase shares, as we
believe this enhances shareholder value. Over the past 10 years, the Company has
invested $5.3 billion to buy back 264 million shares at an average price of
approximately $20, while maintaining a strong equity base. At year-end 1999, the
Company held 310 million shares in treasury with a market value of $12.5
billion.
In September 1998, the Company announced plans to repurchase $3.5 billion of
its common stock by year-end 2001. Between September 1998 and December 1999, we
purchased 34.4 million shares for approximately $1.3 billion, including 24.2
million shares for $933 million in 1999. The Company sells common equity put
options in connection with our share repurchase program and receives premiums
for these options, which reduce the overall cost of treasury stock purchases.
During 1999, the Company sold 27.0 million common equity put options, of which
17.5 million were outstanding at December 31, 1999. Premiums received of $97.5
million in 1999 were reflected in shareholders' equity as a reduction of the
cost of treasury stock purchased. During February 2000, 3.4 million common
equity put options were exercised for $137.5 million. The remaining options
expire at various dates through February 2001, with exercise prices between
$39.92 and $44.03.
Given the Company's returns on equity and assets, management believes it is
prudent to reinvest a significant portion of earnings back into the business and
use free cash flow for share repurchase. Accordingly, the common stock dividend
yield is modest. However, the Company has paid dividends on our common stock for
24 consecutive years through 1999 and has increased the dividend amount at least
once every year. Future dividend increases will be considered after reviewing
returns to shareholders, profitability expectations and financing needs. In
16
<PAGE>
November 1999, the Company announced that it intends to pay cash dividends on an
annual, instead of quarterly, basis beginning in 2000. Future dividends declared
at the discretion of the Company's Board of Directors will be paid annually in
December.
Returns
Operating income is used to compute return on average assets, while net income
less preferred stock dividends (if applicable) is used to calculate return on
average common equity. Month-end balances are used to compute both average
assets and average common equity.
Returns on assets and equity
- --------------------------------------------------------------------------------
(As a percent) 1999 1998/(1)/ 1997
- --------------------------------------------------------------------------------
Return on average assets 16.6% 16.4% 16.0%
Return on average common equity 20.8 19.5 19.0
================================================================================
(1) Excluding Made For You costs and the special charge. Including Made For You
costs and the special charge, return on average assets was 14.7% and return
on average common equity was 17.1%.
The increases in the 1999 and 1998 returns were due to strong operating
results, enhanced by the Company's continued focus on more efficient capital
deployment. This included a more selective site selection process, the U.S. new
building program that began in 1998 and the use of free cash flow for share
repurchase. Also contributing to the increase in the 1999 return on average
common equity was the significant increase in the amount of common equity put
options entered into during the year, which reduced average common equity.
Other matters
- --------------------------------------------------------------------------------
Effects of changing prices--inflation
The Company has demonstrated an ability to manage inflationary cost increases
effectively. This is because of rapid inventory turnover, the ability to adjust
prices, cost controls and substantial property holdings--many of which are at
fixed costs and partly financed by debt made cheaper by inflation. In
hyperinflationary markets, menu board prices are typically adjusted to keep pace
with inflation, mitigating the effect on reported results.
Year 2000
In 1999, the Company completed all necessary modifications, testing and
replacements of significant systems to become Year 2000 compliant. As a result
of the efforts undertaken, the Company experienced no major disruptions in
significant information technology and noninformation technology systems and
believes those systems successfully responded to the Year 2000 date change. In
addition, the Company did not experience any significant operational or
financial difficulties resulting from Year 2000 issues related to
owner/operators or third-party service providers. The Company will continue to
monitor its computer applications throughout the year to ensure that any latent
Year 2000 matters that may arise are addressed promptly. The Year 2000 costs
incurred by the Company did not have a material impact on the Company's
financial position, results of operations or cash flows.
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 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 McDonald's primarily consist of payments to suppliers. In addition, as we
use foreign-denominated debt and derivatives to meet our financing requirements
and to minimize our foreign currency risks, certain of these financial
instruments are denominated in Euros.
McDonald's 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
its 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 success of operating initiatives and advertising and
promotional efforts, the effects of the Euro conversion, 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 governmental regulation; and accounting policies and practices.
Item 7A. Quantitative and qualitative disclosures about market risk
Quantitative and qualitative disclosures about market risk are included in Part
II, Item 7, pages 15 and 16 of this Form 10-K.
17
<PAGE>
Item 8. Financial statements and supplementary data
Index to consolidated financial statements
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Page reference
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Consolidated statement of income for each of the three years in the period ended December 31, 1999 19
Consolidated balance sheet at December 31, 1999 and 1998 20
Consolidated statement of cash flows for each of the three years in the period ended December 31, 1999 21
Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 1999 22
Notes to consolidated financial statements (Financial comments) 23-30
Quarterly results (unaudited) 31
Management's Report 32
Audit Committee's Report 32
Report of Independent Auditors 32
=========================================================================================================================
</TABLE>
18
<PAGE>
Consolidated statement of income
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share data) Years ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Sales by Company-operated restaurants $ 9,512.5 $ 8,894.9 $ 8,136.5
Revenues from franchised and affiliated restaurants 3,746.8 3,526.5 3,272.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 13,259.3 12,421.4 11,408.8
- -----------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses
Food and packaging 3,204.6 2,997.4 2,772.6
Payroll and employee benefits 2,418.3 2,220.3 2,025.1
Occupancy and other operating expenses 2,206.7 2,043.9 1,851.9
- -----------------------------------------------------------------------------------------------------------------------------------
Total Company-operated restaurant expenses 7,829.6 7,261.6 6,649.6
- -----------------------------------------------------------------------------------------------------------------------------------
Franchised restaurants--occupancy expenses 737.7 678.0 613.9
Selling, general and administrative expenses 1,477.6 1,458.5 1,450.5
Other operating (income) expense (124.1) (60.2) (113.5)
Made For You costs 18.9 161.6
Special charge 160.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 9,939.7 9,659.5 8,600.5
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 3,319.6 2,761.9 2,808.3
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense--net of capitalized interest of $14.3, $17.9 and $22.7 396.3 413.8 364.4
Nonoperating (income) expense 39.2 40.7 36.6
- -----------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 2,884.1 2,307.4 2,407.3
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 936.2 757.3 764.8
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,947.9 $ 1,550.1 $ 1,642.5
===================================================================================================================================
Net income per common share $ 1.44 $ 1.14 $ 1.17
Net income per common share--diluted 1.39 1.10 1.15
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends per common share $ .20 $ .18 $ .16
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted-average shares 1,355.3 1,365.3 1,378.7
Weighted-average shares--diluted 1,404.2 1,405.7 1,410.2
===================================================================================================================================
</TABLE>
The accompanying financial comments are an integral part of the consolidated
financial statements.
19
<PAGE>
Consolidated balance sheet
<TABLE>
<CAPTION>
(In millions, except per share data) December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 419.5 $ 299.2
Accounts and notes receivable 708.1 609.4
Inventories, at cost, not in excess of market 82.7 77.3
Prepaid expenses and other current assets 362.0 323.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,572.3 1,309.4
- ------------------------------------------------------------------------------------------------------------------------------------
Other assets
Investments in and advances to affiliates 1,002.2 854.1
Intangible assets--net 1,261.8 973.1
Miscellaneous 822.4 606.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total other assets 3,086.4 2,433.4
- ------------------------------------------------------------------------------------------------------------------------------------
Property and equipment
Property and equipment, at cost 22,450.8 21,758.0
Accumulated depreciation and amortization (6,126.3) (5,716.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 16,324.5 16,041.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $20,983.2 $19,784.4
====================================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Notes payable $ 1,073.1 $ 686.8
Accounts payable 585.7 621.3
Income taxes 117.2 94.2
Other taxes 160.1 143.5
Accrued interest 131.4 132.3
Other accrued liabilities 660.0 651.0
Current maturities of long-term debt 546.8 168.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,274.3 2,497.1
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 5,632.4 6,188.6
Other long-term liabilities and minority interests 538.4 492.6
Deferred income taxes 1,173.6 1,081.9
Common equity put options 725.4 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 1,288.3 989.2
Unearned ESOP compensation (133.3) (148.7)
Retained earnings 15,562.8 13,879.6
Accumulated other comprehensive income (886.8) (522.5)
Common stock in treasury, at cost; 309.8 and 304.4 million shares (6,208.5) (4,749.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 9,639.1 9,464.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $20,983.2 $19,784.4
====================================================================================================================================
</TABLE>
The accompanying financial comments are an integral part of the consolidated
financial statements.
20
<PAGE>
Consolidated statement of cash flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(In millions) Years ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 1,947.9 $ 1,550.1 $ 1,642.5
Adjustments to reconcile to cash provided by operations
Depreciation and amortization 956.3 881.1 793.8
Deferred income taxes 52.9 35.4 (1.1)
Changes in operating working capital items
Accounts receivable (81.9) (29.9) (57.6)
Inventories, prepaid expenses and other current assets (47.7) (18.1) (34.5)
Accounts payable (23.9) (12.7) 52.8
Taxes and other liabilities 270.4 337.5 221.9
Refund of U.S. franchisee security deposits (109.6)
Other (65.1) 22.9 (65.9)
- --------------------------------------------------------------------------------------------------------------------------
Cash provided by operations 3,008.9 2,766.3 2,442.3
- --------------------------------------------------------------------------------------------------------------------------
Investing activities
Property and equipment expenditures (1,867.8) (1,879.3) (2,111.2)
Purchases of restaurant businesses (340.7) (131.0) (235.9)
Sales of restaurant businesses 241.5 149.0 149.5
Property sales 20.9 42.5 26.9
Other (315.7) (129.4) (46.5)
- --------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (2,261.8) (1,948.2) (2,217.2)
- --------------------------------------------------------------------------------------------------------------------------
Financing activities
Net short-term borrowings (repayments) 116.7 (604.2) 1,097.4
Long-term financing issuances 902.5 1,461.5 1,037.9
Long-term financing repayments (682.8) (594.9) (1,133.8)
Treasury stock purchases (891.5) (1,089.8) (755.1)
Common and preferred stock dividends (264.7) (240.5) (247.7)
Series E preferred stock redemption (358.0)
Other 193.0 207.6 145.7
- --------------------------------------------------------------------------------------------------------------------------
Cash used for financing activities (626.8) (860.3) (213.6)
- --------------------------------------------------------------------------------------------------------------------------
Cash and equivalents increase (decrease) 120.3 (42.2) 11.5
- --------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of year 299.2 341.4 329.9
- --------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 419.5 $ 299.2 $ 341.4
==========================================================================================================================
Supplemental cash flow disclosures
Interest paid $ 411.5 $ 406.5 $ 401.7
Income taxes paid 642.2 545.9 650.8
==========================================================================================================================
</TABLE>
The accompanying financial comments are an integral part of the consolidated
financial statements.
21
<PAGE>
Consolidated statement of shareholders' equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common
stock issued Additional Unearned
Preferred ------------------ paid-in ESOP Retained
(In millions, except per share data) stock issued/(1)/ Shares Amount capital compensation earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $358.0 1,660.6 $16.6 $ 565.9 $(193.2) $11,173.0
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 1,642.5
- ------------------------------------------------------------------------------------------------------------------------------------
Translation adjustments
(including taxes of $104.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock cash dividends
($.16 per share) (221.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred stock cash dividends
($1.93 per Series E depositary share) (25.3)
- ------------------------------------------------------------------------------------------------------------------------------------
ESOP loan payment 21.4
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchases
- ------------------------------------------------------------------------------------------------------------------------------------
Common equity put options issuance
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred stock redemption (358.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Stock option exercises and other
(including tax benefits of $79.2) 125.0 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 0.0 1,660.6 16.6 690.9 (171.3) 12,569.0
====================================================================================================================================
Net income 1,550.1
- ------------------------------------------------------------------------------------------------------------------------------------
Translation adjustments
(including tax benefits of $84.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock cash dividends
($.18 per share) (239.5)
- ------------------------------------------------------------------------------------------------------------------------------------
ESOP loan payment 22.5
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchases
- ------------------------------------------------------------------------------------------------------------------------------------
Common equity put options issuance
and expiration, net
- ------------------------------------------------------------------------------------------------------------------------------------
Stock option exercises and other
(including tax benefits of $154.0) 298.3 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 0.0 1,660.6 16.6 989.2 (148.7) 13,879.6
====================================================================================================================================
Net income 1,947.9
- ------------------------------------------------------------------------------------------------------------------------------------
Translation adjustments
(including taxes of $53.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock cash dividends
($.20 per share) (264.7)
- ------------------------------------------------------------------------------------------------------------------------------------
ESOP loan payment 15.8
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchases
- ------------------------------------------------------------------------------------------------------------------------------------
Common equity put options issuance
and expiration, net
- ------------------------------------------------------------------------------------------------------------------------------------
Stock option exercises and other
(including tax benefits of $185.3) 299.1 (0.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 0.0 1,660.6 $16.6 $1,288.3 $ (133.3) $15,562.8
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated Common stock
other in treasury Total
comprehensive ------------------ shareholders'
(In millions, except per share data) income Shares Amount equity
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $(175.1) (271.4) $(3,027.0) $ 8,718.2
- -------------------------------------------------------------------------------------------------------
Net income 1,642.5
- -------------------------------------------------------------------------------------------------------
Translation adjustments
(including taxes of $104.0) (295.4) (295.4)
- -------------------------------------------------------------------------------------------------------
Comprehensive income 1,347.1
- -------------------------------------------------------------------------------------------------------
Common stock cash dividends
($.16 per share) (221.2)
- -------------------------------------------------------------------------------------------------------
Preferred stock cash dividends
($1.93 per Series E depositary share) (25.3)
- -------------------------------------------------------------------------------------------------------
ESOP loan payment 21.4
- -------------------------------------------------------------------------------------------------------
Treasury stock purchases (32.4) (765.0) (765.0)
- -------------------------------------------------------------------------------------------------------
Common equity put options issuance (80.3) (80.3)
- -------------------------------------------------------------------------------------------------------
Preferred stock redemption (358.0)
- -------------------------------------------------------------------------------------------------------
Stock option exercises and other
(including tax benefits of $79.2) 14.6 89.2 214.7
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 (470.5) (289.2) (3,783.1) 8,851.6
=======================================================================================================
Net income 1,550.1
- -------------------------------------------------------------------------------------------------------
Translation adjustments
(including tax benefits of $84.2) (52.0) (52.0)
- -------------------------------------------------------------------------------------------------------
Comprehensive income 1,498.1
- -------------------------------------------------------------------------------------------------------
Common stock cash dividends
($.18 per share) (239.5)
- -------------------------------------------------------------------------------------------------------
ESOP loan payment 22.5
- -------------------------------------------------------------------------------------------------------
Treasury stock purchases (38.0) (1,161.9) (1,161.9)
- -------------------------------------------------------------------------------------------------------
Common equity put options issuance
and expiration, net 20.8 20.8
- -------------------------------------------------------------------------------------------------------
Stock option exercises and other
(including tax benefits of $154.0) 22.8 174.7 473.1
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 (522.5) (304.4) (4,749.5) 9,464.7
=======================================================================================================
Net income 1,947.9
- -------------------------------------------------------------------------------------------------------
Translation adjustments
(including taxes of $53.5) (364.3) (364.3)
- -------------------------------------------------------------------------------------------------------
Comprehensive income 1,583.6
- -------------------------------------------------------------------------------------------------------
Common stock cash dividends
($.20 per share) (264.7)
- -------------------------------------------------------------------------------------------------------
ESOP loan payment 15.8
- -------------------------------------------------------------------------------------------------------
Treasury stock purchases (24.2) (932.7) (932.7)
- -------------------------------------------------------------------------------------------------------
Common equity put options issuance
and expiration, net (665.9) (665.9)
- -------------------------------------------------------------------------------------------------------
Stock option exercises and other
(including tax benefits of $185.3) 18.8 139.6 438.3
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $(886.8) (309.8) $(6,208.5) $ 9,639.1
=======================================================================================================
</TABLE>
(1) At December 31, 1996, 7.2 thousand shares were outstanding. These shares
were redeemed in 1997.
The accompanying financial comments are an integral part of the consolidated
financial statements.
<PAGE>
Financial comments
Summary of significant accounting policies
Nature of business
The Company develops, operates, franchises and services a worldwide system of
restaurants that prepare, assemble, package and sell a limited menu of value-
priced foods. McDonald's operates primarily in the quick-service hamburger
restaurant business. Beginning in 1999, the Company also operates other
restaurant concepts: Aroma Cafe', Chipotle Mexican Grill and Donatos Pizza.
All restaurants are operated by the Company or, under the terms of
franchise arrangements, by franchisees who are independent third parties, or by
affiliates operating under joint-venture agreements between the Company and
local business people.
Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Investments in affiliates owned 50% or less are accounted for
by the equity method.
Estimates in financial statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Foreign currency translation
The functional currency of substantially all operations outside the U.S. is the
respective local currency, except for hyperinflationary countries, where it is
the U.S. Dollar.
Advertising costs
Production costs for radio and television advertising are expensed when the
commercials are initially aired. Advertising expenses included in costs of
Company-operated restaurants and in selling, general and administrative expenses
were (in millions): 1999--$522.9; 1998--$486.3; 1997--$548.7.
Stock-based compensation
The Company accounts for stock options as prescribed by Accounting Principles
Board Opinion No. 25 and includes pro forma information in the stock options
footnote, as provided by Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation.
Property and equipment
Property and equipment are stated at cost, with depreciation and amortization
provided using the straight-line method over the following estimated useful
lives: buildings--up to 40 years; leasehold improvements--lesser of useful lives
of assets or lease terms including option periods; and equipment--three to 12
years.
Intangible assets
Intangible assets, primarily representing the excess of cost over the net
tangible assets of acquired restaurant businesses, are amortized using the
straight-line method over an average life of about 30 years.
Financial instruments
The Company uses derivatives to manage risk, not for trading purposes. Non-U.S.
Dollar financing transactions generally are effective as hedges of either long-
term investments in or intercompany loans to foreign subsidiaries and
affiliates. Foreign currency translation adjustments from gains and losses on
hedges of long-term investments are recorded in shareholders' equity as other
comprehensive income. Gains and losses related to hedges of intercompany loans
offset the gains and losses on intercompany loans and are recorded in
nonoperating (income) expense.
Interest-rate exchange agreements are designated and effective to modify
the Company's interest-rate exposures. Net interest is accrued as either
interest receivable or payable with the offset recorded in interest expense.
Gains or losses from the early termination of interest-rate exchange agreements
are amortized as an adjustment to interest expense over the shorter of the
remaining life of the interest-rate agreement or the underlying debt being
hedged.
The Company purchases foreign currency options (with little or no initial
intrinsic value) that are effective as hedges of anticipated foreign currency
royalty and other payments received in the U.S. The premiums paid for these
options are amortized over the option life and are recorded as nonoperating
expense. Any realized gains on exercised options are deferred and recognized in
the period in which the related royalty or other payment is received.
Forward foreign exchange contracts are also used to mitigate exposure on
foreign currency royalty and other payments received from affiliates and
subsidiaries. These contracts are marked to market with the resulting gains or
losses recorded in nonoperating (income) expense. In addition, forward foreign
exchange contracts are used to hedge long-term investments in foreign
subsidiaries and affiliates. These contracts are marked to market with the
resulting gains or losses recorded in shareholders' equity as other
comprehensive income.
23
<PAGE>
If a hedged item matures or is extinguished, or if a hedged anticipated
royalty or other payment is no longer probable, the associated derivative is
marked to market with the resulting gain or loss recognized immediately. The
derivative is then redesignated as a hedge of another item or terminated.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, subsequently
amended by SFAS 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 material effect on the Company's results of operations or financial
position.
Common equity put options
During 1999, 1998 and 1997, the Company sold 27.0 million, 7.3 million and 5.3
million common equity put options, respectively, in connection with its share
repurchase program. Premiums received are recorded in shareholders' equity as a
reduction of the cost of treasury stock purchased and were $97.5 million in
1999, $20.5 million in 1998 and $8.1 million in 1997. At December 31, 1999, 17.5
million common equity put options were outstanding. The options expire at
various dates through February 2001 at exercise prices between $39.63 and
$44.03. At December 31, 1999, the $725.4 million total exercise price of these
outstanding options was classified in common equity put options, and the related
offset was recorded in common stock in treasury, net of the premiums received.
Per common share information
Diluted net income per common share is calculated using net income divided by
weighted average shares on a diluted basis. Net income used in the computation
was reduced by preferred stock cash dividends of $25.3 million in 1997. The
Company retired its remaining Series E Preferred Stock in December 1997.
Weighted average shares on a diluted basis included weighted average shares
outstanding plus the dilutive effect of stock options, calculated using the
treasury stock method, of 48.9 million shares in 1999, 40.4 million shares in
1998 and 31.5 million shares in 1997.
Statement of cash flows
The Company considers short-term, highly liquid investments to be cash
equivalents. The impact of fluctuating foreign currencies on cash and
equivalents was not material.
Made For You costs
During 1999, the Company completed the installation of the new Made For You food
preparation system in virtually all restaurants in the U.S. and Canada. As part
of the plan to introduce this system, the Company provided financial incentives
during 1999 and 1998 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 also made additional payments in special cases where the
conversion to Made For You was more extensive.
The Company incurred $18.9 million of Made For You costs in 1999 and $161.6
million in 1998, primarily consisting of incentive payments made to
owner/operators as well as accelerated depreciation on equipment replaced in
Company-operated restaurants.
Special charge
In second quarter 1998, the Company recorded a $160.0 million pre-tax special
charge related to the Company's home office productivity initiative. The
productivity plan was designed to improve staff alignment, focus and
productivity, and reduce ongoing selling, general and administrative expenses.
As a result, the Company reduced home office staffing by approximately 500
positions, consolidated certain home office facilities and reduced other
expenditures in a variety of areas. The special charge was comprised of $85.8
million of employee severance and outplacement costs, $40.8 million of lease
cancellation and other facilities-related costs, $18.3 million of costs for the
write-off of technology investments made obsolete as a result of the
productivity initiative and $15.1 million of other cash payments made in 1998.
The initiatives identified in the home office productivity plan were completed
as of December 31, 1999, and no significant adjustments were made to the
original plan. The remaining liability, primarily related to employee severance
paid in semi-monthly installments over a period up to one year after
termination, was approximately $31.1 million at December 31, 1999, and is
included in other accrued liabilities in the consolidated balance sheet.
Franchise arrangements
Individual franchise arrangements generally include a lease and a license and
provide for payment of initial fees, as well as continuing rent and service fees
to the Company, based upon a percentage of sales with minimum rent payments.
McDonald's franchisees are granted the right to operate a restaurant using the
McDonald's system as well as the use of a restaurant facility, generally for a
period of 20 years. Franchisees pay related occupancy costs including property
taxes, insurance and maintenance. Beginning in 1998, franchisees in the U.S.
generally have the option to own new restaurant facilities while leasing the
land from McDonald's. In addition, franchisees outside the U.S. pay a
refundable, noninterest-bearing security deposit. Foreign affiliates pay a
royalty to the Company based upon a percentage of sales.
24
<PAGE>
The results of operations of restaurant businesses purchased and sold in
transactions with franchisees and affiliates were not material to the
consolidated financial statements for periods prior to purchase and sale.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rents $1,473.8 $1,440.9 $1,369.7
Percent rent and service fees 2,208.8 2,026.9 1,836.3
Initial fees 64.2 58.7 66.3
- -------------------------------------------------------------------------------
Revenues from franchised
and affiliated restaurants $3,746.8 $3,526.5 $3,272.3
===============================================================================
</TABLE>
Future minimum rent payments due to the Company under existing franchise
arrangements are:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(In millions) Owned sites Leased sites Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 918.8 $ 683.2 $ 1,602.0
2001 905.0 674.7 1,579.7
2002 890.8 663.9 1,554.7
2003 872.0 650.4 1,522.4
2004 854.4 635.7 1,490.1
Thereafter 7,292.6 5,761.2 13,053.8
- -------------------------------------------------------------------------------
Total minimum payments $11,733.6 $9,069.1 $20,802.7
===============================================================================
</TABLE>
At December 31, 1999, net property and equipment under franchise
arrangements totaled $8.7 billion (including land of $2.6 billion) after
deducting accumulated depreciation and amortization of $3.1 billion.
Segment and geographic information
The Company operates exclusively in the food service industry. Substantially all
revenues result from the sale of menu products at restaurants operated by the
Company, franchisees or affiliates. The Company's reportable segments are based
on geographic area. All intercompany revenues and expenses are eliminated in
computing revenues and operating income. Operating income includes the Company's
share of operating results of affiliates after interest expense. These amounts
are also after income taxes for affiliates outside the U.S. Royalties and other
payments received from subsidiaries outside the U.S. were (in millions):
1999-$568.3; 1998-$526.0; 1997-$470.6.
Corporate assets include corporate cash, investments, asset portions of
financing instruments, deferred tax assets and certain intangibles.
The Other segment includes McDonald's restaurant business operations in
Canada, Africa and the Middle East as well as Other Brands: Aroma Cafe',
Chipotle Mexican Grill and Donatos Pizza.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ 5,093.0 $ 4,868.1 $ 4,602.7
Europe 4,924.9 4,466.7 3,931.5
Asia/Pacific 1,832.3 1,633.2 1,522.8
Latin America 680.3 814.7 709.2
Other 728.8 638.7 642.6
- --------------------------------------------------------------------------------
Total revenues $13,259.3 $12,421.4 $11,408.8
================================================================================
U.S. $ 1,471.7 $ 1,005.8(1) $ 1,180.0
Europe 1,203.4 1,115.6 988.6
Asia/Pacific 404.3 343.9 362.2
Latin America 127.5 180.8 163.4
Other 112.7 115.8 114.1
- --------------------------------------------------------------------------------
Total operating income $ 3,319.6 $ 2,761.9(1) $ 2,808.3
================================================================================
U.S. $ 8,025.5 $ 7,795.4 $ 7,753.4
Europe 6,966.8 6,932.1 6,005.4
Asia/Pacific 2,828.2 2,659.7 2,125.6
Latin America 1,477.5 1,339.6 1,177.8
Other 979.3 678.7 661.6
Corporate 705.9 378.9 517.7
- --------------------------------------------------------------------------------
Total assets $20,983.2 $19,784.4 $18,241.5
================================================================================
U.S. $ 472.1 $ 445.5 $ 584.0
Europe 881.8 870.2 929.5
Asia/Pacific 188.4 224.0 277.3
Latin America 213.2 236.8 227.9
Other 112.3 102.8 92.5
- --------------------------------------------------------------------------------
Total capital expenditures $ 1,867.8 $ 1,879.3 $ 2,111.2
================================================================================
U.S. $ 444.5 $ 432.3 $ 404.0
Europe 305.2 268.0 229.2
Asia/Pacific 114.9 97.3 82.8
Latin America 45.5 42.9 35.4
Other 46.2 40.6 42.4
- --------------------------------------------------------------------------------
Total depreciation and
amortization $ 956.3 $ 881.1 $ 793.8
================================================================================
</TABLE>
(1) Includes $161.6 million of Made For You costs and $160.0 million special
charge related to the home office productivity initiative.
Total long-lived assets, primarily property and equipment and intangibles,
were (in millions): Consolidated 1999-$19,082.8; 1998-$18,244.4; 1997-$16,706.1.
U.S. 1999-$7,984.9; 1998-$7,533.2; 1997-$7,530.7.
Income taxes
Income before provision for income taxes, classified by source of income, was as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
(In millions) 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $1,222.2 $ 804.3 $1,004.6
Outside the U.S. 1,661.9 1,503.1 1,402.7
- -----------------------------------------------------------------------
Income before provision for
income taxes $2,884.1 $2,307.4 $2,407.3
=======================================================================
</TABLE>
----------------------
25
<PAGE>
The provision for income taxes, classified by the timing and location of
payment, was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal $ 347.4 $ 267.8 $ 336.3
U.S. state 68.9 71.4 66.0
Outside the U.S. 467.0 382.7 363.6
- ------------------------------------------------------------------------------------------------------------------------------------
Current tax provision 883.3 721.9 765.9
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. federal 31.3 32.8 2.5
U.S. state 12.3 (6.9) 13.5
Outside the U.S. 9.3 9.5 (17.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax provision (benefit) 52.9 35.4 (1.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 936.2 $ 757.3 $ 764.8
====================================================================================================================================
Net deferred tax liabilities consisted of:
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Property and equipment basis differences $1,200.0 $1,121.5
Other 396.3 355.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 1,596.3 1,476.7
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets before valuation allowance(1) (658.7) (561.8)
Valuation allowance 101.9 45.5
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities(2) $1,039.5 $ 960.4
====================================================================================================================================
</TABLE>
(1) Includes tax effects of loss carryforwards (in millions): 1999--$118.3;
1998--$67.1 and foreign tax credit carryforwards: 1999--$70.2; 1998--$38.5.
(2) Net of current tax assets included in prepaid expenses and other current
assets in the consolidated balance sheet (in millions): 1999--$134.1;
1998--$121.5.
The statutory U.S. federal income tax rate reconciles to the effective
income tax rates as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of related
federal income tax benefit 1.8 1.8 2.1
Benefits and taxes related to
foreign operations (4.4) (3.3) (5.2)
Other-net .1 (.7) (.1)
- --------------------------------------------------------------------------------
Effective income tax rates 32.5% 32.8% 31.8%
================================================================================
Deferred U.S. income taxes have not been provided on basis differences
related to investments in certain foreign subsidiaries and affiliates. These
basis differences were approximately $2.4 billion at December 31, 1999, and
consisted primarily of undistributed earnings considered permanently invested in
the businesses. Determination of the deferred income tax liability on these
unremitted earnings is not practicable since such liability, if any, is
dependent on circumstances existing if and when remittance occurs.
Debt financing
Line of credit agreements
At December 31, 1999, the Company had several line of credit agreements
with various banks totaling $1.5 billion, all of which remained unused at year-
end 1999. Subsequent to year end, the Company renegotiated the line of credit
agreements as follows: a $500.0 million line expiring in February 2005 with fees
of .06% per annum on the total commitment; a $25.0 million line with a renewable
term of 364 days and fees of .07% per annum on the total commitment; and a
$500.0 million short-term line with a renewable term of 364 days and fees of
.04% per annum on the total commitment. Borrowings under the agreements bear
interest at one of several specified floating rates selected by the Company at
the time of borrowing. In addition, certain subsidiaries outside the U.S. had
unused lines of credit totaling $699.3 million at December 31, 1999; these were
principally short term and denominated in various currencies at local market
rates of interest. The weighted-average interest rate of short-term borrowings,
composed of U.S. Dollar and Euro commercial paper and foreign currency bank line
borrowings, was 6.1% at December 31, 1999 and 6.2% at December 31, 1998.
Exchange agreements
The Company has entered into agreements for the exchange of various
currencies, certain of which also provide for the periodic exchange of interest
payments. These agreements expire through 2008 and relate primarily to the
exchange of Euro-based currencies, Japanese Yen and British Pounds Sterling. The
notional principal is equal to the amount of foreign currency or U.S. Dollar
principal exchanged at maturity and is used to calculate interest payments that
are exchanged over the life of the transaction. The Company has also entered
into interest-rate exchange agreements that expire through 2011 and relate
primarily to U.S. Dollars, Euro-based currencies and Australian Dollars. The net
value of each exchange agreement based on its current spot rate was classified
as an asset or liability. Net interest is accrued as either interest receivable
or payable, with the offset recorded in interest expense.
26
<PAGE>
The counterparties to these agreements consist of a diverse group of financial
institutions. The Company continually monitors its positions and the credit
ratings of its counterparties, and adjusts positions as appropriate. The Company
does not have significant exposure to any individual counterparty and has
entered into master agreements that contain netting arrangements. The Company's
policy regarding agreements with certain counterparties is to require collateral
in the event credit ratings fall below A- or in the event that aggregate
exposures exceed certain limits as defined by contract. At December 31, 1999, no
collateral was required of counterparties and the Company was not required to
collateralize any of its obligations.
At December 31, 1999, the Company had purchased foreign currency options
outstanding (primarily Euro-based currencies, British Pounds Sterling and
Japanese Yen) with a notional amount equivalent to U.S. $193.9 million. The
unamortized premium related to these currency options was $2.7 million and there
were no related deferred gains recorded as of year end. Forward foreign exchange
contracts outstanding at December 31, 1999 (primarily British Pounds Sterling,
Hong Kong Dollars and Australian Dollars) had a U.S. Dollar equivalent of $398.3
million.
<TABLE>
<CAPTION>
Fair values
- --------------------------------------------------------------------------------
December 31, 1999
------------------
Carrying Fair
(In millions) amount value
- --------------------------------------------------------------------------------
<S> <C> <C>
Liabilities
Debt $6,011.3 $6,048.4
Notes payable 1,073.1 1,073.1
Foreign currency exchange agreements(1) 167.9 191.5
Interest-rate exchange agreements(2) 8.7
- --------------------------------------------------------------------------------
Total liabilities 7,252.3 7,321.7
- --------------------------------------------------------------------------------
Assets
Foreign currency exchange agreements(1) 205.5 151.0
- --------------------------------------------------------------------------------
Net debt $7,046.8 $7,170.7
================================================================================
</TABLE>
(1) Gross notional amount equivalent to U.S. $2.5 billion.
(2) Notional amount equivalent to U.S. $1.3 billion.
The carrying amounts for cash and equivalents, notes receivable, purchased
foreign currency options and forward foreign exchange contracts approximated
fair value. No fair value was provided for noninterest-bearing security deposits
by franchisees as these deposits are an integral part of the overall franchise
arrangements.
The fair values of the debt, notes payable obligations, the currency and
interest-rate exchange agreements and the foreign currency options were
estimated using various pricing models or discounted cash flow analyses that
incorporated quoted market prices. The Company has no current plans to retire a
significant amount of its debt prior to maturity. Given the market value of its
common stock and its significant real estate holdings, the Company believes that
the fair value of its total assets was substantially higher than the carrying
value at December 31, 1999.
ESOP loans and guarantees
The Company has guaranteed and included in total debt at December 31, 1999,
$26.8 million of Notes issued by the Leveraged Employee Stock Ownership Plan
(ESOP) with payments through 2006. In addition, during 1999 the Company borrowed
$133.0 million that was subsequently loaned to the ESOP and used to repay
existing ESOP notes previously guaranteed by the Company. Borrowings related to
the ESOP are reflected as long-term debt with a corresponding reduction of
shareholders' equity (unearned ESOP compensation). The ESOP is repaying the
loans and interest through 2018 using Company contributions and dividends from
its McDonald's common stock holdings. As the principal amount of the borrowings
is repaid, the debt and the unearned ESOP compensation are being reduced.
The Company also has guaranteed certain affiliate loans totaling $178.2
million at December 31, 1999.
27
<PAGE>
Debt obligations
The Company has incurred debt obligations through public and private offerings
and bank loans. The terms of most debt obligations contain restrictions on
Company and subsidiary mortgages and long-term debt of certain subsidiaries.
Under certain agreements, the Company has the option to retire debt prior to
maturity, either at par or at a premium over par. The following table summarizes
these debt obligations, including the effects of currency and interest-rate
exchange agreements.
<TABLE>
<CAPTION>
Debt obligations
- ------------------------------------------------------------------------------------------
Interest rates(1) Amounts outstanding
December 31 December 31
------------------ -------------------
<S> <C> <C> <C> <C> <C>
(In millions of U.S. Dollars) Maturity dates 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
Fixed--original issue(2) 6.9% 6.9% $3,008.1 $3,452.6
Fixed--converted via
exchange agreements(3) 6.2 6.3 (1,773.1) (2,072.7)
Floating 6.7 5.3 470.7 357.2
- ------------------------------------------------------------------------------------------
Total U.S. Dollars 2000-2037 1,705.7 1,737.1
- ------------------------------------------------------------------------------------------
Fixed 5.6 6.2 1,941.2 1,771.6
Floating 3.6 4.0 609.4 849.9
- ------------------------------------------------------------------------------------------
Total Euro-based currencies 2000-2009 2,550.6 2,621.5
- ------------------------------------------------------------------------------------------
Fixed 7.6 7.7 596.5 529.4
Floating 6.0 5.6 145.9 212.3
- ------------------------------------------------------------------------------------------
Total British Pounds Sterling 2000-2008 742.4 741.7
- ------------------------------------------------------------------------------------------
Fixed 5.4 7.9 228.4 157.4
Floating 4.8 2.1 15.6 137.9
- ------------------------------------------------------------------------------------------
Total other European
currencies(4) 2000-2004 244.0 295.3
- ------------------------------------------------------------------------------------------
Fixed 3.5 3.8 488.1 387.5
Floating 0.1 0.5 298.5 322.5
- ------------------------------------------------------------------------------------------
Total Japanese Yen 2000-2023 786.6 710.0
- ------------------------------------------------------------------------------------------
Fixed 8.1 8.8 415.0 393.2
Floating 6.4 6.8 503.0 337.6
- ------------------------------------------------------------------------------------------
Total other Asia/Pacific
currencies(5) 2000-2010 918.0 730.8
- ------------------------------------------------------------------------------------------
Fixed 6.9 7.4 13.2 9.3
Floating 5.2 8.9 86.3 84.3
- ------------------------------------------------------------------------------------------
Total other currencies 2000-2021 99.5 93.6
- ------------------------------------------------------------------------------------------
Debt obligations including the net
effects of currency and
interest-rate exchange agreements 7,046.8 6,930.0
- ------------------------------------------------------------------------------------------
Short-term obligations supported by
long-term line of credit agreement
- ------------------------------------------------------------------------------------------
Net asset positions of currency
exchange agreements (included
in miscellaneous other assets) 205.5 113.4
- ------------------------------------------------------------------------------------------
Total debt obligations $7,252.3 $7,043.4
==========================================================================================
</TABLE>
(1) Weighted-average effective rate, computed on a semiannual basis.
(2) Includes $500 million of debentures with maturities in 2027, 2036 and 2037,
which are subordinated to senior debt and which provide for the ability to
defer interest payments up to five years under certain conditions.
(3) A portion of U.S. Dollar fixed-rate debt effectively has been converted
into other currencies and/or into floating-rate debt through the use of
exchange agreements. The rates shown reflect the fixed rate on the
receivable portion of the exchange agreements. All other obligations in
this table reflect the net effects of these and other exchange agreements.
(4) Primarily consists of Swiss Francs.
(5) Primarily consists of Australian Dollars and New Taiwan Dollars.
<TABLE>
<CAPTION>
Debt obligations
- -----------------------------------------------------------------------------------------------------------
Aggregate maturities for 1999 balances
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In millions of U.S. Dollars) 2000 2001 2002 2003 2004 Thereafter
- -----------------------------------------------------------------------------------------------------------
Fixed--original issue(2)
Fixed--converted via
exchange agreements(3)
Floating
- -----------------------------------------------------------------------------------------------------------
Total U.S. Dollars $ 301.8 $(305.3) $(286.9) $(127.3) $ (24.7) $2,148.1
- -----------------------------------------------------------------------------------------------------------
Fixed
Floating
- -----------------------------------------------------------------------------------------------------------
Total Euro-based currencies 515.9 315.3 232.5 294.3 358.7 833.9
- -----------------------------------------------------------------------------------------------------------
Fixed
Floating
- -----------------------------------------------------------------------------------------------------------
Total British Pounds Sterling 234.7 24.2 160.6 322.9
- -----------------------------------------------------------------------------------------------------------
Fixed
Floating
- -----------------------------------------------------------------------------------------------------------
Total other European
currencies(4) 99.0 50.8 37.0 8.1 49.1
- -----------------------------------------------------------------------------------------------------------
Fixed
Floating
- -----------------------------------------------------------------------------------------------------------
Total Japanese Yen 97.9 176.2 146.8 93.9 77.3 194.5
- -----------------------------------------------------------------------------------------------------------
Fixed
Floating
- -----------------------------------------------------------------------------------------------------------
Total other Asia/Pacific
currencies(5) 741.1 46.3 25.5 40.4 54.8 9.9
- -----------------------------------------------------------------------------------------------------------
Fixed
Floating
- -----------------------------------------------------------------------------------------------------------
Total other currencies 88.9 2.7 4.5 1.0 0.5 1.9
- -----------------------------------------------------------------------------------------------------------
Debt obligations including the net
effects of currency and
interest-rate exchange agreements 2,079.3 286.0 183.6 471.0 515.7 3,511.2
- -----------------------------------------------------------------------------------------------------------
Short-term obligations supported by
long-term line of credit agreement (500.0) 500.0
- -----------------------------------------------------------------------------------------------------------
Net asset positions of currency
exchange agreements (included
in miscellaneous other assets) 40.6 54.7 32.5 32.1 34.8 10.8
- -----------------------------------------------------------------------------------------------------------
Total debt obligations $ 1,619.9 $ 340.7 $ 216.1 $ 503.1 $ 550.5 $4,022.0
===========================================================================================================
</TABLE>
28
<PAGE>
Leasing arrangements
At December 31, 1999, the Company was lessee at 5,468 restaurant locations
through ground leases (the Company leases the land and the Company or franchisee
owns the building) and at 6,239 restaurant locations through improved leases
(the Company leases land and buildings). Lease terms for most restaurants are
generally for 20 to 25 years and, in many cases, provide for rent escalations
and renewal options, with certain leases providing purchase options. For most
locations, the Company is obligated for the related occupancy costs including
property taxes, insurance and maintenance. In addition, the Company is lessee
under noncancelable leases covering offices and vehicles.
Future minimum payments required under existing operating leases with initial
terms of one year or more are:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(In millions) Restaurant Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 620.2 $ 61.3 $ 681.5
2001 608.1 49.9 658.0
2002 588.5 41.5 630.0
2003 565.7 34.8 600.5
2004 542.0 29.4 571.4
Thereafter 5,052.3 169.6 5,221.9
- ---------------------------------------------------------------------------
Total minimum payments $7,976.8 $386.5 $8,363.3
===========================================================================
</TABLE>
Rent expense was (in millions): 1999-$796.3; 1998-$723.0; 1997-$641.2. These
amounts included percent rents in excess of minimum rents (in millions): 1999-
$117.1; 1998-$116.7; 1997-$99.4.
<TABLE>
<CAPTION>
Property and equipment
- ------------------------------------------------------------------------------
(In millions) December 31, 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,838.6 $ 3,812.1
Buildings and improvements on owned land 7,953.6 7,665.8
Buildings and improvements on leased land 7,076.6 6,910.4
Equipment, signs and seating 2,906.6 2,728.8
Other 675.4 640.9
- ------------------------------------------------------------------------------
22,450.8 21,758.0
- ------------------------------------------------------------------------------
Accumulated depreciation and amortization (6,126.3) (5,716.4
- ------------------------------------------------------------------------------
Net property and equipment $16,324.5 $16,041.6
==============================================================================
</TABLE>
Depreciation and amortization expense was (in millions): 1999--$858.1;
1998-$808.0; 1997-$726.4.
Employee benefit plans
The Company's benefits program for U.S. employees includes profit sharing,
401(k) (McDESOP) and leveraged employee stock ownership (ESOP) features. McDESOP
allows participants to make contributions that are partly matched from shares
released under the ESOP. Plan assets and contributions made by McDESOP
participants can be invested in McDonald's common stock or among several other
investment alternatives. The Company allocations under McDESOP and ESOP are
generally invested in McDonald's common stock.
Executives, staff and restaurant managers participate in profit sharing
contributions and shares released under the ESOP, based on their compensation.
The profit sharing contribution is discretionary, and the Company determines the
amount each year. Total U.S. costs for the above program were (in millions):
1999-$49.4; 1998-$63.3; 1997-$57.6.
Certain subsidiaries outside the U.S. also offer profit sharing, stock
purchase or other similar benefit plans. Total plan costs outside the U.S. were
(in millions): 1999-$37.2; 1998-$37.5; 1997-$34.1.
Other postretirement benefits and postemployment benefits, excluding severance
benefits related to the 1998 home office productivity initiative, were
immaterial.
Stock options
At December 31, 1999, the Company had three stock-based compensation plans, two
for employees and one for non-employee directors. Options to purchase common
stock are granted at the fair market value of the stock on the date of grant.
Therefore, no compensation cost has been recognized in the consolidated
financial statements for these plans.
Substantially all of the options become exercisable in four equal
installments, beginning a year from the date of the grant, and expiring 10 years
from the grant date. At December 31, 1999, the number of shares of common stock
reserved for issuance under the plans was 178.1 million, including 13.4 million
available for future grants.
29
<PAGE>
A summary of the status of the Company's plans as of December 31, 1999, 1998
and 1997, and changes during the years then ended, is presented in the following
table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------- ------------------------------
Shares Weighted-average Shares Weighted-average Shares Weighted-average
Options (in millions) exercise price (in millions) exercise price (in millions) exercise price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 164.0 $19.32 156.3 $16.79 145.5 $14.73
Granted 25.4 40.35 33.7 25.90 30.2 23.53
Exercised (18.8) 13.89 (22.8) 12.00 (14.6) 9.63
Forfeited (5.9) 18.01 (3.2) 21.06 (4.8) 17.78
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 164.7 $23.06 164.0 $19.32 156.3 $16.79
- ------------------------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 69.4 64.4 60.5
====================================================================================================================================
</TABLE>
Options granted each year were 1.9%, 2.5% and 2.2% of average common shares
outstanding for 1999, 1998 and 1997, representing grants to approximately
11,600, 11,500 and 11,000 employees in those three years. When stock options are
exercised, shares are issued from treasury stock.
The average per share cost of treasury stock issued for option exercises was:
1999--$7.38; 1998--$7.00; 1997--$6.47. The average option exercise price has
consistently exceeded the average cost of treasury stock issued for option
exercises because the Company prefunds the program through share repurchase. As
a result, stock option exercises have generated additional capital, since cash
received from employees has exceeded the Company's average acquisition cost of
treasury stock. In addition, stock option exercises resulted in $418.5 million
of tax benefits for the Company during the three years ended December 31, 1999.
The following table presents information related to options outstanding and
options exercisable at December 31, 1999, based on ranges of exercise prices.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999
--------------------------------------------------------------------------------------------------------
Options outstanding Options exercisable
-------------------------------------------------------------- ---------------------------------------
Number Weighted-average Number
of options remaining contractual life Weighted-average of options Weighted-average
Range of exercise prices (in millions) (in years) exercise price (in millions) exercise price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 7 to 9 7.6 1.4 $ 7.87 7.6 $ 7.87
10 to 15 36.1 3.6 13.43 28.1 13.23
16 to 23 43.3 6.4 20.60 15.1 19.55
24 to 34 53.1 7.5 25.67 18.5 25.37
35 to 46 24.6 9.5 40.58 0.1 40.52
- ------------------------------------------------------------------------------------------------------------------------------------
$ 7 to 46 164.7 6.4 $23.06 69.4 $17.30
====================================================================================================================================
</TABLE>
Pro forma net income and net income per common share were determined as if the
Company had accounted for its employee stock options under the fair value method
of SFAS No. 123. For pro forma disclosures, the options' estimated fair value
was amortized over their expected seven-year life. SFAS No. 123 does not apply
to grants before 1995. As a result, the pro forma disclosures do not include a
full seven years of grants, and therefore, may not be indicative of anticipated
future disclosures. The fair value for these options was estimated at the date
of grant using an option pricing model. The model was designed to estimate the
fair value of exchange-traded options which, unlike employee stock options, can
be traded at any time and are fully transferable. In addition, such models
require the input of highly subjective assumptions, including the expected
volatility of the stock price. Therefore, in management's opinion, the existing
models do not provide a reliable single measure of the value of employee stock
options. The following tables present the pro forma disclosures and the
weighted-average assumptions used to estimate the fair value of these options:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Pro forma disclosures 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income--pro forma (in millions) $1,844.0 $1,474.0 $1,589.3
Net income per common share--pro forma:
Basic 1.36 1.08 1.13
Diluted 1.31 1.05 1.11
Weighted-average fair value
per option granted 14.06 8.75 8.41
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Assumptions 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield .65% .65% .65%
Expected stock price volatility 22.9% 18.0% 18.1%
Risk-free interest rate 5.72% 5.56% 6.61%
Expected life of options (in years) 7 7 7
================================================================================
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Quarterly results (unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Quarters ended Quarters ended Quarters ended Quarters ended
December 31 September 30 June 30 March 31
------------------- -------------------- ------------------- ---------------------
(In millions, except per
share data) 1999 1998 1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Systemwide sales $9,749.7 $9,316.0 $ 9,997.8 $9,246.2 $9,920.4 $9,247.6 $8,822.8 $8,169.7
- --------------------------------------------------------------------------------------------------------------------------
Revenues
Sales by Company-operated
restaurants $2,424.9 $2,304.5 $ 2,474.4 $2,305.7 $2,434.1 $2,270.4 $2,179.1 $2,014.3
Revenues from franchised
and affiliated restaurants 948.0 916.2 969.8 909.3 973.0 910.4 856.0 790.6
- --------------------------------------------------------------------------------------------------------------------------
Total revenues 3,372.9 3,220.7 3,444.2 3,215.0 3,407.1 3,180.8 3,035.1 2,804.9
- --------------------------------------------------------------------------------------------------------------------------
Company-operated margin 414.1 418.2 458.8 437.5 448.9 426.7 361.1 350.9
Franchised margin 756.3 734.8 783.0 737.3 792.6 743.9 677.2 632.5
Operating income(1) 816.8 637.2 907.7 835.2 883.5 646.8(2) 711.6 642.7
Net income(1) $ 486.2 $ 348.5 $ 540.9 $ 482.2 $ 518.1 $ 357.2(2) $ 402.7 $ 362.2
- --------------------------------------------------------------------------------------------------------------------------
Net income per common share(1) $ .36 $ .26 $ .40 $ .35 $ .38 $ .26(2) $ .30 $ .26
Net income per common
share-diluted(1) .35 .25 .39 .34 .37 .25(2) .29 .26
- --------------------------------------------------------------------------------------------------------------------------
Dividends per common share $ .04875 $ .04500 $ .04875 $ .04500 $ .04875 $ .04500 $ .04875 $ .04125
- --------------------------------------------------------------------------------------------------------------------------
Weighted-average shares 1,353.3 1,354.3 1,354.7 1,362.1 1,355.5 1,372.1 1,357.3 1,372.8
Weighted-average shares-diluted 1,401.4 1,399.1 1,403.1 1,404.7 1,405.6 1,415.1 1,409.2 1,403.9
==========================================================================================================================
Market price per common share
High $49 9/16 $39 3/4 $45 1/4 $ 37 1/2 $47 1/16 $35 $47 3/8 $30 1/8
Low 38 5/16 28 1/8 38 15/16 26 3/4 37 3/4 28 9/16 35 15/16 22 5/16
Close 40 5/16 38 7/16 43 1/4 29 7/8 41 1/8 34 1/2 45 5/16 30
==========================================================================================================================
</TABLE>
(1) Includes Made For You costs in 1998 of $5.0 million ($3.4 million after
tax) in second quarter; $10.6 million ($7.1 million after tax or
$0.01 per share) in third quarter; and $146.0 million ($98.6 million after
tax or $0.07 per share) in fourth quarter.
(2) Includes $160.0 million special charge related to the home office
productivity initiative ($110.0 million after tax or $0.08 per share).
31
<PAGE>
Management's Report
Management is responsible for the preparation, integrity and fair presentation
of the consolidated financial statements and financial comments appearing in
this annual report. The financial statements were prepared in accordance with
generally accepted accounting principles and include certain amounts based on
management's judgment and best estimates. Other financial information presented
in the annual report is consistent with the financial statements.
The Company maintains a system of internal controls over financial reporting
including safeguarding of assets against unauthorized acquisition, use or
disposition, which is designed to provide reasonable assurance to the Company's
management and Board of Directors regarding the preparation of reliable
published financial statements and asset safeguarding. The system includes a
documented organizational structure and appropriate division of
responsibilities; established policies and procedures that are communicated
throughout the Company; careful selection, training and development of our
people; and utilization of an internal audit program. Policies and procedures
prescribe that the Company and all employees are to maintain high standards of
proper business practices throughout the world.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control system
can provide only reasonable assurance with respect to financial statement
preparation and safeguarding of assets. Furthermore, the effectiveness of an
internal control system can change with circumstances. The Company believes it
maintains an effective system of internal control over financial reporting and
safeguarding of assets against unauthorized acquisition, use or disposition.
The consolidated financial statements have been audited by independent
auditors, Ernst & Young LLP, who were given unrestricted access to all financial
records and related data. The audit report of Ernst & Young LLP is presented
herein.
McDONALD'S CORPORATION
January 26, 2000
Audit Committee's Report
The Audit Committee is responsible for overseeing the financial reporting
process, financial policies and internal controls on behalf of the Board of
Directors. In this regard, it helps to ensure the independence of the Company's
auditors, the integrity of management and the adequacy of disclosure to
shareholders. Representatives of the internal audit function, independent
auditors and financial management each have unrestricted access to the Committee
and each periodically meet privately with the Committee.
In conformity with its charter, in 1999, among other things, the Committee
recommended the selection of the Company's independent auditors to the Board of
Directors; reviewed the scope and fees for the annual audit and the internal
audit program; reviewed fees for nonaudit services provided by the independent
auditors; reviewed the annual financial statements and the results of the annual
audit with financial management and the independent auditors; consulted with
financial management and the independent auditors regarding risk management;
reviewed the adequacy of certain financial policies and internal controls; and
reviewed significant legal developments.
The Audit Committee, which met six times during 1999, is comprised of five
independent Directors: Gordon C. Gray, Chairman, Enrique Hernandez, Jr., Walter
E. Massey, Roger W. Stone and B. Blair Vedder, Jr. Donald G. Lubin serves as
secretary in a nonvoting capacity.
In December 1999, the New York Stock Exchange, Securities and Exchange
Commission and Auditing Standards Board adopted new rules intended to improve
disclosure relating to the composition and practices of audit committees and to
enhance the reliability and credibility of financial statements. The rules must
be implemented at various dates throughout 2000 and 2001. The Audit Committee is
taking steps to comply on a timely basis with these rules.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF McDONALD'S CORPORATION
January 26, 2000
Report of Independent Auditors
The Board of Directors and Shareholders
McDonald's Corporation
We have audited the accompanying consolidated balance sheet of McDonald's
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of McDonald's Corporation management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of McDonald's
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
January 26, 2000
32
<PAGE>
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure
None.
Part III
Item 10. Directors and Executive Officers of the registrant
Information regarding directors is incorporated herein by reference from the
Company's definitive proxy statement which will be filed no later than 120 days
after December 31, 1999.
Information regarding all of the Company's executive officers is included in
Part I, Item 4, page 5 of this Form 10-K.
Item 11. Executive compensation
Incorporated herein by reference from the Company's definitive proxy statement
which will be filed no later than 120 days after December 31, 1999.
Item 12. Security ownership of certain beneficial owners and management
Incorporated herein by reference from the Company's definitive proxy statement
which will be filed no later than 120 days after December 31, 1999.
Item 13. Certain relationships and related transactions
Incorporated herein by reference from the Company's definitive proxy statement
which will be filed no later than 120 days after December 31, 1999.
Part IV
Item 14. Financial statement schedules, exhibits, and reports on Form 8-K
(a) 1. Financial statements:
Consolidated financial statements filed as part of this report are listed under
Part II, Item 8, pages 19 through 22 of this Form 10-K.
2. Financial statement schedules:
No schedules are required because either the required information is not present
or is not present in amounts sufficient to require submission of the schedule,
or because the information required is included in the consolidated financial
statements or the notes thereto.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed for the last quarter covered by
this report, and subsequently up to March 28, 2000.
- -------------------------------------------------------
Date of Item Financial statements
report number required to be filed
- -------------------------------------------------------
10/21/99 Item 7 No
12/16/99 Item 7 No
1/26/00 Item 7 No
- -------------------------------------------------------
(c) Exhibits:
The exhibits listed in the accompanying index are filed as part of this report.
33
<PAGE>
McDonald's Corporation Exhibit Index (Item 14)
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.
(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.
34
<PAGE>
Exhibit Number/Description
- --------------------------------------------------------------------------------
(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.
(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, filed herewith.*
(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,
incorporated herein by reference from Form 10-Q for the quarter ended
June 30, 1999.*
(e) 1992 Stock Ownership Incentive Plan, as amended and restated,
incorporated herein by reference from Form 10-Q for the quarter ended
June 30, 1999.*
(f) McDonald's Corporation Deferred Income Plan, as amended and restated,
incorporated herein by reference from Form 10-Q for the quarter ended
September 30, 1999.*
(g) Non-Employee Director Stock Option Plan, incorporated herein by
reference from Form 10-Q for the quarter ended September 30, 1999.*
(h) Executive Retention Plan, incorporated herein by reference from Form
10-K for the year ended December 31, 1998.*
(12) Statement re: Computation of Ratios
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
- --------------------------------------------------------------------------------
* Denotes compensatory plan.
(A) Other instruments defining the rights of holders of long-term debt of the
registrant and all of its subsidiaries for which consolidated financial
statements are required to be filed and which are not required to be
registered with the Securities and Exchange Commission, are not included
herein as the securities authorized under these instruments, individually,
do not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis. An agreement to furnish a copy of any
such instruments to the Securities and Exchange Commission upon request has
been filed with the Commission.
35
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
McDonald's Corporation
(Registrant)
/S/ Michael L. Conley
- ---------------------------------
By Michael L. Conley
Executive Vice President and Chief Financial Officer
March 28, 2000
- ---------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on the 28th day of March, 2000:
Signature, Title
/S/ Hall Adams, Jr.
- ---------------------------------
Hall Adams, Jr.
Director
/S/ James R. Cantalupo
- ---------------------------------
James R. Cantalupo
Vice Chairman and President and Director
/S/ Gordon C. Gray
- ---------------------------------
Gordon C. Gray
Director
/S/ Jack M. Greenberg
- ---------------------------------
Jack M. Greenberg
Chairman and Chief Executive Officer and Director
/S/ Enrique Hernandez, Jr.
- ---------------------------------
Enrique Hernandez, Jr.
Director
/S/ Jeanne P. Jackson
- ---------------------------------
Jeanne P. Jackson
Director
/S/ Donald R. Keough
- ---------------------------------
Donald R. Keough
Director
/S/ Donald G. Lubin
- ---------------------------------
Donald G. Lubin
Director
/S/ Walter E. Massey
- ---------------------------------
Walter E. Massey
Director
/S/ Andrew J. McKenna
- ---------------------------------
Andrew J. McKenna
Director
/S/ Michael R. Quinlan
- ---------------------------------
Michael R. Quinlan
Chairman of the Executive Committee and Director
/S/ Terry L. Savage
- ---------------------------------
Terry L. Savage
Director
/S/ Roger W. Stone
- ---------------------------------
Roger W. Stone
Director
/S/ Robert N. Thurston
- ---------------------------------
Robert N. Thurston
Director
/S/ Fred L. Turner
- ---------------------------------
Fred L. Turner
Senior Chairman and Director
/S/ B. Blair Vedder, Jr.
- ---------------------------------
B. Blair Vedder, Jr.
Director
/S/ Michael L. Conley
- ---------------------------------
Michael L. Conley
Executive Vice President and Chief Financial Officer
/S/ Christopher Pieszko
- ---------------------------------
Christopher Pieszko
Senior Vice President and Corporate Controller
36
<PAGE>
McDONALD'S CORPORATION
PROFIT SHARING PROGRAM
As amended and restated
effective
November 1, 1998
<PAGE>
McDONALD'S CORPORATION PROFIT SHARING PROGRAM
Summary of Contents
<TABLE>
<CAPTION>
Page
Table of Contents
<S> <C>
McDONALD'S CORPORATION................................................................................................ 1
PROFIT SHARING PROGRAM................................................................................................ 1
MCDONALD'S CORPORATION PROFIT SHARING PROGRAM......................................................................... 1
ARTICLE I DEFINITIONS................................................................................................. 3
1.1 "Account"................................................................................................. 3
1.2 "Active Participant"...................................................................................... 6
1.3 "Affiliated Service Group"................................................................................ 7
1.4 "Authorized Leave of Absence"............................................................................. 8
1.5 "Auxiliary ESOP".......................................................................................... 8
1.6 "Beneficiary"............................................................................................. 8
1.7 "Board of Directors"...................................................................................... 8
1.8 "Break in Service"........................................................................................ 8
1.9 "Committee"............................................................................................... 9
1.10 "Commonly Controlled Corporation"......................................................................... 9
1.11 "Commonly Controlled Entity".............................................................................. 9
1.12 "Company"................................................................................................. 9
1.13 "Company Stock"........................................................................................... 9
1.14 "Considered Compensation"................................................................................. 9
1.15 "Credited Service"........................................................................................ 11
1.16 "Disability".............................................................................................. 12
1.17 "Disqualified Person"..................................................................................... 12
1.18 "Domestic Affiliate"...................................................................................... 12
1.19 "Effective Date".......................................................................................... 12
1.20 "Eligibility Computation Period".......................................................................... 12
1.21 "Eligibility Service"..................................................................................... 13
1.22 "Employee"................................................................................................ 13
1.23 "Employer"................................................................................................ 13
1.24 "Employer Contributions".................................................................................. 14
1.25 "Entry Date".............................................................................................. 14
1.26 "ERISA"................................................................................................... 14
1.27 "Five Percent Owner"...................................................................................... 14
1.28 "Foreign Affiliate"....................................................................................... 14
1.29 "Forfeiture".............................................................................................. 14
1.30 "Highly Compensated Employee"............................................................................. 15
1.31 "Hour of Service"......................................................................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
1.32 "Internal Revenue Code"..................................................................................... 19
1.33 "Investment Fund"........................................................................................... 19
1.34 "Leased Employee"........................................................................................... 19
1.35 "LESOP"..................................................................................................... 20
1.36 "LESOP Employer Matching Allocations"....................................................................... 20
1.37 "LESOP Suspense Account".................................................................................... 20
1.38 "Licensee".................................................................................................. 20
1.39 "McDESOP"................................................................................................... 20
1.40 "Non-highly Compensated Employee"........................................................................... 20
1.41 "Parental Leave"............................................................................................ 20
1.42 "Participant"............................................................................................... 21
1.43 "Participant Contributions"................................................................................. 21
1.44 "Participant Elected Contributions"......................................................................... 21
1.45 "Party in Interest"......................................................................................... 21
1.46 "Program"................................................................................................... 21
1.47 "Plan Administrator"........................................................................................ 21
1.48 "Plan Year"................................................................................................. 21
1.49 "Profit Sharing Plan"....................................................................................... 21
1.50 "Qualified Preretirement Survivor Annuity".................................................................. 22
1.51 "Related Plan".............................................................................................. 22
1.52 "Required Beginning Date"................................................................................... 22
1.53 "Rollover".................................................................................................. 22
1.54 "STIF Fund"................................................................................................. 22
1.55 "Stock Sharing"............................................................................................. 22
1.56 "Subsidiary"................................................................................................ 22
1.57 "Termination of Employment"................................................................................. 23
1.58 "Trust"..................................................................................................... 23
1.59 "Trust Agreement"........................................................................................... 23
1.60 "Trustee"................................................................................................... 23
1.61 "Trust Fund"................................................................................................ 23
1.62 "Valuation Date"............................................................................................ 23
1.63 "Vesting Retirement Date"................................................................................... 23
1.64 "Year of Credited Service".................................................................................. 23
1.65 "Year of Eligibility Service"............................................................................... 24
ARTICLE II PARTICIPATION................................................................................................ 25
2.1 Participation............................................................................................... 25
2.2 Certification of Participation and Compensation to Committee................................................ 25
2.3 Termination of Employment, Break in Service, Reemployment and Change in Employment Status................... 25
2.4 Employees of Foreign or Domestic Affiliates................................................................. 26
2.5 Leased Employee............................................................................................. 26
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE III PROFIT SHARING PLAN EMPLOYER CONTRIBUTIONS.................................................................... 27
3.1 Profit Sharing Contributions.................................................................................. 27
3.2 Payment of Contributions Made Pursuant to Article III......................................................... 27
ARTICLE IV McDESOP and LESOP EMPLOYER CONTRIBUTIONS....................................................................... 29
4.1 Amount of Employer Matching Contributions and LESOP Employer Matching Contributions........................... 29
4.2 LESOP Contributions........................................................................................... 33
4.3 Annual Employer Contribution Elections........................................................................ 35
4.4 Additional Employer Contributions............................................................................. 37
4.5 Payment of Contributions Made Pursuant to Article IV.......................................................... 37
4.6 Form of Contributions......................................................................................... 37
4.7 Reemployed Members of the Uniformed Services.................................................................. 37
ARTICLE V PARTICIPANT ELECTED CONTRIBUTIONS............................................................................... 41
5.1 Participant Elected Contributions............................................................................. 41
5.2 Restrictions on Participant Elected Contributions............................................................. 41
5.3 Allocation of Income to Certain Distributed and Forfeited Amounts............................................. 47
5.4 Multiple Use of Alternative Limitations....................................................................... 47
5.5 Excess Compensation Reduction Elections....................................................................... 50
5.6 Deadline for Participant Elected Contributions................................................................ 52
5.7 Application of the Limitations of Sections 4.1(d), 5.2(c), 5.2(e), 5.4 and 9.1................................ 52
ARTICLE VI LESOP LOAN PROVISIONS 53
6.1 Power to Borrow............................................................................................... 53
6.2 Accounting for Loan Proceeds and LESOP Contributions.......................................................... 54
6.3 Release from LESOP Suspense Account........................................................................... 54
6.4 Installment Payments on Exempt Loan........................................................................... 56
6.5 Non-Terminable Rights and Protections......................................................................... 57
6.6 Independent Appraisals Required............................................................................... 58
ARTICLE VII ALLOCATIONS OF CONTRIBUTIONS.................................................................................. 59
7.1 Profit Sharing Contribution Allocation Formula................................................................ 59
7.2 Employer Matching Contributions, LESOP Employer Matching Allocations,
LESOP Employer Matching Contributions Additional Employer Contributions
and Special Section 401(k) Employer Contributions............................................................. 60
7.3 LESOP Contributions........................................................................................... 61
7.4 Participant Elected Contributions............................................................................. 63
7.5 Timing of Allocations......................................................................................... 63
</TABLE>
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ARTICLE VIII ROLLOVERS AND TRUSTEE TRANSFERS.............................................................................. 64
8.1 Participant Rollovers......................................................................................... 64
8.2 Limited Participation......................................................................................... 64
8.3 Withdrawal of Rollovers....................................................................................... 64
8.4 Rollover Not Forfeitable...................................................................................... 64
ARTICLE IX LIMITATIONS ON CONTRIBUTIONS BECAUSE OF FEDERAL LEGISLATION.................................................... 65
9.1 Limitations on Contributions.................................................................................. 65
9.2 Employer Contribution Reductions.............................................................................. 69
ARTICLE X TRUSTEE AND TRUST FUNDS......................................................................................... 70
10.1 Trust Agreements.............................................................................................. 70
10.2 Trustee's Duties.............................................................................................. 70
10.3 Trust Expenses................................................................................................ 70
10.4 Trust Entity.................................................................................................. 70
10.5 Right of the Employers to Trust Assets........................................................................ 70
10.6 Trust Investment Funds........................................................................................ 71
10.7 Investment of Participant's Employer Profit Sharing Contributions............................................. 74
10.8 Investment Election with Regard to a Participant's Profit Sharing, Diversification,
Investment Savings and Rollover Accounts...................................................................... 74
10.9 Failure to Make an Investment Election........................................................................ 76
10.10 Diversification of McDESOP and LESOP Contributions and Accounts............................................... 76
10.11 Effective Date of Participant's Investment and Diversification Elections...................................... 81
10.12 Trust Income.................................................................................................. 82
10.13 Adjustment of Participant's Account Balances and the LESOP Suspense Accounts.................................. 82
10.14 Allocation of Income of Holding Funds......................................................................... 83
10.15 Separate Accounting in the Trust Fund......................................................................... 84
10.16 Trust Investment.............................................................................................. 84
10.17 Separate Accounting for LESOP Suspense Account................................................................ 84
10.18 Correction of Error........................................................................................... 84
10.19 Statement of Accounts......................................................................................... 85
10.20 Purchase or Sale of Company Stock............................................................................. 85
10.21 Shareholder Rights in Company Stock........................................................................... 85
10.22 Cash Distributions with Respect to Company Stock.............................................................. 87
10.23 Holding Funds................................................................................................. 88
10.24 Restrictions Applicable to Participants Subject to Section 16................................................. 89
</TABLE>
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ARTICLE XI DISTRIBUTION OF BENEFITS.......................................................................................... 90
11.1 Distributions, General........................................................................................ 90
11.2 Payment of Net Balance Account on Disability, or on Retirement or Other Termination of Employment............. 90
11.3 Payment of Net Balance Account on Death of Participant........................................................ 98
11.4 Vesting and Forfeitures....................................................................................... 102
11.5 Payment of Employer Profit Sharing Contribution for Year of Termination of Employment......................... 104
11.6 Designation of Beneficiary and Form of Beneficiary Benefit.................................................... 104
11.7 Incompetency, Distribution of Benefits........................................................................ 106
11.8 Deduction of Taxes from Accounts Payable...................................................................... 106
11.9 Deadline for Payment of Benefits.............................................................................. 106
11.10 Spousal Consent to a Beneficiary or a Waiver.................................................................. 107
11.11 Single Sum Payment without Election........................................................................... 107
11.12 Installment Payments.......................................................................................... 108
11.13 Required Minimum Distributions to Employed Participants....................................................... 109
11.14 Transitional Rules............................................................................................ 110
11.15 Sale of Restaurant - Special Vesting Rules.................................................................... 111
11.16 In-Service Withdrawals........................................................................................ 111
11.17 Direct Rollovers.............................................................................................. 112
11.18 Waiver of 30 Day Period....................................................................................... 113
ARTICLE XII.................................................................................................................. 115
12.1 Adoption of Program and Trust................................................................................. 115
12.2 Withdrawal from Program by Participating Employer............................................................. 115
ARTICLE XIII ADMINISTRATION OF THE PROGRAM................................................................................... 117
13.1 Appointment and Removal of, and Resignation by, Trustee....................................................... 117
13.2 Appointment of Committee; Tenure in Office.................................................................... 117
13.3 Named Fiduciaries............................................................................................. 117
13.4 Delegation of Responsibilities................................................................................ 118
13.5 Committee Duties.............................................................................................. 118
13.6 Committee Action by Majority -- Authorization of Members to Execute Documents................................. 119
13.7 Secretary..................................................................................................... 120
13.8 Member as Participant......................................................................................... 120
13.9 Rules and Decisions........................................................................................... 120
13.10 Electronic Elections.......................................................................................... 120
13.11 Agents and Counsel............................................................................................ 120
13.12 Authorization of Benefit Distribution......................................................................... 120
13.13 Claims Procedure.............................................................................................. 120
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13.14 Information to be Furnished to Committee.................................................................... 121
13.15 Plan Administrator.......................................................................................... 122
13.16 Fiduciary as Participant.................................................................................... 122
13.17 Fiduciary Responsibility.................................................................................... 122
13.18 Year 2000 Problem........................................................................................... 122
ARTICLE XIV AMENDMENT, TERMINATION, MERGER AND CONSOLIDATION OF PLAN....................................................... 124
14.1 Amendment................................................................................................... 124
14.2 Termination of Program By the Company....................................................................... 124
14.3 Merger, Consolidation, or Transfer of Assets................................................................ 125
14.4 Transfer of Assets from Plans of Subsidiaries............................................................... 125
ARTICLE XV TOP HEAVY PROVISIONS............................................................................................ 127
15.1 Application................................................................................................. 127
15.2 Special Top Heavy Definitions............................................................................... 127
15.3 Special Top Heavy Provisions................................................................................ 134
ARTICLE XVI MISCELLANEOUS PROVISIONS....................................................................................... 137
16.1 Headings.................................................................................................... 137
16.2 Indemnification............................................................................................. 137
16.3 Employees' Trust............................................................................................ 137
16.4 Nonalienation of Benefits................................................................................... 137
16.5 Qualified Domestic Relations Order.......................................................................... 138
16.6 Unclaimed Amounts........................................................................................... 139
16.7 Maximum Age Condition....................................................................................... 141
16.8 Invalidity of Certain Provisions............................................................................ 141
16.9 Gender and Number........................................................................................... 141
16.10 Law Governing............................................................................................... 141
</TABLE>
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MCDONALD'S CORPORATION PROFIT SHARING PROGRAM
History. The McDonald's Corporation Savings and Profit Sharing Plan, as
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amended and restated effective January 1, 1987 ("Profit Sharing Plan") and
subsequently amended from time to time and the McDonald's Matching and Deferred
Stock Ownership Plan, as amended and restated effective January 1, 1984
("McDESOP Plan") and subsequently amended from time to time, were merged,
effective December 31, 1988, amended and restated effective January 1, 1989, and
renamed the "McDonald's Corporation Profit Sharing Program" (the "Program").
The Program was subsequently amended from time to time and was amended and
restated effective July 1, 1992. The McDonald's Stock Sharing Plan ("Stock
Sharing Plan") was amended and restated effective January 1, 1989.
The Stock Sharing Plan was merged into the Program effective after the
close of business on December 28, 1995. After the merger, the Stock Sharing
portion of the Program continued to be controlled by the McDonald's Stock
Sharing Plan, as amended and restated effective January 1, 1989 and the Profit
Sharing portion of the Program continued to be controlled by the McDonald's
Corporation Profit Sharing Program, as amended and restated effective January 1,
1992 until January 1, 1996. The assets of the McDonald's Stock Sharing Trust
were transferred to the McDonald's Matching and Deferred Stock Ownership Trust
on or after December 29, 1995 until such time as there were no remaining assets
and the Trust ceased to exist.
The Program was amended and restated in one document effective January 1,
1996, except as otherwise specifically provided in the Program document as
amended and restated effective January 1, 1996 and subsequently amended from
time to time.
The Program is hereby amended and restated January 1, 1997, except as
otherwise specifically provided herein.
Structure and Purpose. The Program has four component portions, (1) the
---------------------
Profit Sharing Plan portion which is intended to be a profit sharing plan and to
meet the requirements of Sections 401(a) of the Internal Revenue Code, (2) the
McDESOP portion which is intended to meet the requirements for a stock bonus
plan, a cash or deferred arrangement and a leveraged employee stock ownership
plan under Sections 401(a), 401(k), 401(m) and 4975(e)(7) of the Internal
Revenue Code, (3) the LESOP portion which is intended to meet the requirements
of a stock bonus plan and a leveraged employee stock ownership plan under
Sections 401(a), 4975(e)(7) and 401(m) of the Internal Revenue Code and which
provides LESOP Employer Matching Contributions effective November 1, 1998, and
(4) the Stock Sharing portion which is intended to meet the requirements of a
stock bonus plan and a tax credit employee stock ownership plan in accordance
with Sections 401(a) and 409 of the Internal Revenue Code and Section 41 of the
Internal Revenue Code before its repeal with respect to compensation paid or
accrued after December 31, 1986. Each portion of the Program shall be
interpreted in a manner consistent with it meeting the requirements of the
respective Internal Revenue Code Sections applicable thereto. The assets of the
McDESOP, LESOP and the Stock Sharing portions of the Program shall be invested
primarily in qualifying employer securities as defined in Section 409(l) of the
Internal Revenue Code and Section 407(d)(6) of ERISA.
<PAGE>
Application of Provisions. The purposes of the McDonald's Corporation
-------------------------
Profit Sharing Program are to permit Participants (1) to share in the success of
the Company by receiving a portion of its profits, (2) to provide employees a
convenient means to save for their own future retirement security through their
participation in this Program and (3) to provide Participants, individually and
as a group, with a substantial ownership interest in the Company.
Except as otherwise specifically provided herein, the Program as amended
and restated herein applies to persons who are Employees on and after January 1,
1997. Eligibility, benefits, payment of benefits and the amount of benefits, if
any, of a person whose employment with an Employer terminated before January 1,
1997, and who is not rehired by an Employer on or after January 1, 1997, shall,
except as otherwise specifically provided herein, be determined in accordance
with the provisions of the Program, the Stock Sharing Plan, the McDESOP Plan,
and the Profit Sharing Plan as in effect on the date the person ceased to be an
Employee of an Employer.
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ARTICLE I
DEFINITIONS
The following words and phrases, when used herein, unless their context
clearly indicates otherwise, shall have the following respective meanings:
1.1 "Account" means a Participant's share of contributions and Forfeitures
-------
arising under the Program, and the income, profits and increments thereon less
all losses, expenses and distributions chargeable thereto.
(a) Each Participant may have one or more of the following Accounts
in the Profit Sharing portion of the Program ("Profit Sharing Accounts")
which shall be held in the Trust Fund:
(1) "Investment Savings Account," to which shall be credited the
--------------------------
Participant's after tax Participant Contributions to the Profit
Sharing Plan which were made before January 1, 1987.
(2) "Profit Sharing Account," to which shall be credited each
----------------------
Participant's share of Employer Profit Sharing Contributions with
respect to the Profit Sharing Plan allocated in accordance with
Section 7.1. A Participant's Profit Sharing Account shall include his
"Pre-Break Profit Sharing Account" and his "Post-Break Profit Sharing
Account" pursuant to Section 11.4(e), if applicable.
(3) "Profit Sharing Holding Account," to which shall be credited
------------------------------
the Participant's share of Employer Profit Sharing Contributions until
such contributions shall be removed and invested in accordance with
Sections 10.7 and 10.8 as of each February 1.
(4) "Rollover Account," to which shall be credited the balance
----------------
of the Participant's Rollover Holding Account as of each Valuation
Date.
(5) "Rollover Holding Account," to which shall be credited the
------------------------
Participant's Rollover pursuant to Section 8.1 until such
contributions are removed and credited to the Participant's Rollover
Account at the next Valuation Date occurring at the end of a calendar
month in which such contributions were made.
(b) Each Participant may have one or more of the following Accounts
in the McDESOP portion of the Program ("McDESOP Accounts") which shall be held
in the McDESOP Trust except to the extent transferred to the Profit Sharing
Trust in accordance with Participant's diversification elections made in
accordance with Section 10.10:
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(1) A "Participant Elected Contribution Account", to which shall
----------------------------------------
be credited Participant Elected Contributions made to the Program on
behalf of the Participant in accordance with Section 7.4;
(2) An "Employer Matching Contribution Account" to which shall
--------------------------------------
be credited Employer Matching Contributions made to the Program with
respect to periods before November 1, 1998 (including any Employer Per
Capita Matching Contributions under the provisions of the Program
before January 1, 1996), LESOP Employer Matching Contributions, LESOP
Employer Matching Allocations (as defined in Section 6.3(c)),
Additional Employer Contributions, Special Section 401(k) Employer
Contributions and any Forfeitures allocated to the Participant with
respect to the foregoing in accordance with Section 7.2.
(3) The "McDESOP Holding Account" to which shall be credited the
----------------------------
Participants' Participant Elected Contributions to the Program until
such contributions are credited to the Participants' Participant
Elected Contribution Account.
(4) The "Matching Contribution Holding Account" to which shall
-------------------------------------
be credited the Participants' Employer Matching Contributions to the
Program until such contributions are credited to the Participants'
Employer Matching Contribution Account.
(c) Each Participant may have one or more of the following accounts
in the LESOP portion of the Program ("LESOP Accounts") which shall be held in
the McDESOP Trust except to the extent transferred to the Profit Sharing Trust
in accordance with a Participant's diversification elections pursuant to Section
10.10.
(1) A "Per Capita LESOP Account," to which were credited Company
------------------------
Stock and associated dividends attributable to Employer Contributions
made on a Per Capita Basis under the terms of the Program before
January 1996.
(2) A "Compensation Based LESOP Account," to which shall be
--------------------------------
credited Company Stock released from the LESOP Suspense Account in
accordance with Section 6.3(a), allocated in accordance with Section
7.3(a)(3), any Special Dividend Replacement Contributions credited to
such account in accordance with Section 7.3(c) and any dividend,
replacement allocations in accordance with Section 6.3(b) allocated in
accordance with Section 7.3(a)(1).
(3) An "Additional LESOP Account," to which shall be credited,
------------------------
in accordance with Section 7.3(b) a Participant's Per Capita
Additional LESOP Contributions and Forfeitures therefrom and his
Compensation Based Additional LESOP Contributions and Forfeitures
therefrom, if any.
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(d) Each Participant who has an account in the Stock Sharing Plan may
have the following Accounts in the Stock Sharing portion of the Program ("Stock
Sharing Accounts") which shall be held in the McDESOP Trust:
(1) A "Participant Contribution Stock Sharing Account," to which
----------------------------------------------
shall be credited Participant Matched Contributions made under the
Stock Sharing Plan with respect to Plan Years ending on or before
December 31, 1982.
(2) An "Unmatched Employer Contribution Stock Sharing
-------------------------------------------------
Contribution Account," to which shall be credited Unmatched Employer
--------------------
Contributions contributed to the Stock Sharing Plan with respect to
Plan Years ending on or before December 31, 1982.
(3) A "PAYSOP Stock Sharing Contribution Account," to which
-----------------------------------------
shall be credited Employer Contributions contributed to the Stock
Sharing Plan with respect to Plan Years beginning on or after January
1, 1983 and before January 1, 1987.
(4) An "Employer Matching Stock Sharing Contribution Account,"
----------------------------------------------------
to which shall be credited Employer Matching Contributions made by an
Employer to the Stock Sharing Plan for Plan Years ending on or before
December 31, 1982.
(5) An "Additional Employer Stock Sharing Contribution Account,"
------------------------------------------------------
to which shall be credited (A) contributions which have been allocated
to a Participant's Additional Company Contribution Account with
respect to Plan Years ending on or before December 31, 1982, and (B)
with respect to contributions for Plan Years ending after December 31,
1982, contributions to the Stock Sharing Plan in excess of the amount
which qualified for tax credit under Section 41(a)(2) of the Internal
Revenue Code.
(e) Each Participant shall have the following accounts
("Diversification Accounts"), to which shall be credited the respective portions
of a Participant's LESOP Accounts, and McDESOP Accounts, transferred to his
Diversification Account pursuant to a Diversification Election made in
accordance with Section 10.10. A Participant's Diversification Account shall be
part of the McDESOP and LESOP portion of the Program, but is held in the Profit
Sharing Trust in order to implement Participant's diversification elections made
in accordance with Section 10.10. The Diversification Account shall consist of
two sub-accounts as follows:
(1) "LESOP Diversification Account," to which shall be credited
-----------------------------
the portions of a Participant's LESOP Account transferred to his LESOP
Diversification Account pursuant to a Diversification Election made in
accordance with Section 10.10(a); and
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(2) "McDESOP Diversification Account," to which shall be
-------------------------------
credited the portions of a Participant's Participant Elected
Contribution Account and Employer Matching Contribution Account,
transferred to his McDESOP Diversification Account pursuant to a
Diversification Election made in accordance with Sections 10.10(b) and
10.10(c).
(f) "Net Balance Account," means a Participant's interest in the
-------------------
Trust composed of all of the Participant's Accounts. A Participant's
accrued benefit at any time during any Plan Year (except on a Valuation
Date) shall be the value of the number of full and fractional shares of
Company Stock and any other value held in such Participant's Accounts as
adjusted on the immediately preceding Valuation Date, and on a Valuation
Date it shall be the number of full and fractional shares of Company Stock
and other value held in such Participant's Accounts as adjusted to that
Valuation Date.
1.2 "Active Participant" means
------------------
(a) for purposes of receiving an allocation of the Profit Sharing
Contributions pursuant to Section 7.1 for a Plan Year, a Participant who is
not an Employee of McG Restaurant Operations, Inc.;
(1) who (A) has accumulated one thousand (1,000) Hours of
Service during the Plan Year; (B) has Considered Compensation during
such Plan Year; and (C) is employed by an Employer on the last day of
the Plan Year; or
(2) who (A) is transferred during the Plan Year to a Domestic
Affiliate or Foreign Affiliate; (B) has accumulated one thousand
(1,000) Hours of Service during a Plan Year; (C) has Considered
Compensation during such Plan Year; and (D) is employed on the last
day of the Plan Year by an Employer, a Domestic Affiliate or a Foreign
Affiliate; or
(3) who (A) was a Participant on any day of a Plan Year; (B) has
Considered Compensation during such Plan Year; and (C) prior to the
last day of such Plan Year, died, retired on or after attaining age 55
or suffered a Disability, terminated his employment because of the
sale or lease of a McDonald's restaurant operation and became an
employee of the purchasing Licensee, or terminated his employment when
he had at least 10 years of Credited Service under the Program; and
(b) for the purpose of being eligible to share in allocations of
Company Stock released from a LESOP Suspense Account for a Plan Year, in
accordance with Section 6.3(a), and of Additional LESOP Contributions for a
Plan Year, a Participant who is a staff or an executive employee or a store
manager and who is not an Employee of McG Restaurant Operations, Inc.; and
-6-
<PAGE>
(1) who (A) has accumulated one thousand (1,000) Hours of
Service during the Plan Year; (B) has Considered Compensation during
such Plan Year; and (C) is employed by an Employer on the last day of
the Plan Year; or
(2) who (A) is transferred during the Plan Year to a Domestic
Affiliate or Foreign Affiliate; (B) has accumulated one thousand
(1,000) Hours of Service during a Plan Year; (C) has Considered
Compensation during such Plan Year; and (D) is employed on the last
day of the Plan Year by an Employer, a Domestic Affiliate or a Foreign
Affiliate; or
(3) who (A) was a Participant on any day of a Plan Year; (B) has
Considered Compensation during such Plan Year; and (C) prior to the
last day of such Plan Year, died, retired on or after attaining age 55
or suffering a Disability, terminated his employment because of the
sale or lease of a McDonald's restaurant operation and became an
employee of the purchasing Licensee, or terminated his employment when
he had at least 10 years of Credited Service under the Program; and
(c) for purposes of the McDESOP portion of the Program and, effective
with respect to periods on or after November 1, 1998, for the purpose of
being eligible to share in releases from the LESOP Suspense Accounts
pursuant to Section 6.3(c) and in allocations in accordance with Section
7.3(d) of LESOP Employer Matching Contributions made pursuant to Section
4.1(b), a Participant who is an Employee on any day of the Plan Year.
1.3 "Affiliated Service Group" means a group including an Employer which:
------------------------
(a) consists of an organization the principal business of which is
the performance of services ("first service organization") and one or more
of the organizations described in (1) or (2):
(1) any service organization which
(A) is a shareholder or partner in the first service
organization (as determined in accordance with applicable
Treasury Regulations), and
(B) regularly performs services for the first service
organization or is regularly associated with the first service
organization in performing services for third persons, or
(2) any other organization if
(A) a significant portion of the business of such
organization is the performance of services for the first service
organization or for one or more organizations identified in
Section 1.3(a)(1) or for both, and the
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<PAGE>
services are of a type historically performed in such service
field by employees, and
(B) 10 percent or more of the interests in such
organization are held by persons who are highly compensated
employees (within the meaning of section 414(q) of the Internal
Revenue Code) of the first service organization or an
organization described in Section 1.3(a)(1); or
(b) consists of
(1) an organization the principal business of which is
performing on a regular and continuing basis management functions for
one organization identified in Section 1.3(b)(2); and
(2) the organization for which such management functions are
performed and organizations aggregated with such organization in
accordance with Code Sections 414(b), 414(c), 414(m) or 414(o) with
the organization identified in Section 1.3(b)(1); or
(c) is required to be aggregated pursuant to regulations issued under
Section 414(o) of the Internal Revenue Code.
1.4 "Authorized Leave of Absence" means any absence authorized by an
---------------------------
Employer under such Employer's standard personnel practices. An absence due to
service in the Armed Forces of the United States shall be considered an
Authorized Leave of Absence provided that the Employee returns to employment
with the Employer with reemployment rights provided by law.
1.5 "Auxiliary ESOP" means the LESOP portion of the Program and the
--------------
provisions applicable thereto.
1.6 "Beneficiary" means one or more persons or entities designated by a
-----------
Participant or the Program, as applicable, in accordance with the provisions of
Section 11.3 or 11.6 to receive any benefit which shall be distributable under
the Program on account of the Participant's death. Such a Beneficiary shall be
deemed to be the Participant's "designated beneficiary" for purposes of Section
401(a)(9) of the Internal Revenue Code to the extent permitted therein.
1.7 "Board of Directors" means the board of directors of the Company and
------------------
any person or committee authorized to act on behalf of the Board of Directors.
1.8 "Break in Service" means, for purpose of determining Eligibility
----------------
Service and Participant status, an Eligibility Computation Period, and for all
other purposes, a Plan Year, within which an Employee has not completed more
than five hundred (500) Hours of Service.
-8-
<PAGE>
1.9 "Committee" means the Administrative Committee appointed pursuant to
---------
Section 13.2.
1.10 "Commonly Controlled Corporation" means the Company and any other
-------------------------------
corporation if it and the Company are members of a controlled group of
corporations as defined in Section 409(l)(4) of the Internal Revenue Code.
1.11 "Commonly Controlled Entity" means a corporation, trade or business if
--------------------------
it and an Employer are members of a controlled group of corporations as defined
in Section 414(b) of the Internal Revenue Code, under common control as defined
in Section 414(c) of the Internal Revenue Code or required to be aggregated with
one or more Employers pursuant to Section 414(m); provided, however, that solely
for purposes of Article IX including the definition of Related Plan when used in
Article IX, the standard of control under Sections 414(b) and 414(c) of the
Internal Revenue Code shall be deemed to be "more than 50%" rather than "at
least 80%."
1.12 "Company" means McDonald's Corporation or any successor corporation by
-------
merger, consolidation, purchase or otherwise which elects to adopt the Program
and the Trust.
1.13 "Company Stock" means common or preferred stock of the Company which
-------------
is a qualifying employer security as defined in (a) Section 4975(e)(8) of the
Internal Revenue Code (for purposes of McDESOP and LESOP), (b) Section 409(l) of
the Internal Revenue Code (for purposes of the Stock Sharing portion of the
Program) and (c) Section 407(d)(5) of ERISA (for the purpose of all portions of
the Program).
1.14 "Considered Compensation" of a Participant for a Plan Year means:
-----------------------
(a) except as otherwise specified below, the Participant's total
compensation paid during the Plan Year to such Participant by an Employer
while an Active Participant in the Program as reported in Box 1 of Form W-
2, for 1997, or the equivalent box on any comparable form for subsequent
Plan Years, increased by (i) any amounts by which the Participant's
compensation is reduced by Participant Elected Contributions under the
McDESOP portion of the Program or any other portion of the Program, and
under any portion of any Related Plan which meets the requirements of
Section 401(k) of the Internal Revenue Code; and (ii) compensation
reduction contributions for medical, dental or dependent care or other
benefits under a cafeteria plan meeting the requirements of Section 125 of
the Internal Revenue Code; and excluding (I) provisions for life insurance;
(II) reimbursement for or other payment for expenses related to, moving
expenses (including the relocation bonuses); (III) any benefits under the
Program or any other qualified plan described in Section 401(a) of the
Internal Revenue Code; (IV) distributions under McDonald's Profit Sharing
Program Equalization Plan ("McEqual"), McDonald's 1989 Executive
Equalization Plan ("McCAP I"), the McDonald's Supplemental Employee Benefit
Equalization Plan ("McCAP II") or the McDonald's Corporation Deferred
Income Plan; (V) income earned from stock options granted under the
McDonald's 1975 Stock Ownership Option Plan; Stock Exchange Rights or
Performance Units granted under the McDonald's Corporation 1978 Incentive
Plan;
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<PAGE>
options, restricted stock, stock appreciation rights, performance units and
stock bonuses awarded under the McDonald's 1992 Stock Ownership Incentive
Plan; (VI) payments to a Participant for foreign service in the form of tax
gross-up benefits; (VII) allowances for cost of living, housing and
education, and other similar payments; (VIII) any income attributable to
personal use of an employer-provided vehicle, an allowance paid in lieu of
an employer-provided vehicle, use of a company condo, participation in
group trips, gift stock, any payments for referrals of new employees,
spouse's travel and perquisites whether in cash or in kind and other
similar items; and (IX) any special termination bonus paid pursuant to a
termination agreement and any severance pay;
(b) for purposes of top heavy rules in Article XV (except for
determining whether a Participant is a Key Employee pursuant to Section
15.2(d)) and for determining the limitations under Section 415 of the
Internal Revenue Code in Article IX, Considered Compensation means total
compensation paid to the Participant by an Employer, a Commonly Controlled
Entity or a member of an Affiliated Service Group for the Plan Year,
including distributions from any nonqualified deferred compensation plans
maintained by an Employer, Commonly Controlled Entity or member of an
Affiliated Service Group and amounts paid or reimbursed by the employer for
moving expenses incurred by the Participant to the extent it is reasonable
to believe that such amounts are not deductible by the Participant under
Section 217 of the Internal Revenue Code and excluding (i) with respect to
Plan Years commencing before January 1, 1998, any salary reduction
contributions to a plan sponsored by an Employer meeting the requirements
of Section 125 or Section 401(k) of the Internal Revenue Code, (ii) any
salary reduction amounts credited to the Participant's accounts under the
McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II"),
the McDonald's Profit Sharing Program Equalization Plan ("McEqual"), the
McDonald's 1989 Executive Equalization Plan ("McCAP I"), the McDonald's
Corporation Deferred Income Plan, or any other non-qualified deferred
compensation plans from time to time maintained by an Employer, (iii)
income from stock options, and (iv) any other amounts which receive special
tax benefits and (v) for Plan Years beginning on and after January 1, 1998,
Considered Compensation under this Section 1.14(b) shall not exclude salary
reduction contributions to a plan sponsored by an Employer which meets the
requirements of Section 125 or Section 401(k) of the Internal Revenue Code;
(c) effective before January 1, 1988, for the purpose of determining
whether a Participant is (1) a Highly Compensated Employee or (2) a Key
Employee pursuant to Section 15.2(d), Considered Compensation shall be the
Participant's Considered Compensation as defined in Section 1.14(b)
increased by the amount by which the Participant's compensation is reduced
pursuant to a compensation reduction election under Section 5.1 or any
other Related Plan which meets the requirements of Section 401(k) of the
Internal Revenue Code or pursuant to other compensation reduction
contributions for medical, dental or dependent care or other benefits under
a cafeteria plan meeting the requirements of Section 125 of the Internal
Revenue Code; and effective January 1, 1998 and thereafter, for the purpose
of determining whether a Participant is (1) a Highly Compensated Employee
or (2) a Key Employee pursuant to Section 15.2(d),
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Considered Compensation shall be the Participant's Considered Compensation
as defined in Section 1.14(b).
(d) for the purpose of calculating (1) the actual contribution
percentage in accordance with Section 4.1, (2) the actual deferral
percentage in accordance with Section 5.2 or (3) the multiple use test in
accordance with Section 5.4, Considered Compensation shall be the
Participant's compensation for the portion of the Plan Year during which he
or she was an Active Participant, as defined in Section 1.2(c), (i) as
reported in Box 1 of Form W-2, or the equivalent box on any comparable form
for subsequent years plus (ii) any amounts by which the Participant's
compensation is reduced by Participant Elected Contributions under the
McDESOP portion of the Program or any other portion of the Program or any
Related Defined Contribution Plan which meets the requirements of Section
401(k) of the Internal Revenue Code or compensation reduction contributions
for medical, dental or dependent care or other benefits under a cafeteria
plan meeting the requirements of Section 125 of the Internal Revenue Code.
(e) for the purposes of determining the amount of Participant Elected
Contributions pursuant to Section 5.1, Considered Compensation means a
Participant's Considered Compensation while an Active Participant, as
defined in Section 1.14(a), increased by expatriate equalization
differentials and reduced by all compensation not paid in cash, by cash
perquisites, and officers discretionary bonuses to the extent included in
Considered Compensation as defined in Section 1.14(a).
For purposes of this Section 1.14 except for purposes of determining the
limitations under Section 415 of the Internal Revenue Code in Article IX,
Considered Compensation taken into account under the Program shall not exceed
$160,000 (for 1997) and as adjusted in subsequent years as provided by the
Secretary of the Treasury (the "dollar limit").
Anything to the contrary herein notwithstanding, Considered Compensation
for a Plan Year shall not be reduced by the pay for a period of short term
disability which is repaid to an Employer in a subsequent Plan Year by a
Participant who fails to complete the requirements to be eligible to retain such
pay.
1.15 "Credited Service" shall mean an Employee's total Years of Credited
----------------
Service excluding the following:
(a) Years of Credited Service before January 1, 1964;
(b) Years of Credited Service before January 1, 1976, which would
have been disregarded under the McDonald's Corporation Savings and Profit
Sharing Plan before January 1, 1976, with regard to the then existing rules
on reemployment;
(c) Years of Credited Service prior to a Break in Service, if the
Participant had no vested interest in his Profit Sharing Account prior to
such Break in Service and (1) effective with respect to a Break in Service
which occurred before January 1, 1985, if
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the Participant had no more than one year of Credited Service prior to such
Break in Service and (2) effective with respect to one or more consecutive
Breaks in Service none of which occurred before January 1, 1985, if the
number of consecutive Breaks in Service equals or exceeds five consecutive
Breaks in Service;
(d) For purposes of determining a Participant's vested interest in
his Profit Sharing Account or his LESOP Account (called "Leveraged ESOP
Account" before January 1, 1997) accrued before (1) a Break in Service
which occurred before January 1, 1985 or (2) five consecutive Breaks in
Service if none of the Breaks in Service occurred before January 1, 1985,
Years of Credited Service after such Break in Service.
1.16 "Disability" means a mental or physical condition which renders a
----------
Participant permanently unable or incompetent to carry out the job
responsibilities he held or tasks to which he was assigned at the time the
disability was incurred. Such determination shall be made by the Committee on
the basis of such medical and other competent evidence as the Committee shall
deem relevant.
1.17 "Disqualified Person" means a person defined in Section 4975(e)(2) of
-------------------
the Internal Revenue Code.
1.18 "Domestic Affiliate" means any domestic corporation, partnership or
------------------
joint venture of which, in the case of a corporation, the Company owns, directly
or indirectly, either twenty-five percent or more of the voting power of all
classes of stock or twenty-five percent or more of the value of all stock, or of
which, in the case of a partnership or joint venture, the Company owns, directly
or indirectly, a twenty-five percent or more interest in both the capital and
profits.
1.19 "Effective Date" means November 1, 1998.
--------------
1.20 "Eligibility Computation Period" means the twelve-month period
------------------------------
commencing with the first day of the pay period in which an Employee first
performs an Hour of Service following hire (or rehire after a Break in Service)
and each subsequent twelve-month period commencing on an anniversary of that
date. In addition, with respect to Hours of Service which are credited to an
Employee pursuant to Section 1.31(b)(2) for service with a Licensee whose
restaurant(s) are acquired by an Employer (the "Acquisition"), Eligibility
Computation Period means (a) each full calendar year such individual was
employed by the Licensee before the calendar year of such Acquisition commencing
with the calendar year in which such Employee first performed an hour of service
for the Licensee and continuing through the calendar year ending immediately
before the date of such Acquisition and (b) if such Employee was employed by the
Licensee on January 1 of the calendar year of the Acquisition, the calendar year
of such Acquisition; provided that for the calendar year in which the
Acquisition occurs both Hours of Service credited pursuant to Section 1.31(b)(2)
and those credited pursuant to the remainder of Section 1.31 for service after
the Acquisition shall both be counted in the Eligibility Computation Period in
which the Acquisition occurred.
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1.21 "Eligibility Service" means the number of Eligibility Computation
-------------------
Periods during which an Employee has completed not less than 1000 Hours of
Service excluding any Eligibility Service earned before a Break in Service until
the Employee has completed one Year of Eligibility Service following the Break
in Service.
1.22 "Employee" means any person who is employed by the Company or another
--------
Employer (as that entity is defined for the Profit Sharing Plan portion, the
McDESOP portion or the LESOP portion of the Program or as defined for any
designated types of contributions, with respect to contributions to such
portions of the Program with respect to which the term Employee is being used)
including a person on an Authorized Leave of Absence. Such term does not
include an individual who performs services for an Employer as an employee of a
contractor, a consultant, an independent contractor or a Leased Employee whether
or not such person is a common law employee of McDonald's or another Employer.
An individual who performs services for an Employer as an employee of a
contractor, a consultant, an independent contractor or a Leased Employee shall
not become an Employee because of being reclassified as a common law employee of
McDonald's or another Employer by the Internal Revenue Service or another
government agency, except prospectively from the date on which such
reclassification occurs and is accepted by the Employer.
1.23 "Employer" means,
--------
(a) for purposes of Article III, concerning contributions to the
Profit Sharing Plan portion of the Program and other provisions of the
Program as they relate to the Profit Sharing Plan portion of the Program
and for purposes of Section 4.1(a), 4.3 and Article V, concerning Employer
Matching Contributions and Forfeitures and Participant Elected
Contributions, the Company and any Subsidiary, Commonly Controlled Entity,
Domestic or Foreign Affiliate, or any other business in which the Company
owns an interest which, pursuant to Section 12.1, elects to adopt the
Profit Sharing Plan and/or the McDESOP portions of the Program (including
LESOP Employer Matching Allocations and Contributions); and
(b) for purposes of the LESOP portion of the Program, the Company and
any Commonly Controlled Corporation which, pursuant to Section 12.1, elects
to adopt the LESOP portion of the Program on or after January 1, 1989; and
(c) for purposes of the Stock Sharing portions of the Program, the
Company and any Commonly Controlled Corporation which had adopted the
McDonald's Stock Sharing Plan before January 1, 1989.
Notwithstanding the foregoing, McG Restaurant Operations, Inc. shall be an
Employer solely for the purpose of permitting its Employees who are Active
Participants to make Participant Elected Contributions pursuant to Sections
4.3(a) and 5.1 of the Program and to receive LESOP Employer Matching
Contributions as provided in Section 4.1(b), LESOP Employer Matching Allocations
as provided in Section 7.3(a)(2) and Special Section 401(k) Contributions as
provided in Section 4.3(b).
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<PAGE>
1.24 "Employer Contributions" means the following payments made from time
----------------------
to time by an Employer to the Trustee:
(a) "Employer Profit Sharing Contributions" made pursuant to Sections
3.1 or 15.3(a);
(b) "Employer Matching Contributions" made pursuant to Section
4.1(a);
(c) "Special Section 401(k) Employer Contributions" made pursuant to
Section 4.3(b);
(d) "LESOP Contributions" made pursuant to Section 4.2;
(e) "LESOP Employer Matching Contributions made pursuant to Section
4.1(b);
(f) "Additional Employer Contributions" made pursuant to Section 4.4;
(g) "Special Dividend Replacement Contributions" made pursuant to
Section 4.2(d);
(h) "Unmatched Employer Stock Sharing Contributions," "Employer
Contributions", "Employer Matching Stock Sharing Contributions,"
"Additional Employer Stock Sharing Contributions," and "PAYSOP Stock
Sharing Contributions" made to the Stock Sharing Plan at various dates with
respect to periods before January 1, 1987 as provided in Section 1.1(d).
1.25 "Entry Date" means January 1 and July 1 of each Plan Year.
----------
1.26 "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
1.27 "Five Percent Owner" means a Participant who owns (or is considered as
------------------
owning within the meaning of Section 318 of the Internal Revenue Code) more than
five percent of an Employer, Commonly Controlled Entity or member of an
Affiliated Service Group as provided in Section 416(i)(1)(B)(i) of the Internal
Revenue Code.
1.28 "Foreign Affiliate" means any foreign corporation, partnership or
-----------------
joint venture of which, in the case of a corporation, the Company owns, directly
or indirectly, either twenty-five percent or more of the voting power of all
classes of stock or twenty-five percent or more of the value of all stock, or,
of which, in the case of a partnership or a joint venture, the Company owns,
directly or indirectly, a twenty-five or more percent interest in both the
capital and profits.
1.29 "Forfeiture" means the portion of a Participant's Profit Sharing
----------
Account which is forfeited as provided in Section 11.4, his LESOP Account which
is forfeited as provided in Section 11.4 and unclaimed amounts which are
forfeited under Section 16.6.
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<PAGE>
1.30 "Highly Compensated Employee" means, for a Plan Year, any Participant
---------------------------
who performs services as an employee for an Employer, Commonly Controlled Entity
or member of an Affiliated Service Group during such Plan Year:
(a) and who
(1) at any time during the Plan Year or the preceding Plan Year
("Preceding Plan Year"), was a Five Percent Owner; or
(2) received Considered Compensation in excess of $80,000 (for
1996, adjusted in subsequent years as provided by the Secretary of the
Treasury) during the Preceding Plan Year.
(b) For purposes of this Section 1.30, employees who are nonresident
aliens and who receive no earned income (within the meaning of Section
911(d)(2) of the Internal Revenue Code) from an Employer, a Commonly
Controlled Entity or member of an Affiliated Service Group which
constitutes income from sources within the United States (within the
meaning of Section 861(a)(3) of the Internal Revenue Code) shall not be
treated as employees.
(c) A former employee shall also be treated as a Highly Compensated
Employee for a Plan Year if such former employee had a Termination of
Employment prior to such Plan Year and was a Highly Compensated Employee
(without regard to this Section 1.30(c)) for either the Plan Year in which
he had a Termination of Employment or any Plan Year ending on or after his
55th birthday.
1.31 "Hour of Service" means:
---------------
(a) Each hour for which an employee or a Leased Employee (determined
without regard to Section 1.34(b)) is paid directly or indirectly, or
entitled to payment, by an Employer, Commonly Controlled Entity or member
of an Affiliated Service Group,
(1) for performance of duties;
(2) on account of a period of time during which no duties were
performed, provided that, except as herein otherwise expressly
provided, no more than 501 Hours of Service shall be credited for any
single continuous period during which an Employee performs no duty,
and provided that no Hours of Service shall be credited for payments
made or due under a plan maintained solely for the purpose of
complying with applicable worker's compensation, unemployment
compensation or disability insurance laws, or for reimbursement of
medical expenses; and
(3) for which back pay, irrespective of mitigation of damages,
is awarded or agreed to by the Employer, provided that no more than
501 Hours of
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<PAGE>
Service shall be credited for any single continuous period of time during
which the Employee did not or would not have performed duties.
(b) (1) Credit for Hours of Service shall be given for the following:
(A) For Plan Years beginning before January 1, 1994, an
Employee's prior or subsequent employment by a Foreign Affiliate
or Domestic Affiliate;
(B) For Plan Years beginning after December 31, 1993, an
Employee's prior or subsequent employment by a Domestic or
Foreign Affiliate if the employee is transferred to or from such
Domestic or Foreign Affiliate from or to, respectively, the
employment of an Employer at the initiative of an Employer (a
"Company Initiated Transfer"). For the purposes of this Section
1.31(b)(1)(B), a sale of assets or stock to a Domestic or Foreign
Affiliate that is not an Employer under the Program shall not be
considered a Company Initiated Transfer with respect to employees
employed solely with respect to such assets or stock who become
employees of such purchasing Domestic or Foreign Affiliate
immediately after such sale, provided that the decisions
concerning such employment are made by an entity which is not
more than 50 percent owned by an Employer.
In determining the number of such Hours of Service to be credited, the Plan
Administrator shall make good faith estimates based upon the available
information and records including the use of reasonable equivalencies
similar to those permitted under DOL Reg. Section 2530.200b-3 or estimated
average number of hours per week for employees in a given job category.
(2) If a McDonald's Restaurant or a group of restaurants
operated by a Licensee is acquired by the Company or another Employer
in the first six months of a calendar year and if such restaurant or
group of restaurants is designated as a permanent acquisition by the
Company, the store managers who are employed by such Licensee either
in a restaurant or in connection with the operation of one or more
restaurants as of the date of such acquisition and who continue to be
employed by the Company or other Employer until June 30 of the Plan
Year in which the acquisition occurred shall be credited by the
Employer with his Hours of Service with such Licensee. If a McDonald's
Restaurant or group of restaurants operated by a Licensee is acquired
by the Company or another Employer, during the Plan Year, each store
manager who is employed by such Licensee either in a restaurant or in
connection with the operation of one or more restaurants as of the
date of acquisition and continues to be employed by the Company or
other Employer until the last day of the Plan Year in which such
acquisition occurred who has not already received credit for service
with the
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<PAGE>
Licensee under the preceding sentence shall as of the last day of such
Plan Year be credited by the Company or other Employer with his Hours
of Service with such Licensee. In determining the number of such Hours
of Service to be credited, the Plan Administrator shall make good
faith estimates based upon the available information and records
including the estimated average number of hours per week for employees
in a given job category.
(3) To the extent an Employee is not otherwise credited with
Hours of Service for each payroll period while on an Authorized Leave
of Absence, an Employee shall be credited with the number of Hours of
Service equal to the average number of Hours of Service per payroll
period (not to exceed forty Hours of Service per week) of such
Employee for the six calendar week period, or pertinent payroll period
if such period is longer, ending immediately prior to the commencement
of the Authorized Leave of Absence notwithstanding the limitations of
Section 1.31(a)(2). If a Participant is on an Authorized Leave of
Absence on the last day of a Plan Year, the Hours of Service credited
pursuant to the preceding sentence shall be counted for the purpose of
determining whether he is an Active Participant under Sections 1.2(a)
and (b) for such Plan Year. Notwithstanding the foregoing, an Employee
who fails either (A) to return to his employment within ninety (90)
days after the expiration of an Authorized Leave of Absence, or (B) to
remain in the employ of an Employer after the expiration of an
Authorized Leave of Absence for the lesser of (i) a period equal to
the period of his Authorized Leave of Absence or (ii) one year
following his return to employment, unless such failure shall be due
to death, Disability, illness, retirement on or after age 55 or the
sale by the Company, one of its Subsidiaries or Affiliates of the
McDonald's Restaurant in which such Employee is employed, shall be
considered to have voluntarily terminated his employment as of the
date the Leave of Absence commenced for purposes of determining Hours
of Service for Eligibility Service and Credited Service.
(4) A person who became an Employee on September 16, 1994, as a
result of the acquisition of the Special Operations Division of
Corporate Systems, Inc. and who immediately prior to that date was an
employee of the Special Operations Division of Corporate Systems, Inc.
shall be credited with Hours of Service pursuant to the foregoing
provisions of this Section 1.31 as if service with Corporate Systems,
Inc. were service with the Company. Such Hours of Service shall be
credited using actual hours of service for hourly paid employees and
using the service equivalencies provided in Section 1.31(e) for
salaried employees.
(5) Each restaurant management and staff employee who became an
employee of Restaurant Acquisition Corp., McDonald's Corporation or
another Employer on or after February 14, 1997 as a result of an
acquisition of a Roy Rogers' or Hardee's restaurant ("Acquisition
Employees") shall be credited with Hours of Service for each calendar
year during which he was employed by
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<PAGE>
Hardee's Food Systems, Inc. ("Hardee's Systems") or a member of a
controlled group with Hardee's. In determining the Hours of Service to
be credited to Acquisition Employees, the Plan Administrator shall
rely on available information and, as necessary, shall make good faith
estimates based upon available information and records. Such service
shall be credited to each Acquisition Employee effective July 1, 1997
or, if later, the next Entry Date following date he became an Employee
of an Employer. An Employee shall not receive Hours of Service credit
for service with Hardee's System's if such Employee did not become an
Employee of an Employer as a result of an acquisition of a Roy Rogers
or Hardee's restaurant on or after February 14, 1997.
(6) Each individual who became an Employee of McG Restaurant
Operations, Inc., McDonald's Corporation or a Commonly Controlled
Entity on July 31, 1999, as a result of the acquisition of Donoto's,
Inc. shall be credited under the Program on September 1, 1999, with
their service with Donoto's since January 1, 1998. An Employee shall
receive Hours of Service credit for service with Donoto's for periods
after December 31, 1997 and before July 31, 1999. In determining the
Hours of Service to be credited to employees who receive credit for
Hours of Service as a result of the acquisition of Donoto's, the Plan
Administrator shall rely on available information and, as necessary,
shall make good faith estimates based upon available information and
records.
(c) To the extent not otherwise credited in Section 1.31, solely for
purposes of avoiding a Break in Service, for periods of absence from work
on account of Parental Leave, an Employee shall be credited with Hours of
Service as defined below:
(1) the Hours of Service which normally would have been credited
to such individual but for the Parental Leave, or
(2) eight (8) Hours of Service per day of such absence if the
Program is unable to determine the Hours of Service which would have
been credited to such individual but for the Parental Leave.
An Employee's Hours of Service for absence on account of Parental
Leave shall not exceed the lesser of 501 Hours of Service or the number of
Hours of Service needed to prevent a Break in Service and shall be credited
to the Eligibility Computation Period (for purposes of crediting
Eligibility Service) or the Plan Year (for purposes of crediting service
other than Eligibility Service) in which absence because of a Parental
Leave commenced; except that if such Hours of Service are not needed to
prevent a Break in Service in the Eligibility Computation Period or Plan
Year in which absence because of a Parental Leave commenced, and the
Parental Leave continues into the next following Eligibility Computation
Period or Plan Year then, if needed to prevent a Break in Service, such
Hours of Service shall be credited to the Eligibility Computation Period or
Plan Year following the year in which such absence commenced.
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<PAGE>
(d) Hours of Service for reasons other than the performance of
duties shall, except as provided in Section 1.31(b)(2), be determined
in accordance with the provisions of Department of Labor Regulations
Section 2530.200b-2(b), and Hours of Service shall be credited to
computation periods in accordance with the provisions of Department of
Labor Regulations Section 2530.200b-2(c).
(e) Except as provided in Sections 1.31(b)(2) through 1.31(b)(5)
and 1.31(c) each Employee who is paid on a salaried basis shall be
credited with (1) 95 Hours of Service if paid on a semimonthly payroll
period or (2) 90 Hours of Service if paid on a bi-weekly payroll
period during which such Employee has any Hours of Service.
1.32 "Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
from time to time amended and any subsequent Internal Revenue Code. References
to any section of the Internal Revenue Code shall be deemed to include similar
sections of the Internal Revenue Code as renumbered or amended.
1.33 "Investment Fund" As provided in Section 10.6 and excluding those
---------------
assets held in the Profit Sharing Holding Fund pursuant to Section 10.23, (a)
assets of the Profit Sharing Plan portion of the Trust Fund shall be held in the
following Investment Funds: (1) the Diversified Stock Fund, (2) the Profit
Sharing McDonald's Common Stock Fund, (3) the Money Market Fund, (4) the Stable
Value Fund, (5) the Blended Stock Bond Fund and (6) effective September 1, 1999,
the S&P 500 Fund, and (b) assets of the McDESOP and Leveraged ESOP portions of
the Trust Fund shall be held in the McDESOP McDonald's Common Stock Fund;
provided, however, that separate subaccounts shall be maintained of the amount
of Company Stock held in the McDESOP McDonald's Common Stock Fund and allocated
to Participants' Stock Sharing Accounts, Participant Elected Contribution
Accounts, Employer Matching Contribution Accounts and LESOP Accounts, in the
latter case accounting separately for the Company Stock purchased with each Loan
(or Company Stock into which the Company Stock purchased with the Loan has been
converted).
1.34 "Leased Employee" means any person who is not an employee of a
---------------
Commonly Controlled Entity or a member of an Affiliated Service Group and who
provides services to a Commonly Controlled Entity or a member of an Affiliated
Service Group ("Recipient") if:
(a) such services are performed pursuant to an agreement between the
Recipient and any other person;
(b) such person has performed such services for the Employer (or for
the Employer, any Commonly Controlled Entity or member of an Affiliated
Service Group) on a substantially full time basis for a period of at least
1 year; and
(c) such individual's services are performed under the primary
direction or control of the Recipient.
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1.35 "LESOP" means the portion of the Program consisting of Participants'
-----
LESOP Accounts and any LESOP Employer Matching Contributions and LESOP Employer
Matching Allocations credited to a Participant's Employer Matching Contribution
Account and any Net Earnings, Gains and losses with respect thereto
1.36 "LESOP Employer Matching Allocations" means LESOP Employer Matching
-----------------------------------
Contributions as provided in Section 6.3(c).
1.37 "LESOP Suspense Account" means the separate accounts maintained by
----------------------
the Committee pursuant to Section 6.2. All Employer Per Capita LESOP
Contributions, Compensation Based LESOP Contributions and LESOP Employer
Matching Contributions made with respect to a Loan and the dividends with
respect to Company Stock purchased with such Loan (and the Company Stock into
which such stock has been converted) including dividends which have been
replaced in Participant's LESOP Accounts by Dividend Replacement Contributions
shall be held and accounted for within the separate LESOP Suspense Account.
1.38 "Licensee" means any person, other than the Company or a Commonly
--------
Controlled Entity which operates a McDonald's Restaurant pursuant to lease and
license agreements (or so-called "Business Facilities Lease") with the Company
or affiliated companies.
1.39 "McDESOP" means the portion of the Program consisting of
-------
Participants' Participant Elected Contribution Accounts and Employer Matching
Contribution Accounts, McDESOP Holding Accounts, Matching Contribution Holding
Account and McDESOP Diversification Accounts.
1.40 "Non-highly Compensated Employee" means, for a Plan Year, any
-------------------------------
Participant who performs services for an Employer, Commonly Controlled Entity or
Affiliated Service Group during such Plan Year and who was not a Highly
Compensated Employee for such Plan Year.
1.41 "Parental Leave" means a period during which an individual is absent
--------------
from work for any period:
(a) by reason of the pregnancy of the individual,
(b) by reason of the birth of a child of the individual,
(c) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual, or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
An absence from work shall not be a Parental Leave unless the individual
furnishes the Committee such timely information as may reasonably be required to
establish that the absence from work was for one of the reasons specified above
and the number of days for
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which there was such an absence. Nothing contained herein shall be construed to
establish an Employer policy of treating a Parental Leave as an Authorized Leave
of Absence or to otherwise establish a parental leave policy for any Employer,
except for the purpose of avoiding a Break in Service.
1.42 "Participant" means a person participating in the Program in
-----------
accordance with the provisions of Article II.
1.43 "Participant Contributions" means (a) the voluntary contributions made
-------------------------
by a Participant to the Trustee with respect to Plan Years commencing before
January 1, 1987, and credited to his Investment Savings Account and (b)
Participant Matched Contributions made under the Stock Sharing Plan with respect
to Plan Years ending on or before December 31, 1983 and credited to his
Participant Contribution Stock Sharing Account.
1.44 "Participant Elected Contributions" means the contributions made by an
---------------------------------
Employer on behalf of an Active Participant attributable to reductions of the
Participant's Considered Compensation determined under Section 5.1, including:
(a) "Participant Elected Matched Contributions", which means the
-----------------------------------------
amount of Participant Elected Contributions for an Active Participant for a
Plan Year up to the percentage of such Active Participant's Considered
Compensation specified in Sections 4.3(a)(1), 4.3(a)(2) or 4.3(a)(3), as
applicable to such Active Participant; and
(b) "Participant Elected Unmatched Contributions", which means the
-------------------------------------------
amount of Participant Elected Contributions for an Active Participant for a
Plan Year above the percentage of a Participant's Considered Compensation
specified under Sections 4.3(a)(1), 4.3(a)(2) or 4.3(a)(3), as applicable
to such Active Participant.
1.45 "Party in Interest" means a person defined in Section 3(14) of ERISA.
-----------------
1.46 "Program" means the McDonald's Corporation Profit Sharing Program as
-------
herein set forth, and as hereafter amended from time to time, including its four
components: (i) Profit Sharing, (ii) McDESOP, (iii) LESOP and (iv) Stock
Sharing.
1.47 "Plan Administrator" means the Plan Administrator appointed under or
------------------
by the provisions of Section 13.15.
1.48 "Plan Year" means the 12-month period commencing on January 1 and
---------
ending on December 31.
1.49 "Profit Sharing Plan" means the portion of the Program consisting of
-------------------
Participants' Profit Sharing Accounts, Rollover Accounts, Rollover Holding
Accounts, Investment Savings Accounts and the Profit Sharing Holding Fund.
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1.50 "Qualified Preretirement Survivor Annuity" means an immediate monthly
----------------------------------------
pension payable in accordance with Section 11.2(e)(2) to the surviving spouse of
a Participant who has elected to receive benefits in the form of a life annuity
in an amount equal to an annuity for the life of the surviving spouse which can
be purchased with fifty percent of the portion of the Participant's vested Net
Balance Account which the Participant had elected to be paid in the form of a
life annuity pursuant to Section 11.2(a).
1.51 "Related Plan" means any other qualified defined contribution plan or
------------
qualified defined benefit plan (as defined in Section 415(k) of the Internal
Revenue Code) maintained by an Employer, a Commonly Controlled Entity or member
of an Affiliated Service Group, respectively called a "Related Defined
Contribution Plan" and "Related Defined Benefit Plan."
1.52 "Required Beginning Date" means April 1 of the calendar year following
-----------------------
the later of:
(a) the calendar year in which a Participant attains age 70-1/2; or
(b) if the Participant is not a Five Percent Owner of the Employer or
a Commonly Controlled Entity at any time during the Plan Year ending with
or within the calendar year in which he attains age 70-1/2, the calendar
year in which he has a Termination of Employment.
Notwithstanding the foregoing, the Required Beginning Date shall not be any date
earlier than any date to which the Required Beginning Date can be delayed in
accordance with Section 11.14 and any applicable law, regulations, or rulings.
1.53 "Rollover" means a Participant's rollover contribution as described in
--------
Section 402(a)(5) (effective before January 1, 1993), Section 402(c) (effective
on or after January 1, 1993), Section 403(a)(4) or Section 408(d)(3)(A)(ii) of
the Internal Revenue Code and credited to his Rollover Holding Fund Account, in
accordance with Section 8.1. Rollovers made in accordance with Section 402(c) or
403(a)(4) may be transfers of (a) distributions made to a Participant in
accordance with one of the above referenced sections of the Internal Revenue
Code or (b) direct Rollovers made in compliance with Section 401(a)(31) of the
Internal Revenue Code.
1.54 "STIF Fund" means the Northern Trust Company Collective Trust-Short
---------
Term Investment Fund and such other common or collective trust funds or
investment companies registered under the Investment Company Act of 1940, which
have similar investment and administrative characteristics, as the Committee may
from time to time designate.
1.55 "Stock Sharing" means the portion of the Program consisting of
-------------
Participants' Stock Sharing Accounts as identified in Section 1.1(d).
1.56 "Subsidiary" shall mean any corporation that is a member of an
----------
affiliated group with the Company within the meaning of Section 1504 of the
Internal Revenue Code.
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<PAGE>
1.57 "Termination of Employment" means (a) a resignation by an Employee for
-------------------------
any reason, (b) a dismissal of an Employee for any reason, or (c) any other
termination of the employee-employer relationship. Transfers of an Employee from
an Employer, Commonly Controlled Entity, member of an Affiliated Service Group,
Domestic Affiliate or Foreign Affiliate to another Employer, Commonly Controlled
Entity, member of an Affiliated Service Group, Domestic Affiliate or Foreign
Affiliate shall not be treated as a Termination of Employment.
1.58 "Trust" means the legal entity or entities resulting from the Trust
-----
Agreement between the Company and the Trustee, and any amendments thereto, by
which Employer Contributions, Participant Contributions, Rollovers, Participant
Elected Contributions, the proceeds of any loan made pursuant to Article VI,
Employer LESOP Contributions, the LESOP Suspense Account, any Company Stock
purchased therewith, amounts held in Participants' Stock Sharing Accounts and
any net income and profits thereon shall be received, held, invested and
distributed to or for the benefit of the Participants and Beneficiaries.
1.59 "Trust Agreement" means any agreement between the Company and a
---------------
Trustee, establishing the McDonald's Corporation Savings and Profit Sharing
Master Trust (the "Profit Sharing Trust") and the McDonald's Matching and
Deferred Stock Ownership Trust (the "McDESOP Trust"), as amended from time to
time and such additional trust agreements as the Company and the Trustee shall
establish under the Program.
1.60 "Trustee" means any corporation, individual or individuals who shall
-------
accept the appointment to execute the duties of Trustee as set forth in a Trust
Agreement.
1.61 "Trust Fund" means all property received and held by a Trustee
----------
pursuant to a Trust Agreement for the Program.
1.62 "Valuation Date" means the last business day of each calendar month
--------------
and such additional dates as the Committee may from time to time specify except
that solely for the purpose of valuing a Participant's Accounts for the purpose
of making distributions pursuant to Article XI, "Valuation Date" means the
fifteenth day of each calendar month (or if the fifteenth day of the month is
not a business day, the next previous business day) and the last business day of
each calendar month and such additional dates as the Committee may from time to
time specify. The Committee may designate additional Valuation Dates
prospectively or retroactively.
1.63 "Vesting Retirement Date" means the date on which a Participant
-----------------------
attains age 55.
1.64 "Year of Credited Service" means a Plan Year during which an Employee
------------------------
has not less than one thousand (1,000) Hours of Service, including, once the
individual has become an Employee, Hours of Service credited while he was a
Leased Employee.
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<PAGE>
1.65 "Year of Eligibility Service" means an Eligibility Computation Period
---------------------------
during which an Employee has not less than one thousand (1,000) Hours of
Service, including, once the individual has become an employee, Hours of Service
credited while he was a Leased Employee.
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<PAGE>
ARTICLE II
PARTICIPATION
2.1 Participation. Each person who was a Participant under the provisions
-------------
of the McDonald's Corporation Profit Sharing Program on the day before the
Effective Date, shall continue to be a Participant hereunder. Each other
Employee shall become a Participant in the Program on the first Entry Date
coinciding with or next following the date he completes one Year of Eligibility
Service and attains age 21; provided that (a) each Participant who is not an
employee of McG Restaurant Operations, Inc. and who is a certified swing
manager, primary maintenance employee, crew member or other store hourly
employee shall become a Participant solely for purposes of the Profit Sharing
and the McDESOP portions of the Program and for the purposes of (1) making
Participant Elected Contributions or (2) receiving allocations of LESOP Employer
Matching Allocations pursuant to Section 6.3(c) and LESOP Employer Matching
Contributions made pursuant to Section 4.1(b) and (b) each Participant who is an
employee of McG Restaurant Operations, Inc. shall be an Active Participant
solely for purposes of (1) making Participant Elected Contributions or (2)
receiving LESOP Employer Matching Allocations made pursuant to Section 6.3(c) or
LESOP Employer Matching Contributions pursuant to Section 4.1(b) and making
Rollover Contributions to the Program.
Admission to participation in the Program shall only be made when an
Employee is not on an Authorized Leave of Absence or serving with the Armed
Forces of the United States.
Each Participant shall continue to be a Participant for purposes other than
being an Active Participant as provided in Sections 1.2(a), 1.2(b) and 1.2(c)
until the later of (a) the date he incurs a Termination of Employment or has a
Break in Service and (b) the date his entire vested Net Balance Account has been
paid from the Trust.
Notwithstanding the foregoing, each Participant is a participant only with
respect to the portions of the Program and the types of contributions which have
been adopted by his Employer and no additional Participants shall enter the
Stock Sharing portion of the Plan.
2.2 Certification of Participation and Compensation to Committee. Each
------------------------------------------------------------
Employer shall certify to the Committee, within a reasonable time before each
Entry Date, the names of all new Participants. Each Employer, within a
reasonable time after the last day of each Plan Year, shall certify to the
Committee with respect to its Employees each Participant's number of Hours of
Service and Considered Compensation during such Plan Year and such other
information as the Committee may request.
2.3 Termination of Employment, Break in Service, Reemployment and Change
--------------------------------------------------------------------
in Employment Status. Upon resuming employment following a Break in Service, an
- --------------------
Employee who is at least age 21, who had at least one Year of Eligibility
Service prior to such Break in Service ("Rehired Employee"), and who completes
one Year of Eligibility Service following such Break in Service shall become a
Participant retroactively to the day of such Rehired Employee's Retroactive
Participation Date (as defined in the following sentence) provided that
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<PAGE>
such Rehired Employee shall not be an Active Participant until the first day of
the calendar month in which occurs the date of his completion of one Year of
Eligibility Service following the Break in Service (the "Active Participation
Date") and his Considered Compensation shall be deemed to be first earned
commencing with his Active Participation Date; and further provided that
Participant Elected Contributions and Employer Matching Contributions or
allocations with respect to LESOP Employer Matching Contributions for periods on
or after November 1, 1998, shall commence on the first day of the pay period in
which the Participant completes One Year of Eligibility Service or as soon as
administratively feasible thereafter. An Employee's "Retroactive Participation
Date" is the date such Employee resumes employment.
Upon a change in his employment status or resuming employment following a
Termination of Employment which did not constitute a Break in Service, an
Employee who was a Participant prior to a Termination of Employment shall be
treated as an Active Participant from the day of his change in status or
resumption of employment.
Notwithstanding the foregoing provisions of this Section 2.3, a Rehired
Employee who has a Participant Elected Contribution Account shall have his
Participant Elected Contributions reinstated at the same level as was in effect
at the time of his Termination of Employment subject to any change in the amount
of the Specified Participant Elected Matched Contributions or a new election
made by such Participant pursuant to Section 5.1.
2.4 Employees of Foreign or Domestic Affiliates. An employee of a Foreign
-------------------------------------------
or Domestic Affiliate who becomes an Employee shall become an Active Participant
on the later of the first day of the month after the month in which such
individual becomes an Employee or the next Entry Date following the date such
Employee attains age 21 and completes one Year of Eligibility Service.
2.5 Leased Employee. A person who has been a Leased Employee (determined
---------------
without regard to Section 1.34(b)) who becomes an Employee shall become a
Participant on the later of (a) the first day of the month following the month
in which such person becomes an Employee or (b) the next Entry Date following
the date such person attains age 21 and completes one Year of Eligibility
Service; provided that such Employee's entry into the Plan on account of service
as a Leased Employee shall not occur before the next Entry Date following the
date the Employee first reports his service as a Leased Employee to the Plan
Administrator.
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<PAGE>
ARTICLE III
PROFIT SHARING PLAN EMPLOYER CONTRIBUTIONS
3.1 Profit Sharing Contributions. Profit Sharing Contributions shall be
----------------------------
made by Employers, as follows:
(a) Determination of Contribution. The Board of Directors shall
-----------------------------
determine and certify to the Committee the amount, if any, of Employer
Profit Sharing Contributions to be made to the Program by the Employers
which have adopted the Profit Sharing portion of the Program hereunder
separately for (1) staff and executive employees or store managers and (2)
Certified Swing Managers, primary maintenance employees, crew members and
other hourly restaurant employees. In its discretion, the Board of
Directors may determine different amounts of contributions or contributions
of different percentages of Considered Compensation for the groups
identified in (1) and (2) of the preceding sentence. Such determination
shall be binding on all Participants, the Committee, the Company and the
Other Employers.
(b) Employer's Shares of Profit Sharing Contributions. Subject to
-------------------------------------------------
Section 12.2, each Employer including the Company shall contribute for each
Plan Year an amount equal to the sum of the Staff Contribution and the Crew
Contribution as determined for such Employer below:
(1) Staff Contribution. The amount of an Employer's Staff
------------------
Contribution shall equal the product of (A) the total Profit Sharing
Contributions for the Plan Year for the Participants identified in
Section 3.1(a)(1), as determined by the Board of Directors in
accordance with Section 3.1(a), multiplied by (B) a fraction the
numerator of which is the total Considered Compensation for such Plan
Year of such Participants who are (i) Active Participants and (ii)
Employees of such Employer and the denominator of which is the total
Considered Compensation for the Plan Year of all Active Participants
who are Employees, described in Section 3.1(a)(1), of all Employers;
and
(2) Crew Contribution. The amount of an Employer's Crew
-----------------
Contribution shall equal the product of (A) the total Profit Sharing
Contributions for the Plan Year for the Participants identified in
Section 3.1(a)(2), as determined by the Board of Directors in
accordance with Section 3.1(a), multiplied by (B) a fraction the
numerator of which is the total Considered Compensation for such Plan
Year of such Participants who are (i) Active Participants and (ii)
Employees of such Employer and the denominator of which is the total
Considered Compensation for the Plan Year of all Active Participants
who are Employees, described in Section 3.1(a)(2), of all Employers.
3.2 Payment of Contributions Made Pursuant to Article III. The Employer
-----------------------------------------------------
Profit Sharing Contributions for each Plan Year shall be paid in cash or in
securities of McDonald's
-27-
<PAGE>
Corporation, which are qualifying employer securities as defined in ERISA
Section 407(d)(5) (which includes but is not limited to Company Stock), in full
not later than the due date for filing the federal income tax return of the
Employer for the tax year during which the last day of such Plan Year falls.
Employer Profit Sharing Contributions, if any, for each Plan Year shall be
held in the Profit Sharing Holding Fund and, if contributed in cash, invested in
the STIF Fund or, if contributed as qualifying employer securities, remain
invested in qualifying employer securities until February 1 following the Plan
Year or, if not administratively feasible, as soon thereafter as administrative
requirements may warrant, at which time the Committee shall allocate such
amounts to Participants' Profit Sharing Accounts and invest them in accordance
with Section 10.7, 10.8 or 10.9(a), as applicable.
-28-
<PAGE>
ARTICLE IV
McDESOP and LESOP EMPLOYER CONTRIBUTIONS
4.1 Amount of Employer Matching Contributions and LESOP Employer Matching
----------------------------------------- ---------------------------
Contributions. Employer Matching Contributions and LESOP Employer Matching
- -------------
Contributions shall be made by Employers as specified in (a) or (b), subject to
the limitations specified in (c) below:
(a) Employer Matching Contributions. For periods before November 1,
-------------------------------
1998, each Employer shall contribute to the McDESOP Trust as Employer
Matching Contributions for each Plan Year an amount as defined below:
(1) The amount of Employer Matching Contributions plus the
Forfeiture Amount shall equal fifty percent (or such greater
percentage as the Board of Directors from time to time determines) of
the sum of all Participant Elected Matched Contributions for the Plan
Year or portion of a Plan Year made for Active Participants who are
employed by that Employer.
(2) The Forfeiture Amount shall equal (A) the amount of
Forfeitures which occur during a Plan Year pursuant to Sections
11.4(c) and 16.6 after any charges to Forfeitures provided hereunder,
(B) multiplied by a fraction the numerator of which is the amount of
Participant Elected Matched Contributions made for Active Participants
who are Employees of such Employer and the denominator of which is the
total amount of Participant Elected Matched Contributions made for
Active Participants for the Plan Year.
(b) LESOP Employer Matching Contributions. For periods beginning on
-------------------------------------
or after November 1, 1998, each Employer shall make LESOP Employer Matching
Contributions in an amount which when added to the value of the shares
released from a leveraged ESOP Suspense Account pursuant to Section 6.3(c)
and any Forfeitures allocated to Participants' Employer Matching
Contribution Account equal fifty percent (or such greater percentage as the
Board of Directors from time to time determines) of the Participant Elected
Matched Contributions made to the Plan for the Plan Year for Active
Participants who are Employees of such Employer. Any LESOP Employer
Matching Contributions shall be allocated to the Employer Matching
Contribution Accounts of Active Participants.
(c) Average Actual Contribution Percentage. The average actual
--------------------------------------
contribution percentage ("Average ACP") for a specified group of Active
Participants for a Plan Year shall be the average of the actual
contribution percentages of the persons in such group. A Participant's
actual contribution percentage is equal to the product of (1) 100
multiplied by (2) the quotient of (A) the Employer Matching Contributions
or the sum of the LESOP Employer Matching Allocations and LESOP Employer
Matching Contributions (all including any Forfeitures allocated therewith)
and such amount of
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<PAGE>
Special Section 401(k) Employer Contributions as the Company shall
determine to allocate with Employer Matching Contributions or with LESOP
Employer Matching Allocations and Participant Elected Contributions as the
Committee determines to include with Employer Matching Contributions in the
calculation of the Average ACP for each such Employee for such Plan Year
divided by (B) the Employee's Considered Compensation for the Plan Year
("Actual Contribution Percentage"). As soon as practicable after the end of
the Plan Year, the Committee shall calculate the Average ACP for the Plan
Year separately for Employer Matching Contributions and for LESOP Employer
Matching Allocations and LESOP Employer Matching Contributions for the
group of Employees eligible to be Active Participants who are Highly
Compensated Employees and for the group of such Employees who are Non-
highly Compensated Employees.
Notwithstanding the foregoing provisions of Section 4.1, solely for
purposes of the Average ACP test the Committee shall have the discretion to
determine the portion of a Participant's (or selected group of
Participants') Employer Matching Contributions or LESOP Employer Matching
Allocations, LESOP Employer Matching Contributions, and Special Section
401(k) Employer Contributions allocated by the Company with Employer
Matching Contributions or LESOP Employer Matching Allocations or
Participant Elected Contributions (all including any Forfeiture allocated
therewith) to be counted in calculating the Participant's average
contribution percentage and in making such determination shall be under no
obligation to treat similarly situated Participants in a like manner so
long as the following requirements (to the extent applicable) are
satisfied:
(1) The Special Section 401(k) Employer Contributions are non-
discriminatory under Code Section 401(a)(4);
(2) All contributions to the Program other than Participant
Elected Contributions, Employer Matching Contributions, LESOP Employer
Matching Allocations, LESOP Employer Matching Contributions and
Special Section 401(k) Employer Contributions which are treated as
matching contributions for purposes of the Required ACP Test satisfy
the requirements of Code Section 401(a)(4); and
(3) The Participant Elected Contributions, including those
treated as matching contributions for purposes of the Required ACP
Test satisfy the requirements of the ADP test.
(4) The Special Section 401(k) Contributions are allocated to
the Participant as of a date within the Plan Year and the Participant
Elective Contributions satisfy the requirements of Treas. Reg. Section
1.401(k)-1(b)(4)(i) for the Plan Year.
A Participant's Employer Matching Contributions, LESOP Employer
Matching Allocations, LESOP Employer Matching Contributions, Special
Section 401(k)
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<PAGE>
Contributions which are counted for purposes of the Required ADP Test pursuant
to Section 5.2(e) shall not be counted for purposes of calculating such
Participant's Average Contribution Percentage.
(d) Required Actual Contribution Percentage Test and Adjustment. The
-----------------------------------------------------------
Average ACP for the group of Highly Compensated Employees for a Plan Year
beginning on or after January 1, 1997 shall bear a relationship to the Average
ACP for all Non-highly Compensated Employees for the preceding Plan Year which
meets at least one of the following tests ("Required ACP Test"):
(1) The Average ACP for the preceding Plan Year for the group of
Active Participants who were Non-highly Compensated Employees in that year
multiplied by 1.25 is greater than or equal to the Average ACP for the Plan
Year for the Active Participants who were Highly Compensated Employees; or
(2) The excess of the Average ACP for the Plan Year for the group of
Highly Compensated Employees who are Active Participants over the Average
ACP for the preceding Plan Year for Non-highly Compensated Employees who
were Active Participants in that year is not more than 2 percentage points,
and the Average ACP for the Plan Year for the group of Highly Compensated
Employees who are Active Participants is not more than the Average ACP for
the preceding Plan Year of all Non-highly Compensated Employees who are
Active Participants multiplied by 2.
If the Required ACP Test for a Plan Year is not met and, if the Company
does not elect to make Special Section 401(k) Employer Contributions or to count
Participant Elected Contributions for purposes of the Required ACP test with
respect to the Plan Year sufficient to result in the Required ACP test being
passed, then the Committee shall reduce Employer Matching Contributions and
Forfeitures (which for this purpose shall include any Participant Elected
Contributions counted in the Required ACP Test) or the LESOP Employer Matching
Allocations and LESOP Employer Matching Contributions that Active Participants
who are Highly Compensated Employees for the Plan Year (or a portion of such
Active Participants) may defer in the following steps:
Step 1. The Committee shall first determine the dollar amount of the
------
reductions which would have to be made to the Employer Matching Contributions
and Forfeitures allocated therewith or LESOP Employer Matching Allocations and
LESOP Employer Matching Contributions of Highly Compensated Employees who are
Active Participants for the Plan Year in order that the Average ACP of the
Highly Compensated Employees would not exceed both the amounts permitted in
Sections 4.1(d)(1) and (d)(2). Such amount shall be calculated by first
determining the dollar amount by which the Employer Matching Contributions and
any Forfeitures allocated therewith or LESOP Employer Matching Allocations and
LESOP Employer Matching Contributions and any Forfeitures allocated therewith of
the Highly Compensated Employees who have the highest Actual Contribution
Percentage would have to be reduced until the first to occur of: (i) such
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<PAGE>
Highly Compensated Employees' Actual Contribution Percentage, after the
reductions made on account of any reductions made under Section 5.2, would
become tied with the Actual Contribution Percentage of one or more other Highly
Compensated Employees or (ii) the Average ACP of all of the Highly Compensated
Employees, as recalculated after the reductions made under this Step 1, no
longer would exceed the amounts permitted in both Sections 4.1(d)(1) and (d)(2).
Then, unless the Average ACP of the Highly Compensated Employees, as
recalculated after the reductions made under this Step 1, would no longer exceed
the amounts permitted in both Sections 4.1(d)(1) and (d)(2) if the total amount
of such reductions were made, the reduction process shall be repeated by
determining the dollar amount of reductions which would have to be made to the
Employer Matching Contributions and Forfeitures allocated therewith or LESOP
Employer Matching Allocations and LESOP Employer Matching Contributions and any
Forfeitures allocated therewith of the group of Active Participants who are
Highly Compensated Employees who after all prior reductions made in this Step 1
would have the highest Actual Contribution Percentage until the first to occur
of: (iii) the Actual Contribution Percentage, including the prior reductions
made in this Step 1, of each person in such group becomes tied with that of one
or more other Active Participants who are Highly Compensated Employees or (iv)
the Average ACP of all of the Active Participants who are Highly Compensated
Employees, after the prior reductions were made, no longer would exceed both the
amounts permitted in Sections 4.1(d)(1) and (d)(2). This process is repeated
until the Average ACP of all of the Active Participants who are Highly
Compensated Employees, after all reductions, would no longer exceed the amounts
described in both Sections 4.1(d)(1) and (d)(2).
Step 2. Next, the Committee shall determine the total dollar amount of
------
reductions to the Employer Matching Contributions and Forfeitures or LESOP
Employer Matching Allocations and LESOP Employer Matching Contributions
calculated under Step 1 ("Total Excess Contributions").
Step 3. Finally, the Committee shall reduce the Employer Matching
------
Contributions and Forfeitures or LESOP Employer Matching Allocations and LESOP
Employer Matching Contributions of the Active Participants who are Highly
Compensated Employees with the highest total dollar amount of such contributions
by the lesser of the amount which either: (i) causes such Highly Compensated
Employees' Employer Matching Contributions and Forfeitures or LESOP Employer
Matching Allocations and LESOP Employer Matching Contributions to equal the
total dollar amount of the Employer Matching Contributions and Forfeitures or
LESOP Employer Matching Allocations and LESOP Employer Matching Contributions of
the Highly Compensated Employees with the next highest dollar amount of Employer
Matching Allocations and LESOP Employer Matching Contributions and Forfeitures
or LESOP Employer Matching Allocations and LESOP Employer Matching Contributions
or (ii) reduces the total of the Highly Compensated Employee's Employer Matching
Contributions or LESOP Employer Matching Allocations and LESOP Employer Matching
Contributions (and any Forfeitures allocated therewith) by the Total Excess
Contributions. Then, unless the total amount of reductions made to Highly
Compensated
-32-
<PAGE>
Employees' Employer Matching Contributions or LESOP Employer Matching
Allocations and LESOP Employer Matching Contributions (and any forfeitures
allocated therewith) under this Step 3 equals the amount of Total Excess
Contributions, the reduction process shall be repeated by reducing the
Employer Matching Contributions or LESOP Employer Matching Allocations and
LESOP Employer Matching Contributions (and any Forfeitures allocated
therewith) of the group of Highly Compensated Employees with the highest
dollar amount of Employer Matching Contributions or LESOP Employer Matching
Allocations and LESOP Employer Matching Contributions, after the prior
reductions made in this Step 3, by the lesser of the amount which either:
(iii) causes such Highly Compensated Employees' Employer Matching
Contributions or LESOP Employer Matching Allocations and LESOP Employer
Matching Contributions (and any Forfeitures allocated with such
contributions) made in this Step 3 to equal the dollar amount of the
Employer Matching Contributions or LESOP Employer Matching Allocations and
LESOP Employer Matching Contributions (and any Forfeitures allocated with
such contributions) of other Highly Compensated Employees with the next
highest dollar amount of Employer Matching Contributions or LESOP Employer
Matching Allocations and LESOP Employer Matching Contributions (and any
Forfeitures allocated with such contributions) or (iv) causes total
reductions to equal the Total Excess Contributions. This process is
repeated with each successive group of Highly Compensated Employees with
the highest dollar amount, after the prior reductions of the Employer
Matching Contributions or LESOP Employer Matching Allocations and LESOP
Employer Matching Contributions (and any Forfeitures allocated with such
contributions) made under this Step 3 until the total reductions equal the
Total Excess Contributions.
The Committee shall reduce and distribute Employer Matching
Contributions or LESOP Employer Matching Allocations and LESOP Employer
Matching Contributions (and any Forfeitures allocated with such
contributions) equal to the Total Excess Contributions for the Plan Year
and any income, gains or losses attributable thereto, as determined in
accordance with Section 5.3, to Highly Compensated Employees as determined
in Step 3 after the end of the Plan Year with respect to which such reduced
Employer Matching Contributions, LESOP Employer Matching Allocations and
LESOP Employer Matching Allocations and LESOP Employer Matching
Contributions (and any forfeitures allocated with such contributions) were
made.
4.2 LESOP Contributions. LESOP Contributions shall be made by Employers,
-------------------
as follows:
(a) Company LESOP Contributions. For each Plan Year that a loan
---------------------------
authorized under Section 6.1 remains unpaid, the Company shall contribute
in cash to the Trust, as LESOP Contributions, such amounts (if any) as
shall be determined by the Board of Directors, provided, however, the
Company's LESOP Contribution in cash for any Plan Year shall not be less
than the product of:
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<PAGE>
(1) the installments (if any) payable on such loan reduced by the
sum of the (A) dividends on unallocated shares of Company Stock (including
Company Stock into which such shares have been converted) held in the
suspense account associated with such loan (or any loan refinanced with
such loan) and on LESOP Contributions made to repay such loan and (B)
dividends on allocated shares of Company Stock (including Company Stock
into which such shares have been converted) held in Participants' LESOP
Accounts acquired with the proceeds of such loan (or any Loan refinanced
with such loan) and earnings attributable to such dividends; multiplied by
(2) a fraction, the numerator of which is the Considered Compensation
paid by the Company to Employees for the Plan Year while they were Active
Participants and the denominator of which is the Considered Compensation
for the Plan Year paid to all Employees while they were Active
Participants.
If no installment (as drawn or renegotiated) is payable on a loan for the Plan
Year, no LESOP Contribution shall be required with respect to such loan for the
Plan Year, except as otherwise determined by the Board of Directors. The
dividends on allocated shares of Company Stock held in Participants' LESOP
Accounts which were acquired with the proceeds of a loan or any loan refinanced
with such loan (or shares into which such Company Stock has been converted)
shall be included in Section 4.2(a)(1)(B) for a Plan Year only to the extent
that Employer Contributions and the dividends and other income attributable to
unallocated shares held in the suspense account associated with such loan are
less than the installments payable or to be payable with respect to such loan.
(b) LESOP Contributions by Other Employers. Each Employer that has
--------------------------------------
adopted the LESOP portion of the Plan (other than the Company) shall contribute
to the Trust an amount equal to the product of:
(1) the total Considered Compensation for the Plan Year paid by such
Employer to Employees while they were Active Participants; multiplied by
(2) a fraction the numerator of which is the LESOP Contribution of
the Company for the Plan Year and the denominator of which is the
Considered Compensation paid by the Company to Employees while they were
Active Participants.
(c) Additional LESOP Contributions. The Board of Directors may, in its
------------------------------
discretion, determine that Additional LESOP Contributions shall be made for a
Plan Year in Company Stock and designate such contributions as Per Capita
Additional LESOP Contributions or Compensation Based Additional LESOP
Contributions (collectively called "Additional LESOP Contributions"). The
Company shall make such Additional LESOP Contributions in an amount equal to the
total Additional LESOP Contribution multiplied by a fraction the numerator of
which is the Considered Compensation paid by the Company to Employees for the
Plan Year paid while they were Active Participants
-34-
<PAGE>
and the denominator of which is the Considered Compensation for the Plan Year
paid to all Employees while they were Active Participants.
Each Employer that has adopted the LESOP (other than the Company)
shall contribute to the Trust as Additional LESOP Contributions an amount
equal to the product of the total Considered Compensation for the Plan Year
paid by such Employer to Employees while they were Active Participants
multiplied by a fraction the numerator of which is the Company's Additional
LESOP Contribution and the denominator of which is the Compensation paid by
the Company to Employees while they were Active Participants.
(d) Special Dividend Replacement Contributions. The Employers shall
--------------------------
make Special Dividend Replacement Contributions as of any Valuation Date in
an amount not to exceed the dividends with respect to Company Stock which
has been allocated to Participant's LESOP Accounts (other than Employer
Matching Contribution Accounts) and are placed in the LESOP Suspense
Account to be used pursuant to Section 6.3(b) to repay an Exempt Loan (or
other loan authorized under Section 6.1) to the extent that the allocations
pursuant to Section 6.3(c) as limited by 6.3(a) are not sufficient to
replace such dividends. Each Employer shall make any such Special Dividend
Replacement Contributions in an amount equal to the total amount of such
contributions to be made as of a Valuation Date multiplied by a fraction
the numerator of which is the Considered Compensation paid to Active
Participants who are Employees of the Employer for the calendar quarter
ending on the Valuation Date and the denominator of which is the Considered
Compensation paid to all Active Participants during the calendar quarter
ending on the Valuation Date.
(e) LESOP Employer Matching Contributions. Any LESOP Employer
-------------------------------------
Matching Contributions made pursuant to Section 4.1(b) shall be considered
LESOP Contributions under the Program.
4.3 Annual Employer Contribution Elections.
--------------------------------------
(a) Minimum and Maximum Amount of Participant Elected Matched
---------------------------------------------------------
Contributions. If Participant Elected Matched Contributions are to be
-------------
permitted for all or any portion of a Plan Year, the Company by action of
its Board of Directors shall specify for the Plan Year or portion of the
Plan Year, the amount (as a percentage of each Active Participant's
Considered Compensation) of such Participant Elected Matched Contributions
("Specified Participant Elected Matched Contributions") which shall be made
on behalf of an Active Participant in the absence of a contrary election by
the Participant and may also specify, the minimum and maximum amounts of
Participant Elected Matched Contributions which a Participant may elect in
lieu of Specified Participant Elected Matched Contributions (as a
percentage of each Participant's Considered Compensation) for the Plan Year
or portion of the Plan Year as permitted by procedures established by the
Plan Administrator, provided that such minimum and maximum amounts shall be
not greater for any Plan Year than:
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(1) six percent (6%) of the Participant's Considered Compensation if
the Participant is a staff or an executive employee or a store manager,
(2) ten percent (10%) of the Participant's Considered Compensation if
the Participant is a Certified Swing Manager or primary maintenance
employee, and
(3) eight percent (8%) of the Participant's Considered Compensation
if the Participant is a crew member or other hourly restaurant employee.
Notwithstanding the foregoing provisions of Section 4.3(a), all Active
Participants who are Employees of McG Restaurant Operations, Inc. shall be
permitted to make Participant Elected Matched Contributions in the amount
provided in paragraph (3).
If an Active Participant's maximum permitted Participant Elected Matched
Contribution limit under this Section 4.3(a) changes, subject to the Active
Participant making a new election effective after the limit change, the new
limit shall be applied to the Participant's existing Participant Elected
Contribution election as in effect before the change effective for the pay
period following the pay period in which the Participant's limit changed so that
the Participant's Participant Elected Matched Contributions are maximized but do
not exceed either his total Participant Elected Contributions or the applicable
Section 4.2(a) limit. The total Participant Elected Contributions made by such a
Participant, as a percentage of Considered Compensation, shall not exceed the
sum of the percentage under Section 4.3(a) which is applicable to such
Participant plus seven percent (7%) of his Considered Compensation as provided
under Section 5.1. Such an Active Participant's Participant Elected Unmatched
Contributions shall equal the difference between the amount of such
Participant's Participant Elected Contributions as a percentage of his
Considered Compensation and the amount of his Participant Elected Matched
Contributions as a percentage of his Considered Compensation subject to the
applicable limit under Section 4.3(a).
(b) Special Section 401(k) Employer Contributions. For each Plan Year,
---------------------------------------------
the Company may elect to have the Company and the other Employers make a Special
Section 401(k) Employer Contribution to the Program in such amount (if any) as
the Board of Directors may determine, which shall be allocated pursuant to
Section 7.2(b) to the Employer Matching Contribution Accounts of those Active
Participants who for the Plan Year are Non-highly Compensated Employees who have
Compensation reduction elections in effect. In any Plan Year in which the
Company elects to have such a Special Section 401(k) Employer Contribution made,
each Employer, including the Company, shall contribute a fractional portion of
the Special Section 401(k) Employer Contribution, in an amount equal to the
Special Section 401(k) Employer Contribution multiplied by a fraction, the
numerator of which is the amount of Participant Elected Contributions for such
Plan Year of those Active Participants who are employed by the Employer and who
are Non-highly Compensated Employees, and the denominator of which is the amount
of
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Participant Elected Contributions for the Plan Year of all Active
Participants who are Non-highly Compensated Employees.
4.4 Additional Employer Contributions. For such Plan Years, if any, as
---------------------------------
the Board of Directors shall direct, the Employers shall make Additional
Employer Contributions in an amount to be determined by the Board of Directors.
Each such Employer shall contribute Additional Employer Contributions to the
Trust for a Plan Year in an amount equal to the total Additional Employer
Contributions for such Plan Year multiplied by a fraction the numerator of which
is the number of Active Participants eligible to receive Additional Employer
Contributions who are Employees of the Employer and the denominator of which is
the total number of Active Participants eligible to receive Additional Employer
Contributions.
4.5 Payment of Contributions Made Pursuant to Article IV. Employer
----------------------------------------------------
Contributions for each Plan Year made in accordance with Article IV, except for
Special Section 401(k) Employer Contributions as provided in Section 4.3(b),
shall be delivered to the Trustee on or before the due date for the filing of
the federal income tax return (including any extensions) of the Employer for the
tax year during which the last day of such Plan Year occurs. Special Section
401(k) Employer Contributions for a Plan Year may be made during the Plan Year
or at any time on or before the last day of the following Plan Year.
Employer Matching Contributions and any Forfeitures allocated therewith,
Special Section 401(k) Employer Contributions and Additional Employer
Contributions shall be invested in the McDESOP McDonald's Common Stock Fund and
held in the McDESOP Holding Fund until allocated to Participant's Accounts as
provided in Sections 7.2(a), 7.2(b) and 7.2(c), respectively. Participant
Elected Contributions shall be invested in the McDESOP McDonald's Common Stock
Fund and held in the McDESOP Holding Fund until credited to Participant's
Accounts as provided in Section 7.4.
4.6 Form of Contributions. Except as otherwise provided, Employer
---------------------
Contributions to the McDESOP Trust shall be made either in cash or in Company
Stock, as each Employer shall determine in its discretion.
4.7 Reemployed Members of the Uniformed Services. The provisions of this
--------------------------------------------
Section 4.7 shall apply to each person reemployed by an Employer after a period
of uniformed service with reemployment rights under Chapter 43 of Title 38,
United States Code ("Qualified Uniformed Service"); provided that any Employee
seeking benefits under this Section 4.7 shall notify the Benefits Accounting
Department of his eligibility and provide such information and proof, including
but not limited to his certificate of service, as shall reasonably be required
to confirm the Employee's eligibility.
(a) Contributions. The Accounts of each such reemployed veteran
-------------
("Reemployed Veteran") shall be credited with contributions (but not
earnings or Forfeitures except as he becomes entitled to them under the
Plan after the date of reemployment) as follows:
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(i) Employer Profit Sharing Contributions. As of the
-------------------------------------
Valuation Date next following such reemployment, each Reemployed
Veteran's Employer Profit Sharing Account shall be credited with the
Employer Profit Sharing Contributions which he would have been
allocated under Section 7.1 if he had been an Employee of his Employer
immediately before his period of Qualified Uniformed Service during
the period of Qualified Uniformed Service with Considered Compensation
determined as described in Section 4.7(d). Such amounts shall be
credited from Forfeitures or, if the Employer so elects, from special
contributions made for the purpose by the Employer.
(ii) LESOP Allocations. As of the Valuation Date next
-----------------
following the date of such reemployment, each Reemployed Veteran's
LESOP Accounts shall be credited with the allocations of Company Stock
from the LESOP Suspense Account in the amount he would have received
under Section 7.3 if he had been an Employee of his Employer
immediately before his period of Qualified Uniformed Service with
Considered Compensation determined as described in Section 4.7(d)
during the period of Qualified Uniformed Service. Such allocations
shall be made from amounts released from the LESOP Suspense Account
under Section 6.3 in the Plan Year in which the allocation is made
before the allocations in Section 6.3(a) are made and, if there are no
such releases or if they are insufficient, from Forfeitures under the
LESOP or special contributions made for the purpose by the Employer.
(iii) Participant Elected Contributions. At any time during
---------------------------------
the period beginning on the date of reemployment and ending on the
earlier of the end of a period which is (A) three times the length of
the period of the person's Qualified Uniformed Service or (B) five
years, the Reemployed Veteran may make elective deferrals from his
Considered Compensation with respect to his period of Qualified
Uniformed Service provided that the amount of such contributions shall
not exceed the amount the person would have been permitted to elect to
contribute had the person remained continuously employed and been an
Employee of his Employer immediately before his period of Qualified
Uniformed Service throughout the period of Qualified Uniformed Service
("Additional Elective Deferrals").
(iv) Employer Matching Contributions. Each Employer shall make
-------------------------------
Employer Matching Contributions or LESOP Employer Matching
Contributions to the Program to be credited to such Reemployed
Veteran's Employer Matching Contribution Account with respect to any
Additional Elective Deferrals in the amount which such Employer would
have contributed under the Program had the Additional Elective
Deferrals been made during the period of Qualified Uniformed Service.
Such amounts shall be made from Forfeitures under the Profit Sharing
Portion of the Program unless the Employer determines to make a
special contribution for the purpose. In addition, LESOP Employer
Matching
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<PAGE>
Allocations shall be credited to the Employer Matching Contribution
Account of each Reemployed Veteran in the amount that such
contribution would have been made had the Participant's Additional
Elective Deferrals been made during the period of Qualified Uniformed
Service. Notwithstanding the foregoing, with respect to Additional
Elective Deferrals for periods on or after November 1, 1998, LESOP
Employer Matching Allocations shall be made from the LESOP Suspense
Account under Section 6.3(c) in the Plan Year in which the allocation
is made and before allocations in Section 6.3(a) are made and if there
are no such releases or if they are insufficient, from Forfeitures
under the LESOP or special contributions made for the purpose by his
Employer immediately before his period of Qualified Uniformed Service.
(b) Service and Position with the Employer. In determining the
--------------------------------------
contributions to which each such Reemployed Veteran is entitled under
Section 4.7(a), he shall be credited with Hours of Service hereunder during
his period of Qualified Uniformed Service both with respect to Eligibility
Service and Vesting Service. In determining the amount of such Hours of
Service to be credited, the Plan Administrator shall make good faith
estimates of the Hours of Service the person would have received had he
been continuously employed by the Employer during the period of Qualified
Uniformed Service.
In addition, each Reemployed Veteran shall be deemed to have been
employed (1) in the same position he would have been in had he not had
the period of Qualified Uniformed Service and (2) by the Employer
which employed him immediately before his period of Qualified
Uniformed Service.
(c) Break in Service. After reemployment, a Reemployed Veteran
----------------
shall not be treated as having incurred a Break in Service by reason of his
period(s) of Qualified Uniformed Service.
(d) Considered Compensation. For purposes of determining the amount
-----------------------
of a Reemployed Veteran's contributions under Section 4.7(a), each person
shall be treated as receiving Considered Compensation during the period of
Qualified Uniformed Service equal to (i) the Considered Compensation he
would have received during such period if he were not in Qualified
Uniformed Service, determined based on the rate of pay the Reemployed
Veteran would have received from his Employer immediately before his period
of Qualified Uniformed Service but for the absence during the period of
Qualified Uniformed Service, or (ii) if the Considered Compensation the
Reemployed Veteran would have received during such period was not
reasonably certain, the Reemployed Veteran's average compensation from the
Employer during the 12-month period immediately preceding the Qualified
Uniformed Service (or, if shorter, the period of employment immediately
preceding the Qualified Uniformed Service).
(e) Limits. The contributions made pursuant to Section 4.7(a) above
------
shall be taken into account with respect to the limits contained in Section
5.2(c)(1) or Article IX,
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<PAGE>
as applicable in the Plan Year for which such contributions are made but
shall not be taken into account in applying such limits with respect to the
Plan Year in which the contributions are made. Assuming that the Reemployed
Veteran had compensation as described in Section 4.7(d) during the period
of Qualified Uniformed Service. The ADP test and non-discrimination tests
for a prior Plan Year shall not be recalculated to take into account
contributions made under this Section 4.7.
(f) References. All references to Sections of the Program in this
----------
existence during Section 4.7 shall refer to the analogous sections of the
Program as in the period of Qualified Uniformed Service with respect to
which contributions are being made.
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<PAGE>
ARTICLE V
PARTICIPANT ELECTED CONTRIBUTIONS
5.1 Participant Elected Contributions. Each Active Participant, who is
---------------------------------
employed by an Employer, shall have his Considered Compensation reduced for each
Plan Year or designated portion of a Plan Year by an amount equal to the
Specified Participant Elected Matched Contribution percentage for the Plan Year
or designated portion of a Plan Year, as provided in Section 4.3(a), which
amount his Employer shall contribute to the McDESOP Trust on the Participant's
behalf as a Participant Elected Matched Contribution, unless the Participant
shall elect, on such form, at such time and in such manner as the Committee
shall specify, not to have his Considered Compensation so reduced or (subject to
the minimum and maximum amounts of reduction specified for the Plan Year
pursuant to Section 4.3(a)) reduced by a lesser or greater amount. In addition,
each Active Participant may elect in writing on forms approved by the Committee
to have his Employer contribute to the McDESOP Trust on the Participant's behalf
as Participant Elected Unmatched Contributions an amount equal to any additional
amount by which the Participant elects to have his Considered Compensation
reduced (which election may be a larger percentage for certain portions of
Considered Compensation during a Plan Year, e.g. bonus, and a smaller percentage
for other portions of Considered Compensation, e.g. salary, as the Committee
shall permit), provided that such amount may not exceed seven percent (7%) of
his Considered Compensation for a Plan Year and further provided that an Active
Participant may elect Participant Elected Unmatched Contributions as provided
above regardless of whether the Participant is making Participant Elected
Matched Contributions for that period. The Committee may from time to time
establish general policies requiring Participants to elect Participant Elected
Matched Contributions up to a specified level before electing any Participant
Elected Unmatched Contributions.
Except as otherwise specifically provided herein, a Participant may make,
change or revoke a Compensation reduction election at such times and in such
manner as the Committee may permit, provided that any such election, change or
revocation shall apply solely to Considered Compensation, which is not currently
available to the Participant as of the date of such election, change or
revocation. The Compensation reduction election by the Active Participant which
is in accordance with the Program shall continue in effect, notwithstanding any
change in Considered Compensation, until he shall change such Compensation
reduction election or until he shall cease to be an Active Participant. If a
Participant has an election pursuant to the McDonald's 1989 Executive
Equalization Plan ("McCap I") or the McDonald's Supplemental Employee Benefit
Equalization Plan ("McCap II") in effect for a calendar year, the Participant's
Compensation reduction election hereunder may not be changed for such year but
may only be changed before the beginning of the following Plan Year for such
Plan Year. Each Employer shall make Participant Elected Contributions to the
Trustee on behalf of each Active Participant employed by the Employer in the
amount by which the Participant's Considered Compensation was reduced pursuant
to this Section 5.1.
5.2 Restrictions on Participant Elected Contributions. Notwithstanding the
-------------------------------------------------
provisions of Section 5.1, the following restrictions shall apply to Participant
Elected Contributions:
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<PAGE>
(a) No Participant Compensation reduction election shall be solicited
or accepted from any Participant and no Participant Elected Contributions
shall be made on behalf of any Participant unless and until a registration
statement under the Securities Act of 1933 has become effective with
respect to securities offered in connection with the Program, unless in the
opinion of counsel for the Company such registration statement is not
required;
(b) No Compensation reduction election shall be solicited or accepted
from any Participant who resides or works in any state and no Participant
Elected Contributions shall be made on behalf of any Participant who
resides or works in any state unless and until the Program shall have
complied with applicable securities and blue sky laws of the state or in
the opinion of counsel of the Company is exempt from such law; and
(c) (1) The sum of Participant Elected Contributions and of elected
deferrals under any Related Defined Contribution Plan for any
Participant shall in no event exceed a maximum of $9,500 (in 1997 as
adjusted from time to time, in accordance with Section 402(g)(5) of the
Internal Revenue Code) for a calendar year ("Maximum Elective Deferral
Amount").
(2) If the Participant notifies the Committee in writing by March
1 following the Plan Year or such later date not later than the April
15 following the Plan Year as the Committee shall permit, that the sum
of his elective contributions to a simplified employer pension, to a
403(b) plan (as defined in Section 402(g)(3) of the Internal Revenue
Code), or to any qualified cash or deferred arrangement (as defined in
Section 401(k) of the Internal Revenue Code) exceeds the Maximum
Elective Deferral Amount ("Excess Elected Deferrals"), such portion of
the Participant's Participant Elected Contributions as the Participant
shall elect in such notice not to exceed the amount of such Excess
Elected Deferrals (including any income allocated thereto as determined
in accordance with Section 5.3) shall be distributed to the Participant
not later than the April 15 following the Plan Year. In determining
whether a Participant has made Excess Elected Deferrals under this
Section 5.2(c)(2), if a Participant is a participant in any plan
described in Section 403(b) of the Internal Revenue Code under which he
makes elective deferrals, the Maximum Elective Deferral Amount shall be
increased in accordance with the provisions of Sections 402(g)(4) and
402(g)(8) of the Internal Revenue Code with respect to any Participant
who participates in a plan described in Section 403(b) of the Internal
Revenue Code or who is a qualified employee in a plan of a qualified
organization (as defined in Section 402(g)(8) of the Internal Revenue
Code) for a calendar year.
(3) Notwithstanding the foregoing, if the Participant has elected
to participate in McCAP I or McCAP II as provided therein his
Participant Elected Contribution elections hereunder shall be
irrevocable as provided in Section 5.1 and any amount of such deferrals
which shall be in excess of the Maximum
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Elective Deferral Amount and any Employer Matching Contributions, LESOP
Employer Matching Contributions and LESOP Employer Matching Allocations
and any Forfeitures allocated with each respective type of contribution
shall not be contributed or allocated hereunder but the same amount
shall be credited to the Participant's account under McCAP I or McCAP
II, as applicable, to the extent provided thereunder; provided that the
same amount shall not be credited to a Participant under more than one
of the McDonald's Profit Sharing Program Equalization Plan ("McEqual"),
McCAP I and McCAP II or any other non-qualified deferred compensation
plan from time to time maintained by the Company.
(4) If a Participant is not eligible to or has not elected to
participate in McCAP I or McCAP II as provided therein and has
Compensation reduction elections in excess of the Maximum Elective
Deferral Amount hereunder, such Participant Elected Contributions shall
not be contributed to the Program nor shall such Participant be
credited with any Participant Elected Contributions or Employer
Matching Contributions LESOP Employer Matching Contributions and LESOP
Employer Matching Allocations and any Forfeitures allocated with each
respective type of contribution under McCAP I or McCAP II, as
applicable, for the Plan Year.
(5) In determining whether the Maximum Elective Deferral Amount
has been exceeded, the Plan Administrator may count Participant Elected
Contributions toward the limit in the order contributed to the Program,
may apply the Maximum Elective Deferral Amount on a pro rata basis to
periods specified by the Plan Administrator or such other approach as
the Plan Administrator shall reasonably determine.
(d) Average Actual Deferral Percentage. The average Actual Deferral
----------------------------------
Percentage ("Average ADP") for a specified group of Active Participants for
a Plan Year shall be the average of the Actual Deferral Percentages of the
persons in such group. The Actual Deferral Percentage of an individual is
the amount of his Participant Elected Contributions (excluding for each
Non-highly Compensated Employee any such contributions in excess of the
Maximum Elective Deferral Amount as defined in Section 5.2(c)(1)) and such
amount of Employer Matching Contributions, LESOP Employer Matching
Contributions and Special Section 401(k) Employer Contributions, as
provided in Section 4.3(b), as determined by the Committee paid to the
Trust for or allocated to each such Employee for such Plan Year divided by
the Employee's Considered Compensation for the Plan Year ("Actual Deferral
Percentage"). As soon as practicable after the end of the Plan Year, the
Committee shall calculate the Average ADP for the Plan Year for the group
of Participants who are Highly Compensated Employees and for the group of
Participants who are Non-highly Compensated Employees.
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<PAGE>
Solely for purposes of calculating the Average ADP the Committee shall
have the discretion to determine the portion of a Participant's (or
selected group of Participants') Participant Elected Contributions,
Employer Matching Contributions, LESOP Employer Matching Contributions,
LESOP Employer Matching Allocations (and any Forfeitures allocated with
each respective type of contribution) or Special Section 401(k) Employer
Contributions to be counted in calculating the Participant's Actual
Deferral Percentage and in making such determination shall be under no
obligation to treat similarly situated Participants in a like manner so
long as the following requirements (to the extent applicable) are
satisfied:
(1) The amount of Special Section 401(k) Employer Contributions
to be counted for purposes of calculating Actual Deferral Percentage
shall satisfy the requirements of Section 401(a)(4);
(2) All contributions to the Program other than Special Section
401(k) Employer Contributions and Participant Elected Contributions
treated as elective contributions for purposes of the Required ADP
Test and any Special Section 401(k) contributions treated as matching
contributions under the Required ACP Test shall satisfy the
requirements of Code Section 401(a)(4); and
(3) The Employer Matching Contributions, LESOP Employer Matching
Allocations and LESOP Employer Matching Contributions and Special
Section 401(k) Contributions are allocated to Participant's Net
Balance Account under the Program as of the last day of the Plan Year
for which the ADP test is being calculated.
(e) Required ADP Test. The Average ADP for Active Participants who are
-----------------
Highly Compensated Employees for the Plan Year bears a relationship to the
Average ADP for Non-highly Compensated Employees who were Active
Participants for the preceding Plan Year for Plan Years beginning in 1997
and thereafter, which meets either of the following tests ("Required ADP
Test"):
(1) The Average ADP for the preceding Plan Year for the group of
Active Participants who were Non-highly Compensated Employees in that
year multiplied by 1.25 is greater than or equal to the Average ADP
for the Plan Year for the Highly Compensated Employees; or
(2) The excess of the Average ADP for the Plan Year for the group
of Highly Compensated Employees who are Active Participants over the
Average ADP for the preceding Plan Year of all Non-highly Compensated
Employees who were Active Participants in that year is not more than 2
percentage points, and the Average ADP for the Plan Year for the group
of Highly Compensated Employees who are Active Participants is not
more than the Average ADP for the preceding Plan Year of all Non-
highly Compensated Employees who were Active Participants in that year
multiplied by 2.
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<PAGE>
For Plan Years beginning in 1998 and thereafter, the above Required ADP
Test may be applied by using the Average ADP for Non-highly Compensated
Employees for the current Plan Year if the Committee so elects; provided that
once made such an election may not be changed except as provided by the
Secretary of the Treasury.
If the Required ADP Test for a Plan Year is not met and, if the Company
does not elect to make Special Section 401(k) Employer Contributions or elect to
count some or all of Employer Matching Contributions, LESOP Employer Matching
Allocations and LESOP Employer Matching Contributions and Forfeitures allocated
with each respective type of contribution for purposes of the ADP test with
respect to the Plan Year sufficient to result in the Required ADP Test being
passed, then the Committee shall reduce Participant Elected Contributions (which
for this purpose shall include any Employer Matching Contributions, LESOP
Employer Matching Allocations and LESOP Employer Matching Contributions and
Forfeitures allocated with each respective type of contribution counted in the
Required ADP Test) and any Employer Matching Contributions, LESOP Employer
Matching Allocations and LESOP Employer Matching Contributions and Forfeitures
allocated with each respective type of contribution allocated with respect to
reduced Participant Elected Contributions that Active Participants who are
Highly Compensated Employees for the Plan Year (or a portion of such Active
Participants) may defer in the following steps:
Step 1. The Committee shall first determine the dollar amount of the
------
reductions which would have to be made to the Participant Elected Contributions
of Highly Compensated Employees who are Active Participants for the Plan Year in
order that the Average ADP of the Highly Compensated Employees would not exceed
the amounts permitted in both Sections 5.2(e)(1) and (e)(2). Such amount shall
be calculated by first determining the dollar amount by which the Participant
Elected Contributions of Highly Compensated Employees who have the highest
Actual Deferral Percentage would have to be reduced until the first to occur of:
(i) such Employees' Actual Deferral Percentage, after the reductions under
Section 5.2(b), would become tied with the Actual Deferral Percentage of one or
more other Highly Compensated Employees or (ii) the Average ADP of all of the
Highly Compensated Employees, as recalculated after any prior reductions under
Section 5.2(b), no longer would exceed the amounts permitted in both Sections
5.2(e)(1) and (e)(2). Then, unless the recalculated Average ADP of the Highly
Compensated Employees no longer exceeds the amounts permitted in both Sections
5.2(e)(1) and (e)(2), the reduction process shall be repeated by determining the
amount of reductions which would have to be made to the Participant Elected
Contributions of Highly Compensated Employees who after all prior reductions
would have the highest Actual Deferral Percentage until the first to occur of:
(iii) the Actual Deferral Percentage, after any prior reductions under Sections
5.2(b), 4.2(c) and this Step 1, of each person in such group becomes tied with
that of one or more other Highly Compensated Employees or (iv) the Average ADP
of all of the Highly Compensated Employees, after the prior reductions, no
longer would exceed the amounts permitted in both Sections 5.2(e)(1) and (e)(2).
This process is repeated until the Average ADP of the
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<PAGE>
Highly Compensated Employees, after all reductions, would no longer exceed the
amounts permitted in both Sections 5.2(e)(1) and (e)(2).
Step 2. Determine the total dollar amount of reductions to the Participant
------
Elected Contributions calculated under Step 1 ("Total Excess Deferrals").
Step 3. The Participant Elected Contributions (which for this purpose
------
shall include any other contributions counted for purposes of calculating the
Required ADP Test) of the Highly Compensated Employees with the highest dollar
amount of Participant Elected Contributions shall be reduced by the lesser of
the dollar amount which either (i) causes such Highly Compensated Employees'
Participant Elected Contributions to equal the dollar amount of the Participant
Elected Contributions of the Highly Compensated Employees with the next highest
dollar amount of Participant Elected Contributions or (ii) reduces the total of
all Highly Compensated Employees' Participant Elected Contributions by the Total
Excess Contributions. Then, unless the total amount of reductions made to Highly
Compensated Employees' Participant Elected Contributions under this Step 3
equals the amount of the Total Excess Deferrals, the reduction process shall be
repeated by reducing the Participant Elected Contributions of the group of
Highly Compensated Employees with the highest dollar amount of Participant
Elected Contributions, after the prior reductions made in this Step 3, by the
lesser of the amount which either: (iii) causes such Highly Compensated
Employees' Participant Elected Contributions after reductions made in Section
5.2(b) and made in this Step 3 to equal the dollar amount of the Participant
Elected Contributions of the Highly Compensated Employees with the next highest
dollar amount of Participant Elected Contributions or (iv) causes total
reductions to equal the Total Excess Contributions. This process is repeated
with each successive group of Highly Compensated Employees with the highest
dollar amount, after the prior reductions, of the Participant Elected
Contributions until the total reductions made under this Step 3 equal the Total
Excess Contributions.
The Committee shall reduce and distribute the Total Excess Deferrals for
the Plan Year and any income, gains or losses attributable thereto, as
determined in accordance with Section 5.3, to Highly Compensated Employees as
determined under Step 3 after the end of the Plan Year with respect to which
such reduced Participant Elected Contributions were made.
If Employer Matching Contributions, LESOP Employer Matching Allocations or
LESOP Employer Matching Contributions and any Forfeitures allocated with each
respective type of contribution are included in calculating the Average ADP for
a Plan Year, any such contributions reduced hereunder shall be distributed to
Participants in the same manner as Participant Elected Contributions are
distributed (including any income allocable thereto). If Employer Matching
Contributions, LESOP Employer Matching Allocations, LESOP Employer Matching
Contributions and any Forfeitures allocated with each respective type of
contribution are not included in calculating the Average ADP for the Plan Year,
any amount of Employer Matching Contributions, LESOP
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<PAGE>
Employer Matching Allocations and LESOP Employer Matching Contributions and
any Forfeitures allocated with each respective type of contribution
therewith which are reduced hereunder because such contributions were
originally allocated with respect to Participant Elected Matched
Contributions which are reduced to meet the above tests shall become a
Forfeiture and shall be allocated with other Participants' Employer
Matching Contribution, LESOP Employer Matching Allocations and LESOP
Employer Matching Contributions and any Forfeitures allocated with each
respective type of contribution, in proportion to the Employer Matching
Contributions, LESOP Employer Matching Allocations and LESOP Employer
Matching Contributions and Forfeitures, respectively, allocated therewith
to such Accounts pursuant to Sections 7.2 or 7.3, as applicable.
5.3 Allocation of Income to Certain Distributed and Forfeited Amounts.
-----------------------------------------------------------------
Income, gains and losses equal to the sum of the amounts determined under (a)
below shall be allocated to and distributed with any amounts distributed to a
Participant pursuant to Sections 4.1(c), 5.2(e) or 5.4, as follows:
(a) Income for Plan Year. Income, gains and losses for a completed
--------------------
Plan Year with respect to contributions distributed in accordance with
Section 4.1(c), 5.2(c), 5.2(e) or 5.4 shall equal the income, gains and
losses for the Plan Year allocable to a Participant's Account for such
contributions (taking the contributions allocated to each different type of
Account, separately) multiplied by a fraction the numerator of which is the
amount of such contributions so distributed and the denominator of which is
the total of such Account balance as of the last day of the Plan Year
reduced by all earnings and gains and increased by all expenses and losses
allocable to such Account for the Plan Year.
(b) Allocation of Distributed Income to Accounts. Income, gains and
--------------------------------------------
losses distributed with any amounts distributed to a Participant pursuant
to Sections 4.1(c), 5.2(c), 5.2(e) or 5.4 shall reduce the income, gains
and losses allocated to a Participant's Participant Elected Contribution
Account or Employer Matching Contribution Account or LESOP Employer
Matching Contribution Account, respectively, in accordance with Section
10.13, in an amount equal to the total amount of such income, gains and
losses distributed.
5.4 Multiple Use of Alternative Limitations. If assuming that the
---------------------------------------
reductions in the amount and manner provided for in Section 5.2(b) and in
Sections 4.1(d) and 5.2(e) were made, the ACP of Highly Compensated Employees
would exceed the amount in Section 4.1(d)(1) but would not exceed the lesser of
the amounts in Section 4.1(d)(2) and the Average ADP of Active Participants who
were Highly Compensated Employees exceeds the amount in Section 5.2(e)(1) but
does not exceed the lesser of the amounts in Section 5.2(e)(2), the sum of the
Average ADP and the Average ACP for a Plan Year of the Active Participants who
were Highly Compensated Employees shall not exceed the greater of (a) or (b),
where:
(a) equals the sum of (1) plus (2) where:
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<PAGE>
(1) is one hundred and twenty-five percent (125%) of the greater
of (A) the Average ADP for such Plan Year of the Non-Highly Compensated
Employees who are Active Participants, or (B) the Average ACP for such Plan
Year of such Non-Highly Compensated Employees; and
(2) is two percent plus the lesser of the amount determined
under Section 5.4(a)(1)(A) or the amount determined under Section
5.4(a)(1)(B), but in no event shall this amount exceed two hundred percent
(200%) of the lesser of the amounts determined under Section 5.4(a)(1)(A)
or 5.4(a)(1)(B); and
(b) equals the sum of (1) plus (2) where
(1) is one hundred and twenty-five percent (125%) of the lesser
of (A) the Average ADP for such Plan Year of the Non-Highly Compensated
Employees who are Active Participants, or (B) the Average ACP for such Plan
Year of such Non-Highly Compensated Employees; and
(2) is two percent plus the greater of the amount determined
under Section 5.4(b)(1)(A) or 5.4(b)(1)(B). In no event, however, shall
this amount exceed 200 percent of the greater of the amounts determined
under Section 5.4(b)(1)(A) or 5.4(b)(1)(B).
If the sum of the Average ADP and the Average ACP of Highly Compensated
Employees for a Plan Year, after any reductions provided for in Section 5.2(c)
or in Step 1 of Sections 4.1(d) and 5.2(e) if applicable, exceeds the amounts
determined under both Sections 5.4(a) and 5.4(b) and if the Company does not
elect to make Special Section 401(k) Employer Contributions so that the sum of
such Average ADP and Average ACP does not exceed both Sections 5.4(a) and
5.4(b), the Committee shall determine, in accordance with Step 1, the smallest
aggregate dollar amount of reductions to Participant Elected Contributions and
any Employer Matching Contributions or LESOP Employer Matching Allocations,
LESOP Employer Matching Contributions and any Forfeitures allocated with each
respective type of contribution of Highly Compensated Employees allocated
therewith which would make the sum of such Average ADP and Average ACP not
exceed both Sections 5.4(a) and 5.4(b). In determining whether any Employer
Matching Contributions or LESOP Employer Matching Allocations, LESOP Employer
Matching Contributions and Forfeitures allocated with each respective type of
contribution are allocated with respect to Participant Elected Contributions,
reductions shall be made first to a Participant's Unmatched Participant Elected
Contributions and then to his Matched Participant Elected Contributions.
Step 1. The Committee shall determine the dollar amount of the reductions
------
which have to be made under this Section 5.4 so that the Multiple Use Test is
met. Such amount shall be calculated by first determining the dollar amount by
which the total of the Participant Elected Contributions (and the Employer
Matching Contributions or LESOP Employer Matching Allocations, LESOP Employer
Matching Contributions and Forfeitures allocated with each respective type of
contribution to such Participant Elected
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<PAGE>
Contributions) after any reductions made under Section 5.2(c) or Step 1 of
Sections 4.1(d) or 5.2(e) of the Highly Compensated Employees the sum of whose
Actual Contribution Percentage and Actual Deferral Percentage is the greatest
of all Highly Compensated Employees would have to be reduced until the total
of his Actual Contribution Percentage and Actual Deferral Percentage equals
either: (i) the sum of the Actual Contribution Percentage and Actual Deferral
Percentage of other Highly Compensated Employees or (ii) the sum of the
Average ACP and the Average ADP of the Highly Compensated Employees, as
calculated after such reduction, no longer exceeds the amounts determined
under both Section 5.4(a) and (b). Then, unless the sum of the Average ACP and
Average ADP of the Highly Compensated Employees, as recalculated after the
reductions made under Section 5.2(b) and Step 1 of Sections 4.2(d), 5.2(e) and
5.4, no longer exceeds the amounts determined under both Sections 5.4(a) and
(b), the reduction process shall be repeated by determining the amount of
reductions which would have to be made to the Participant Elected
Contributions of Highly Compensated Employees, whose Actual Contribution
Percentage and Actual Deferral Percentage after all prior reductions under
Step 1 would sum to the highest amount until the first to occur of: (iii) the
sum of the Actual Contribution Percentage and the Actual Deferral Percentage,
after the prior reductions, of each person in such group becomes tied with
that of one or more other Highly Compensated Employees or (iv) that the sum of
the Average ADP and the Average ACP of all Highly Compensated Employees, after
all prior reductions made under Sections 5.2(c) and Step 1 of Sections 4.1(d),
5.2(e) and 5.4, would no longer exceed the amounts determined under both
Sections 5.4(a) and (b). This process is repeated until the sum of the Average
ACP and the Average ADP of all of the Highly Compensated Employees, after all
reductions, would no longer exceed the amount permitted in both Sections
5.4(a) and (b).
Step 2. Next the Committee shall determine the total dollar amount of
------
reductions to the Participant Elected Contributions, Employer Matching
Contributions and Forfeitures and LESOP Employer Matching Contributions and
Forfeitures as calculated under Step 1 ("Total Reduction Amount").
Step 3. Once the Total Reduction Amount has been determined, the
------
Participant Elected Contributions, Employer Matching Contributions or LESOP
Employer Matching Allocations and LESOP Employer Matching Contributions and
any Forfeitures allocated with each respective type of contribution of the
Highly Compensated Employee for whom the sum of his Participant Elected
Contributions, Employer Matching Contributions or LESOP Employer Matching
Allocations and LESOP Employer Matching Contributions and any Forfeitures
allocated with each respective type of contribution, after any reductions made
in Section 5.2(c) or in Step 3 of Sections 4.2(d) or 5.2(e), is the highest
dollar amount of all Highly Compensated Employees shall be reduced by the
lesser of the amount which either: (i) causes the sum of such Highly
Compensated Employee's Participant Elected Contributions, Employer Matching
Contributions or LESOP Employer Matching Allocations and LESOP Employer
Matching Contributions and any Forfeitures allocated with each respective type
of contribution to equal the sum of the Highly Compensated Employee with the
next highest
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<PAGE>
sum of his Participant Elected Contributions, Employer Matching Contributions
and any Forfeitures or LESOP Employer Matching Allocations and LESOP Employer
Matching Contributions and Forfeitures allocated with each respective type of
contribution or (ii) reduces the Highly Compensated Employee's sum of
Participant Elected Contributions, Employer Matching Contributions or LESOP
Employer Matching Allocations and LESOP Employer Matching Contributions and
any Forfeitures allocated with each respective type of contribution by the
Total Reduction Amount. Then, unless the total amount of reductions made
equals the Total Reduction Amount, the reduction process shall be repeated by
reducing the Participant Elected Contributions, Employer Matching
Contributions, LESOP Employer Matching Allocations and LESOP Employer Matching
Contributions and any Forfeitures allocated with each respective type of
contribution allocated with respect thereto by the lesser of such amount which
either: (iii) causes the sum of such highly Compensated Employees' Participant
Elected Contributions, Employer Matching Contributions or LESOP Employer
Matching Allocations and LESOP Employer Matching Contributions and any
Forfeitures allocated with each respective type of contribution allocated with
respect to such Participant Elected Contributions to equal the dollar amount
of such contributions of other Highly Compensated Employees or (iv) causes
total reductions to equal the Total Reduction Amount. This process is repeated
with each successive group of Highly Compensated Employees with the highest
sum of Participant Elected Contributions, Employer Matching Contributions or
LESOP Employer Matching Allocations and LESOP Employer Matching Contributions
and any Forfeitures allocated with each respective type of contribution
allocated with respect thereto, after the prior reductions, until the total
reductions made under this Step 3 is equal to the Total Reduction Amount.
The Committee may establish, from time to time, such rules, restrictions
and limitations as it may deem appropriate to insure that the above limitations
are met. If the Committee determines that the reduction or disallowance of
Employer Matching Contributions, LESOP Employer Matching Allocations and LESOP
Employer Matching Contributions and any Forfeitures allocated with each
respective type of contribution, Participant elections or Participant Elected
Contributions is necessary or desirable with respect to Highly Compensated
Employees, the Committee may reduce or disallow Employer Matching Contributions,
LESOP Employer Matching Allocations and LESOP Employer Matching Contributions
and any Forfeitures allocated with each respective type of contribution for such
Highly Compensated Employees, including elections for Participant Elected
Contributions or such contributions, Employer Matching Contributions, LESOP
Employer Matching Allocations and LESOP Employer Matching Contributions and any
Forfeitures allocated with each respective type of contribution, as provided in
Section 4.2(d) or 5.2(e).
5.5 Excess Compensation Reduction Elections. Participant Elected
---------------------------------------
Contributions for any Participant or group of Participants shall not exceed the
maximum amounts permitted under Sections 4.1(d), 5.2(e) and 5.4, as determined
by the Committee in its sole discretion. If any amounts of Employer Matching
Contributions or LESOP Employer Matching Contributions and any Forfeitures
allocated with each respective type of contribution of any Participant or group
of Participants are determined by the Committee to be in excess of the amounts
permitted under
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<PAGE>
Section 4.1(d), 5.2(e) or 5.4 or if the Committee reasonably expects that
Employer Matching Contributions or LESOP Employer Matching Allocations, LESOP
Employer Matching Contributions and any Forfeitures allocated with each
respective type of contribution or Participant Elected Contributions will be in
excess of the amounts permitted under Section 4.1(d), 5.2(e) or 5.4, the
Committee may apply one or both of (a) and (b) below to the extent the
Committee, in its discretion, reasonably estimates to be necessary to satisfy
Section 4.1(d), 5.2(e) or 5.4.
(a) Restrictions on Participant Elected Contributions. The Committee
-------------------------------------------------
may reduce prospectively the amount of the Participant Elected
Contributions which may be made by an Employer to the McDESOP Trust on
behalf of an Active Participant or any specified group of Active
Participants who are Highly Compensated Employees by reducing the future
contributions to be made with respect to such Participants or by reducing
such Participants' elections to the extent the Committee reasonably
determines it is necessary to satisfy Section 4.1(c), 5.2(e) or 5.4. In
making reductions to future Participant Elected Contributions hereunder the
Committee, generally, shall have no obligation to treat similarly situated
Participants who are Highly Compensated Employees in the same manner and,
particularly, shall not be obligated to reduce Participant's future
elections in any particular systematic manner based upon the amount of
Participant Elected Contributions already made for the Plan Year, the
percentage of a Participant's Considered Compensation which Participant
Elected Contributions constitute, or the amount or percentage of Considered
Compensation which a Participant's effective Participant Elected
Contribution election constitutes.
(b) Staggered and Limited Elections for Highly Compensated Employees.
----------------------------------------------------------------
The Committee may, in accordance with uniform and non-discriminatory rules
it establishes from time to time, require that Active Participants who are
among the Highly Compensated Employees for the Plan Year make elections
with respect to Participant Elected Contributions following and/or
preceding the completion of such elections by Employees who are Non-highly
Compensated Employees and the Committee may (1) limit the amount by which
each Participant who is among the Highly Compensated Employees may elect to
reduce his Considered Compensation, and (2) permit each Employee who is a
Non-highly Compensated Employee to elect to reduce his Considered
Compensation within higher limits than those for Highly Compensated
Employees.
(c) Estimated Compensation. For the purposes of Section 5.5(a) and
----------------------
(b), Employers are permitted to determine Participants' Considered
Compensation for the immediately preceding Plan Year or estimated
Considered Compensation for the current Plan Year, as applicable, whenever
information regarding actual Considered Compensation for such Plan Year is
not reasonably available at the time the amount of a contribution hereunder
is determined or limited.
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<PAGE>
5.6 Deadline for Participant Elected Contributions. Each Employer shall
----------------------------------------------
contribute on behalf of each Active Participant the Participant Elected
Contributions for each Plan Year to the Trustee as soon as administratively
possible as of the earliest date on which such contributions can reasonably be
segregated from the Employer's general assets but not later than the earlier of
(1) 90 days from the date on which such amounts would otherwise have been
payable to the Active Participant in cash or (2) the end of the twelve-month
period immediately following the last day of such Plan Year or by such later
date as may be permitted under applicable law, Treasury Regulations and Rulings
of the Internal Revenue Service.
5.7 Application of the Limitations of Sections 4.1(d), 5.2(c), 5.2(e), 5.4
----------------------------------------------------------------------
and 9.1. Section 9.1 shall be first applied to contributions under the Program;
- -------
secondly, Section 5.2(c) shall be applied to contributions under the Program;
thirdly, Section 5.2(e) shall be applied to contributions under the Program; and
fourthly, Section 4.1(d) shall be applied to contributions under the Program;
and lastly, 5.4 shall be applied to contributions under the Program. Amounts
contributed to the Plan in excess of the amounts permitted under Section 9.1
which are reduced under Sections 5.2(c), 5.2(e), 4.1(d) or 5.4 shall be
disregarded for the calculation of the tests in Sections 5.2(c), 5.2(e), 4.1(d)
or 5.4. Other than with respect to the reductions required under Section 9.1,
amounts reduced in an earlier step in the above sequence shall reduce the
reductions of contributions of the same type required to be made in subsequent
steps.
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<PAGE>
ARTICLE VI
LESOP LOAN PROVISIONS
6.1 Power to Borrow. The Board of Directors in its discretion may
---------------
authorize the Trustee of the Trust to borrow funds on behalf of the Program for
the purpose of purchasing Company Stock and for making repayment of outstanding
loans, the proceeds of which have been used to purchase Company Stock and for
which the Program is liable. In the event the Trustee's borrowing shall cause a
lending of money or other extension of credit to be made between the Program and
a Disqualified Person or a Party in Interest or, if in connection with such
borrowing, a Disqualified Person or Party in Interest shall guarantee a loan or
other extension of credit to the Program, such loan or other extension of credit
to the Program shall, as an "Exempt Loan," meet the requirements of Section
4975(d)(3) of the Internal Revenue Code and Section 408(b)(3) of ERISA and
regulations thereunder, which include the following:
(a) The loan shall be for a specific term and not payable upon demand
except in the event of default;
(b) The loan is primarily for the benefit of Participants and
Beneficiaries, at a reasonable rate of interest, and under terms at the
time the loan is made which are at least as favorable to the Program as the
terms of a comparable loan resulting from arms-length negotiations between
independent parties;
(c) The proceeds of the loan must be used within a reasonable time
after their receipt to acquire Company Stock or for making repayment of an
outstanding Exempt Loan;
(d) The loan shall be without recourse against the Program and
collateral for the loan shall be limited to the shares of Company Stock
acquired with the proceeds of the loan (or Company Stock into which such
shares have been converted) or used as collateral on an outstanding Exempt
Loan which is being repaid with the proceeds of the loan. No person
entitled to payment under the loan shall have any right to any assets of
the Program other than the collateral, LESOP Contributions (excluding
contributions of Company Stock), earnings on such collateral and
contributions (including but not limited to dividends paid on unallocated
Company Stock or Company Stock into which such shares have been converted
held in the LESOP Suspense Account) and dividends paid on Company Stock (or
Company Stock into which such shares have been converted) acquired with the
loan proceeds and held in Participants' Accounts;
(e) In the event of a default upon the loan, the value of the Program
assets transferred in satisfaction of the loan shall not exceed the amount
of the default and, if the lender is a Party in Interest or Disqualified
Person, shall not exceed an amount of Plan assets equal to the amount of
the payment schedule with respect to which there is a failure to pay; and
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<PAGE>
(f) The loan may provide that there shall be no required payments of
principal and/or interest for one or more years and the Company may from
time to time request the Trustee to renegotiate any such loan to change the
payment terms with respect to payments not then due and payable, to extend
the period of payment, or to reduce or eliminate the amount of any payment
or payments of principal and/or interest not then due and payable.
These rules shall be changed by amendment to the Program to the extent
changes in applicable law require or permit.
6.2 Accounting for Loan Proceeds and LESOP Contributions. The Committee
----------------------------------------------------
shall establish with respect to each loan a separate LESOP Suspense Account to
record and separately account for: (a) the proceeds of each loan or other
extension of credit authorized under Section 6.1 and any unallocated Company
Stock purchased with proceeds of such a loan or any loan refinanced with such
loan (and any Company Stock into which such purchased shares have been
converted), (b) LESOP Contributions with respect to such loan, (c) any income,
gains or losses allocated to the LESOP Suspense Account with respect to such
loan and (d) any dividends from shares of Company Stock purchased (and Company
Stock into which such purchased shares have been converted) with the proceeds of
the loan (or any loan refinanced with such loan) which have been allocated to
Participants' Accounts and transferred to the Suspense Account. Subject to the
discretion of the Trustee to reinvest proceeds from the sale of Company Stock
pursuant to Section 6.4(b), earnings of the LESOP Suspense Account with respect
to a loan shall be used to repay the loan, and to the extent not so used shall
be released and allocated under Section 6.3 hereof. Assets shall be released
from the LESOP Suspense Account only in accordance with the provisions of
Section 6.3 or to repay a loan or for reinvestment in Company Stock pursuant to
Section 6.4(b), provided, however, proceeds of an Exempt Loan may not be used to
repay any loan which is not an Exempt Loan.
6.3 Release from LESOP Suspense Account.
-----------------------------------
(a) Loan Repayment Release. Company Stock acquired with the proceeds
----------------------
of an Exempt Loan, or other loan authorized under Section 6.1 or a loan
refinanced with such Exempt Loan or other loan (and Company Stock into
which such purchased shares have been converted) and held in the LESOP
Suspense Account under Section 6.2 shall be released as of the last
Valuation Date of a Plan Year immediately following the release under
Sections 6.3(b) and 6.3(c) for such Valuation Date for allocation to LESOP
Accounts, of each Active Participant in accordance with the provisions of
Section 6.3(a)(1) below unless such loan provides for the annual payment of
principal and interest at a cumulative rate that is not less rapid at any
time than level annual payments of such amounts for ten (10) years, and the
interest paid on such loan is determined under standard loan amortization
tables, in which case such Company Stock shall be released in accordance
with Section 6.3(a)(1) or (2) below, as may be selected by the Board of
Directors in its discretion at the time such loan is made; provided,
however, if such loan is renewed, extended or refinanced, and if the sum of
the expired duration of the loan, any renewal period, extension period, and
the duration of the refinancing exceeds ten (10)
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<PAGE>
years, determined as of the date of the renewal, extension or refinancing,
Section 6.3(a)(1) shall apply:
(1) Each Plan Year in which any amount remains outstanding under
an Exempt Loan (or other loan authorized under Section 6.1), the
number of shares of Company Stock released from the LESOP Suspense
Account shall equal the difference between (A) the product (rounded
upward to the nearest whole number of shares) of the number of shares
of Company Stock held and accounted for under the LESOP Suspense
Account immediately before the release increased by the number of
shares, if any, previously released from the LESOP Suspense Account in
accordance with Sections 6.3(b) and 6.3(c) for the Plan Year with
respect to such loan, multiplied by a fraction, the numerator of which
is the amount of principal and interest paid on the Exempt Loan (or
other loan authorized under Section 6.1) for the Plan Year and the
denominator of which is the sum of the numerator plus the principal
and interest to be paid for all future Plan Years (without
consideration of possible extensions or renewal periods) reduced by
(B) the number of shares, if any, previously released from the LESOP
Suspense Account in accordance with Sections 6.3(b) and 6.3(c) for the
Plan Year with respect to such loan. If the interest rate under the
Exempt Loan (or other loan authorized under Section 6.1) is variable,
the interest to be paid in future Plan Years shall be computed by
using the interest rate applicable as of the end of the Plan Year of
payment.
(2) For each Plan Year during the duration of an Exempt Loan (or
other loan authorized under Section 6.1), the number of shares of
Company Stock released from the LESOP Suspense Account shall equal the
difference between (A) the product of the number of shares of Company
Stock held and accounted for under the LESOP Suspense Account
immediately before the release increased by the number of shares, if
any, previously released from the LESOP Suspense Account in accordance
with Sections 6.3(b) and 6.3(c) for the Plan Year with respect to such
loan, multiplied by a fraction, the numerator of which is the amount
of principal paid on the Exempt Loan (or other loan authorized under
Section 6.1) for the Plan Year and the denominator of which is the sum
of the numerator plus the principal to be paid for all future years
reduced by (B) the number of shares, if any, previously released from
the LESOP Suspense Account in accordance with Sections 6.3(b) and
6.3(c) for the Plan Year with respect to such loan.
If subsection (1) is applicable and if no amount of principal and
interest is paid with respect to a loan for the Plan Year, or if subsection
(2) is applicable and no amount of principal is paid for the Plan Year,
there shall be no release of shares of Company Stock from the LESOP
Suspense Account maintained with respect to such loan for the Plan Year in
accordance with Section 6.3(a). If an Exempt Loan (or other loan
authorized under Section 6.1) is repaid as a result of a refinancing by
another Exempt Loan (or other loan authorized under Section 6.1), such
repayment shall not be
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<PAGE>
considered a repayment of principal under Sections 6.3(a)(1) and (2) and
the release of shares shall be determined as provided in Section 6.3(a)(1)
and (2), by aggregating principal and interest on the loan and any
refinancings of the loan.
(b) As of each Valuation Date, there shall be released from the LESOP
Suspense Account maintained with respect to each Exempt Loan (or other loan
authorized under Section 6.1) Company Stock in an amount equal to (1) the
number of shares which have a fair market value as of the Valuation Date
equal to the amount of dividends paid to the Trust with respect to shares
of Company Stock which were purchased with the proceeds of such loan or any
loan refinanced with such loan (and Company Stock into which such purchased
shares have been converted) and which have been allocated to Participants'
Accounts (excluding Employer Matching Contribution Accounts), which
dividends were received by the Trust since the immediately preceding
Valuation Date, credited to such Participants' Accounts and immediately
placed in the LESOP Suspense Account to be used to repay the loan, reduced
by (2) the number of any shares contributed or the number of shares
purchased with any cash contributed to the Trust as Special Dividend
Replacement Contributions in accordance with Section 4.2(d) with respect to
the loan.
(c) As of each Valuation Date occurring on or after November 1, 1998,
there shall be released from the LESOP Suspense Account maintained with
respect to each Exempt Loan (or other loan authorized under Section 6.1)
the number of shares of Company Stock which have a fair market value equal
to fifty percent (or such higher percentage as the Board shall from time to
time determine pursuant to Section 4.3(a)) of the amount of Participant
Elected Matched Contributions contributed to the Plan since the immediately
preceding Valuation Date. Such released amounts, called the "LESOP Employer
Matching Allocations," shall be allocated to Participants' Matching
Contribution Account as provided in Section 7.2(a)(2).
(d) The amounts released from both Sections 6.3(b) and (c) shall not
exceed the total amount Section 6.3(a)(1)(A) or 6.3(a)(2)(A), as
applicable.
(e) Any release from the LESOP Suspense Account provided for in
Sections 6.3(b) and 6.3(c) for each Valuation Date during a Plan Year
(including the last Valuation Date for a Plan Year) shall be made prior to
the release from the LESOP Suspense Account provided for in Section 6.3(a).
6.4 Installment Payments on Exempt Loan.
-----------------------------------
(a) Installment Payments. The Trustee shall make payments on an
--------------------
Exempt Loan (or other loan authorized under Section 6.1) in the amounts and
at such times as such payments are due under the terms of such loan and
such additional payments on such loan as the Trustee determines in its
discretion, provided, however, such payments shall be made solely from the
LESOP Suspense Account, from amounts of LESOP Contributions made in cash,
from dividends with respect to shares of Company Stock
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<PAGE>
purchased with a loan or a loan refinanced by such loan (or Company Stock
into which such shares have been converted) which shares have been released
from a LESOP Suspense Account and allocated to Participants' Accounts
(excluding Employer Matching Contribution Accounts) and from dividends or
other earnings with respect to the LESOP Suspense Account maintained with
respect to such loan.
(b) Sale of Company Stock Held in LESOP Suspense Account. In the
----------------------------------------------------
event that any shares of Company Stock acquired with the proceeds of a loan
or a loan refinanced with such loan (and Company Stock into which such
purchased shares have been converted) and held in a LESOP Suspense Account
are sold prior to release from such LESOP Suspense Account, the Trustee, in
its sole discretion, may either (1) apply the proceeds of such sale, or any
portion thereof, toward repayment of such loan or a loan refinanced with
such loan or (2) reinvest the proceeds of such sale, or any portion
thereof, in shares of Company Stock. In exercising its discretion pursuant
to Section 6.4, the Trustee shall consider the long-term interests of both
current and future Participants and Beneficiaries in providing benefits
under the Program and Trust.
6.5 Non-Terminable Rights and Protections. Any of the provisions herein
-------------------------------------
to the contrary notwithstanding, the following protections and rights are non-
terminable, except to the extent required or permitted under applicable law,
Treasury Regulations and Rulings of the Internal Revenue Service, with respect
to proceeds of an Exempt Loan regardless of whether the Program continues to be
maintained as a leveraged ESOP.
(a) Except as provided in this Section 6.5, or except as otherwise
required by applicable law, no security acquired with the proceeds of an
Exempt Loan may be subject to a put, call (other than a call with respect
to Company Stock which is convertible preferred stock which provides for a
reasonable opportunity for a conversion into common stock of the Company
which is Company Stock after such call is exercised), or other option, or
buy-sell or similar arrangement while held by and when distributed from the
Program, whether or not the Program or the portion of the Program from
which such Company Stock is distributed is then an ESOP.
(b) If any Company Stock acquired with the proceeds of an Exempt Loan
(or other loan authorized under Section 6.1) or which is otherwise subject
to this provision pursuant to Section 11.2(k) is not readily tradeable on
an established market, or thereafter ceases to be publicly traded and if
and only if such Company Stock should ever be distributed from the Program,
the distributee shall be given an option exercisable only by the
distributee (or the distributee's donees or a person, including an estate
of a distributee, to whom the security passes by reason of the
Participant's death), to put the security to the Company for a 60 day
period beginning on the date of distribution ("First Put Period") and for
another 60 day period commencing on the first anniversary of the date of
distribution ("Second Put Period"). If such security ceases to be readily
tradeable on an established market (or becomes subject to a trading
limitation) before the end of the Second Put Period, the Company shall
notify the Participant in writing on or before the 10th day after the date
the security ceases to be readily tradeable on an established market
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(or becomes subject to a trading limitation) that the security is subject
to a put option to the Company for any portion of the First Put Period and
the Second Put Period remaining after the date the security ceases to be
readily tradeable on an established market, and such notice shall inform
the distributees of the terms of the put option. The Program shall have the
right, but not the obligation, to assume the rights and obligations of the
Company with respect to the put option at the time the put option is
exercised. A put option hereunder shall be exercised by the holder
notifying the Company in writing that the put option is being exercised. If
during the First Put Period or the Second Put Period, a distributee is
unable to exercise a put option because the Company is prohibited from
honoring it under applicable Federal or State law ("Non-Exercise Period"),
the put option shall be exercisable during an extended put period
("Extended Put Period"). The Extended Put Period shall commence on the 10th
day after the Company can honor the put option and notice of this fact is
given to the distributees entitled to an Extended Put Period and shall
extend for a period equal to the number of days in the Non-Exercise Period
but not more than 60 days.
If the Non-Exercise Period was for more than 60 days, a second
Extended Put Period shall occur commencing on the first anniversary of the
first Extended Put Period and shall extend for the lesser of (1) 60 days or
(2) number of days in the Non-Exercise Period reduced by 60 days.
A put option shall be exercisable at a price equal to the value of the
security determined as of the most recent Valuation Date following the
Participant's exercise of the put option. Payment under a put option shall
not be restricted by the provisions of a loan or other arrangement,
including the Company's articles of incorporation, unless so required by
State law. If the distributee exercises a put option with respect to
Company Stock received by the Participant as part of an installment
distribution, the Company shall pay for such Company Stock not later than
thirty days after the exercise of such option. If the distributee
exercises a put option with respect to Company Stock received as part of a
distribution to the Participant within one taxable year of the balance to
the credit of the Participant's vested Net Balance Account, the Company may
pay for such Company Stock not later than the thirtieth day after the
exercise of such option or may elect to pay for such Company Stock with
deferred payments. Payments for shares of Company Stock put to the Company
may be deferred only if adequate security and a reasonable rate of interest
are provided and if periodic payments are made in substantially equal
installments (at least annually) beginning within 30 days after the date
the put option is exercised and extending for no more than 5 years after
the put option is exercised.
6.6 Independent Appraisals Required. All valuations of Company Stock
-------------------------------
which is not readily tradeable on an established securities market shall be made
as of each Valuation Date by an independent appraiser meeting requirements
similar to the requirements of the regulations prescribed under Section
170(a)(1) of the Internal Revenue Code.
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ARTICLE VII
ALLOCATIONS OF CONTRIBUTIONS
7.1 Profit Sharing Contribution Allocation Formula.
----------------------------------------------
(a) As of the last Valuation Date of each Plan Year, the Profit
Sharing Contributions made pursuant to Section 3.1(b)(1) and the net income
gains and losses of the Profit Sharing Holding Fund as provided in Sections
10.13 and 10.14 shall be allocated to the Profit Sharing Fund Account of
each Active Participant who is a staff or an executive employee or a store
manager, in an amount equal to the product of (1) multiplied by (2) where:
(1) is Profit Sharing Contributions made pursuant to Section
3.1(b)(1) for the Plan Year, and
(2) is a fraction the numerator of which is the Active
Participant's Considered Compensation for the Plan Year and the
denominator of which is the total Considered Compensation of all such
Active Participants for such Plan Year.
(b) As of the last Valuation Date of each Plan Year, the Profit
Sharing Contributions made pursuant to Section 3.1(b)(2) and the net income
gains and losses of the Profit Sharing Holding Fund as provided in Sections
10.13 and 10.14 shall be allocated to the Profit Sharing Account of each
Active Participant who is a certified swing manager, a primary maintenance
employee or crew or other store hourly employee in an amount equal to the
product of (1) multiplied by (2) where:
(1) is Profit Sharing Contributions made pursuant to Section
3.1(b)(2) for the Plan Year, and
(2) is a fraction, the numerator of which is the Active
Participant's Considered Compensation for the Plan Year and the
denominator of which is the total Considered Compensation of all such
Active Participants for such Plan Year.
(c) Allocations to the Profit Sharing Accounts of Active Participants
shall be made as soon as reasonably possible after the end of a Plan Year
after the Company has determined that its final contribution for the Plan
Year has been made to the Profit Sharing Trust. Employer Profit Sharing
Contributions shall be held in the Profit Sharing Holding Fund until
allocated to the Profit Sharing Account of each eligible Active Participant
as described in Section 7.1(a) or 7.1(b), as applicable. If notwithstanding
its earlier determination that the final contribution for a Plan Year has
been made, additional Employer Profit Sharing Contributions are contributed
for a Plan Year, such contributions shall be allocated as described in
Section 7.1(a) or 7.1(b), as applicable, no later than the last day of the
next following Plan Year. Effective the first day of the calendar month
next following the date amounts are allocated pursuant to this Section 7.1,
such amounts shall be invested in accordance with the investment elections
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applicable to each respective Participant's Profit Sharing Account as
provided in Sections 10.7, 10.8 or 10.9.
7.2 Employer Matching Contributions, LESOP Employer Matching Allocations,
--------------------------------------------------------------------
LESOP Employer Matching Contributions Additional Employer Contributions and
- ---------------------------------------------------------------------------
Special Section 401(k) Employer Contributions.
- ---------------------------------------------
(a) Allocation of Employer Matching Contributions, LESOP Employer
-------------------------------------------------------------
Matching Allocations and LESOP Employer Matching Contributions.
--------------------------------------------------------------
(1) For periods before November 1, 1998, as of each Valuation
Date, the Employer Matching Contributions and Forfeitures held in the
McDESOP Holding Fund shall be allocated to the Employer Matching
Contribution Account of each Active Participant in an equal percentage
(not to exceed the Matching Percentage as defined in Section 4.1(a))
of each Participant's Participant Elected Matched Contributions
(excluding Special Participant Elected Matched Contributions) made for
the period since the immediately preceding Valuation Date. For
purposes of this Section 7.2(a)(1), a Participant's Participant
Elected Matched Contributions made for the period since the
immediately preceding Valuation Date shall be the difference between
the amount of his Participant Elected Contributions for the Plan Year
as of the Valuation Date and the amount of his Participant Elected
Contributions for the Plan Year as of the immediately preceding
Valuation Date up to an amount not to exceed the percentage of his
Considered Compensation specified for such Participant in Section
4.3(a). Notwithstanding the foregoing, any amount in the McDESOP
Holding Fund as of the last Valuation Date of the Plan Year (even if
such contributions for the Plan Year are made after such Valuation
Date as provided in Section 10.15) after allocations are made pursuant
to the preceding sentence, shall be allocated to Employer Matching
Contribution Account of each Active Participant who is an Employee on
such Valuation Date in an amount equal to such remaining amount
multiplied by a fraction the numerator of which is the amount of
Participant Elected Matched Contributions (excluding Special
Participant Elected Matched Contributions) made on behalf of such
Active Participant for the Plan Year and the denominator of which is
the total amount of Participant Elected Matched Contributions
(excluding Special Participant Elected Matched Contributions) made on
behalf of all such Active Participants for the Plan Year.
(2) For periods beginning on or after November 1, 1998, any
shares of Company Stock released, pursuant to Section 6.3(c), from the
LESOP Suspense Account as of a Valuation Date as LESOP Employer
Matching Allocations, any LESOP Employer Matching Contributions and
any Forfeitures allocated with such respective amounts shall be
allocated to the Employer Matching Contribution Account of each Active
Participant in an equal percentage (not to exceed fifty percent or
such higher percentage as the Board shall provide pursuant to Section
4.1(b)) of each such Participant's Participant Elected Matched
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Contributions (excluding Special Participant Elected Matched
Contributions) made for the period since the immediately preceding
Valuation Date.
(b) Allocation of Special Section 401(k) Employer Contributions.
-----------------------------------------------------------
Special Section 401(k) Employer Contributions to the Trust for a Plan Year,
if any, shall be allocated, as of the last Valuation Date of the Plan Year,
in an equal amount to the Employer Matching Contribution Account of each
designated Active Participant as contributions to the McDESOP or to LESOP
portions of the Program as determined by the Company. The designated Active
Participants shall be the smallest group of Non-Highly Compensated
Employees who made Participant Elected Contributions for the Plan Year and
to whom the dollar amount of per individual Special Section 401(k) Employer
Contributions could be allocated which would cause the Program to pass
whichever of the following tests it would not otherwise pass: the ADP test
in Section 5.2(e), the ACP test in Section 4.1(c) or the multiple use test
in Section 5.4.
(c) Allocation of Additional Employer Contributions. As of the last
-----------------------------------------------
Valuation Date of each Plan Year as the Board of Directors may direct,
Additional Employer Contributions shall be allocated to the Employer
Matching Contribution Account of each Active Participant in an amount equal
to the amount of the Additional Employer Contributions for the Plan Year
multiplied by a fraction, the numerator of which is the number of full
calendar months during which the Participant was an Active Participant, and
the denominator of which is the aggregate number of full calendar months
during which all Active Participants were Active Participants.
7.3 LESOP Contributions.
-------------------
(a) LESOP Contributions. Any shares of Company Stock purchased with
-------------------
the proceeds of a loan (or Company Stock into which such shares have been
converted) designated by the Board of Directors to be repaid by
Compensation Based LESOP Contributions (or a loan refinanced by such loan)
and released from the LESOP Suspense Accounts maintained with respect to
such loan, any income from such LESOP Suspense Accounts released pursuant
to Sections 6.2 and 6.3, and any Forfeitures from LESOP Accounts for the
Plan Year shall be allocated to each Active Participant's LESOP Account or
Employer Matching Contribution Account, as follows:
(1) as of each Valuation Date, in an amount, if any, with respect
to each loan equal to the amount of dividends paid with respect to
Company Stock (or Company Stock into which such shares have been
converted) that was purchased with the proceeds of such a loan (or a
loan refinanced by such loan) and that has been allocated to the
Participant's Accounts (excepting his Employer Matching Contribution
Account), that dividends, since the immediately preceding Valuation
Date, were credited to Participants' Accounts and immediately
transferred to the LESOP Suspense Account pursuant to Section 6.3(b)
to be used to make payments on the loan;
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(2) as of each Valuation Date occurring on or after November 1,
1998, as amount equal to fifty percent (or such greater amount as the
Board of Directors shall determine) of each Active Participant's
Participant Elected Matched Contributions since the immediately
preceding Valuation Date, as released from the LESOP Contribution
Suspense Account pursuant to Section 6.3(c) and as contributed by the
Employers pursuant to Section 4.1(b) which shall be credited to such
Participant's Employer Matching Contribution Account.
(3) as of the last Valuation Date of each Plan Year, in an amount
equal to the number of shares of Company Stock released from the LESOP
Contribution Suspense Account in accordance with Section 6.3(a)
multiplied by a fraction the numerator of which is the Considered
Compensation of the Active Participant and the denominator of which is
the total of all Considered Compensation of all Active Participants
which shall be allocated to such Participant's LESOP Account.
(b) Additional LESOP Contributions. Additional LESOP Contributions for
------------------------------
a Plan Year which were designated in accordance with Section 4.2(c) as Per
Capita Additional LESOP Contributions (and any Forfeitures therefrom) shall
be allocated as of the last Valuation Date of the Plan Year to the
Additional LESOP Account of each Active Participant in an amount equal to
the total amount of Per Capita Additional LESOP Contributions (and any
Forfeitures therefrom) for the Plan Year divided by the number of Active
Participants. Additional LESOP Contributions for a Plan Year which were
designated in accordance with Section 4.2(c) as Compensation Based
Additional LESOP Contributions (and any Forfeitures therefrom) shall be
allocated as of the last Valuation Date of such Plan Year to the Additional
LESOP Account of each Active Participant in an amount equal to the total
amount of Additional LESOP Contributions (and any Forfeitures therefrom)
multiplied by a fraction the numerator of which is the Considered
Compensation of such Active Participant and the denominator of which is the
total Considered Compensation of all Active Participants for the Plan Year.
Per Capita Additional Employer LESOP Contributions and Compensation Based
Additional Employer LESOP Contributions shall be separately accounted for
in Participants' Additional LESOP Accounts.
(c) Special Dividend Replacement Contributions. Any Special Dividend
------------------------------------------
Replacement Contributions made to the Program pursuant to Section 4.2(d)
shall be credited to Participants' Accounts to replace dividends which
pursuant to Section 6.3(b) are credited to the LESOP Suspense Account to be
used to repay the Exempt Loan the proceeds of which purchased the shares of
Company Stock with respect to which such dividends were paid.
(d) LESOP Employer Matching Contributions. Any LESOP Employer Matching
-------------------------------------
Contributions made to the Program, on or after November 1, 1998, pursuant
to Section 4.1(b) shall be credited to a LESOP Suspense Account. Any amount
of LESOP Employer Matching Contributions for a Plan Year shall be allocated
to Participant's
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Employer Matching Contribution Accounts pursuant to Section 7.3(a)(2) with
any amounts released from the LESOP Suspense Accounts pursuant to Section
6.3(c).
7.4 Participant Elected Contributions. As of each Valuation Date, the
---------------------------------
Participant Elected Contributions in the McDESOP Holding Fund made since the
preceding Valuation Date shall be credited to the Participant Elected
Contribution Accounts of the Participants for whom such contributions were made.
7.5 Timing of Allocations. Amounts allocated to or transferred to
---------------------
Participants' Accounts as of a Valuation Date shall be credited to the Accounts
as of such Valuation Date after the adjustments are made for Trust income as
provided in Sections 10.12, 10.13 and 10.14. Amounts contributed to the Program
shall be credited as of the date of contribution to the following Accounts and
Funds: Profit Sharing Holding Fund, McDESOP Holding Fund, and Rollover Holding
Account as provided in Section 10.23 and the LESOP Suspense Account as provided
in Section 6.2.
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ARTICLE VIII
ROLLOVERS AND TRUSTEE TRANSFERS
8.1 Participant Rollovers. A Participant may elect through procedures
---------------------
approved by the Committee to make Rollovers to the Program. If any Rollover
includes property other than money, the Trustee may in its sole discretion
refuse to accept such Rollover or may condition its acceptance of such Rollover
on such terms and conditions as it deems reasonable. Each Participant's Rollover
shall be held in his Rollover Holding Account until the next following Valuation
Date at which time his Rollover Holding Account is transferred to the
Participant's Rollover Account and invested in accordance with his investment
elections provided for in Section 10.8.
8.2 Limited Participation. An Employee who is not eligible to participate
---------------------
in the Program solely by reason of failing to meet the eligibility requirements
of Section 2.1 and who reasonably expects to become a Participant when such
requirements are met, may be a Participant in the Program solely for the limited
purpose of making a Rollover subject to the same conditions on such Rollovers as
any other Participant.
8.3 Withdrawal of Rollovers. At the election of the Participant, amounts in
-----------------------
his Rollover Account and Rollover Holding Account may be withdrawn as provided
in Section 11.16.
8.4 Rollover Not Forfeitable. A Participant's Rollover Account and Rollover
------------------------
Holding Account shall be fully vested and non-forfeitable.
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ARTICLE IX
LIMITATIONS ON CONTRIBUTIONS
BECAUSE OF FEDERAL LEGISLATION
9.1 Limitations on Contributions. Any of the provisions herein to the
----------------------------
contrary notwithstanding, a Participant's Annual Additions (as defined in
paragraph below) for any Plan Year shall not exceed his Maximum Annual Additions
(as defined in paragraph below) for the Plan Year. If a Participant's Annual
Additions would but for the provisions of this Section 9.1, exceed his Maximum
Annual Additions (the "Annual Excess"), the Participant's Annual Additions for
the Plan Year shall be reduced under Section 9.1(d) by the amount necessary to
eliminate such Annual Excess. Rollovers and amounts distributed in a Plan Year
in accordance with Section 5.2(c) shall not be included as part of a
Participant's Annual Additions.
(a) "Annual Additions" of a Participant for a Plan Year means the sum
----------------
of the following :
(1) Employer Contributions allocated to his Profit Sharing Account
for the Plan Year;
(2) Participant Elected Contributions, Employer Matching
Contributions, Additional Employer Contributions, Special Section
401(k) Contributions and LESOP Employer Matching Contributions and any
Forfeitures allocated therewith for the Plan Year allocated to the
Participant;
(3) any amount of LESOP Annual Additions, as determined under
Section 9.1(c), allocated to the Participant;
(4) all other employer contributions and forfeitures (excluding
Forfeitures allocated to the Participant's LESOP Account) for such Plan
Year allocated to the Participant's accounts for such Plan Year under
the Program or any other Related Defined Contribution Plan not already
included under Section 9.1(a)(1), 9.1(a)(2) or 9.1(a)(3);
(5) the amount of nondeductible participant contributions under
the Program or any Related Plan made by the Participant for the Plan
Year; and
(6) solely with respect to the limitation under Section 9.1(b)(2)
contributions allocated to any individual medical account as provided
in Code Section 415(l)(1).
(b) "Maximum Annual Additions" of a Participant for a Plan Year means
------------------------
the lesser of (1) or (2) below:
(1) 25% of the Participant's Considered Compensation, or
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(2) $30,000, adjusted in subsequent years for cost of living
adjustments determined in accordance with regulations prescribed by the
Secretary of Treasury or his delegate pursuant to the provisions of Section
415(d) of the Internal Revenue Code.
(c) "LESOP Annual Additions" means:
----------------------
(1) If no more than one-third (1/3) of the total amounts of the
employer contributions which are deductible under Section 404(a)(9) of the
Internal Revenue Code for the Plan Year are allocated to Highly Compensated
Employees, each Active Participant shall have LESOP Annual Additions in an
amount for each Exempt Loan equal to the product of (A) the total amount of
Company and Other Employer LESOP Contributions for a Plan Year as provided
in Sections 4.2(a) and 4.2(b) used to repay each loan for the Plan Year,
reduced, for any Plan Year for which the loan repaid is an Exempt Loan as
defined in Section 6.1, by the amount used to pay interest on the Exempt
Loan, multiplied by (B) a fraction, the numerator of which is the
Participant's Considered Compensation for the Plan Year, and the
denominator of which is the Considered Compensation of all Active
Participants for the Plan Year; provided that, if a Participant's
allocations to his LESOP Account are reduced in order to reduce the Annual
Excess in accordance with the provisions of this Article IX, the
Participant's Considered Compensation, for purposes of both the numerator
and the denominator of this fraction shall be reduced to an amount equal to
the Participant's Considered Compensation, multiplied by a fraction, the
numerator of which is the Participant's allocation to his LESOP Account for
the Plan Year after applying the Annual Excess reduction provisions
hereunder and the denominator of which is such allocation to his LESOP
Account for the Plan Year before applying the Annual Excess reduction
provisions hereunder.
(2) If Section 9.1(c)(1) does not apply, each Active Participant shall
have LESOP Annual Additions in an amount for each loan equal to the sum of
(A) Forfeitures (and earnings thereon) allocated to the Participant's LESOP
Account under the LESOP portion of the Program, and (B) the total amount of
Company and Other Employer LESOP Contributions for a Plan Year as provided
in Sections 4.2(a) and 4.2(b) used to repay each loan for the Plan Year
(including the amount used to repay interest on such loans), multiplied by
(I) in the case of LESOP Contributions, a fraction, the numerator of which
is the Participant's Considered Compensation for the Plan Year and the
denominator of which is the Considered Compensation of all Active
Participants for the Plan Year; provided that, if a Participant's
allocations to his LESOP Account are reduced in order to reduce the Annual
Excess in accordance with the provisions of this Article IX, the
Participant's Considered Compensation for purposes of both the numerator
and the denominator of this fraction shall be reduced to an amount equal to
the Participant's Considered Compensation, multiplied by a fraction, the
numerator of which is the Participant's allocation to his LESOP Account for
the Plan Year,
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after applying the Annual Excess reduction provisions hereunder and the
denominator of which is such allocation to his LESOP Account for the Plan
Year before applying the Annual Excess reduction provisions hereunder.
(3) The amount of LESOP Contributions deemed to be used to pay
interest on a loan for purposes of Section 9.1(c)(2) for a Plan Year shall
be the amount of LESOP Contributions made for the Plan Year multiplied by a
fraction the numerator of which is the amount of interest payments made by
the Trust for the Plan Year with respect to such loan (including any
refinancing of such loan) from all sources and the denominator of which is
the amount of all payments of both principal and interest made by the Trust
for the Plan Year with respect to such loan (including any refinancing of
such loan) from all sources.
(d) Elimination of Annual Excess. If a Participant has an Annual Excess
----------------------------
for a Plan Year, such excess shall not be allocated to the Participant's
Accounts, but shall be eliminated as follows:
(1) If any Annual Excess exists, the Participant's Employer
Contributions allocable to such Participant's Profit Sharing Account shall
be reduced to the extent such reductions reduce the Annual Excess.
(2) If any Annual Excess remains after application of the preceding
paragraph, the Participant's LESOP Annual Additions (other than with
respect to LESOP Employer Matching Allocations) shall be reduced by
reducing the allocations made as of a given Valuation Date reducing
allocations with respect to Forfeitures before allocations with respect to
Employer Contributions for each loan starting first with the most recent
loan and then with other loans in the reverse of the order in which made to
the extent that the reductions reduce the amount of the Annual Excess.
(3) If any Annual Excess remains after application of the preceding
paragraph, Participant Elected Contributions and Employer Matching
Contributions and Forfeitures and LESOP Employer Matching Allocations and
LESOP Employer Matching Contributions and any Forfeitures allocated
therewith shall be reduced by reducing those contributions most recently
credited to the Participant's Accounts first (followed by the next most
recent and so forth) and with respect to contributions credited as of a
Valuation Date reducing contributions in the order listed, as follows: (A)
Participant Elected Unmatched Contributions and (B) Participant Elected
Matched Contributions and associated Employer Matching Contributions and
Forfeitures or LESOP Employer Matching Allocations and LESOP Employer
Matching Contributions and Forfeitures to the extent such reductions reduce
the amount of the Annual Excess.
(4) If any Annual Excess remains after application of the preceding
paragraph, the Participant's allocations of Additional Employer
Contributions
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shall be reduced to the extent such reductions reduce the amount of the
Annual Excess.
(5) If any Annual Excess remains after application of the preceding
paragraph, the Participant's allocations of Special Section 401(k) Employer
Contributions shall be reduced to the extent such reductions reduce the
amount of the remaining Annual Excess.
(6) If any Annual Excess remains after application of the preceding
paragraph, the Participant's allocations to his Additional LESOP Account
shall be reduced to the extent such reductions reduce the amount of the
Annual Excess.
(7) If any Annual Excess remains after application of the preceding
paragraph, any Special Dividend Replacement Contributions credited to the
Participant's LESOP Account shall be reduced to the extent such reductions
reduce the amount of the remaining Annual Excess.
Any allocations of Employer Contributions and Forfeitures reduced or
eliminated under this Section 9.1(d), as provided above, shall, subject to the
limits of this Section 9.1, be reallocated to the Accounts of the other
Participants not having such reductions as of the last day of that Plan Year in
the same manner as such Employer Contributions and Forfeitures were initially
allocated under Article VII. The amount of any Participant Elected Contributions
reduced or eliminated under this Section 9.1 which have been contributed to the
Program shall be allocated as (and in lieu of) Employer Matching Contributions,
if before November 1, 1998, or LESOP Employer Matching Allocations and LESOP
Employer Matching Contributions, if on or after November 1, 1998, in the Plan
Year for which or next following the Plan Year for which the reduction is made.
Any Employer Contributions and Forfeitures which, under the limits of this
Section 9.1, cannot be reallocated to the Accounts of other Participants in the
Plan Year shall, subject to the limits of this Section 9.1, be held in an
unallocated suspense account and reallocated in a subsequent Plan Year. If the
Program shall be terminated, any amounts held in a suspense account shall be
reallocated to the accounts of all Participants in accordance with Article VII
subject to the limitations of Section 9.1, and any such amounts which cannot be
reallocated to Participants in the Plan Year of the termination shall be
returned to the Employers in such proportions as shall be determined by the
Committee.
(e) Limitation in Case of Employee Participation in Both Defined Benefit
--------------------------------------------------------------------
and Defined Contribution Plans. If a Participant participates in any defined
- -------------------------------
benefit plan of the Employer (or any Related Defined Benefit Plan), the sum of
the Defined Benefit Plan Fraction (as defined in Section 415(e)(2) of the
Internal Revenue Code) and the Defined Contribution Plan Fraction (as defined in
Section 415(e)(3) of the Internal Revenue Code) for such Participant shall not
exceed 1.0 (called the "Combined Fraction"). If the Combined Fraction of such
Participant exceeds 1.0, the Participant's Defined Benefit Plan Fraction shall
be reduced by limiting the Participant's annual benefits payable from
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the Related Defined Benefit Plan in which he participates to the extent
necessary to reduce the Combined Fraction of such Participant to 1.0, and
to the extent the Combined Fraction continues to exceed 1.0, by reducing
the Participant's Maximum Annual Additions to the extent necessary to
reduce the Combined Fraction to 1.0. In calculating the Participant's
Defined Contribution Fraction employee contributions as permitted under the
Program or a Related Plan before January 1, 1987, shall be counted as
Annual Additions only to the extent that they were counted under the
Program as then in effect. This Section 9.1(e) shall not apply in Plan
Years beginning after December 31, 1999.
9.2 Employer Contribution Reductions. If a Participant's Participant
--------------------------------
Elected Contributions or his allocations of Employer Contributions and
Forfeitures are reduced or eliminated under Section 9.1, the amount shall be
provided to the Participant under McEqual, McCAP I or McCAP II, or other non-
qualified plans maintained by the Company, to the extent therein provided.
Amounts of Participant Elected Contributions, Employer Matching Contributions
and LESOP Employer Matching Contributions expected to be within the limitations
under Section 9.1 shall be contributed to the Program and credited hereunder.
Amounts of such contributions expected to be in excess of the limitations under
Section 9.1 shall be tentatively credited to McEqual, McCAP I or McCAP II or
other non-qualified plans maintained by the Company. If it is subsequently
determined that additional amounts of Participant Elected Contributions,
Employer Matching Contributions or LESOP Employer Matching Contributions should
be contributed hereto to attain the limitations under Section 9.1, in order to
put the Participant in the same position he would have been in had such amounts
been contributed contemporaneously to the Program, contributions to the Program
will reflect, to the extent of the limits of Section 9.1, the income, gains and
losses which would have been credited to the Participant's Accounts hereunder
had such amounts been credited hereto instead of being tentatively credited to
McEqual, McCAP I, McCAP II or other non-qualified plans maintained by the
Company. The effect of adjustments to contributions for such income, gains and
losses may be that some Participants hereunder will be credited with Participant
Elected Contributions in excess of the limits stated in Sections 4.3(a) and 5.1
and in amounts which are more than or less than the amounts of such
contributions elected by the Participant, and may have rates of Employer
Matching Contributions or LESOP Employer Matching Contributions which are larger
or smaller than the rate established by the Company for the Plan Year in
accordance with Section 4.1. In determining the amounts to be credited to a
Participant's accounts during a Plan Year under McEqual, McCAP I, McCAP II and
other non-qualified plans maintained by the Company, the Committee may make
assumptions based upon reasonable estimates of the amount of the Participant's
Considered Compensation, his Participant Elected Contributions, levels of
Employer Contributions hereunder and other relevant factors and, as necessary,
make subsequent adjustments to the extent the estimates prove to be incorrect.
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ARTICLE X
TRUSTEE AND TRUST FUNDS
10.1 Trust Agreements. The Company and the Trustee have entered into one or
----------------
more Trust Agreements which provide for the investment of the assets of the
Program and administration of the Trust Funds. The Trust Agreements, as from
time to time amended, shall continue in force and shall be deemed to form a part
of the Program, and any and all rights or benefits which may accrue to any
person under the Program shall be subject to all the terms and provisions of the
Trust Agreement.
10.2 Trustee's Duties. The powers, duties and responsibilities of the Trustee
----------------
of the Trust shall be as stated in the respective Trust Agreements and as may be
delegated to, and accepted by, the Trustee from the Committee and Board of
Directors. Nothing contained in the Program either expressly or by implication
shall be deemed to impose any additional powers, duties or responsibilities upon
the Trustee. All Employer Contributions, Participant Contributions, Rollovers
and Participant Elected Contributions shall be paid into a Trust and all
withdrawals permitted and benefits payable under the Program shall be paid from
the Trust.
10.3 Trust Expenses. Except to the extent an Employer agrees to pay them
--------------
without reimbursement, all clerical, legal and other expenses of the Program and
the Trust and the Trustee's fees shall be paid by the Trust and shall be
proportionately charged to the Profit Sharing, McDESOP, Leveraged ESOP, Stock
Sharing and other parts of the Trust Fund except to the extent directly
attributable to a specific portion of a Trust Fund in which case it shall be
directly charged to that portion of the Trust Fund.
10.4 Trust Entity. The Trust under this Program from its inception shall be a
------------
separate entity aside and apart from the Employers or their assets. The Trusts
and the corpus and income thereof, shall not be subject to the rights or claims
of any creditor of any Employer.
10.5 Right of the Employers to Trust Assets. Subject to the provisions of
--------------------------------------
Section 9.1, the Employers shall have no right or claims of any nature in or to
the Trust Fund except the right to require the Trustee to hold, use, apply, and
pay such assets in its possession in accordance with the Program for the
exclusive benefit of the Participants or their Beneficiaries and for defraying
the reasonable expenses of administering the Program and Trust, provided that:
(a) if, and to the extent that, a deduction for Employer contributions
under Section 404 of the Internal Revenue Code is disallowed, employer
contributions conditioned on deductibility shall be returned to the
appropriate Employer within one year after the disallowance of the
deduction; and
(b) if, and to the extent that, an Employer contribution is made through
mistake of fact, such employer contribution shall be returned to the
appropriate Employer within one year of the payment of the contribution and
any Participant Elected Contributions shall be distributed to the
Participants with respect to which such contributions were made.
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Notwithstanding any other provision of this Section 10.5, if, upon
application of (a) or (b) above, Employer contributions would be returned to an
Employer, then the Employer shall distribute the value of any portion of such
contributions to the appropriate Participants.
All Employer Contributions are conditioned on their being deductible under
Section 404 of the Internal Revenue Code.
10.6 Trust Investment Funds. Excluding those assets held in the Holding
----------------------
Funds, as provided in Section 10.23, assets of the Trust Fund shall be held as
follows:
(a) Profit Sharing Plan. The assets held in Participant's Profit
-------------------
Sharing Accounts and any amounts held in Participant's Diversification
Accounts shall be held in the following Investment Funds:
(1) The Diversified Stock Fund invested in common stocks, and
--------------------------
securities convertible into common stocks, of corporations other than
McDonald's Corporation or its Domestic or Foreign Affiliates, and in any
other securities which represent an equity investment, provided,
however, that the Diversified Stock Fund may be invested in pooled or
common trust funds or open-end investment companies without regard to
whether assets of such funds or investment companies are invested in
securities of McDonald's Corporation or its Domestic or Foreign
Affiliates;
(2) The Profit Sharing McDonald's Common Stock Fund invested in
-----------------------------------------------
common stock of McDonald's Corporation;
(3) The Stable Value Fund or such other fund designated by the
---------------------
Committee which shall be invested (i) in contracts issued by an
insurance or other company (or companies), (ii) directly in debt
securities that have fixed obligations to pay interest and principal on
specified dates or which have similar investment characteristics (which
may have equity features triggered by performance, the passage of time,
or similar characteristics or may be securities which are derivatives of
such securities) ("Fixed Income Obligations") or (iii) in pooled or
common trust funds, regulated investment companies, or open-ended
investment companies generally invested in Fixed Income Obligations
without regard to whether assets of such common trust funds, regulated
investment companies, or open-ended investment companies are invested in
securities of McDonald's Corporation or its Domestic or Foreign
Affiliates. The contracts issued by insurance or other companies held by
the Stable Value Fund (iv) may be investment contracts or (v) may be
investment management agreements which may provide separate book value
guarantees pursuant to which the insurance or other company guarantees
(A) the book value of a pool or segregated group of fixed income
obligations held in the Stable Value Fund and (B) specified amounts of
income under various conditions as provided in such agreement ((iv) and
(v) collectively shall be referred to as "Assets Subject to Guarantee").
With respect
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to Assets Subject to Guarantee, the Program shall use book value accounting
and Participants' Accounts shall contain and shall be entitled only to
their pro rata share of book value and guaranteed income which for all
purposes hereunder will be treated as fair market value unless the
Committee determines that the guarantees no longer apply, a market value
distribution has occurred under the contract, or there has been a default
on the guarantee.
(4) The Blended Stock Bond Fund invested in domestic common stocks,
---------------------------
debt securities that have a fixed obligation to pay interest and principal
on specified dates or which have substantially similar investment
characteristics, international common stocks, and securities convertible
into domestic common stocks of corporations other than McDonald's
Corporation or its Domestic or Foreign Affiliates, and in any other
securities which represent an equity investment, provided, however, that
the Blended Stock Bond Fund may be invested in pooled or common trust funds
or open-end investment companies without regard to whether assets of such
funds or investment companies are invested in securities of McDonald's
Corporation or its Domestic or Foreign Affiliates;
(5) The Money Market Fund invested in United States Government debt
---------------------
securities which mature or become payable within two years and which are
the direct obligation of or guaranteed by the United States Government,
including bonds, notes, certificates of indebtedness, and treasury bills;
in commercial paper rated according with such guidelines as the Board of
Directors may from time to time approve; and in certificates of deposit in
those banks designated in the agreement with the Investment Manager or, if
there is no such agreement or if the agreement fails to designate such
banks, in those banks designated under the McDonald's Corporation
Investment Policy; and
(6) The S&P 500 Fund invested in the stocks, future contracts,
----------------
options, warrants, options on futures contracts, convertible securities
swap agreements, stock index futures contracts, repurchase agreements and
similar investments and which seeks to replicate the return of the 500
stocks which comprise the Standard & Poor's 500 Composite Stock Price Index
from time to time including to the extent determined by the fund manager in
securities of McDonald's Corporation or its Domestic Affiliates. The fund
may also engage in securities lending. This fund became available on
September 1, 1999.
In order to maintain appropriate or adequate liquidity and pending or
pursuant to investment directions from an Investment Manager, the Trustee of the
Trust is authorized to hold such portions as it deems necessary of the
Diversified Stock Fund, the Profit Sharing McDonald's Common Stock Fund, the
Stable Value Fund, the Money Market Fund, the Blended Stock Bond Fund and the
S&P 500 Fund in cash, a short-term investment fund (a "STIF Fund"), or liquid
short-term cash equivalent investments or securities (including, but not limited
to United States government treasury bills,
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commercial paper, and savings accounts and certificates of deposit, including
those of the Trustee or custodian, if the Trustee or custodian is a bank, and
common or commingled trust funds invested in such securities, including those of
the Trustee or custodian).
(b) LESOP. The assets of the LESOP portion of the Trust (other than any
-----
amounts which have been transferred to a Participant's Diversification Account
pursuant to Section 10.10) shall be invested in Company Stock which is common
stock of McDonald's Corporation held in the McDESOP McDonald's Common Stock
Fund, provided that it shall at all times be possible to determine the number of
such shares of Company Stock which are allocated to a Participant's LESOP
Accounts.
In order to maintain adequate liquidity, pending the investment of funds,
or the use of funds to make payments on a loan, or for funds which could not be
appropriately invested either because of the small amount involved or the short
time duration for which the investment is to be made, the Trustee is authorized
to hold portions of the LESOP Accounts and LESOP Suspense Accounts in cash, a
STIF Fund or liquid short-term cash equivalent investments or securities
(including, but not limited to United States government treasury bills,
commercial paper, and savings accounts and certificates of deposit, including
those of the Trustee or custodian, if the Trustee or custodian is a bank, and
common or commingled trust funds invested in such securities, including those of
the Trustee or custodian).
(c) (1) McDESOP. The assets of the McDESOP portion of the McDESOP Trust
-------
(other than any amounts which have been transferred to a Participant's
Diversification Account pursuant to Section 10.10) shall be held in the
McDESOP McDonald's Common Stock Fund invested in Company Stock which is
common stock of McDonald's Corporation.
(2) McDESOP Diversification. Portions of a Participant's Participant
-----------------------
Elected Contribution Account and Employer Matching Contribution Account
which a Participant has elected to diversify pursuant to Section 10.10
shall be credited to the Participant's McDESOP Contribution Diversification
Account and invested in the Profit Sharing Trust Investment Funds listed in
Section 10.6(a) as provided in Section 10.11 as of the first business day
of the calendar month following the later of the month in which (1) the
Diversification Election was made for amounts diversified in accordance
with Sections 10.10 and (2) the Considered Compensation (from which the
Participant Elected Contributions were taken) was paid or as of such
earlier date as the Committee shall provide. Participant Elected
Contributions and Employer Matching Contributions which the Participant has
elected to diversify pursuant to Section 10.10 shall be invested in the
McDESOP McDonald's Common Stock Fund until the Diversification Election is
implemented pursuant to Section 10.11.
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10.7 Investment of Participant's Employer Profit Sharing Contributions. The
-----------------------------------------------------------------
provisions of Sections 10.7(a) and 10.7(b) shall apply to Employer Profit
Sharing Contributions as follows:
(a) Each Participant's share of Employer Profit Sharing Contributions
and the earnings thereon shall be invested in the Profit Sharing McDonald's
Common Stock Fund in an amount equal to the Participant's share of Employer
Profit Sharing Contributions multiplied by the Automatic McDonald's Stock
Proportion. The "Automatic McDonald's Stock Proportion" is a percentage, if
any, announced by the Board of Directors for the Plan Year. The remainder
of the Participant's Employer Profit Sharing Contributions and the earnings
thereon for the Plan Year shall be invested in accordance with Section 10.8
or 10.9, as applicable; provided that if in accordance with a Participant's
elections pursuant to Section 10.8, a percentage of his Employer Profit
Sharing Contributions and the earnings thereon for the Plan Year greater
than the Automatic McDonald's Stock Proportion would be invested in the
Profit Sharing McDonald's Common Stock Fund, the Participant's Employer
Profit Sharing Contributions and the earnings thereon with respect to the
Profit Sharing Plan for the Plan Year shall be invested in accordance with
the Participant's elections pursuant to Section 10.8.
(b) A Participant may elect, at such time and in such manner as the
Committee shall designate for each Plan Year not to have the Automatic
McDonald's Stock Proportion of his Employer Profit Sharing Contributions
and Forfeitures and the earnings thereon with respect to the Profit Sharing
Plan for the Plan Year invested in the Profit Sharing McDonald's Common
Stock Fund. If a Participant elects not to have the Automatic McDonald's
Stock Proportion of his Employer Profit Sharing Contributions and
Forfeitures with respect to the Profit Sharing Plan for the Plan Year
invested in the Profit Sharing McDonald's Common Stock Fund, his Employer
Profit Sharing Contributions, such Forfeitures and the earnings thereon
shall be invested in accordance with Sections 10.8 or 10.9, as applicable.
10.8 Investment Election with Regard to a Participant's Profit Sharing,
------------------------------------------------------------------
Diversification, Investment Savings and Rollover Accounts. The following two
- ---------------------------------------------------------
paragraphs are effective before January 1, 1998. Four times each Plan Year (or
on such more frequent basis as the Committee shall permit), each Participant
shall have the right to elect, on such forms and in accordance with such rules
and procedures as the Committee may from time to time prescribe, to have each of
(a) his Profit Sharing Account (including any amounts which have previously been
invested in the Profit Sharing McDonald's Common Stock Fund pursuant to Section
10.7) and his Diversification Accounts, if any, (b) his Investment Savings
Account, or (c) his Rollover Account invested in the Diversified Stock Fund, the
Money Market Fund, the Profit Sharing McDonald's Common Stock Fund, the Stable
Value Fund, the Blended Stock Bond Fund or other similar fund designated from
time to time by the Committee or in any combination of them; provided that
amounts which have been invested in the Profit Sharing McDonald's Common Stock
Fund in accordance with Section 10.7 shall remain invested in the Profit Sharing
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McDonald's Common Stock Fund until a new investment election made by the
Participant in accordance with this Section 10.8 is effective.
If a Participant makes a LESOP Diversification Election, McDESOP Future
Contribution Diversification Election, or McDESOP Diversification Election in
accordance with Section 10.10, his Diversification Account, if any, shall be
invested in accordance with his Profit Sharing Account investment election in
effect at the time his diversification election is effective or from time to
time thereafter or in accordance with Section 10.9(a) if no such investment
election is in effect and shall be invested in accordance with any subsequently
effective Investment Election as provided above. The Participant's election as
to the percentage of his Profit Sharing Account and Diversification Account to
be invested in each Investment Fund, shall be made in increments of 10 percent
(10%) up to 100 percent (100%). A Participant may elect to invest as much as
100% of his Profit Sharing Account and Diversification Account in the Profit
Sharing McDonald's Common Stock Fund. Subject to Section 10.7, a Participant's
investment election shall be effective until his next investment election is
effective.
Effective January 1, 1998 the preceding two paragraphs shall be replaced
with the following:
Once each month effective the first day of the next calendar month (or on
such more frequent basis as the Committee shall permit), each Participant shall
have the right to elect, on such forms and in accordance with such rules and
procedures as the Committee may from time to time provide, to have each of (a)
his Profit Sharing Account (including any amounts which have previously been
invested in the Profit Sharing McDonald's Common Stock Fund pursuant to Section
10.7) and his Diversification Accounts, if any, (b) his Investment Savings
Account, or (c) his Rollover Account invested in the Diversified Stock Fund, the
Money Market Fund, the Profit Sharing McDonald's Common Stock Fund, the Stable
Value Fund, the Blended Stock Bond Fund, the S&P 500 Fund or other similar fund
designated from time to time by the Committee or in any combination of them;
provided that amounts which have been invested in the Profit Sharing McDonald's
Common Stock Fund in accordance with Section 10.7 shall remain invested in the
Profit Sharing McDonald's Common Stock Fund until a new investment election made
by the Participant in accordance with this Section 10.8 is effective.
If a Participant makes a LESOP Diversification Election, Participant
Elected Contribution Account Diversification Election, or McDESOP
Diversification Election in accordance with Section 10.10, his Diversification
Account, if any, shall be invested in accordance with his Profit Sharing Account
investment election in effect at the time his diversification election is
effective or in accordance with Section 10.9(a) if no such investment election
is in effect and shall be invested in accordance with any subsequently effective
Investment Election as provided above. Each Participant may elect the
percentage of his Profit Sharing Account, Diversification Account and Investment
Savings Account to be invested up to 100 percent in each Investment Fund, in
increments of 10 percent (10%) for periods before September 1, 1999 and five
percent (5%) for periods after August 31, 1998. A Participant may elect to
invest as much as 100% of his Profit Sharing Account and Diversification Account
in the
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Profit Sharing McDonald's Common Stock Fund. Subject to Section 10.7, a
Participant's investment election shall be effective until his next investment
election is effective.
10.9 Failure to Make an Investment Election.
--------------------------------------
(a) Profit Sharing Accounts. If a Participant fails to make an
-----------------------
investment election for his Profit Sharing Account and his Diversification
Account during any Plan Year, then such Accounts shall be invested in
accordance with such Participant's immediately preceding investment
election made with respect to such Accounts in accordance with Section
10.8; provided that any amounts invested in the Profit Sharing McDonald's
Common Stock Fund in accordance with Section 10.7 shall remain invested in
the Profit Sharing McDonald's Common Stock Fund until a new investment
election made by the Participant in accordance with Section 10.8 is
effective. If a Participant has never made an investment election with
respect to such Accounts, then the amount, if any, invested in the Profit
Sharing McDonald's Common Stock Fund in accordance with Section 10.7 shall
remain invested in the Profit Sharing McDonald's Common Stock Fund and the
remainder of the Participant's Profit Sharing Account, the Participant's
LESOP Diversification Account and the McDESOP Diversification Account shall
be invested one hundred percent (100%) in the Money Market Fund.
(b) Investment Savings Fund Account and Rollover Account. If a
----------------------------------------------------
Participant fails to make an investment election for his Investment Savings
Account and/or his Rollover Account during any Plan Year, then such
Account(s) shall be invested in accordance with such Participant's
immediately preceding investment election made with respect to such
Account(s). If a Participant has never made an investment election with
respect to such Account(s) then such Account(s) shall be invested 100
percent (100%) in the Money Market Fund.
10.10 Diversification of McDESOP and LESOP Contributions and Accounts.
---------------------------------------------------------------
Section 10.10(a1) shall remain in effect until the Committee or its
representative determines that the procedures and systems are in place to
permit the implementation of Section 10.10(a2).
(a1) Age Diversification of LESOP Account Balances.
---------------------------------------------
(1) Diversification Elections by Qualified Participant.
--------------------------------------------------
Commencing with the first day of the month after a Participant becomes
a Qualified Participant and during each Annual Election Period and, in
addition, at the same times and subject to the same administrative
requirements as apply to Investment Elections under Section 10.8, each
Qualified Participant shall be permitted to make a diversification
election with respect to his Qualified Account ("LESOP Diversification
Election").
(2) Definitions. As used in Section 10.10(a), the following
-----------
terms shall have the meanings indicated:
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(A) "Qualified Participant" means a Participant (including
---------------------
a Participant who has had a Termination of Employment) who has
attained age 55 or the Beneficiary of a deceased Participant who
would have attained the age of 55 if he were alive.
(B) "Annual Election Period" means the 90 day period after
----------------------
the last day of each Plan Year commencing with the Plan Year in
which the Participant first becomes a Qualified Participant.
(C) "Qualified Account" means a Qualified Participant's
-----------------
LESOP Accounts.
(D) "Maximum Diversification Percentage" means:
----------------------------------
(i) In the case of a Qualified Participant who has
not attained age 60 and who has not had a Termination of
Employment, 25%;
(ii) In the case of a Qualified Participant who has
attained age 60 and has not had a Termination of Employment,
50%; and
(iii) In the case of a Qualified Participant who has
had a Termination of Employment, 100%.
(E) "Leveraged Diversification Election" means an election
----------------------------------
by a Qualified Participant to transfer to his LESOP
Diversification Account, an amount not exceeding the difference
between
(i) the Maximum Diversification Percentage (or lesser
percentages in five percent (5%) increments) of the sum of
(a) the value of Company Stock credited to the Participant's
--
Qualified Account plus (b) the amounts previously
-
transferred under this Section 10.10 from such Qualified
Account to the Participant's Diversification Accounts
("Prior Diversification Transfers"), reduced by
(ii) the Participant's Prior Diversification
Transfers.
If a Participant has made a LESOP Diversification
Election and has not made a subsequent LESOP Diversification
Election with a lower percentage election than his prior
LESOP Diversification Election, a percentage of the value of
all future allocations to the Participant's Qualified
Account equal to the percentage of the Participant's LESOP
Diversification Election shall be transferred to the
Participant's LESOP Diversification
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Account. If a Participant who has made a LESOP
Diversification Election makes a new LESOP Diversification
Election at a percentage (including to zero) lower than the
percentage of the earlier LESOP Diversification Election, no
portion of allocations to the Participant's Qualified
Account shall be transferred to the Diversification Account
until the product of the new lower percentage elected
multiplied by the sum of the Qualified Account plus Prior
Diversification Transfers exceeds the Prior Diversification
Transfers, at which time such excess, and thereafter, a
percentage of all future allocations to the Participant's
Qualified Account equal to the percentage of the
Participant's LESOP Diversification Election shall be
transferred to Participant's Diversification Account. No
amount transferred to a Participant's Diversification
Account may be transferred back to the Participant's LESOP
Account.
(3) Investment of Amounts Subject to LESOP Diversification
------------------------------------------------------
Election. The amount subject to a Participant's LESOP Diversification
--------
Election shall be transferred to the Participant's LESOP Diversification
Account under the Program and thereafter shall be invested in accordance
with the Participant's elections pursuant to Section 10.8 or 10.9(a) but
determined without regard to Section 10.7 provided that such transfer shall
occur no later than 90 days after the date on which the Participant becomes
a Qualified Participant, attains age 60 or the end of each Annual Election
Period during which the Participant makes a LESOP Diversification Election
or at such earlier dates as the Committee, pursuant to Section 10.11 shall
permit.
(a2) Age Diversification of LESOP Account Balances. Commencing with the
---------------------------------------------
first day of the month after a Participant attains the age of 50 and at the same
times and subject to the same administrative requirements as apply to Investment
Elections under Section 10.8, each such Participant shall be permitted to elect
to diversify up to 100 percent of his LESOP Accounts ("LESOP Diversification
Election"). LESOP Diversification Elections may also be made by the Beneficiary
of a deceased Participant who would have attained the age of 50 if he were alive
and by a Participant who has had a Termination of Employment regardless of his
age.
(b) Diversification of McDESOP Contributions.
----------------------------------------
(1) Future Participant Elected Contributions. Effective before
----------------------------------------
January 1, 1998, a Participant may make an election ("McDESOP Future
Contribution Diversification Election") with respect to his future
Participant Elected Contributions to have up to 100 percent of the amount
of such contributions, in increments of 5 percent, credited to his McDESOP
Diversification Account. Once a Participant has made such a McDESOP Future
Contribution Diversification Election, he may, with respect to periods
before January 1, 1998,
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change his election with respect to future Participant Elected
Contributions, subject to Section 10.11, but each such change shall only
affect Participant Elected Contributions made to the Program after the date
the election is effective and before the date a new McDESOP Future
Contribution Diversification Election becomes effective. Effective January
1, 1998, no further McDESOP Future Contribution Diversification Elections
may be made. However, any such elections which are in effect on January 1,
1998 shall remain in effect until the Participant makes a Participant
Elected Contribution Account Diversification Election as provided in
Section 10.10(b)(2).
(2) Participant Elected Contribution Accounts. Effective on or after
-----------------------------------------
January 1, 1998, a Participant may make an election ("Participant Elected
Contribution Account Diversification Election") with respect to the amount
in his Participant Elected Contribution Account (including his Participant
Elected Contributions and the earnings credited thereon in the
Participant's McDESOP Diversification Account) to have up to 100 percent of
such total amount on the Valuation Date on which the diversification
occurs, in increments of 5 percent, credited to his McDESOP Diversification
Account. A Participant may make a Participant Elected Contribution Account
Diversification Election with respect to his Participant Elected
Contribution Account (including his Participant Elected Contributions and
the earnings credited thereon to the Participant's McDESOP Diversification
Account) in accordance with such rules and procedures as the Committee
shall from time to time establish.
Once a Participant has made a Participant Elected Contribution Account
Diversification Election which selects a percentage of diversification
which is higher than the percentage of the Participant's Participant
Elected Contribution Account which has been transferred to the
Participant's McDESOP Diversification Account, a transfer shall be made, as
of the Valuation Date with respect to which such election is effective, to
such Participant's McDESOP Diversification Account to achieve the
percentage of diversification elected with respect to his Participant
Elected Contribution Account (including his Participant Elected
Contributions and the earnings thereon credited to the Participant's
McDESOP Diversification Account) and, thereafter, the elected percentage of
his future Participant Elected Contributions shall be transferred to his
McDESOP Diversification Account, subject to Section 10.11.
However, if a Participant makes a Participant Elected Contribution
Account Diversification Election which selects a percentage of
diversification which is equal to or less than the percentage of the
Participant's Participant Elected Contribution Account which is credited to
the Participant's McDESOP Diversification Account, no transfer shall be
made from the McDESOP Diversification Account to the portion of the
Participant's Participant Elected Contribution Account held in the McDESOP
Trust. In addition, future Participant Elected Contributions shall be
credited to the Participant's McDESOP
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Diversification Account in the percentage of diversification elected only
after the percentage of the Participant's Participant Elected Contributions
(including his Participant Elected Contributions and the earnings thereon
credited to his McDESOP Diversification Account) which is credited to his
McDESOP Diversification Account is reduced to the diversification
percentage elected by the Participant.
If a Participant makes a McDESOP Diversification Election, such
election, as from time to time in effect, shall thereafter control the
amount of diversification in the Participant's McDESOP Accounts and any
election made under this Section 10.10(b) shall have no effect after the
date of his first McDESOP Diversification Election.
(c) Age Diversification of McDESOP Accounts. Beginning with the first day
---------------------------------------
of the month following the month in which a Participant attains 50 years of age,
the Participant (or the Beneficiary of a Participant who would have attained age
50 if he had not died) may elect ("McDESOP Diversification Election") to
diversify by transferring up to 100 percent (100%) (in increments of five
percent (5%)) of his Participant Elected Contribution Account; and Employer
Matching Contribution Account to his McDESOP Diversification Account.
The diversification amount transferred from a Participant's Participant
Elected Contribution Account shall be an amount equal to the difference between
(A) the diversification percentage elected by the Participant multiplied by the
sum of (i) the Participant's Participant Elected Contribution Account, and (ii)
the amounts previously transferred from the Participant's Participant Elected
Contribution Account to the Participant's McDESOP Diversification Account
("Prior Elected Contribution Transfers") reduced by (B) the amount of the
Participant's Prior Elected Contribution Transfers. The diversification amount
transferred from a Participant's Employer Matching Contribution Accounts shall
be an amount equal to the difference between (A) the diversification percentage
elected by the Participant multiplied by the sum of (i) the Participant's
Employer Matching Contribution Accounts and (ii) the amounts previously
transferred from the Participant's Employer Matching Contribution Accounts to
the Participant's McDESOP Diversification Account ("Prior Matching Contribution
Transfers") reduced by (B) the amount of the Participant's Prior Matching
Contribution Transfers. If a Participant has made a Diversification Election and
has not made a subsequent Diversification Election with a lower percentage, a
percentage of the value of all future allocations to the Participant's
Participant Elected Contribution Account and Employer Matching Contribution
Account respectively equal to the percentage of the Participant's
Diversification Election shall be transferred to the Participant's McDESOP
Diversification Account.
If a Participant who has made a McDESOP Diversification Election, makes a
new McDESOP Diversification Election at a percentage (including zero) lower than
the percentage of the earlier McDESOP Diversification Election, no portion of
the
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allocations to the Participant's Participant Elected Contribution Account
and Employer Matching Contribution Accounts, respectively, shall be
transferred to the McDESOP Diversification Account until the respective
products of the new lower percentage elected multiplied by (A) the sum of
the Participant Elected Contribution Account plus Prior Elected
Contribution Transfers and (B) the sum of the Employer Matching
Contribution Accounts plus Prior Matching Contribution Transfers exceed (C)
the Prior Elected Contribution Transfers and (D) Prior Matching
Contribution Transfers, at which time each such respective excess, and
thereafter, a percentage of all future allocations respectively to the
Participant's Participant Elected Contribution Account and Employer
Matching Contribution Accounts equal to the percentage of the Participant's
McDESOP Diversification Election shall be transferred to the Participant's
McDESOP Diversification Account. A McDESOP Diversification Election shall
be made at the same time and with the same effective dates and such other
rules as investment elections under Section 10.11. Once a Participant has
made a McDESOP Diversification Election of a given percentage it will
continue in effect until he makes a new election. A Participant can elect
to reduce the percentage of his McDESOP Diversification Election to a
larger or a lesser percentage (including to zero); however, amounts already
credited to his McDESOP Diversification Account shall not be transferred
back to his Participant Elected Contribution Account and his Employer
Matching Contribution Accounts.
(d) Distributions from Diversification Accounts. The provisions of
-------------------------------------------
the Program shall apply to amounts subject to a Diversification Election
under Section 10.10 in the same manner as to the Participant Elected
Contribution Accounts, Employer Matching Contribution Accounts or LESOP
Accounts, respectively, except that the balance in a Participant's McDESOP
Diversification Account and LESOP Diversification Account shall be invested
in the Investment Funds in the same manner as the Participant elects to
invest his Profit Sharing Account pursuant to Section 10.8 or as provided
in Section 10.9(a), whichever is applicable, but determined without regard
to Section 10.7. A Participant to whom a distribution is payable under
Article XI shall have the right to elect to receive any distributions made
from his McDESOP Diversification Account and LESOP Diversification Account
in McDonald's common stock.
(e) Required Diversification. If not already permitted pursuant to
------------------------
the foregoing provisions of this Section 10.10, each Participant who has
had at least 10 years of service under the Program and has attained age 55
shall be permitted to elect to diversify any Accounts to which Company
Stock has been allocated pursuant to Section 6.3 of the Program at the
times and to the extent provided in Section 401(a)(28) of the Internal
Revenue Code.
10.11 Effective Date of Participant's Investment and Diversification
--------------------------------------------------------------
Elections. Participant's investment elections, pursuant to Section 10.8, or
Diversification Elections, pursuant to Section 10.10, submitted by the date
designated by the Committee shall be made effective as of the first day of the
next calendar month (or as soon thereafter as is administratively convenient) or
at such more frequent times as the Committee shall determine. Diversification
Elections with respect to future contributions made in accordance with Section
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10.10 shall be implemented the first day of the calendar month after the month
in which such contributions are made to the Program (or as soon thereafter as is
administratively convenient) or at such more frequent times as the Committee
shall determine. This Section 10.11 is intended to give the Committee the
authority to implement Participants' Investment Elections and Diversification
Elections as soon as possible with due regard for requiring advance notice of
elections. The Committee may use such methods as making transfers between
Investment Funds based upon estimates followed by corrective adjustments made
when exact data becomes available and, in the event of inability to effectuate
elections because of data processing, communications or other systems
breakdowns, the Committee may effectuate such elections as soon as is reasonable
under the existing circumstances.
10.12 Trust Income. As of the close of business on each Valuation Date, the
------------
Trustee shall determine the fair market value of the Trust Fund and of each
separate Investment Fund. The fair market value of Assets Subject to Guarantee,
as defined in Section 10.6(a)(3), shall be book value for all purposes hereunder
unless the Committee determines that the book value guarantees no longer apply,
a market value distribution has occurred under the contract or there has been a
default on the guarantee. The fair market value of the Trust Fund and the
Investment Funds shall be recorded and communicated in writing to the Committee
by the Trustee. The Trustee's determination of fair market value shall be final
and conclusive on all persons.
10.13 Adjustment of Participant's Account Balances and the LESOP Suspense
-------------------------------------------------------------------
Accounts. As of each Valuation Date, the Committee shall determine the
- --------
adjustment required to be made to the value of each Participant's Accounts and
the LESOP Suspense Accounts to make the total of the portion of all such Account
balances which are invested in an Investment Fund equal to the total value of
that Investment Fund. The records of Participants' LESOP Accounts, Employer
Matching Contribution Accounts and Stock Sharing Accounts and LESOP Suspense
Accounts may be maintained in cash provided that it is at all times possible to
determine the number and the basis of the shares of Company Stock credited to
such accounts
(a) Valuation of the Portion of Profit Sharing Accounts, Investment
---------------------------------------------------------------
Savings Accounts, Rollover Accounts, Diversification Accounts, Participant
--------------------------------------------------------------------------
Elected Contribution Accounts and Employer Matching Contribution Accounts
--------------------------------------------------------------------------
invested in an Investment Fund. The value of the portion of each of a
------------------------------
Participant's Accounts invested in an Investment Fund as of a Valuation
Date shall be equal to the product for each Investment Fund of (1)
multiplied by (2) where:
(1) is the value of an Investment Fund as of the Valuation Date,
and
(2) is a fraction, the numerator of which is the value of the
portion of each of a Participant's Accounts invested in such
Investment Fund as of the immediately preceding Valuation Date reduced
by any distributions therefrom on or since such Valuation Date and the
denominator of which is the value of such Investment Fund as of the
immediately preceding Valuation Date reduced by any distributions
therefrom since such Valuation Date.
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(b) Valuation of the Portion of the LESOP Suspense Account and of
-------------------------------------------------------------
Participants' LESOP Accounts and Stock Sharing Accounts invested in
-------------------------------------------------------------------
Company Stock. As of each Valuation Date, Participants' LESOP Accounts and
-------------
Stock Sharing Accounts and the LESOP Suspense Accounts shall be credited
with the dividends and other distributions and earnings of the shares of
Company Stock credited thereto; provided that any dividends credited to
Participants' LESOP Accounts which are to be used to repay an Exempt Loan,
pursuant to Section 6.3(b), shall immediately after being so credited to
Participants' Accounts be transferred to the LESOP Suspense Account and
held therein a separate account until used to repay an Exempt Loan. The
amount of such dividends transferred to the LESOP Suspense Account for a
Plan Year shall not exceed the sum of the fair market value of the Company
Stock released from the Leveraged ESOP Suspense Account pursuant to Section
6.3(b) for the Plan Year and the amount of Special Dividend Replacement
Contributions made pursuant to Section 4.2(d) for the Plan Year (determined
on the Valuation Date allocated). Earnings on Forfeitures from the LESOP
portion of the Program shall be allocated to Participants' LESOP Accounts
as of each Valuation Date in the proportion that dividends and other
distributions and earnings are allocated in accordance with the preceding
sentence. The income under Section 16.6 (d) shall be allocated to
Participant's Stock Sharing Accounts in the proportion that each
Participant's Stock Sharing Account balance is to the total of all
Participant's Stock Sharing Account balances.
The Accounts of Participants as adjusted according to Section 10.13 shall
determine the value of the interest of each Participant in the Trust for all
purposes subject to the crediting of any contributions as provided in Article
VII until a subsequent determination is made by the Committee.
10.14 Allocation of Income of Holding Funds.
-------------------------------------
(a) Profit Sharing Holding Fund. Any net income and gains (after
---------------------------
reduction by losses and by expenses not paid by an Employer) of the Profit
Sharing Holding Fund for a Plan Year for which a Profit Sharing
Contribution is made shall be allocated to each Participant's Profit
Sharing Account in the proportion that the amount of Profit Sharing
Contributions allocated to each Participant in accordance with Section 7.1
bears to the total amount of Profit Sharing Contributions allocated under
Section 7.1 to all Participants. If no Profit Sharing Contribution is made
for a Plan Year, the net income and gains (after reduction by losses and by
expenses not paid by an Employer) shall be allocated as provided in
10.14(b).
(b) McDESOP Holding Fund. Any net income and gains (after reduction
--------------------
by losses and by expenses not paid by an Employer) of the McDESOP Holding
Fund for a Plan Year shall be credited to each Participant's Participant
Elected Contribution Account as earnings in the amount of such net income
and gains multiplied by the fraction in Section 10.13(a)(2).
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(c) Rollover Holding Fund. Any net income and gains (after
---------------------
reduction by losses and by expenses not paid by an Employer) of the
Rollover Holding Fund for a Plan Year shall be allocated to each
Participant's Profit Sharing Accounts in the amount of such net income and
gains multiplied by the fraction in Section 10.13(a)(2).
10.15 Separate Accounting in the Trust Fund. The Committee shall create and
-------------------------------------
maintain separate accounts for each Participant as described in Section 1.1.
Every adjustment to a Participant's Accounts shall be considered as having been
made on the relevant Valuation Date, regardless of the date of actual entry or
receipt by the Trustee of Employer Contributions and Participant Elected
Contributions for a Plan Year.
10.16 Trust Investment. The assets of a Trust Fund may at any one time be
----------------
invested up to 100% exclusively in Company Stock subject to the provisions of
the Trust.
10.17 Separate Accounting for LESOP Suspense Account. The Committee shall
----------------------------------------------
create and maintain a separate account, called a LESOP Suspense Account, to
record and to separately account for (a) each loan or other extension of credit
made pursuant to Section 6.1, (b) all LESOP Contributions to the Program to
repay each such loan or extension of credit, (c) all dividends transferred to
the LESOP Suspense Account to repay an Exempt Loan pursuant to Section 6.3(b),
(d) net income, gains or losses charged to such LESOP Contributions and LESOP
Suspense Account under Sections 10.13(b), and (e) all payments made on such loan
or other extension of credit until such loan or other extension of credit is
repaid, in accordance with Sections 6.1, 6.2 and 6.3.
10.18 Correction of Error. In the event of any error, including but not
-------------------
limited to an error in the adjustment of a Participant's Accounts or an error in
including or excluding persons as Participants, the Committee, in its sole
discretion, may correct such error by either crediting or charging the
adjustment required, or such adjustment as the Committee in its sole discretion
shall determine to be equitable, to make such correction to or against
Forfeitures or to or against income and expenses of the Trust for the Plan Year
in which the correction is made, or if an Employer contributes an amount to
correct any such error, from such amount.
Corrections of Participant Elected Contributions and Employer Matching
Contributions which an individual should have been permitted to make, but
because of an error in Program administration was not permitted to make, shall
be made as provided in the preceding sentence by crediting the individual's
Participant Elected Contribution Account and Employer Matching Contribution
Account respectively with (a) Participant Elected Contributions equal to the
average percentage of compensation which was contributed for the preceding Plan
Year as such contributions by Highly Compensated Employees or Non-highly
Compensated Employees (whichever the individual is classified as) and (b) the
amount of Employer Matching Contributions, LESOP Employer Matching Allocations
and LESOP Employer Matching Contributions and any Forfeitures allocated with
respect to such contributions which would have been credited to such
individual's Employer Matching Contribution Account with respect to such
Participant Elected Matched Contributions. After the preceding correction is
made, the Participant's Participant Elected Contribution Account and Employer
Matching Contribution
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Account shall be credited with a rate of return which is equal to the rate of
return the Participant's accounts would have received had the accounts been
invested in the manner in which such accounts were invested at the time the
Participant was first given the opportunity to make Participant Elected
Contributions.
Effective July 1, 1998, notwithstanding the foregoing, an Employee who
fails, upon request, to provide the Committee information, as requested by the
Committee, concerning his service as a Leased Employee and who, as a consequence
does not enter the Program as early as he could have if such service had been
taken into account shall not be deemed to have suffered an error in Program
administration and shall not receive corrected Participant Elected
Contributions, Employer Matching Contributions, LESOP Employer Matching
Allocation or LESOP Employer Matching Contributions for periods before the
earlier of such Employee's Entry Date determined without regard to such Leased
Employee service or such Employee's Entry Date including such Leased Employee
service from the date the Employee provides the Committee with such information
concerning such service as the Committee requests. Profit Sharing Contributions
and allocations from the leveraged ESOP Suspense Account pursuant to Section
6.3(a) which such a Participant would have received if his Leased Employee
service had been considered from his date of hire shall be credited to the
former Leased Employees' Accounts as of the first Valuation Date next following
the Leased Employee's actual Entry Date.
Except as provided in this Section, the Accounts of other Participants
shall not be readjusted on account of such error.
10.19 Statement of Accounts. As soon as practicable after the last day of
---------------------
each Plan Year, the Committee shall have a statement of his Net Balance Account
have delivered to each Participant.
10.20 Purchase or Sale of Company Stock. The Trustee, on behalf of the
---------------------------------
Program, may (a) sell Company Stock to a Party in Interest or a Disqualified
Person if such sale is for at least the fair market value of the Company Stock
and (b) purchase Company Stock from a Party in Interest or a Disqualified
Person, if such purchase is for no more than the fair market value of the
Company Stock and (c) no commission is charged with respect to such sale or
acquisition; provided that such sale or acquisition is for the price of the
Company Stock prevailing on an established securities market, if the Company
Stock is readily tradeable on such market or determined by an independent
appraiser, if the Company Stock is not readily tradeable on an established
securities market.
10.21 Shareholder Rights in Company Stock. A fundamental purpose of the
-----------------------------------
Program and the Trust is to obtain for the Company, its shareholders,
Participants and future Participants the benefits resulting from Participants
having the right to vote shares of Company Stock and to determine whether shares
of Company Stock should be sold or retained in response to a public or private
tender offer. A key purpose of the Program is to encourage Participants to feel
and to act like owners of the Company by assuring them the opportunity to share
the economic benefit of ownership of Company Stock and the opportunity to direct
the manner in which shares held by the Program are voted at all shareholder
meetings and to determine whether shares of Company
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Stock should be sold or retained in response to a public or private tender
offer. The broad employee participation in the Program at all levels of the
Company and limitations on maximum benefits to Participants who are officers,
shareholders or highly compensated employees assure that such voting and
decisions by Participants represent the overall knowledge and experience of a
broad representative cross-section of employees of the Company. It, therefore,
is anticipated that the votes and other decisions of Participants will be fairly
representative of both present and future Participants' interests. Accordingly
it has been concluded that Participants are best able to determine questions
concerning voting and whether to sell or retain shares of Company Stock in a
public or private tender offer with respect to shares allocated to their own
accounts, as each person is uniquely able to determine his best interests based
upon both his unique knowledge of his own situation and his unique knowledge of
the Company. Moreover, because the overall broad group of employees who are
Participants is fairly representative of both present and future Participants'
interests it is believed that such Participants as a group are uniquely able to
determine the best interests of future Participants who benefit from future
allocations of Company Stock under the Program. Further, such participation in
fundamental shareholder decisions by Participants is expected to result in
increased commitment to the success of the Company further enhancing financial
rewards of Program participation for such Participants, as well as enhancing
shareholder and Company values. In order to assure that each Participant will
express his or her unrestrained best judgment concerning how these rights should
be exercised independent of any considerations associated with such
Participant's employment status with the Company, Participants exercise such
rights through a method that assures the confidentiality of their votes and
other decisions.
(a) Allocated Shares. With respect to shares (and fractional
----------------
shares) of Company Stock which have been allocated to Participants'
Accounts each Participant or Beneficiary, as a named fiduciary, shall have
the right to direct the Trustee as to the manner of voting and the exercise
of all other rights which a shareholder of record has with respect to such
shares (including, but not limited to, the right to sell or retain such
shares in a public or private tender offer). In voting or exercising such
other rights with respect to such shares, the Participants and
Beneficiaries shall consider their own individual long-term best interests
in providing benefits under the Program and Trust rather than a short term
gain. In the event that a Participant shall fail to direct the Trustee as
to the manner of voting of such shares of Company Stock allocated to the
Participant's Accounts or as to the exercise of other rights in respect of
such shares, the Trustee shall vote such shares or exercise such rights
with respect to such shares in accordance with Section 10.21(b).
(b) Unallocated Shares and Allocated Shares Not Directed.
----------------------------------------------------
With respect to shares (and fractional shares) of Company Stock which are
either not allocated to Participants' Accounts or are allocated to the
Accounts of Participants who fail (or whose Beneficiaries fail) to provide
any direction pursuant to Section 10.21(a), each Participant who is an
Employee, as a named fiduciary, shall have the right to direct the Trustee
as to the manner of voting the number of such shares (and fractional
shares), and the exercise of all other rights which a shareholder of record
has with respect to such shares (including, but not limited to, the right
to sell or retain such shares in a public or private
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tender offer), as is equal to the product of (i) the sum of the number of
unallocated shares and undirected shares multiplied by (ii) a fraction, the
numerator of which is the number of shares (and fractional shares) of
Company Stock for which directions are given pursuant to this Section
10.21(b) and which have been allocated to the Accounts of such Participant
and the denominator of which is the total number of shares (and fractional
shares) of Company Stock which have been allocated to the Accounts of all
Participants who give directions to the Trustee pursuant to this Section
10.21(b). In voting or exercising such other rights with respect to such
shares, such Participants shall consider the long term interests of both
current and future Participants and Beneficiaries in providing benefits
under the Program and Trust rather than short term gain.
(c) Named Fiduciaries. The Trustee shall notify each Participant and
-----------------
Beneficiary who is authorized pursuant to Section 10.21(a) and (b) to
direct the Trustee as to the manner of voting and the exercise of other
shareholder rights with respect to shares (and fractional shares) of
Company Stock that such Participant or Beneficiary is a named fiduciary,
within the meaning of Section 402(a)(2) of ERISA, with respect to such
shares (and fractional shares), and shall instruct each such Participant
and Beneficiary that is exercising such authority to direct the Trustee,
with respect to shares of Company Stock allocated to his Accounts, he
should consider his own individual long-term best interests in providing
benefits under the Program and, with respect to shares of Company Stock
voted pursuant to Section 10.21(b), he should consider the long-term
interests of both current and future Participants and Beneficiaries in
providing benefits under the Program and Trust rather than a short term
gain.
(d) Confidentiality. The Trustee shall solicit the directions of
---------------
Participants and Beneficiaries in accordance with Section 10.21(a) or (b)
and shall follow such directions by delivering aggregated votes to the
Company or otherwise implementing such directions in any convenient manner
which preserves the confidentiality of the votes or other directions of
individual Participants or Beneficiaries. Any designee of the Trustee who
assists in the solicitation or tabulation of the directions of Participants
or Beneficiaries shall certify that he will maintain the confidentiality of
all directions given.
10.22 Cash Distributions with Respect to Company Stock. If there is a
------------------------------------------------
discrepancy between (1) the amount received by the Trust upon the sale of
Company Stock or credited to a portion of the Trust upon the transfer of Company
Stock from one portion of the Trust to another, for the purpose of making cash
distributions to Participants or Beneficiaries and (2) the value of such Company
Stock on the Valuation Date as of which such stock is valued for the purpose of
determining the amount of the Participant's cash distributions, such discrepancy
shall be credited to or charged against the Trust Income of the portion of the
Trust Fund (i.e., accounts in the Profit Sharing portion of the Program, the
LESOP Accounts, McDESOP Accounts and Stock Sharing Accounts) which held the
stock before sale or transfer as of the Valuation Date next following the sale
or transfer.
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10.23 Holding Funds.
-------------
(a) Profit Sharing Holding Fund. Profit Sharing Contributions made
---------------------------
to the Program shall be held in the Profit Sharing Holding Fund until
allocated to Participant's accounts in accordance with Section 7.1. Such
contributions as provided in Section 3.1(a) and 3.1(b) shall be separately
accounted for. Amounts which in accordance with Article XI are currently
distributable in cash to Participants or Beneficiaries with respect to the
Profit Sharing portion of the Plan shall be transferred to the Profit
Sharing Holding Fund during the calendar month next following the calendar
month within which such amount became distributable. Distributable amounts
in the Profit Sharing Holding Fund shall be held (a) in a checking account
of the Trustee in the name of the Trust with, if the Trustee or custodian
is a bank or a Trust Company, the Trustee's or custodian's banking
department, or (b) in a STIF Fund or in such types of investments or
pooled, common, commingled or collective trust funds, including, if the
Trustee or custodian is a bank, those of the Trustee or custodian, as the
Committee may from time to time authorize the Trustee to invest in such
respective amounts and proportions and in such manner as the Committee
shall from time to time determine.
(b) McDESOP Holding Fund. Participant Elected Contributions and
--------------------
Matching Contributions made to the Program shall be held in the McDESOP
Holding Fund until credited to Participant's accounts in accordance with
Sections 7.4 and 7.2, respectively, and amounts which are distributable to
a Participant or Beneficiary in cash from the McDESOP and LESOP portions of
the Program shall, at the direction of the Committee, be transferred to the
McDESOP Holding Fund during the calendar month next following the calendar
month within which such amount became distributable. Distributable amounts
in the McDESOP Holding Fund shall be held (a) in a checking account of the
Trustee in the name of the Trust with, if the Trustee or custodian is a
bank, the banking department of the Trustee or custodian, or (b) in the
STIF Fund or in such types of investments or pooled, common, commingled or
collective trust funds including, if the Trustee or custodian is a bank,
those of the Trustee or custodian, as the Committee may from time to time
authorize the Trustee to invest in such respective amounts and proportions
and in such manner as the Committee shall from time to time determine.
(c) Rollover Holding Fund. Rollover Contributions to the Program
---------------------
made in a calendar month shall be held in the Rollover Holding Fund until
the next Valuation Date when such contributions shall be invested in
accordance with the Participant's investment elections and amounts which
are distributable to a Participant or Beneficiary in cash from
Participants' Rollover Contribution Accounts or Investment Savings
Accounts.
(d) Committee Action. The Committee may authorize one or more of its
----------------
members, or their designees, to sign, manually, or by facsimile signature,
any and all checks, drafts, and orders, including orders or directions in
informal or letter form, against any funds in the Holding Funds and the
Trustee or custodian is authorized to honor any and all checks, drafts and
orders so signed. As of each Valuation Date, income, gains, losses and
expenses (to the extent not paid by an Employer) of the
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Holding Funds shall be determined separately from the remainder of the
Trust and the net income or losses of the Holding Funds, for each Plan Year
shall be added to the net income of the Trust Fund for such Plan Year as
provided in Section 10.14 and any net losses of the Holding Funds for the
Plan Year shall be paid by the Company.
10.24 Restrictions Applicable to Participants Subject to Section 16.
-------------------------------------------------------------
Effective November 1, 1996, anything herein to the contrary notwithstanding, a
Participant who is subject to Section 16 of the Securities Exchange Act of 1934
("1934 Act") may not engage in any one or more of the following transactions
involving Company Stock if he has engaged in an opposite way transaction, as
defined below, involving Company Stock within the preceding seven months:
(a) Investment elections into or out of Company Stock;
(b) Diversification elections of amounts invested in Company Stock
under the McDESOP or LESOP portions of the Program; and
(c) Cash withdrawals during employment of amounts invested in Company
Stock under the Investment Savings, Rollover, Stock Sharing or any other
portions of the Program.
For purposes of this Section 10.24, the transactions described in (i) are
opposite way transactions to the transactions described in (ii):
(i) a Participant's making an election which results in the investment
or transfer of assets credited to his Net Balance Account into a McDonald's
Common Stock Fund, on the one hand, and
(ii) his election (x) to take a cash withdrawal from one or more
Accounts invested in Company Stock, (y) to have assets in his Accounts
transferred from Company Stock to another investment option available under
the Program and (z) to make an diversification election with respect to his
Accounts in the McDESOP or LESOP portions of the Program, on the other
hand.
In addition to the foregoing, the Committee may establish such rules and
procedures, applicable to Participants who are subject to Section 16 of the 1934
Act, as are necessary or desirable to prevent the occurrence of opposite way
transactions or of other circumstances which might create liabilities under
Section 16(b) of the 1934 Act, provided that such rules and procedures are not
inconsistent with the provisions of the Internal Revenue Code applicable to the
Program.
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ARTICLE XI
DISTRIBUTION OF BENEFITS
11.1 Distributions, General.
----------------------
(a) Except as provided in Section 11.11 and subject to Section 11.8
(with respect to withholding of taxes), upon the Participant's Termination
of Employment on or after Vesting Retirement Date, Disability or for any
other reason other than death, distributions shall be made in accordance
with Section 11.2.
(b) Except as provided in Section 11.11 and subject to Section 11.8
(with respect to withholding of taxes), upon the Participant's death,
distributions shall be made in accordance with Section 11.3.
(c) If a Participant or Beneficiary is otherwise entitled to a
distribution because of retirement on or after Vesting Retirement Date,
Disability, death or other Termination of Employment, the Committee shall
require that immediate distribution of small vested Accrued Benefits shall
be made in accordance with and subject to the limitations of Section 11.11,
notwithstanding the provisions of Sections 11.2 and 11.3.
(d) A Participant or Beneficiary shall receive a distribution not
later than the April 1 of the calendar year after the calendar year in
which he attains the age of 70-1/2 as provided in Section 11.13 subject to
certain elections to the contrary.
(e) A Participant shall be entitled to elect to receive in-service
withdrawals from Investment Savings Accounts, Rollover Accounts and Stock
Sharing Accounts as provided in Section 11.16.
11.2 Payment of Net Balance Account on Disability, or on Retirement or
-----------------------------------------------------------------
Other Termination of Employment.
- -------------------------------
(a) Form of Payment of Accounts.
---------------------------
(1) Retirement or Disability. Subject to Sections 11.11 and
------------------------
11.14, if a Participant retires on or after his Vesting Retirement Date or
has a Termination of Employment on account of a Disability and if the
Participant makes no election pursuant to Section 11.2(b), the Trustee
shall distribute to the Participant the vested portion of his Net Balance
Account credited to his Accounts held in the Program in a single non-
periodic distribution within a reasonable time after the Valuation Date
next following the later of (i) such event or (ii) the last day of the Plan
Year in which he attains his Required Beginning Date. A Participant whose
Net Balance Account is payable pursuant to the preceding sentence may elect
to receive payment in whichever of the following methods the Participant
shall elect in writing:
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(A) A single non-periodic payment;
(B) Substantially equal installments, not less frequently
than annually, over a period certain determined in accordance
with Section 11.12, either directly from the Program, or by
purchase of a nontransferable period certain annuity contract
purchased from an insurance company which is authorized to do
business in any state and which has an A plus rating by A.M. Best
Company or a comparable rating by a comparable service which
rates insurance companies, payable for such period of time as the
Participant shall elect; or
(C) In the form of a nontransferable life annuity contract
in an amount which can be purchased from an insurance company
designated by the Participant which is authorized to do business
in any state and which has an A plus rating by A.M. Best Company
or a comparable rating by a comparable service which rates
insurance companies, with the Participant's vested Net Balance
Account credited to his Accounts or with the portion of the
Participant's vested Net Balance Account which the Participant
elects to receive in the form of a nontransferable life annuity
contract.
(2) Termination for Reasons Other than Retirement or Disability
-----------------------------------------------------------
or Death. If a Participant has a Termination of Employment for reasons
--------
other than retirement on or after his Vesting Retirement Date,
Disability or death, the Trustee shall distribute the Participant's
vested Net Balance Account, subject to the Participant's election to
receive nonperiodic or installment distributions, as described in
Section 11.2(a)(1)(A) or (B), as follows:
(A) Profit Sharing Account. The vested portion of the
----------------------
Participant's Profit Sharing Account shall be distributed to the
Participant in cash or in McDonald's common stock, in accordance
with Section 11.2(f), within a reasonable time after the
Participant elects to receive or to commence receiving a
distribution of such account.
(B) Investment Savings Account. The Participant's
--------------------------
Investment Savings Account shall be distributed to the
Participant in cash or in McDonald's common stock, in accordance
with Section 11.2(f), within a reasonable time after the
Participant elects to receive or to commence receiving a
distribution of such account.
(C) Rollover Account and Rollover Holding Account. The
---------------------------------------------
Participant's Rollover Account and Rollover Holding Account shall
be distributed to the Participant in cash or in McDonald's common
stock, in accordance with Section 11.2(f) within a reasonable
time after the
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Participant elects to receive or to commence receiving a
distribution of such account.
(D) McDESOP Accounts and LESOP Accounts. The Participant's
-----------------------------------
McDESOP Accounts and LESOP Accounts, including the vested portion
of all accounts identified in Sections 1.1(b) and in 1.1(c) shall
be distributed to the Participant in cash or in McDonald's common
stock as provided in Sections 11.2(g) or 11.2(h), as applicable,
within a reasonable time after the Participant elects to receive
or to commence receiving a distribution of such account.
(E) Stock Sharing Accounts. The Participant's Stock Sharing
----------------------
Accounts, including the vested portion of all accounts identified
in Section 1.1(d) shall be distributed to the Participant in cash
or in McDonald's common stock as provided in Section 11.2(i)
within a reasonable time after the Participant elects to receive
or to commence receiving a distribution of such account.
(F) Distributions in Default of Election. In the absence of
------------------------------------
an election by a Participant to receive a distribution of his
entire vested Net Balance Account or to commence to receive
installment distributions at least equal to the greater of the
Minimum Distribution Amount, as defined in Section 11.12(d), and
the amount determined under Section 11.2(d)(3), his entire vested
Net Balance Account shall be distributed not later than his
Required Beginning Date.
A Participant entitled to elect to receive a distribution or to
commence receiving distributions pursuant to this Section 11.2(a)(2)
is not entitled to elect an annuity form of distribution.
(3) Break in Service. If a Participant has a Break in Service
----------------
without having a Termination of Employment, the Trustee shall
distribute the portion of his vested Net Balance Account in his Profit
Sharing Accounts in cash and in a single non-periodic payment within a
reasonable time after the earlier of the Valuation Date next following
the date the Participant elects to receive such distribution or after
the Participant attains his Required Beginning Date; provided that if
the Participant completes one year of Eligibility Service following
the Break in Service, he shall not be permitted further elections to
receive distributions made pursuant to Article XI, except as he may
otherwise be entitled to receive in-service distributions pursuant to
Section 11.16, until he again has a subsequent Break in Service or
Termination of Employment.
(b) Elections by Retired or Disabled Participants. As permitted in
---------------------------------------------
Section 11.2(a)(1), with respect to a distribution on account of a
Participant's Termination of Employment on or after his Vesting Retirement
Date or on account of Disability, a
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Participant may elect separately with respect to the portion of his Net
Balance Account held in the Profit Sharing, McDESOP, LESOP, Stock Sharing,
Rollover and Investment Savings portions of the Program, on such form as
may be provided or approved by the Committee, the form of benefit and the
date (including an immediate or a delayed date) of commencement of
benefits. The actual date of distribution shall be determined in accordance
with the administrative procedures established by the Plan Administrator
but shall be no earlier than the day following the Valuation Date which
next follows the date the completed election form is submitted to the Plan
Administrator. To the extent that such a Participant is receiving a portion
of his benefit in a form other than an annuity purchased from an insurance
company, he may from time to time make or change his benefit elections to
accelerate or to delay the date and the rate of distribution on such a form
as may be provided or approved by the Committee, subject to such rules as
the Committee shall specify and to the limits stated in Sections 11.2(d)
and 11.2(e), hereof. In the absence of any election, a Participant who has
a Termination of Employment on or after his Vesting Retirement Date or on
account of Disability shall be deemed to have elected to receive the vested
portion of his Net Balance Account in a single non-periodic payment paid
within a reasonable time after the end of the calendar year in which he
attains his Required Beginning Date.
(c) Types of Annuities. If the Participant elects to receive his
------------------
benefit in the form of an annuity contract as permitted under Section
11.2(a)(1), each Participant, subject to Sections 11.2(d) and 11.2(e) shall
have the right to direct the Trustee to purchase an available
nontransferable annuity contract from an insurance company designated by
the Participant which is authorized to do business in any state and which
has an A plus rating by A.M. Best Company or a comparable rating by a
comparable service which rates insurance companies. The benefit under such
annuity contract shall be paid to the Participant prior to his death, and
if a joint and survivor annuity is provided, unless such joint annuitant
shall be the Participant's spouse, the periodic benefit payable to the
Participant's Beneficiary shall not be greater than the Applicable
Percentage of the benefit paid to the Participant as shown in Appendix A.
(d) Limitations on Participant Elections. Notwithstanding the
------------------------------------
provisions of Section 11.9, 11.12 or any elections made by the Participant
pursuant 11.2(a) or (b),
(1) Period for Installment or Annuity Payments. Except as
------------------------------------------
provided in Section 11.14, installment payments and period certain
payments under any annuity contract purchased from an insurance
company shall be made or shall commence not later than the Required
Beginning Date and shall be made over a period not in excess of the
lesser of (A) the period determined under Section 11.2(d)(3) or (B)
the Participant's life expectancy or the joint and last survivor life
expectancy of the Participant and his Beneficiary (such life
expectancies to be determined in accordance with Section 11.12(e)). In
the case of payments made in the form of a life annuity, payments
shall be made over a period not in excess of the life of the
Participant or the lives of the Participant and his Beneficiary.
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(2) Annuity Payments. If benefits are paid under an annuity
----------------
contract, payments shall be non-increasing or shall increase only as
follows:
(A) with any percentage increase in a specified and
generally recognized cost-of-living index;
(B) to the extent of the reduction in the Participant's
payments to provide for a survivor benefit upon death of the
beneficiary whose life was being used to determine the period
over which benefits are being paid; or
(C) to provide cash refunds of Participant Contributions
upon the Participant's death.
(3) Minimum Distribution Incidental Benefit Requirements. If
----------------------------------------------------
benefits are paid in installments to the Participant and if the
Participant's beneficiary is not his spouse or his former spouse
receiving benefits pursuant to a Qualified Domestic Relations Order as
defined in Section 16.5, payments for the later of the calendar year
in which the Participant has a Termination of Employment or attains
the age of 70-1/2 and in each calendar year thereafter shall equal at
least the dollar value of the Participant's vested Net Balance Account
as of the last Valuation Date of the immediately preceding Plan Year
divided by the following Applicable Divisor from Appendix B.
If benefits are paid in the form of an annuity with a period certain
feature and if the Participant's beneficiary is not his spouse or his
former spouse receiving benefits pursuant to a Qualified Domestic
Relations Order as defined in Section 16.5, the number of years over
which such period certain payments are made shall not exceed the
lesser of (1) the Participant's or the Participant's and Beneficiary's
joint and last survivor life expectancy as determined in Section
11.12(e) or (2) the number of years shown in the Applicable Divisor
column in Appendix B.
(e) Qualified Joint and Survivor Annuities.
--------------------------------------
(1) Notwithstanding the foregoing provisions of this Section
11.2 to the contrary, in the case of a Participant who has elected
pursuant to Section 11.2(a)(1) to receive one or more of his Accounts
in a life annuity, such distribution shall be in the form of a
Qualified Joint and Survivor Annuity purchased by the Trust from an
insurance company designated by the Participant which is authorized to
do business in any state and which has an A plus rating by A.M. Best
Company or a comparable rating by a comparable service which rates
insurance companies, unless the Participant with his spouse's consent
as provided in Section 11.10 elects to receive a different form of
annuity or another form of benefit. The term "Qualified Joint and
Survivor Annuity" means an immediate annuity payable, for a married
Participant, to the Participant for life and, if the Participant's
spouse survives the Participant, a survivor annuity payable to the
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spouse for life in an amount equal to 50 percent (50%) of the annuity
payable to the Participant and, for an unmarried Participant, a single
life annuity payable to the Participant for life. The amount of the
benefits payable under a Qualified Joint and Survivor Annuity shall be
the amount which can be purchased from an insurance company with the
vested portion of one or more of his Accounts with respect to which
the Participant elects to receive benefits in the form of a life
annuity.
(2) If a Participant who has elected to receive all or a portion
of his vested Net Balance Account in the form of a life annuity dies
before the annuity starting date, such portion of his vested Net
Balance Account shall be paid to his surviving spouse in the form of a
Qualified Preretirement Survivor Annuity payable to the surviving
spouse for life ("QPSA") unless either the Participant, with his
spouse's consent in accordance with Section 11.10, has elected to
waive the QPSA or the spouse elects pursuant to Section 11.3(a)(3) to
waive the QPSA and to receive another form of benefit; provided that
if the Trust has paid for an annuity to provide a life annuity benefit
elected by the Participant and the Participant dies before his annuity
starting date under the contract, the QPSA shall be provided by the
annuity contract and the surviving spouse shall have no claim against
the Trust with respect to the Accounts which he has elected to receive
in the form of a life annuity. Any portion of a Participant's vested
Net Balance Account in excess of the value of a QPSA, if paid directly
by the Program, or remaining after the payment of annuity premiums to
an insurance company, if paid by an insurance company, shall be
distributed to the Participant's Beneficiary as provided in Section
11.3.
(3) A Participant who elects to receive benefits in the form of
a life annuity and to whom benefits would be payable in the form of a
Qualified Joint and Survivor Annuity pursuant to this Section 11.2(e)
shall have the right to waive a Qualified Joint and Survivor Annuity
(such waiver shall be consented to by the Participant's spouse in
writing in accordance with Section 11.10) and the QPSA by delivering
written notice to the Committee, at any time within the 90 day period
prior to the annuity starting date, electing to receive all or a
portion of such benefits in a different form of annuity or another
form of benefit. If a Participant elects to receive benefits in the
form of a life annuity, the Committee shall within a reasonable period
of time provide the Participant, by personal delivery or first class
mail, with a written explanation of:
(A) the terms and conditions of the Qualified Joint and
Survivor Annuity and the QPSA;
(B) the Participant's right to make, and the effect of, an
election to waive the Qualified Joint and Survivor Annuity and
the QPSA;
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(C) the rights of the Participant's spouse to consent to
the Participant's election to waive the Qualified Joint and
Survivor Annuity and the QPSA and the effect of consenting to
such waiver; and
(D) the Participant's right to make, and the effect of, a
revocation of an election to waive the Qualified Joint and
Survivor Annuity and the QPSA.
Any election made by a Participant to receive a life annuity form of
benefit pursuant to this Section 11.2(e) may be revoked by such Participant
(with his spouse's consent) by delivering written notice to the Committee
at any time prior to the Participant's annuity starting date and, once
revoked, may be made again at any time by delivering written notice to the
Committee prior to the Participant's annuity starting date. If a
Participant, who has elected a life annuity form of benefit and who has not
waived (with his spouse's consent) the QPSA, dies before his annuity
starting date, his surviving spouse may elect pursuant to (A) through (D)
and Section 11.10 to waive the QPSA.
(f) Form of Profit Sharing Distributions. If the method of
------------------------------------
distribution selected by a Participant includes either a nonperiodic
payment or installment payments or a combination of nonperiodic payments
and installments, the Participant may elect, on such form and in such
manner as the Committee shall provide or permit, to receive the Profit
Sharing Plan portion of his vested Net Balance Account distributed in cash
or in shares of McDonald's common stock or in any combination of the two as
elected by the Participant; provided however that, in the absence of an
election to receive shares of McDonald's common stock, such distributions
shall be made in cash and, further provided, that the portion of such
distribution distributed in the form of shares of McDonald's common stock
shall not, except as otherwise provided below, exceed the portion (if any)
of the Participant's Net Balance Account invested in the Profit Sharing
McDonald's Common Stock Fund.
Until such time as a Participant's vested Net Balance Account has been
distributed, transferred to a Holding Fund in accordance with Section 10.23
or forfeited in accordance with Section 11.4, any portion of the
Participant's Net Balance Account remaining in the Profit Sharing Plan
portion of the Program shall continue to be invested in accordance with
Section 10.7 and the Participant's (or his Beneficiary's) investment
elections in accordance with Section 10.8 or Section 10.9, as applicable.
(g) Form of McDESOP Distributions. A Participant's vested balances in
-----------------------------
his Participant Elected Contribution Account, Employer Matching
Contribution Account and McDESOP Diversification Account shall be
distributed in cash unless the Participant (or his Beneficiary) elects, at
such time and in accordance with such procedures as the Committee shall
from time to time permit, with respect to the portions of such accounts
invested in McDonald's common stock, whether held in the Profit Sharing
McDonald's Common Stock Fund or the McDESOP McDonald's Common Stock Fund,
to receive a distribution in shares of McDonald's common stock.
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<PAGE>
(h) LESOP Accounts. A Participant's vested balances in his LESOP
--------------
Accounts and his LESOP Diversification Account shall be distributed in cash
unless the Participant (or his Beneficiary) elects, at such time and in
accordance with such procedures as the Committee shall from time to time
permit, with respect to the portions of such accounts invested in Company
Stock, whether held in the Profit Sharing McDonald's Common Stock Fund or
the LESOP portion of the Trust, to receive a distribution in shares of
McDonald's common stock.
(i) Stock Sharing Accounts. A Participant's vested balances in his
----------------------
Stock Sharing Accounts shall be distributed in cash unless the Participant
(or his Beneficiary) elects, at such time and in accordance with such
procedures as the Committee shall from time to time permit, with respect to
the portions of such accounts invested in McDonald's common stock to
receive a distribution in shares of McDonald's common stock.
(j) Distributions in Whole Shares. A Participant or Beneficiary who
-----------------------------
is entitled to a distribution in the form of Company Stock may elect to
receive McDonald's common stock distribution in lieu of cash by filing a
written election with the Committee on forms approved by the Committee and
in a manner prescribed by the Committee on or before the Valuation Date
coincident with or next preceding the date of distribution. However, if any
distribution in shares of McDonald's common stock described in this Section
11.2 would not be in whole shares, the value of any fractional share shall
be distributed in cash.
Until such time as a Participant's vested Net Balance Account has been
distributed, transferred to a Holding Fund in accordance with Section
10.23, or forfeited in accordance with Section 11.4, (A) any portion of his
Net Balance Account in his Diversification Account shall continue to be
invested as provided in Section 10.10, and (B) any portion of his Net
Balance Account remaining in the McDESOP, LESOP or Stock Sharing portions
of the Program shall continue to be invested in Company Stock and held
therein.
(k) Put Option. If any Company Stock distributed from a Participant's
----------
Participant Elected Contribution Account, Employer Matching Contribution
Account, McDESOP Diversification Account, LESOP Diversification Account or
Stock Sharing Account is not readily tradeable on an established market
when distributed, the distributee shall have the put option rights with
respect to such shares which are described in Section 6.5(b).
(l) Distributions After Rehire. If a Participant who has had a
--------------------------
Termination of Employment subsequently becomes an Employee, such
Participant shall not be entitled to elect distributions until he again
becomes eligible to receive distributions as provided in Section 11.2.
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11.3 Payment of Net Balance Account on Death of Participant.
------------------------------------------------------
(a) Form of Payment. The Net Balance Account of a Participant who
---------------
dies before having a Termination of Employment shall be fully vested. The
Net Balance Account of a Participant who dies after having a Termination of
Employment for reasons other than a Termination of Employment on or after
his Vesting Retirement Date, death or Disability shall be vested as
provided in Section 11.4(b). If a Participant dies before his entire vested
Net Balance Account has been paid from the Program, except to the extent
otherwise provided in Section 11.2(e)(2) in cases in which the Participant
has elected a life annuity form of distribution, distributions shall be
made as follows:
(1) If the Participant has a surviving spouse, the Trustee shall
distribute the vested portion of the Participant's Net Balance Account
to the Participant's surviving spouse as the Participant's Beneficiary
in accordance with Section 11.3(a)(3) unless the Participant (with his
spouse's consent in accordance with Section 11.10) has named another
Beneficiary.
(2) If the Participant does not have a surviving spouse or if
the Participant (with his spouse's written consent in accordance with
Section 11.10) has named another Beneficiary, the Trustee shall
distribute the vested portion of the Participant's Net Balance Account
in accordance with Section 11.3(a)(3) to the Beneficiary named by the
Participant in accordance with Section 11.6.
(3) The Participant's vested Net Balance Account shall be
distributed within a reasonable time after the Valuation Date
following the Participant's death or at such later date as the
Beneficiary may elect under Section 11.3(b). Distributions to the
Participant's Beneficiary shall be in whichever of the following
methods of payment the Beneficiary, by written notice to the
Committee, shall elect, unless the Participant has elected in a
written notice delivered to the Committee not to permit such
Beneficiary elections in which case the Participant shall elect the
method of payment, from the following:
(A) A single non-periodic payment;
(B) Substantially equal installments, not less frequently
than annually, over a period certain, directly from the
Profit Sharing Plan portion of the Program; or
(C) In the form of a nontransferable annuity contract
purchased from an insurance company designated by the
Beneficiary which is authorized to do business in any state
and which has an A plus rating by A.M. Best Company or a
comparable rating by a comparable service which rates
insurance companies payable to the Beneficiary over his
life.
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In the absence of any election by a Participant or a Beneficiary as to
time and manner of payment, the Participant and the Beneficiary shall be
deemed to have elected to receive the entire benefit in an immediate single
non-periodic payment. Distributions shall be made to a Participant's
Beneficiary in cash or in Company Stock as provided under Sections 11.2(f)
through 11.2(j).
(b) Beneficiary's Elections. With respect to a distribution on
-----------------------
account of a Participant's death, his Beneficiary, as designated pursuant
to Section 11.6, may elect the form of benefit and the date of commencement
of benefits, unless the Participant has elected not to permit such
Beneficiary elections. If the Participant has not elected otherwise, the
Beneficiary may also elect, with respect to benefits not being received in
the form of an annuity, to accelerate or to delay the receipt of benefits.
Such elections shall be made in writing on a form provided or approved by
the Committee and are subject to such rules as the Committee shall specify
and to the limits stated in Sections 11.3(c) through 11.3(h), as
applicable. Once a Beneficiary has made benefit elections, he may in the
same manner and subject to the same conditions, with respect to benefits
not being received in the form of an annuity contract purchased from an
insurance company, change the election at any time, and with respect to any
election delay or accelerate the receipt of benefits from time to time.
(c) Period of Distribution - Death After Distributions Commence.
-----------------------------------------------------------
Notwithstanding any other provisions of this Program and any elections made
by the Participant or his Beneficiary, except an election made in
accordance with Section 11.13(a), if a Participant dies on or after his
Required Beginning Date but before his entire vested Net Balance Account
has been distributed, and on or after the date upon which distribution of
his vested Net Balance Account has commenced in installments over a period
certain:
(1) not in excess of the life expectancy of the Participant or
the joint and last survivor life expectancy of the Participant and his
Beneficiary and such life expectancy was not subject to
redetermination under Section 11.12(e), the balance of the
Participant's vested Net Balance Account shall be distributed to his
Beneficiary at least as rapidly as under the method of distribution in
effect on the date of the Participant's death; or
(2) not in excess of the Participant's life expectancy or the
life expectancies of the Participant and his Beneficiary one or both
of which are subject to periodic redetermination in accordance with
Section 11.12(e), the balance of the Participant's vested Net Balance
Account shall be distributed to his Beneficiary (A) by the last day of
the Plan Year following the Plan Year in which the Participant died,
if the period was based solely upon the Participant's life expectancy
and (B) over a period not longer than the Beneficiary's remaining life
expectancy as determined under the method of determining life
expectancy used for the Beneficiary at the time benefit payments
commenced to the Participant, if the period was based upon the joint
and last survivor life expectancy of the
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Participant and the Beneficiary. The remaining life expectancy of a
Beneficiary for purposes of the preceding sentence shall be (1) if
such life expectancy is not subject to redetermination, the
Beneficiary's life expectancy at the time installment payments
commenced to be made to the Participant reduced by one year for each
year over which such payments have been made or (2) if such life
expectancy is subject to redetermination, the Beneficiary's life
expectancy as redetermined at the applicable times following the
Participant's death.
(d) Period of Distribution - Death Before Distributions Commence.
------------------------------------------------------------
Notwithstanding any elections made by a Participant or Beneficiary, if
Section 11.3(c) is not applicable, and a Participant dies before his entire
vested Net Balance Account has been distributed or commenced to be
distributed, the Participant's vested Net Balance Account shall be
distributed not later than December 31 of the calendar year which contains
the fifth anniversary of the Participant's death; except that if his
Beneficiary is an individual, the Participant's vested Net Balance Account
may be distributed over a period not exceeding the Beneficiary's life
expectancy (or, if there are multiple Beneficiaries, the Beneficiary with
the shortest life expectancy) determined as of the date of the
Participant's death, and if the Beneficiary is a trust, the Participant's
vested Net Balance Account may be distributed over a period not exceeding
the life expectancy of the beneficiary of the trust or estate who then has
the shortest life expectancy determined as of the Participant's death,
beginning, in either event, no later than December 31 of the calendar year
after the calendar year of the Participant's death to the extent permitted
under Section 11.3(h). Notwithstanding the foregoing, if the Beneficiary is
the Participant's surviving spouse, distribution shall be made or shall
commence not later than December 31 of the calendar year in which the
Participant would have attained the age of 70-1/2 years.
(e) Death of Surviving Spouse Who Is Beneficiary Before Benefit
-----------------------------------------------------------
Payments Commence. If the surviving spouse of a Participant is the
-----------------
Beneficiary, and the surviving spouse dies before distributions have begun
to the surviving spouse in accordance with Section 11.3(c)(1) or (2), the
rules of Sections 11.3(c) and 11.3(d) shall apply as though such surviving
spouse were the Participant, substituting the date of death of such spouse
for the date of the Participant's death to determine the dates therein.
Distributions are considered to have begun to the surviving spouse on the
later of the dates specified in Section 11.3(c)(1) or (2).
(f) Death of Beneficiary After Benefit Payments Commence. If a
----------------------------------------------------
Beneficiary has commenced to receive distributions under Section 11.3(d),
and such Beneficiary dies before the entire vested Net Balance Account has
been distributed, any subsequent Beneficiary whose status as a Beneficiary
was contingent on the death of the first Beneficiary shall receive
distributions at least as rapidly as under the distribution method in
effect upon the first Beneficiary's death.
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(g) Amount Paid to a Child. Any amount paid to a child, in accordance
----------------------
with regulations prescribed by the Secretary of the Treasury, shall be
treated as if it had been paid to the Participant's surviving spouse if
such amount will become payable to the surviving spouse upon such child
reaching majority (or such other events as the Secretary of the Treasury
may by regulations prescribe).
(h) Trust as Beneficiary. Notwithstanding the foregoing provisions of
--------------------
Section 11.3, if a trust is designated the Beneficiary under the Program
and
(1) if the following requirements are met, the Beneficiary or
Beneficiaries of the trust shall be considered the Beneficiary in
accordance with applicable regulations and rulings for the purpose of
determining the period over which distributions in the form of
installments or annuities may be distributed. The applicable trust
requirements are:
(A) the trust is a valid trust under state law, or would be
but for the fact that there is no corpus;
(B) the trust is irrevocable or will become so by its terms
upon the Participant's death;
(C) the beneficiaries of the trust with respect to the
trust's interest in the Participant's vested Net Balance
Account are identifiable from the trust instrument as
provided in Section 401(a)(9) of the Internal Revenue Code
and the regulations adopted or proposed thereunder; and
(D) a copy of the trust instrument has been provided to the
Plan Administrator; and
(2) If the above listed requirements are not met and the
Participant dies on or after the Participant's Required Beginning
Date, the Participant shall be treated as not having designated a
Beneficiary for purposes of determining the period over which
distributions may be made and distributions shall be made to the trust
at least as rapidly as over the longest period over which
distributions could have been made under Section 11.3(c) if the
Participant had no Beneficiary.
(3) If the above listed requirements are not met, and the
Participant dies before his Required Beginning Date, the Participant
shall be treated as not having designated a Beneficiary for purposes
of the exception to the requirement in Section 11.3(d) that
distributions be made within five years and, therefore, distributions
shall be made within the five year period designated in Section
11.3(d).
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11.4 Vesting and Forfeitures.
-----------------------
(a) A Participant who has a Termination of Employment on or after his
Vesting Retirement Date or who has a Termination of Employment on account
of Disability or death shall be fully vested in his Net Balance Account.
(b) If a Participant has a Break in Service or has a Termination of
Employment with the Employer for reasons other than retirement on or after
his Vesting Retirement Date, death, or Disability, such Participant shall
be fully vested in his (1) Investment Savings Account; (2) his Rollover
Account; (3) Rollover Holding Account; (4) Participant Elected Contribution
Account; (5) Employer Matching Contribution Account; (6) McDESOP
Diversification Account; and (7) Stock Sharing Account. Such Participant
shall be vested in his Profit Sharing Account, LESOP Account and LESOP
Diversification Account in accordance with the following table wherein the
first column represents the Credited Service of the Participant, and the
second column represents the Vested Percentage of the Participant's Profit
Sharing Account, LESOP Account and LESOP Diversification Account:
(A) For Participant's Whose Termination of Employment was on or
before December 31, 1999
Years of Credited Service Vested Percentage
------------------------- -----------------
less than 2 years 0
2 years but less than 3 5
3 years but less than 4 20
4 years but less than 5 40
5 years but less than 6 60
6 years but less than 7 80
7 years and over 100
(B) For Participant's Whose Termination of Employment is on or
after January 1, 2000
Years of Credited Service Vested Percentage
------------------------- -----------------
less than 1 year 0
1 years but less than 2 20
2 years but less than 3 40
3 years but less than 4 60
4 years but less than 5 80
5 years and over 100
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(c) The portion of the Participant's Profit Sharing Account, LESOP
Account and LESOP Diversification Account which is not vested as of his
Termination of Employment or the occurrence of a Break in Service shall
become a Forfeiture at the earlier of (1) the first day of the Plan Year
immediately following the Plan Year in which the Participant has five
consecutive Breaks in Service or (2) as of the Valuation Date immediately
following the Valuation Date as of which the Vested Percentage of the
Participant's Profit Sharing Account, LESOP Account and LESOP
Diversification Account, respectively, are distributed. Subject to Section
11.3(d) and 11.3(e), (A) Forfeitures occurring with respect to a
Participant's Profit Sharing Account shall be credited to the McDESOP
Holding Fund as of the Valuation Date following the date the amount of such
Forfeiture is determined but not later than the sixth Valuation Date after
the date as of which the amounts became a Forfeiture and (B) from
Participants' LESOP Accounts and LESOP Diversification Account shall be
allocated for the Plan Year among all Active Participants as provided in
Section 7.3 for Forfeitures from Participants' LESOP Accounts. A
Participant whose Vested Percentage is zero at the time of his Termination
of Employment or Break in Service shall be deemed to have had a
distribution of the Vested Percentage of his Profit Sharing Account, LESOP
Account and LESOP Diversification Account as of the Valuation Date
immediately following the date on which the Participant has a Termination
of Employment or Break in Service.
(d) If a Participant, (1) who had a Termination of Employment,
resumes employment with an Employer before he has a Break in Service or,
(2) who had a Termination of Employment or Break in Service occurring on or
after January 1, 1985, earns one Year of Eligibility Service following the
Break in Service (but before having five consecutive Breaks in Service),
the amount of the Participant's Profit Sharing Account, LESOP Account and
LESOP Diversification Account, if any, forfeited under Section 11.4(c)
shall be reinstated to the respective Accounts out of Forfeitures from the
Profit Sharing portion and the LESOP portion of the Program, respectively,
for the Plan Year in which such resumption of employment occurs or such one
Year of Eligibility Service is earned, whichever is applicable. To the
extent that Forfeitures for such Plan Year are not sufficient, the amount
to be reinstated shall be charged against income of the Profit Sharing
Holding Fund and the McDESOP Holding Fund, respectively. Thereafter, in the
case of a Participant who received a distribution and had his Forfeiture
reinstated, the Participant's Vested Percentage in his Profit Sharing
Account, LESOP Account or LESOP Diversification Account shall be equal to
an amount determined by subtracting the amount distributed (the
"Distributed Amount") on the Participant's Termination of Employment or
Break in Service from the product of (1) the Participant's Vested
Percentage determined pursuant to Section 11.4 multiplied by (2) the sum of
(a) the Distributed Amount and (b) the value of the Participant's Profit
Sharing Account, LESOP Account or LESOP Diversification Account,
respectively.
(e) The amount, if any, forfeited under Section 11.4(c) shall not be
reinstated if a Participant is rehired or again becomes a Participant and
if the Participant either (1) had a Break in Service before January 1, 1985
or (2) did not have a Break in Service before January 1, 1985 and had five
consecutive Breaks in Service. If all or a portion of
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the Vested Percentage of a Participant's Profit Sharing Account, LESOP
Account or LESOP Diversification Account prior to his Termination of
Employment or Break in Service was not distributed prior to his resumption
of service and he was not 100% vested in such accounts upon Termination of
Employment or Break in Service, then: (1) the Vested Percentage of the
Participant's Profit Sharing Account, LESOP Account or LESOP
Diversification Account at the time of Forfeiture which was not distributed
shall be held in a "Pre-Break Profit Sharing Account," "Pre-Break LESOP
Account" or "Pre-Break LESOP Diversification Account," respectively, which
shall be 100% vested; and (2) the Participant's Profit Sharing
Contributions and the net earnings thereon and LESOP Contributions and the
net earnings thereon attributable to service after the Break in Service or
five (5) consecutive Breaks in Service, as applicable, shall be held in a
"Post-Break Profit Sharing Account," and "Post-Break LESOP Account,"
respectively, which shall be vested in accordance with Section 11.4(b). Any
amounts transferred to the Participant's LESOP Diversification Account from
the Participant's Pre-Break LESOP Account shall be held in the
Participant's Pre-Break LESOP Diversification Account and amounts
transferred from the Participant's Post-Break LESOP Account shall be held
in the Participant's Post-Break LESOP Diversification Account.
(f) Each Participant who is a certified swing manager, primary
maintenance employee, crew member or other hourly restaurant employee who
is an Employee on July 1, 1992, shall be fully vested in his LESOP Account
as of July 1, 1992.
11.5 Payment of Employer Profit Sharing Contribution for Year of
-----------------------------------------------------------
Termination of Employment. If a Participant (or the Beneficiary thereof) who is
- -------------------------
an Active Participant for the Plan Year in which or immediately before which he
has a Termination of Employment receives an allocation of Employer Profit
Sharing Contributions pursuant to Section 7.1, an allocation of Company Stock
released from the LESOP Suspense Account pursuant to Section 7.3 or an
allocation of Employer Matching Contributions and Forfeitures pursuant to
Section 7.2 after he has received a single sum distribution of his Net Balance
Account, the vested portion of any such allocation shall be distributed to the
Participant or, in the event of his death, to his Beneficiary within a
reasonable time after the later of the close of the Plan Year or the Valuation
Date following the Participant's election to receive such distribution. If such
Participant or Beneficiary has not received a single sum distribution of his
vested Net Balance Account, any such allocations pursuant to Sections 7.1, 7.2
and 7.3 for the Plan Year shall be credited to the Participant's respective
Accounts and the vested portion of such contributions shall be distributed as a
part of such account in the manner provided in Section 11.2 or 11.3, whichever
shall apply.
11.6 Designation of Beneficiary and Form of Beneficiary Benefit. Subject to
----------------------------------------------------------
Sections 11.3 and 11.10, the Participant may (1) designate his Beneficiary, (2)
elect the form of his Beneficiary's benefit and (3) elect to prohibit
Beneficiary elections under Section 11.3(b) on forms provided by and filed with
the Committee; provided that a beneficiary designation completed and filed with
the Committee before January 1, 1989, under the McDonald's Corporation Savings
and Profit Sharing Plan shall be deemed to apply to the Profit Sharing Plan
portion of the Program and a beneficiary designation completed and filed with
the Committee
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before January 1, 1989, under the McDonald's Matching and Deferred Stock
Ownership Plan shall be deemed to apply to the McDESOP and LESOP portions of the
Program. A beneficiary designation form filed with the Committee on or after
January 1, 1989 and before January 1, 1996 shall be deemed to apply to the
Profit Sharing, McDESOP and LESOP portions of the Program and to replace all
prior Beneficiary designations unless the Beneficiary designation provides
otherwise. A Beneficiary designation filed by a Participant under the Stock
Sharing Plan before January 1, 1996 shall be deemed to apply to the Stock
Sharing portion of the Program. A Beneficiary designation filed with the
Committee on or after January 1, 1996, shall be deemed to apply to the entire
Program and to replace all prior Beneficiary designations except to the extent
such Beneficiary designation provides otherwise. The Participant may submit
separate Beneficiary designations for the Profit Sharing, McDESOP, LESOP and
Stock Sharing portions of the Program and change his Beneficiary designation and
his elections concerning his Beneficiary's benefit from time to time by filing
the beneficiary designation form with the Committee. No designation of
Beneficiary or election concerning a Beneficiary's benefit or change of such
designation or election shall be effective until filed with the Committee. If a
Participant shall fail to file a valid Beneficiary designation, if all persons
designated on the Beneficiary designation form predecease the Participant (or,
in the case of a Beneficiary other than an individual, cease to exist prior to
the Participant's death) or to the extent that the Participant's Beneficiary
designation form fails to dispose of his entire interest, the Trustee shall
distribute the Participant's vested Net Balance Account to the following persons
in the following order of precedence:
(a) His surviving spouse;
(b) With respect to the Profit Sharing Plan portion of the Program,
his Beneficiary designated under McDESOP portion of the Program; with
respect to the McDESOP and LESOP portions of the Program, his Beneficiary
designated under the McDonald's Corporation Savings and Profit Sharing Plan
or the Profit Sharing Plan portion of the Program; and with respect to the
Stock Sharing portion of the Program, those persons designated by the
Participant to receive his death benefits under the Participant's
McDonald's basic group term life insurance benefits or, in the absence of
such designation, under the Profit Sharing Plan portion of the Program.
(c) The person or entity who receives the Participant's McDonald's
basic group term life insurance benefits;
(d) His lawful descendants including adopted children per stirpes;
(e) His parents in equal shares, or (if only one parent survives him)
his surviving parent;
(f) The lawful descendants of his parents, per stirpes;
(g) His estate.
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In the absence of a Participant's election to prohibit the Beneficiary elections
allowed in Section 11.3(b), his Beneficiary shall be permitted to make such
elections.
11.7 Incompetency, Distribution of Benefits.
--------------------------------------
(a) If a Participant or Beneficiary is declared an incompetent or is
a minor, and a conservator, guardian or other person legally charged with
his care is appointed or if such Participant is not a minor and has
executed a so-called durable power of attorney and if the Committee is
given written notice of such appointment or power of attorney, any benefits
to which such Participant or Beneficiary is entitled shall be distributable
to such conservator, guardian or other person legally charged with his care
or to the attorney-in-fact under the power of attorney.
(b) If a Participant or Beneficiary is incompetent, a minor or, in
the opinion of the Committee, would fail to derive benefit from
distribution of his accounts and if a conservator, guardian or other person
legally charged with his care has not been appointed or if the Committee
has not been given written notice of such appointment, the Committee may
(1) require the appointment of a conservator or guardian, (2) distribute
the Participant's Accounts to relatives of the Participant or Beneficiary
for the benefit of the Participant or Beneficiary, or (3) distribute such
Accounts directly to or for the benefit of the Participant or Beneficiary.
(c) The decision of the Committee in such matters shall be final,
binding and conclusive upon the Employer and the Trustee and upon each
Employee, Participant, Beneficiary and every other person or party
interested or concerned, and neither the Employer, the Committee nor the
Trustee shall be under any duty to see to the proper application of such
distribution made to or for a Participant or Beneficiary, or conservator,
guardian or relative of a Participant or Beneficiary.
11.8 Deduction of Taxes from Accounts Payable. The Trustee or the Committee
----------------------------------------
may deduct from the amount to be distributed such amount as the Trustee or the
Committee, in its sole discretion, deems proper to protect the Trustee, the
Committee and the Trust against liability for the payment of death, succession,
inheritance, income, or other taxes, and out of the money so deducted, the
Trustee may discharge any such liability and pay the amount remaining to the
Participant, the Beneficiary or the deceased Participant's estate, as the case
may be.
11.9 Deadline for Payment of Benefits. Except to the extent that a
--------------------------------
Participant in accordance with the Program otherwise elects and except to the
extent it is not administratively feasible, payment of benefits shall be made or
commence not later than sixty (60) days after the latest of (a) the close of the
Plan Year in which the Participant attains age fifty-five (55), (b) the close of
the Plan Year in which occurs the tenth (10th) anniversary of the Plan Year in
which the Participant commenced participation, and (c) the close of the Plan
Year in which the Participant has a Termination of Employment; provided that, a
Participant, who is entitled to receive a distribution pursuant to this Section
11.9 and whose vested account balance is equal to at least $5,000, must submit a
claim for benefits before any distributions will be made hereunder.
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11.10 Spousal Consent to a Beneficiary or a Waiver.
--------------------------------------------
(a) A valid spousal consent to the Participant's naming of a
Beneficiary other than his spouse or to the Participant's Waiver of a
Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor
Annuity shall be:
(1) in a writing acknowledging the effect of the consent;
(2) witnessed by a notary public;
(3) effective only with respect to a specific Beneficiary and,
in the case of a waiver of a Qualified Joint and Survivor Annuity or
Qualified Preretirement Survivor Annuity, shall specify an optional
form of benefit unless the spouse voluntarily in such consent
expressly permits subsequent designations of beneficiaries or
elections of optional forms of benefit without further spousal consent
and acknowledges the spouse's right to limit the consent to a specific
Beneficiary and optional form of benefit, where applicable; and
(4) effective only for the spouse who exercises the consent;
provided that notwithstanding the provisions of this Article XI, the
consent of a Participant's spouse shall not be required if it is
established to the satisfaction of a Plan representative that such consent
may not be obtained because there is no spouse, because the spouse cannot
be located or because of such other circumstances as the Secretary of the
Treasury may by regulations prescribe.
(b) To the extent provided in any Qualified Domestic Relations Order
(as defined in Section 16.5, the former spouse of a Participant shall be
treated as the surviving spouse of such Participant for purposes of Section
11.3 and for providing consent in accordance with Section 11.10(a).
11.11 Single Sum Payment without Election. Notwithstanding any provisions of
-----------------------------------
this Article XI to the contrary (except Section 11.14 to the extent therein
provided), if the Participant or Beneficiary is entitled to a distribution
because of the Participant's Break in Service (but not in the case of a Break in
Service without a Termination of Employment), retirement on or after his Vesting
Retirement Date, death, Disability, or other Termination of Employment, and if
the value of the vested portion of a Participant's Net Balance Account under the
Program does not exceed $5,000, the Committee shall direct the immediate
distribution of such benefit prior to the annuity starting date or other date of
distribution or commencement of distribution, regardless of any election or
consent of the Participant, his spouse, or other Beneficiary. If the Net
Balance Account under the Program of an alternate payee under a Qualified
Domestic Relations Order, as provided under Section 16.5, does not exceed
$5,000, the Committee shall direct the immediate distribution of such benefit
regardless of any election of the alternate payee absent a contrary provision in
the Qualified Domestic Relations Order.
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11.12 Installment Payments. Subject to Section 11.4 and 11.2(d):
--------------------
(a) Elected Installments Paid to Participant. If a Participant elects
----------------------------------------
installment payments, they shall be substantially equal installments, paid
at least annually, over a period certain as elected by the Participant
which period shall not be in excess of the life expectancy of the
Participant or the joint and last survivor life expectancy of the
Participant and his Beneficiary, if such Beneficiary is an individual
("Applicable Life Expectancy") determined as of the date such payments
commence; provided that if elected by the Participant pursuant to Section
11.12(e), life expectancy may be redetermined.
(b) Required Installments Paid to Participant. The Applicable Life
-----------------------------------------
Expectancy of a Participant, who according to the records of the Employer
has attained the age of 70-1/2 and who elects to receive installments but
who fails to make a permissible election with respect to the period over
which installments shall be paid or fails to provide the Committee with any
requested proof of his age or the age of his Beneficiary by such deadline
as the Committee shall require, shall be deemed to be the life expectancy
of the Participant as reasonably determined from the records of the
Employer; provided that if a Participant subsequently provides the
Committee with proof that his age is greater than the Employer's records
indicated, the Committee shall redetermine the Participant's Applicable
Life Expectancy based upon the corrected information and shall distribute
to the Participant any amounts which would have been required to be
distributed if the Participant's correct age had been used to determine his
Applicable Life expectancy for the purpose of determining the Minimum
Distribution Amount, as defined in Section 11.12(d), for any installment
distributions which have already been made.
(c) Installments Commencing After Participant's Death. If
-------------------------------------------------
installments commence to be paid after the Participant's death to the
Participant's Beneficiary who is an individual, they shall be substantially
equal installments, paid at least annually, over a period certain not in
excess of the life expectancy of such individual determined as of the date
such payments commence; provided that if the Participant's Beneficiary is
his surviving spouse, such Beneficiary may elect to have his life
expectancy redetermined as provided in Section 11.12(e).
(d) Minimum Distribution Amount. Installment payments are
---------------------------
substantially equal if the amount of each installment distributed in a
calendar year is not less than an amount equal to the balance of the
person's Net Balance Account as of the last day of the preceding calendar
year divided by the Applicable Life Expectancy ("Minimum Distribution
Amount"). In calculating the Minimum Distribution Amount for each calendar
year after the calendar year in which the Participant attained the age of
70-1/2 or for each calendar year after payments to the Beneficiary have
commenced (either of which is called the "First Year"), the Applicable Life
Expectancy shall be reduced by one for each calendar year which has elapsed
commencing with the First Year.
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(e) Determination of Life Expectancy. The life expectancy of a
--------------------------------
Participant and of his spouse and the joint and last survivor life
expectancy of the Participant and his spouse may be redetermined for
purposes of determining the amounts required to be distributed pursuant to
Section 11.2(c), 11.2(d) or 11.12(a), if elected by the Participant (or his
spouse, if the Participant is deceased and if his spouse is the
Participant's Beneficiary) in accordance with such uniform and
nondiscriminatory rules as the Committee shall establish, but may not be
redetermined more frequently than annually. Life expectancies shall not be
redetermined unless the Participant (or spouse) so elects by the date
distributions are required to commence under the Program. Unless subject to
redetermination, life expectancies are calculated using the Participant's
or Beneficiary's birth date in the calendar year in which the Participant
attains the age of 70-1/2, in the case of benefits commencing during the
Participant's lifetime and in the case of payments to the Beneficiary, as
of the date such payments commence. In the case of annuity payments made
pursuant to an insurance contract, however, life expectancy is determined
in the calendar year in which annuity payments commence. If a Participant's
or his spouse's life expectancy is not being redetermined, it shall be
reduced by one for each year after the calendar year in which it was
determined for the purpose of determining the amount of installment
payments hereunder. All life expectancies shall be determined using the
expected return multiples in Tables V and VI of Treas. Reg. (S) 1.72-6 or
any successor tables issued from time to time by the Internal Revenue
Service.
11.13 Required Minimum Distributions to Employed Participants.
-------------------------------------------------------
(a) Subject to Section 11.13(d) or 11.3(e), a Participant who has
attained the age of 70-1/2 but has not had a Termination of Employment
shall commence receiving installment payments in the Minimum Distribution
Amount for the calendar year in which he becomes 70-1/2 not later than
April 1 of the following year and installment payments for each calendar
year after the calendar year in which he became 70-1/2, not later than the
last day of each such year.
(b) The amount distributed for the year in which such Participant
becomes 70-1/2 and in each calendar year thereafter shall be not less than
the Minimum Distribution Amount determined under Section 11.12(d).
(c) A Participant who has not had a Termination of Employment and who
will attain his Required Beginning Date in the next calendar year, may
elect at such time and on such form as the Committee shall permit to
receive his first distribution required pursuant to Section 11.13(a) in the
year before the calendar year in which his Required Beginning Date occurs.
(d) A Participant who has not had a Termination of Employment attains
the age of 70-1/2 may elect to receive his entire vested Net Balance
Account on or after the attainment of that age. Such a Participant, who
elects to receive his entire vested Net Balance Account pursuant to the
preceding sentence, may elect to have such election
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continue to apply each subsequent Plan Year until he changes the election
with respect to a future Plan Year.
(e) Notwithstanding the foregoing provisions of Section 11.13, a
Participant, who is not a Five Percent Owner and has attained the age of 70
1/2 but has not had a Termination of Employment, may elect to receive or
not to receive distributions as provided in Sections 11.13(a) and 11.13(b).
If the Participant fails to make such an election, the distributions
provided in Sections 11.13(a) and 11.13(b) shall be made to such a
Participant. If such distributions have commenced to such a Participant, he
or she may make an election to discontinue such distributions. If such
distributions are not being made to a Participant, he or she may make one
election, which shall be irrevocable subject to the Participant's right
under Section 11.16(c) to elect a distribution of his entire Net Balance
Account or to commence receiving distributions as provided in Sections
11.13(a) and 11.13(b). Elections made hereunder shall be made at such time
and in accordance with such procedures as the Committee shall from time to
time permit.
11.14 Transitional Rules.
------------------
(a) TEFRA 242(b) Elections. Effective for all Participants and
----------------------
Beneficiaries whether or not the Participant was an Employee after the
Effective Date of the Program, notwithstanding any other provision herein,
distributions to Participants or Beneficiaries made from the Profit Sharing
Plan portion of the Program, except for the Participant's Diversification
Account, are subject to any valid election under TEFRA Section 242(b) made
under the McDonald's Corporation Savings and Profit Sharing Plan by a
Participant prior to January 1, 1984 to have the distribution of the
Participant's benefits deferred or extended beyond the period otherwise
permitted under the provisions of this Article XI which was then permitted
under applicable law until the Participant (or his Beneficiary) revokes the
election by an act recognized as a revocation under TEFRA 242(b); provided
that if the Participant's spouse is not the Beneficiary of 100 percent of
his vested Accrued Benefit under the Program, the Participant's spouse
shall have consented to the naming of another Beneficiary in accordance
with Section 11.10.
(b) Distributions to Certain Participants and Beneficiaries in Pay
--------------------------------------------------------------
Status. Effective for all Participants and Beneficiaries whether or not the
------
Participant was an Employee after January 1, 1984, for any distribution
which would not have disqualified the Trust under Code Section 401(a)(9) as
in effect prior to amendment by the Tax Reform Act of 1984, which was
permitted under the Program as in effect on the date such distributions
commenced, and which either
(1) commenced prior to and continued on or after January 1,
1984, distributions may continue to the Participant or the Beneficiary
to whom such distribution is being made under the method of
distribution in effect; provided that the method of distribution was
specified in a writing including the time at which the distribution
was to commence, the period over which such distributions will
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be made and, in the case of any distribution upon the Participant's
death, a list of the Beneficiaries of the Participant in order or
priority; or
(2) commenced prior to the first Plan Year beginning in 1985,
distributions may continue to the Participant or the Beneficiary to
the extent permitted under applicable law, regulations and rulings.
11.15 Sale of Restaurant - Special Vesting Rules. Notwithstanding any of
------------------------------------------
the provisions herein to the contrary, a Participant who is not 100% vested in
his Profit Sharing Account and his LESOP Account and who has a Termination of
Employment on account of a sale on or after December 1, 1986 but prior to
January 1, 1993 of a McDonald's restaurant to a joint venture partnership in
which the Company owns an interest ("Joint Venture") shall have a single
opportunity to elect, in accordance with such procedures as the Committee shall
establish, to receive a distribution of his benefits as provided in Article XI
(or to retain the ability to make an election to receive such a distribution at
any time) or (notwithstanding the provisions of Section 11.11 to the contrary),
solely for purposes of determining the Participant's Vested Percentage in his
Profit Sharing Account, his LESOP Account and LESOP Diversification Account, if
any, to continue to be credited with Credited Service for employment with the
Joint Venture. If the Participant elects to continue to be credited with
Credited Service for employment with the Joint Venture, his Accounts will
subsequently be distributed by applying Article XI as if the Joint Venture were
his sole Employer for the purpose of determining when such Participant
thereafter has a Termination of Employment. Service for periods of employment
with the Joint Venture shall be determined by crediting each such electing
Participant with one Year of Credited Service for each subsequent consecutive
October 31 that such Participant is employed by the Joint Venture; provided that
a Participant shall not receive more than one Year of Credited Service for a
single Plan Year.
11.16 In-Service Withdrawals.
----------------------
(a) Investment Savings and Rollover Accounts. A Participant may,
----------------------------------------
upon written notice to the Committee, given before the administrative
cutoff date prior to the end of any calendar month, withdraw all or any
portion of such Participant's Investment Savings Account, Rollover Account
and Rollover Holding Account valued as of the Valuation Date of the
calendar month in which such notice is given. Distribution of such
withdrawals shall be made within the next calendar month. The Committee
may, from time to time, establish such rules and procedures as it deems
appropriate to administer or limit the withdrawal of Participant's
Investment Savings Accounts, Rollover Accounts and Rollover Holding
Accounts under this Section 11.16 provided, however, that in no event shall
the Committee limit Participants' rights of withdrawal to less than one
withdrawal per Plan Year. To the extent administratively feasible the
period of notice required for withdrawal or distribution can be relaxed,
reduced or eliminated upon appropriate request to the Committee.
(b) Stock Sharing Accounts. A Participant may, on a form at such
----------------------
time and in such manner as the Committee shall prescribe, elect to have
distributed to him in cash or
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in shares of common stock of the Company, the shares which have been
allocated to his Stock Sharing Account for eighty-four (84) months
following the month in which such shares were allocated to his Stock
Sharing Account, provided that such withdrawals shall consist of whole
shares. As of the Effective Date all shares of common stock of the Company
purchased with contributions to the Stock Sharing Plan have been held for
more than 84 months and therefore may be distributed.
(c) Distributions after Age 70-1/2. A Participant who has
------------------------------
attained the age of 70-1/2 but has not had a Termination of Employment may
elect, at such time and on such form as the Committee shall permit, to
begin receiving installment payments or a distribution of his entire Net
Balance Account as provided in Section 11.13.
11.17 Direct Rollovers.
----------------
(a) A Distributee whose benefit is distributable pursuant to
another provision of the Program may elect, at the time and in the manner
prescribed by the Committee, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by the
Distributee in a Direct Rollover; subject to such reasonable administrative
requirements as the Committee may from time to time establish which may
include, but shall not be limited to, requirements consistent with Treasury
Regulations and other guidance issued by the Internal Revenue Service
permitting de minimis standards for amounts eligible to be rolled over or
paid partly to the Participant and partly rolled over. A Participant may
make an election pursuant to this Section 11.17 only after the Distributee
has met otherwise applicable requirements for receipt of a distribution
under the Program, including but not limited to any applicable requirements
that the Participant's spouse or (pursuant to a Qualified Domestic
Relations Order as defined in Section 16.5) former spouse consent to the
Participant's waiver of a Qualified Joint and Survivor Annuity or Qualified
Preretirement Survivor Annuity.
(b) In the absence of the adoption by the Committee of any
requirements to the contrary, the following shall apply:
(1) A Distributee whose Eligible Rollover Distribution is less
than $200 upon the Valuation Date immediately preceding the date of
distribution shall not be permitted to elect to have all or any portion of
the distribution made in the form of a Direct Rollover.
(2) A Distributee who elects a Direct Rollover in an amount
equal to at least $500 may also elect to have the remaining portion of
his distribution paid to the Distributee.
(3) A Distributee shall be permitted to divide an Eligible
Rollover Distribution into separate distributions to be paid to two or
more Eligible Retirement Plans in two or more Direct Rollovers.
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(4) A Distributee's election to make or not to make a Direct
Rollover with respect to a payment in a series of periodic payments
shall apply to all subsequent payments in the series until the
Distributee changes his election.
(5) If a Distributee, who has been notified as to the
availability of the Direct Rollover option, fails to elect a Direct
Rollover with respect to an Eligible Rollover Distribution, such
Distributee shall be deemed to have elected not to make a Direct
Rollover.
(c) As used in this Section 11.17, the following terms shall have the
following meanings:
(1) "Eligible Rollover Distribution" means any distribution of
------------------------------
all or any portion of the balance to the credit of the Distributee,
except that an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or
life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's designated
Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section
11.13; and the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(2) "Eligible Retirement Plan" means an individual retirement
------------------------
account described in Section 408(a) of the Internal Revenue Code, an
individual retirement annuity described in Section 408(b) of the
Internal Revenue Code, an annuity plan described in Section 403(a) of
the Internal Revenue Code, or a qualified trust described in Section
401(a) of the Internal Revenue Code, that accepts the Distributee's
Eligible Rollover Distributions. However, in the case of an Eligible
Rollover Distribution to a Participant's surviving spouse or surviving
former spouse who is a Distributee pursuant to a Qualified Domestic
Relations Order, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
(3) "Distributee" means a Participant. In addition, a
-----------
Participant's surviving spouse and a former spouse who is the
alternate payee under a Qualified Domestic Relations Order are
Distributees with regard to the interest of such spouse or former
spouse.
(4) "Direct Rollover" means a payment by the Program to the
---------------
Eligible Retirement Plan specified by the Distributee.
11.18 Waiver of 30 Day Period. If a Participant or Beneficiary elects to
-----------------------
receive a Direct Rollover or a distribution in a form other than an annuity as
provided in Section 11.2(a)(1)(C) or 11.3(a)(3)(C), such distribution may be
made or commence to be made less than 30 days after
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the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations
is given, provided that:
(a) the Committee shall inform the Participant or Beneficiary that he
has a right to a period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option or a Direct Rollover), and
(b) the Participant or Beneficiary after receiving the notice
affirmatively waives his right to consider his decision for a 30 day
period.
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ARTICLE XII
SUBSIDIARY PARTICIPATION
12.1 Adoption of Program and Trust. Any Commonly Controlled Entity,
-----------------------------
Subsidiary or Domestic or Foreign Affiliate of the Company (or other business
entity in which the Company owns an interest) may, with the approval of the
Board of Directors and under such terms and conditions as the Board of Directors
may prescribe, adopt the Program and Trust by resolution of its board of
directors (or approval of other appropriate persons in the case of a
noncorporate entity); provided that the LESOP portion of the Program (which for
this purpose shall include all allocations from the LESOP Suspense Account
including LESOP Employer Matching Allocations and LESOP Employer Matching
Contributions without regard to the Account to which such amounts would be
credited under the Program) can be adopted only by a corporation which is a
Commonly Controlled Entity or another corporation included with the Company in a
group defined in (a) or (b) below:
(a) a corporation which is part of a group of corporations in which a
common parent owns directly stock possessing at least 50 percent of the
voting power of all classes of stock and at least 50 percent of each class
of non-voting stock in a first tier subsidiary and such subsidiary (and all
other corporations below it in the chain) which would meet the 80 percent
test of Section 1563(a) of the Code if the first tier subsidiary were the
common parent); and
(b) a corporation which is part of a group of corporations in which a
common parent owns directly stock possessing all of the voting power of all
classes of stock and all of the non-voting stock in the first tier
subsidiary and the first tier subsidiary owns directly stock possessing at
least 50 percent of the voting power of all classes of stock, and at least
50 percent of each class of non-voting stock, in a second tier subsidiary
of the common parent and such second tier subsidiary (and all other
corporations below it in the chain which would meet the 80 percent test of
Section 1563(a) of the Code if the second tier subsidiary were a common
parent).
The terms and conditions under which a Commonly Controlled Entity,
Subsidiary or Domestic or Foreign Affiliate of the Company is permitted to
adopt the Program may include limitations on the portion of the Program or
the types of contributions which the Employees of an Employer shall
receive.
12.2 Withdrawal from Program by Participating Employer. While it is not the
-------------------------------------------------
present intention of any Employer to withdraw from the Program, any Employer
other than the Company shall have the right, at any time, upon the approval of
and under such terms and conditions as may be provided by the Board of
Directors, to withdraw from the Program and Trust by delivering to the Committee
and the Trustee written notice of its election so to withdraw.
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Upon receipt of such notice by the Committee, the Accounts of Participants
employed by the withdrawing Employer as of the date of withdrawal shall be fully
vested and shall not thereafter be subject to Forfeiture unless such Participant
shall transfer to another Employer as of the date of the withdrawal. In the
event of the withdrawal of an Employer, such Employer shall elect and notify the
Committee of its election, whether the Net Balance Accounts of the Participants
employed by such Employer (a) shall be immediately distributable by the Trustee,
(b) shall be retained in the Program and become distributable when such
employees die, or otherwise terminate their employment with the Employer, or (c)
if the Employer establishes a plan which meets the requirements of Section
401(a) of the Code which plan permits a transfer from this Program to it by
transfer of the Net Balance Accounts of Participants who are employees of such
Employer to such Employer's plan to be held in separate accounts under such plan
for the benefit of the respective Participants; provided that a distribution
shall not be made to a Participant who is not otherwise entitled to a
distribution in accordance with Article XI unless there has been a disposition
of substantially all the assets used by the Employer in a trade or business and
the Employee continues employment with the corporation acquiring such assets or
the Company has disposed of its interest in the Employer and the Employee
continues employment with the former Employer.
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ARTICLE XIII
ADMINISTRATION OF THE PROGRAM
13.1 Appointment and Removal of, and Resignation by, Trustee. The Board of
-------------------------------------------------------
Directors shall have the power to appoint a successor to a Trustee (including
any one or more individuals acting as Trustee) which has resigned or been
removed, to direct the Trustee to enter into a custodial agreement providing for
deposit of all or any part of the Trust Fund with the custodian, and, with the
consent of the Trustee, to appoint a co-Trustee. The Trustee may resign at any
time upon thirty (30) days' written notice (or such shorter period of time as
the Board of Directors shall permit by written consent) to the Company and the
Committee. The Board of Directors shall have the power to remove the Trustee,
with or without cause, upon written notice to the Trustee.
The appointment of a successor Trustee or co-Trustee shall become effective
upon acceptance in writing of such appointment by the successor Trustee or co-
Trustee and upon acceptance of such appointment by the successor Trustee, the
Trustee shall assign, transfer and pay over to the successor Trustee the Trust
Fund. The successor Trustee or co-Trustee may be either a corporate Trustee or
an individual, and, except as required by federal law, the successor Trustee or
co-Trustee shall not be personally liable for anything done or omitted to be
done by a predecessor Trustee or co-Trustee prior to the appointment of the
successor or co-Trustee or be required to examine the accounts, records or acts
of any predecessor Trustee or co-Trustee. Each successor Trustee appointed to
and accepting a Trusteeship hereunder shall have all the rights, title, powers,
duties, exemptions and limitations of the original Trustee.
13.2 Appointment of Committee; Tenure in Office. The administrative committee
------------------------------------------
("Committee") shall consist of not less than five (5) members who shall be
appointed by the Board of Directors. The Board of Directors shall have power to
determine the period during which any Committee member shall serve and, in its
discretion, may remove any member of the Committee at any time without assigning
any reason therefore. A Committee member may resign at any time by written
notice to the Chief Executive Officer or any Executive Vice President of the
Company. Upon a vacancy occurring, owing to the death, resignation or removal
by the Board of Directors of any member of the Committee, a successor shall be
appointed by the Board of Directors. Until a vacancy in the Committee is filled
by the Board of Directors, the remaining members of the Committee shall continue
to act as the Committee. The Board of Directors shall certify to the Trustee
and the Committee the names of the members of the Committee and, thereafter, any
change in its membership.
13.3 Named Fiduciaries. The Company, the Board of Directors, the Committee and
-----------------
every Participant, Beneficiary or Employee of the Company, its subsidiaries or
affiliates who becomes a fiduciary by virtue of the delegation of duties,
responsibilities and authority with respect to the administration and operation
of the Program in accordance with Article XIII shall be "named fiduciaries" as
provided in Section 402(a) of ERISA, and shall, accordingly, be afforded the
protection provided for in Section 405(c)(2) of ERISA with respect to named
fiduciaries.
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13.4 Delegation of Responsibilities. The Committee and the Board of Directors
------------------------------
shall have the authority, as it may deem advisable, to delegate, from time to
time, by instrument in writing all or any part of its responsibilities under the
Program (including the power to delegate) to such person or persons as it may
deem suitable, and in the same manner to revoke any such delegation of
responsibility. Periodically the delegate shall report to the Committee or
Board of Directors concerning the discharge of his delegated responsibilities.
Any action of the delegate in the exercise of such delegated responsibilities
shall have the same force and effect for all purposes hereunder as if such
action had been taken by the Committee or the Board of Directors. Neither the
Committee, the Board of Directors nor any of their members shall be liable for
the acts or omissions of such delegate except as otherwise required by Federal
law.
The Committee's authority to delegate in accordance with this Section 13.4
shall include, but not be limited to, authority to delegate all or any part of
the responsibilities set forth in Section 13.5 to any department or employee of
the Company or other Employer including but not limited to the Legal Department,
the Tax Department, the Accounting Department, the Human Resources Department,
the Information Services Department or the Payroll Department.
13.5 Committee Duties. The Committee on behalf of the Participants and all
----------------
other Beneficiaries of the Program and the Trust shall administer and operate
the Program and the Trust Agreement in accordance with the terms of the Program
and the Trust Agreement and shall periodically report to the Board of Directors
on the administration and operation of the Program. The Committee shall have
all powers necessary to discharge its duties, including, but not by way of
limitation, the following:
(a) To periodically review and monitor the performance of the
Investment Managers, as defined in the Trust Agreement, and provide
recommendations to the Board of Directors for the appointment or removal of
the Program's Investment Managers;
(b) To prepare and furnish to the Board of Directors its
recommendations with respect to the establishment of and, from time to
time, changes in the general investment objectives and guidelines for the
management and investment of the assets of the Program;
(c) To prepare and furnish the Board of Directors with periodic
reports on the performance of the Investment Funds and the general
administration of the Program;
(d) To review and monitor the performance of the Trustee with respect
to the responsibilities set forth in the Trust Agreements;
(e) To construe and interpret the Program, decide all questions
concerning eligibility for participation and questions relating to the
amount and manner of payment of benefits hereunder and all such
determinations shall be conclusive and binding upon Participants, spouses
and other Beneficiaries;
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(f) To receive from the Company and Employer or have prepared by the
Company and Employer such records and information as shall be necessary for
the proper administration of the Program;
(g) To have prepared and furnished to Participants or Beneficiaries
all information required under Federal law or provisions of this Program to
be furnished to them;
(h) To have prepared and filed or published with the Department of
Labor and the Department of Treasury or other governmental agency all
reports or other information required under federal law;
(i) To have maintained records of the Trust Fund with respect to the
Net Balance Accounts of Participants;
(j) To determine all questions arising in the administration of the
Program, including those relating to the eligibility of persons to become
Participants; the rights of Participants and their Beneficiaries; and
Employer Contributions; and its decision thereon shall be final and binding
upon all persons hereunder;
(k) To review the performance of any person to whom duties and
responsibilities have been delegated under Section 13.4;
(l) To annually review and approve the proposed budget for the
Program's administrative expenses and to approve and direct the Trustee as
to the payment of such expenses including but not limited to those which
arise which were not anticipated in the budget; and
(m) To direct the Trustee as to the payment of distributions from the
Trust or otherwise arrange for distributions to be made from the Trust Fund
through a commercial banking account as provided in Section 3.2 of the
Trust.
13.6 Committee Action by Majority -- Authorization of Members to Execute
-------------------------------------------------------------------
Documents. The Committee may act at a meeting (including a meeting at which
- ---------
some or all of the members of the Committee are present by telephone) by the
consent of a majority of its members, or without a meeting by the unanimous
written consent of its members.
No member of the Committee shall vote or decide upon any matter relating
specifically to himself or to his specific rights or benefits under the Program.
The Committee may authorize any of its members to execute on its behalf any
document which reflects an action or decision of the Committee and the Committee
shall notify the Trustee in writing of the names of its members so authorized.
Until the Committee revokes or alters such authorization by a written notice to
the Trustee, the Trustee may accept and rely upon any document executed by such
members as reflecting action by the Committee.
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13.7 Secretary. The Committee shall appoint a Secretary (who may, but need
---------
not, be a member of the Committee) to keep records of the acts and resolutions
of the Committee. The Secretary may also perform such other duties which may,
from time to time, be delegated to him in writing by the Committee.
13.8 Member as Participant. A member of the Committee who is also a
---------------------
Participant or a Beneficiary shall receive any benefit to which he may be
entitled as a Participant or Beneficiary in the Program so long as such benefit
is computed and paid on a basis that is consistent with the terms of the Program
as applied to all other Participants and Beneficiaries.
13.9 Rules and Decisions. The Committee may, from time to time, adopt or
-------------------
amend such rules and regulations as it deems necessary or desirable which are
consistent with the provisions or the purposes of the Program. All rules and
decisions of the Committee shall be applied to all Participants in similar
circumstances in a uniform and non-discriminatory manner. In adopting, amending
or applying its rules and regulations, the Committee shall be entitled to, but
need not, rely upon information furnished by a Participant or Beneficiary, a
delegate, an Employer or Employee, the Trustee or the Company. All rules and
regulations of the Committee shall be conclusive and binding upon Participants,
spouses and Beneficiaries.
13.10 Electronic Elections. Anything in the Plan to the contrary not
--------------------
withstanding, the Committee may determine to permit Participants or their
Beneficiaries to make electronic elections (except for elections to receive
amounts from a Participant's accounts whether by distribution, in-service
withdrawal or otherwise) in lieu of written elections provided in the Plan. In
making such a determination, the Committee shall consider the availability of
electronic elections to Participants, the protection of the rights of
Participants and their Beneficiaries, the appropriateness of the standards for
authentication of identity and other security considerations involved in the
electronic election system and any guidance issued by the Internal Revenue
Service and the Department of Labor.
13.11 Agents and Counsel. The Committee and its delegates shall have the
------------------
authority to appoint or employ individuals to assist or to advise in the
administration of the Program and any other agent deemed advisable, including
but not limited to, independent certified public accountants and legal and
actuarial counsel, who may but need not be the accountants or the legal or the
actuarial counsel of the Company.
13.12 Authorization of Benefit Distribution. The Committee shall issue
-------------------------------------
directions to the Trustee concerning all distributions to be made from the Trust
Fund pursuant to the provisions of the Program. All such directions shall be in
accordance with the Program.
13.13 Claims Procedure.
----------------
(a) Each Participant or Beneficiary (for purposes of this Section
called a "Claimant") may submit his claim for benefits to the Plan
Administrator in writing in such form as is permitted by the Committee. A
Claimant shall have no right to seek review of a denial of benefits, or to
bring any action in any court to enforce a claim for
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benefits, prior to his filing a claim for benefits and exhausting his
rights to review in accordance with this Section.
When a claim for benefits has been filed properly, such claim for
benefits shall be evaluated and the Claimant shall be notified of the
approval or the denial within ninety (90) days after the receipt of such
claim unless special circumstances require an extension of time for
processing the claim. If such an extension of time for processing is
required, written notice of the extension shall be furnished to the
Claimant prior to the termination of the initial ninety (90) day period,
and such notice shall specify the special circumstances requiring an
extension and the date by which a final decision will be reached (which
date shall not be later than one hundred and eighty (180) days after the
date on which the claim was filed). A Claimant shall be given a written
notice in which he shall be advised as to whether the claim is granted or
denied, in whole or in part. If a claim is denied, in whole or in part,
the Claimant shall be given written notice which shall contain (1) the
specific reasons for the denial, (2) references to pertinent Plan
provisions on which the denial is based, (3) a description of any
additional material or information necessary to perfect the claim and an
explanation of why such material or information is necessary, and (4) the
Claimant's rights to seek review of the denial.
(b) If a claim is denied, in whole or in part, the Claimant shall
have the right to request that the Committee review the denial, provided
that he files a written request for review with the Committee within sixty
(60) days after the date on which he received written notification of the
denial (or such longer period as the Committee for good cause may permit).
A Claimant (or his duly authorized representative) may review pertinent
documents and submit issues and comments in writing to the Committee.
Within sixty (60) days after a request for review is received, the review
shall be made and the Claimant shall be advised in writing of the decision
on review, unless special circumstances require an extension of time for
processing the review, in which case the Claimant shall, within such
initial sixty (60) day period, be given a written notification specifying
the reasons for the extension and when such review shall be completed
(provided that such review shall be completed within one hundred and twenty
(120) days after the date on which the request for review was filed). The
decision on review shall be forwarded to the Claimant in writing and shall
include specific reasons for the decision and references to Plan provisions
upon which the decision is based. A decision on review shall be final and
binding on all persons for all purposes. If a Claimant shall fail to file a
request for review in accordance with the procedures herein outlined, such
Claimant shall have no rights to review and shall have no right to bring
action in any court, and the denial of the claim shall become final and
binding on all persons for all purposes.
13.14 Information to be Furnished to Committee. The Company and Employers
----------------------------------------
shall furnish the Committee or its delegate such evidence, data and information
as the Committee or its delegate may reasonably request. Participants and their
Beneficiaries shall also furnish to the Committee such evidence, data or
information as the Committee or its delegate shall request.
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13.15 Plan Administrator. The Committee may appoint a Plan Administrator
------------------
who may (but need not) be a member of the Committee; and in the absence of such
appointment, the Committee shall be the Plan Administrator.
13.16 Fiduciary as Participant. A fiduciary who is also a Participant or a
------------------------
Beneficiary shall receive any benefit to which he may be entitled as a
Participant or Beneficiary in the Program so long as such benefit is computed
and paid on a basis that is consistent with the terms of the Program as applied
to all other Participants and Beneficiaries.
13.17 Fiduciary Responsibility. If a Plan fiduciary acts in accordance with
------------------------
ERISA, Title I, Subtitle B, Part 4:
(a) in determining that a Participant's spouse has consented to the
naming of a Beneficiary other than the spouse, in relying on a
Participant's election to waive a Qualified Joint and Survivor Annuity or a
qualified survivor annuity or a revocation of such an election, or in
determining that the consent of the Participant's spouse may not be
obtained because there is no spouse, the spouse cannot be located or other
circumstances prescribed by the Secretary of the Treasury by regulations,
then to the extent of payments made pursuant to such consent, revocation or
determination, the Program and its fiduciaries shall have no further
liability;
(b) in treating a domestic relations order as being (or not being) a
Qualified Domestic Relations Order, or, during any period in which the
issue of whether a domestic relations order is a Qualified Domestic
Relations Order is being determined (by the Committee, by a court of
competent jurisdiction, or otherwise), in segregating in a separate
account in the Program or in an escrow account the amounts which would
have been payable to the alternate payee during such period if the order
had been determined to be a Qualified Domestic Relations Order, in paying
the amounts segregated or held in escrow to the person entitled thereto if
within 18 months the domestic relations order (or a modification thereof)
is determined to be a Qualified Domestic Relations Order, in paying such
amounts to the person entitled thereto if there had been no order, if
within 18 months the domestic relations order is determined not to be
qualified or if the issue is not resolved within 18 months and in
prospectively applying a domestic relations order which is determined to
be qualified after the close of the 18-month period, then the obligation
of the Program and its fiduciaries to the Participant and each alternate
payee shall be discharged to the extent of any payment made pursuant to
such acts.
13.18 Year 2000 Problem. Although the Company and the Committee have mad
-----------------
all reasonable goo faith efforts to assure that Year 2000 Problems do not
interfere with the normal operations of the Program, it is appropriate to adopt
a provision which would permit the temporary suspension of normal Program
operations if unexpected Year 2000 Problems should occur. Notwithstanding any
other provision of the Program to the contrary, the Company or the Committee may
take such actions it deems necessary or appropriate in the event any Year 2000
Problem arises which affects the administration of the Program (whether
involving Systems in the use of the Company or of other parties). If, due to a
Year 2000 Problem, Program
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administration is delayed beyond the times otherwise permitted or required by
the Program, the Program shall be deemed to permit such delay until such time as
is administratively practicable after the Year 2000 problem no longer adversely
affects, impedes or delays compliance with such provisions, including but not
limited to the implementation of Participant elections, the crediting of
contributions and earnings to Participants' Accounts, the making of
distributions to Participants, and any and all other actions dependent upon the
proper operation of Systems in a manner unaffected by the Year 2000 Problem. For
purposes hereof, "Year 2000 Problem" shall have the broadest meaning necessary
to effectuate the purposes of this provision, but shall generally mean: (a) the
inability of any computer system, chip, hardware or software (the "Systems") to
record, store, process, sort, sequence, and present calendar dates following
December 31, 1999, with the same accuracy and functionality as such calendar
dates on or before December 31, 1999; (b) the loss by such Systems of
functionality or a degradation in performance of any such Systems as a result of
such Systems operating at a date later than December 31, 1999; (c) the failure
of any such Systems to accurately and automatically process all leap year
calendar dates, including February 29, 2000; (d) the failure of any such Systems
to interface with other computer systems, hardware, and software in a manner
that will be fully interoperable with such other computer systems, hardware, and
software on or after December 31, 1999 and (e) the inability to complete
software revisions affecting Program administration because available resources
are committed to fixing and testing systems for a Year 2000 Problem.
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ARTICLE XIV
AMENDMENT, TERMINATION, MERGER AND CONSOLIDATION OF PLAN
14.1 Amendment. The Board of Directors shall have the right, at any time
---------
and from time to time, to amend, in whole or in part, any or all of the of the
Program and the Trust Agreement, provided that no amendment shall authorize or
permit any part of the Trust Fund to be used for or diverted to purposes other
than for the exclusive benefit of the Participants or their beneficiaries, or
permit any portion of the Trust Fund to revert to or become the property of any
Employer, except as may be permitted under applicable law, regulations and
rulings. No amendment shall deprive any Participant or any Beneficiary of a
deceased Participant of any of the benefits or of an optional form of benefit to
which he is entitled under this Program with respect to contributions previously
made or, except to the extent permitted in regulations and rulings issued by the
Secretary of the Treasury, shall eliminate an optional form of benefit with
respect to contributions previously made, nor shall any amendment decrease any
Participant's Accounts provided that no amendment made in conformance to
provisions of the Internal Revenue Code or any other statute relating to
employee's trusts, or any official regulations or rulings issued pursuant
thereto, shall be considered prejudicial to the rights of any Participant or
Beneficiary. No amendment which affects the rights, duties or responsibilities
of the Trustee may be made without the Trustee's written consent.
The Committee shall have the same authority with respect to the adoption of
amendments to the Program and the Trust Agreement as the Board of Directors in
the following circumstances:
(a) to adopt amendments to the Program or Trust which the
Committee determines are necessary or desirable for the Program to comply
with or to obtain benefits or advantages under the provisions of applicable
law, regulations or rulings or requirements of the Internal Revenue Service
or other government administrative agency or of changes in such law,
regulations, rulings or requirements; and
(b) to adopt any other procedural or cosmetic amendment that the
Committee determines to be necessary or desirable that does not materially
change benefits to Participants or their Beneficiaries or materially
increase the Employers' contributions to the Program.
The Committee shall provide notice of amendments adopted by the Committee
to the Board of Directors on a timely basis.
14.2 Termination of Program By the Company. Although it is the intention of
-------------------------------------
the Company that this Program be permanent, the Company reserves the right to
terminate the Program and the Trust at any time, by delivering to the Committee,
the Trustee and each Employer hereunder, written notice of termination.
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Upon termination of the Program or permanent discontinuance of Employer
Contributions to the Program, the interest in his Net Balance Account of each
Participant who is an Employee at the time of the termination, shall become
fully vested. Such vested Accounts, shall, however, be subject to readjustment
as provided in Sections 10.14, 10.15, 10.16, 10.17 and 10.19. In the event of
termination of this Program, the Board of Directors may direct that the Trustee
continue the Trust for a specified period of time, or for such period of time,
as the Trustee, in its sole discretion, may deem to be in the best interest of
the Participants or their Beneficiaries. In the absence of specific direction
from the Board of Directors, the Trust assets shall be distributed by the
Trustee to Participants under the options set forth in Section 11.2 hereof or to
Beneficiaries under the options set forth in Section 11.3: provided, however,
that Participant Elected Contributions, Employer Matching Contributions and
Special Section 401(k) Employer Contributions shall be distributed only if (a)
the Participant has a Termination of Employment, death or Disability, or has
attained the age of 59-1/2, (b) the Program is terminated without the Employer's
establishment or maintenance of another defined contribution plan (excluding a
leveraged ESOP as defined in Code Section 4975(e)(7)), (c) the Employer disposes
of substantially all of its assets used in a trade or business to an unrelated
corporation and the Employee continues employment with the acquiring corporation
or (d) the Employer disposes of its interest in a subsidiary to an unrelated
party and the Employee continues employment with the corporation acquiring the
assets or the subsidiary and if, in the case of a distribution made pursuant to
(b), (c) or (d), the distribution is made in the form of a single distribution
of the entire balance to the credit of the Participant in a single taxable year.
Upon the partial termination of the Program the interest of each Participant
whose employment is terminated on account of, or who is affected by, such
partial termination shall become fully vested and such Participant's benefits
shall be distributable to the extent permitted in the preceding sentence. Sales
of McDonald's Restaurants by the Company or another Employer will not constitute
a partial termination unless such sale under all other facts and circumstances
constitutes a partial termination.
14.3 Merger, Consolidation, or Transfer of Assets. This Program shall not be
--------------------------------------------
merged or consolidated with, nor shall any assets or liabilities be transferred
to, any other plan, unless the benefits payable to each Participant if the
Program were terminated immediately after such action would not be less than the
benefits which would have been payable to each such Participant if the Program
had been terminated immediately before such action.
14.4 Transfer of Assets from Plans of Subsidiaries. The Board of Directors
---------------------------------------------
may, in its sole and exclusive discretion, authorize and direct the transfer to
the Trust of all (or any designated portion) of the assets of any defined
contribution plan (the "Transferred Assets") which is a Related Plan. The
Transferred Assets, to the extent allocable to persons who are Participants in
the Program, shall be held, managed and distributed for the benefit of
participants of the Related Plan (the "Transferred Assets") subject to such
terms and conditions as the Board of Directors and the board of directors (or
persons having authority similar to the board of directors of a corporation) of
the Commonly Controlled Entity shall provide.
(a) The Trustee shall accept, under such terms and conditions as the
Board of Directors shall provide for, all Transferred Assets.
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(b) Except as otherwise expressly provided by the Board of Directors
and the board of directors (or persons having authority similar to the
board of directors of a corporation) of the Commonly Controlled Entity, if
applicable, all Participants' interests in the Transferred Assets shall be
100 percent (100%) vested and non-forfeitable.
(c) The Committee shall keep separate records of account for each
Participant's interests in the Transferred Assets.
(d) Except as otherwise expressly provided herein, the Transferred
Assets shall be held, managed, invested and distributed in the same manner
(and subject to the same restrictions) as the Participant's Rollover
Account as provided in Article VIII of the Program; provided that
restrictions placed on the timing of distributions by the Internal Revenue
Code shall apply to the Transferred Assets.
(e) Each Participant's Transferred Assets shall be distributable in the
same manner as a Participant's Rollover Account; provided that the
Participant can also elect any benefit option which was available with
respect to the Transferred Assets under the Related Plan.
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ARTICLE XV
TOP HEAVY PROVISIONS
15.1 Application. The definitions in Section 15.2 shall apply under this
-----------
Article XV and the special rules in Section 15.3 shall apply, notwithstanding
any other provisions of the Program, for any Plan Year in which the Program is a
Top Heavy Plan and for such other Plan Years as may be specified herein.
Anything in this Article XV to the contrary notwithstanding, if the Program is a
multiple employer plan as described in Internal Revenue Code Section 413(c), the
provisions of this Article XV shall be applied separately to each Employer
(together with the businesses which with that Employer are Commonly Controlled
Entities or members of an Affiliated Service Group) taking account of benefits
under the plan provided to employees of the Employer, Commonly Controlled Entity
or members of an Affiliated Service Group because of service with that Employer
or Commonly Controlled Entity.
15.2 Special Top Heavy Definitions. The following special definitions shall
-----------------------------
apply under this Article XV.
(a) "Aggregate Employer Contributions" means the sum of all Employer
--------------------------------
Contributions and Forfeitures under this Program allocated for a
Participant to the Program and employer contributions and forfeitures
allocated for the Participant to all Related Defined Contribution Plans in
the Aggregation Group; provided, however, that Participant Elected
Contributions, Employer Matching Contributions, LESOP Employer Matching
Contributions and Special Section 401(k) Contributions shall not be
included for Non-Key Employees.
(b) "Aggregation Group" means the group of plans in a Mandatory
-----------------
Aggregation Group, if any, that includes the Program, unless inclusion of
Related Plans in the Permissive Aggregation Group in the Aggregation Group
would prevent the Program from being a Top Heavy Plan, in which case
"Aggregation Group" means the group of plans consisting of the Program and
each other Related Plan in a Permissive Aggregation Group with the Program.
(1) "Mandatory Aggregation Group" means each plan (considering the
---------------------------
Program and Related Plans) that, during the Plan Year that contains the
Determination Date or any of the four preceding Plan Years,
(A) had a participant who was a Key Employee, or
(B) was necessary to be considered with a plan in which a Key
Employee participated in order to enable the plan in which the Key
Employee participated to meet the requirements of Section 401(a)(4)
and Section 410 of the Internal Revenue Code.
If the Program is not described in (A) or (B) above, it shall not be
part of a Mandatory Aggregation Group.
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(2) "Permissive Aggregation Group" means the group of plans
----------------------------
consisting of (A) the plans, if any, in a Mandatory Aggregation Group
with the Program, and (B) any other Related Plan, that, when considered
as a part of the Aggregation Group, does not cause the Aggregation Group
to fail to satisfy the requirements of Section 401(a)(4) and Section 410
of the Internal Revenue Code. A Related Plan in (B) of the preceding
sentence may include a simplified employee pension plan, as defined in
Internal Revenue Code Section 408(k), and a collectively bargained plan,
if when considered as a part of the Aggregation Group such plan does not
cause the Aggregation Group to fail to satisfy the requirements of
Section 401(a)(4) and Section 410 of the Internal Revenue Code
considering, if the plan is a multiple employer plan as described in
Internal Revenue Code Section 413(c), benefits under the plan only to
the extent provided to employees of the employer because of service with
the employer and, if the plan is a simplified employee pension plan,
only the employer's contribution to the plan .
(c) "Determination Date" means, with respect to a Plan Year, the last
------------------
day of the preceding Plan Year or, in the case of the first Plan Year, the
last day of such Plan Year. If the Program is aggregated with other plans
in the Aggregation Group, the Determination Date for each other plan shall
be, with respect to any Plan Year, the Determination Date for each such
other plan which falls in the same calendar year as the Determination Date
for the Program.
(d) "Key Employee" means, for the Plan Year containing the
------------
Determination Date, any person or the beneficiary of any person who is an
employee or former employee of an Employer, a Commonly Controlled Entity or
member of an Affiliated Service Group as determined under Internal Revenue
Code Section 416(i) and who, at any time during the Plan Year containing
the Determination Date or any of the four (4) preceding Plan Years (the
"Measurement Period"), is a person described in paragraph (1), (2), (3) or
(4), subject to paragraph (5).
(1) An officer of the Employer, Commonly Controlled Entity or
member of an Affiliated Service Group who:
(A) in any Measurement Period is an officer during the Plan
Year and has annual Considered Compensation for the Plan Year in an
amount greater than fifty percent (50%) of the amount in effect
under Section 415(b)(1)(A) of Internal Revenue Code for the
calendar year in which such Plan Year ends ($120,000 in 1996,
adjusted in subsequent years as determined in accordance with
regulations prescribed by the Secretary of the Treasury or his
delegate pursuant to the provisions of Section 415(d) of the
Internal Revenue Code); and
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No more than a total of fifty (50) persons (or, if lesser, the greater of
three (3) persons or ten percent (10%) of all persons or beneficiaries of
persons who are employees or former employees) shall be treated as Key
Employees under this paragraph (1) for any Measurement Period. In the case
of an Employer, Commonly Controlled Entity or member of an Affiliated
Service Group which is not a corporation in any Measurement Period, the
term "officer" as used in this subsection (d) shall include administrative
executives as described in Section 1.416-1(T-13) of the Treasury
Regulations.
(2) One (1) of the ten (10) persons who, during a Plan Year in the
Measurement Period:
(A) have annual Considered Compensation from the Employer,
Commonly Controlled Entity or member of an Affiliated Service Group
for such Plan Year greater than the amount in effect under Section
415(c)(1)(A) of the Internal Revenue Code for the calendar year in
which such Plan Year ends (the greater of $30,000 for 1996 or one-
fourth of the dollar limitation in effect under Section
415(b)(1)(A) of the Internal Revenue Code, adjusted in subsequent
years as determined in accordance with regulations prescribed by
the Secretary of the Treasury or his delegate pursuant to the
provisions of Section 415(d) of the Internal Revenue Code); and
(B) own (or are considered as owning within the meaning of
Internal Revenue Code Section 318) in such Plan Year, the largest
percentage interests in the Employer, Commonly Controlled Entity or
member of an Affiliated Service Group, in such Plan Year, provided
that no person shall be treated as a Key Employee under this
paragraph unless he owns more than one-half percent (1/2%) interest
in the Employer, Commonly Controlled Entity or member of an
Affiliated Service Group.
No more than a total of ten (10) persons or beneficiaries of persons who
are employees or former employees shall be treated as Key Employees under
this paragraph (2) for any Measurement Period.
(3) A person who, for a Plan Year in the Measurement Period, is a
more than five percent (5%) owner (or is considered as owning more than
five percent (5%) within the meaning of Internal Revenue Code Section 318)
of the Employer, Commonly Controlled Entity or member of an Affiliated
Service Group.
(4) A person who, for a Plan Year in the Measurement Period, is a
more than one percent (1%) owner (or is considered as owning more than one
percent (1%) within the meaning of Internal Revenue Code Section 318) of
the Employer, a Commonly Controlled Entity or member of an Affiliated
Service
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Group and has an annual Considered Compensation for such Plan Year
from the Employer, Commonly Controlled Entity or member of an
Affiliated Service Group of more than $150,000 .
(5) If the number of persons who meet the requirements to be
treated as Key Employees under paragraph (1) or (2) exceed the
limitation on the number of Key Employees to be counted under
paragraph (1) or (2), those persons with the highest annual Considered
Compensation in a Plan Year in the Measurement Period for which the
requirements are met and who are within the limitation on the number
of Key Employees will be treated as Key Employees.
If the requirements of paragraph (1) or (2) are met by a person in
more than one (1) Plan Year in the Measurement Period, each person
will be counted only once under paragraph (1) or (2):
(A) under paragraph (1), the Plan Year in the Measurement
Period in which a person who was an officer and had the highest
annual Considered Compensation shall be used to determine whether
the person will be treated as a Key Employee under the preceding
sentence;
(B) under paragraph (2), the Plan Year in the Measurement
Period in which the ownership percentage interest is the greatest
shall be used to determine whether the person will be treated as a
Key Employee under the preceding sentence.
Notwithstanding the above provisions of paragraph (5), a person may be
counted in determining the limitation under both paragraphs (1) and
(2). In determining the sum of the Present Value of Accrued Benefits
for Key Employees under subsection (h) of this Section, the Present
Value of Accrued Benefits for any person shall be counted only once.
(e) "Non-Key Employee" means (1) a person or the beneficiary of a
----------------
person with an account balance in the Program or an account balance or
accrued benefit in any Related Plan in the Aggregation Group or (2) an
employee, a former employee or the beneficiary of such person who has
received a distribution during the Measurement Period and (3) who during
the Measurement Period is not a Key Employee.
(f) "Present Value of Accrued Benefits" means, for any Plan Year, an
---------------------------------
amount equal to the sum of (1), (2) and (3) for each person who, in the
Plan Year containing the Determination Date, was a Key Employee or a Non-
Key Employee.
(1) Subject to (4) below, the value of a person's Net Balance
Account under the Program and his accrued benefit under each Related
Defined Contribution Plan in the Aggregation Group, determined as of
the valuation date coincident with or immediately preceding the
Determination Date, adjusted for contributions due as of the
Determination Date, as follows:
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(A) in the case of a plan not subject to the minimum
funding requirements of Section 412 of the Internal Revenue Code,
by including the amount of any contributions actually made after
the valuation date but on or before the Determination Date, and,
in the first plan year of a plan, by including contributions made
after the Determination Date that are allocated as of a date in
that first plan year; and
(B) in the case of a plan that is subject to the minimum
funding requirements, by including the amount of any
contributions that would be allocated as of a date not later than
the Determination Date, plus adjustments to those amounts as
required under applicable rulings, even though those amounts are
not yet required to be contributed or allocated (e.g., because
they have been waived) and by including the amount of any
contributions actually made (or due to be made) after the
valuation date but before the expiration of the extended payment
period in Section 412(c)(10) of the Internal Revenue Code.
(2) Subject to (4) below, the sum of the actuarial present
values of a person's accrued benefits under each Related Defined
Benefit Plan in the Aggregation Group, expressed as a benefit
commencing at Vesting Retirement Date (or the person's attained age,
if later) determined based on the following actuarial assumptions:
(A) Interest rate 5%; and
(B) Post Retirement Mortality: 1984 Unisex Pension Table;
and determined in accordance with Internal Revenue Code Section
416(g), provided, however, that if a defined benefit plan in the
Aggregation Group provides for different or additional actuarial
assumptions to be used in determining the present value of accrued
benefits thereunder for the purpose of determining the top heavy
status thereof, then such different or additional actuarial
assumptions shall apply with respect to each defined benefit plan in
the Aggregation Group, and further provided that the accrued benefit
of any Non-Key Employee shall be determined under the method which is
used for accrual purposes for all Related Defined Benefit Plans or, if
no single accrual method is used in all such plans, such accrued
benefit shall be determined as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under Section
411(b)(1)(C) of the Internal Revenue Code.
The present value of an accrued benefit for any person who is employed
by an employer maintaining a plan on the Determination Date is
determined as of the most recent valuation date which is within a 12-
month period ending on the Determination Date, provided however that:
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(C) for the first plan year of the plan, the present value
for an employee is determined as if the employee had a
Termination of Employment (i) on the Determination Date or (ii)
on such valuation date but taking into account the estimated
accrued benefit as of the Determination Date; and
(D) for the second and subsequent plan years of the plan,
the accrued benefit taken into account for an employee is not
less than the accrued benefit taken into account for the first
plan year unless the difference is attributable to using an
estimate of the accrued benefit as of the Determination Date for
the first plan year and using the actual accrued benefit as of
the Determination Date for the second plan year.
For purposes of this paragraph (2), the valuation date is the
valuation date used by the plan for computing plan costs for minimum
funding, regardless of whether a valuation is performed that year.
If the plan provides for a nonproportional subsidy as described
in Treasury Regulations Section 1.416-1 (T-27), the present value of
accrued benefits shall be determined taking into account the value of
nonproportional subsidized early retirement benefits and
nonproportional subsidized benefit options.
(3) Subject to (4) below, the aggregate value of amounts
distributed during the plan year that includes the Determination Date
or any of the four preceding plan years including amounts distributed
under a terminated plan which, if it had not been terminated, would
have been in the Aggregation Group.
(4) The following rules shall apply in determining the Present
Value of Accrued Benefits:
(A) Amounts attributable to qualified voluntary employee
contributions, as defined in Section 219(e) of the Internal
Revenue Code, shall be excluded.
(B) In computing the Present Value of Accrued Benefits with
respect to rollovers or plan-to-plan transfers, the following
rules shall be applied to determine whether amounts which have
been distributed during the five (5) year period ending on the
Determination Date from or accepted into this Program or any plan
in the Aggregation Group shall be included in determining the
Present Value of Accrued Benefits:
(i) Unrelated Transfers made from the Program or any
plan in the Aggregation Group shall be included.
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(ii) Related Transfers made from the Program or any
plan in the Aggregation Group shall not be included by the
transferor plan (but shall be counted by the accepting
plan).
The accrued benefit of any individual who has not performed services
for an Employer maintaining the Program at any time during the five (5)
year period ending on the Determination Date shall be excluded in computing
the Present Value of Accrued Benefits.
(g) "Related Transfer" means a rollover or a plan-to-plan transfer
----------------
which is either not initiated by the Employee or is made between plans each
of which is maintained by a Commonly Controlled Entity or member of an
Affiliated Service Group.
(h) A "Top Heavy Aggregation Group" means an Aggregation Group in any
---------------------------
Plan Year for which, as of the Determination Date, the sum of the Present
Value of Accrued Benefits for Key Employees under all plans in the
Aggregation Group exceeds sixty percent (60%) of the sum of the Present
Value of Accrued Benefits for all employees under all plans in the
Aggregation Group; provided that, for purposes of determining the sum of
Present Value of Accrued Benefits for all employees, former Key Employees
who have not performed any services for an Employer, a Commonly Controlled
Entity or a member of an Affiliated Service Group in the Plan Year
containing the Determination Date or the preceding four Plan Years shall be
excluded entirely from the calculation of the Present Value of Accrued
Benefits for the Plan Year that contains the Determination Date. For
purposes of applying the special rules herein with respect to a Super Top
Heavy Plan, a Top Heavy Aggregation Group will also constitute a "Super Top
Heavy Aggregation Group" if in any Plan Year as of the Determination Date,
the sum of the Present Value of Accrued Benefits for Key Employees under
all plans in the Aggregation Group exceeds ninety percent (90%) of the sum
of the Present Value of Accrued Benefits for all employees under all plans
in the Aggregation Group.
(i) "Top Heavy Plan" means the Program in any Plan Year in which it
--------------
is a member of a Top Heavy Aggregation Group, including a Top Heavy
Aggregation Group consisting solely of the Program. For purposes of
applying the rules herein with respect to a Super Top Heavy Plan, a Top
Heavy Plan will also constitute a "Super Top Heavy Plan" if the Program in
any Plan Year is a member of a Super Top Heavy Aggregation Group, including
a Super Top Heavy Aggregation Group consisting solely of the Program.
(j) "Unrelated Transfer" means a rollover or a plan-to-plan
------------------
transfer which is both initiated by the Employee and (1) made from a plan
maintained by a Commonly Controlled Entity or member of an Affiliated
Service Group to a plan maintained by an employer which is not a Commonly
Controlled Entity or member of an Affiliated Service Group or (2) made to a
plan maintained by a Commonly Controlled Entity or member of an Affiliated
Service Group from a plan maintained by an employer which is not a Commonly
Controlled Entity or member of an Affiliated Service Group.
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15.3 Special Top Heavy Provisions. For each Plan Year in which the Program
----------------------------
is a Top Heavy Plan, the following rules shall apply, except that the special
provisions of this Section 15.3 shall not apply with respect to any employee
included in a unit of employees covered by an agreement which the Secretary of
Labor finds to be a collective-bargaining agreement between employee
representatives and one or more employers if there is evidence that retirement
benefits were the subject of good faith bargaining between such employee
representative and the Employer or Employers:
(a) Minimum Employer Contributions. In any Plan Year in which the
------------------------------
Program is a Top Heavy Plan, the Employers shall make additional Employer
Contributions to the Program as necessary for each Participant who is
employed on the last day of the Plan Year and who is a Non-Key Employee to
bring the amount of his Aggregate Employer Contributions for the Plan Year
up to at least three percent (3%) of his Considered Compensation, or such
lesser amount as is equal to the largest percentage of a Key Employee's
Considered Compensation allocated to the Key Employee as Aggregate Employer
Contributions.
For purposes of determining whether a Non-Key Employee is a Participant
entitled to have minimum Employer Contributions made on his behalf, a Non-
Key Employee will be treated as a Participant even if he is not otherwise a
Participant (or accrues no benefit) under the Program because:
(1) he has failed to complete the requisite number of hours of
service (if any) after becoming a Participant in the Program,
(2) he is excluded from participation in the Program (or accrues
no benefit) merely because his compensation is less than a stated
amount, or
(3) he is excluded from participation in the Program (or accrues
no benefit) merely because of a failure to make mandatory employee
contributions or because of a failure to make elective 401(k)
contributions.
(b) Vesting. For each Plan Year in which the Program is a Top Heavy
-------
Plan and for each Plan Year thereafter, the vested right of each
Participant who has an Hour of Service after the Program becomes a Top
Heavy Plan to a percentage of his Profit Sharing Account and Employer LESOP
Account (to the extent such Accounts had not been forfeited prior to the
Program's becoming a Top Heavy Plan) shall be determined under the better
of the following table or as provided in Section 11.4:
Year of Credited Service Vested Percentage
------------------------ -----------------
Less than 2 0%
2 but less than 3 20
3 but less than 4 40
4 but less than 5 60
5 but less than 6 80
6 or more 100
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(c) Limitations. In computing the limitations under Article IX
-----------
hereof for years in which the Program is a Top Heavy Plan, the special
rules of Section 416(h) of the Code shall be applied in accordance with
applicable regulations and rulings so that, in determining the denominator
of the defined contribution plan fraction, as defined in Section 415(e)(3)
of the Internal Revenue Code ("Defined Contribution Plan Fraction") and the
defined benefit plan fraction as defined in Section 415(e)(2) of the
Internal Revenue Code ("Defined Benefit Plan Fraction") at each place at
which "1.25" would have been used, "1.00" shall be substituted and by
substituting $41,500 for $51,875 in the numerator of the transition
fraction described in Section 415(e)(6)(B) of the Internal Revenue Code,
unless the Program is not a Super Top Heavy Plan and the special
requirements of Section 416(h)(2) of the Internal Revenue Code have been
satisfied. This Section 15.3(c) shall not apply in Plan Years beginning
after December 31, 1999.
(d) Transition Rule for a Top Heavy Plan. Notwithstanding the
------------------------------------
provisions of Section 15.3(c), for each Plan Year in which the Program is a
Top Heavy Plan and in which the Program does not meet the special
requirements of Section 416(h)(2) of the Internal Revenue Code in order to
use 1.25 in the denominator of the Defined Contribution Plan Fraction and
the Defined Benefit Plan Fraction, if an Employee was a participant in one
or more defined benefit plans and in one or more defined contribution plans
maintained by the Employer before the plans became Top Heavy Plans and if
such Participant's Combined Fraction exceeds 1.00 because of accruals and
additions that were made before the plans became Top Heavy Plans, a factor
equal to the lesser of 1.25 or such lesser amount (but not less than 1.00)
as shall be needed to make the Employee's Combined Fraction equal to 1.00
shall be used in the denominator of the Defined Benefit Plan Fraction and
the Defined Contribution Plan Fraction if there are no further accruals or
annual additions under any Top Heavy Plans until the Participant's Combined
Fraction is not greater than 1.00 when a factor of 1.00 is used in the
denominators of the Defined Benefit Plan Fraction and the Defined
Contribution Plan Fraction. Any provisions herein to the contrary
notwithstanding, if the Program is a Top Heavy Plan and the Program does
not meet the special requirements of Section 416(h)(2) of the Internal
Revenue Code in order to use 1.25 in the denominator of the Defined Benefit
Plan Fraction and the Defined Contribution Plan Fraction, there shall be no
further Annual Additions for a Participant whose Combined Fraction is
greater than 1.00 when a factor of 1.00 is used in the denominator of the
Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction,
until such time as the Participant's Combined Fraction is not greater than
1.00. This Section 15.3(d) shall not apply in Plan Years beginning after
December 31, 1999.
(e) Transition Rule for a Super Top Heavy Plan. Notwithstanding the
------------------------------------------
provisions of Sections 15.3(c) and 15.3(d), for each Plan Year in which the
Program is a Super Top Heavy Plan, (1) if an Employee was a participant in
one or more defined benefit plans and in one or more defined contribution
plans maintained by the employer before the plans became Super Top Heavy
Plans, and (2) if such Participant's Combined Fraction exceeds 1.00 because
of accruals and additions that were made before the plans became Super Top
Heavy Plans and if immediately before the plans became Super Top Heavy
Plans the Combined Fraction as then computed did not exceed 1.00, then a
factor
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equal to the lesser of 1.25 or such lesser amount (but not less than 1.00)
as shall be needed to make the Employee's Combined Fraction equal to 1.00
shall be used in the denominator of the Defined Benefit Plan Fraction and
the Defined Contribution Plan Fraction if there are no further accruals or
annual additions under any Super Top Heavy Plans until the Participant's
Combined Fraction is not greater than 1.00 when a factor of 1.00 is used in
the denominators of the Defined Benefit Plan Fraction and the Defined
Contribution Plan Fraction. Any provisions herein to the contrary
notwithstanding, if the Program is a Super Top Heavy Plan, there shall be
no further Annual Additions for a Participant whose Combined Fraction is
greater than 1.00 when a factor of 1.00 is used in the denominator of the
Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction
until the Participant's Combined Fraction is not greater than 1.00. This
Section 15.3(e) shall not apply in Plan Years beginning after December 31,
1999.
(f) Terminated Plan. If the Program becomes a Top Heavy Plan after
---------------
it has formally been terminated, has ceased crediting for benefit accruals
and vesting and has been or is distributing all plan assets to participants
and their beneficiaries as soon as administratively feasible or if a
terminated plan has distributed all benefits of participants and their
beneficiaries, the provisions of Section 15.3 shall not apply to the
Program.
(g) Frozen Plans. If the Program becomes a Top Heavy Plan after
------------
contributions have ceased under the Program but all assets have not been
distributed to participants or their beneficiaries, the provisions of
Section 15.3 shall apply to the Program.
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ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 Headings. Headings of sections and subsections of the Program are
--------
inserted for convenience of reference and are neither part of the Program nor to
be considered in the construction thereof.
16.2 Indemnification. Each member of the Committee, each member of the
---------------
Board of Directors, each individual serving as Trustee without compensation, and
each and every Employee to whom are delegated duties, responsibilities and
authority with respect to the Program and the Trust shall be indemnified, held
harmless and promptly reimbursed by the Company against all claims, liabilities,
fines and penalties and all expenses (including, but not limited to, attorney
fees) reasonably incurred by or imposed upon such member, individual or Employee
which arise as a result of his actions or failure to act in connection with the
operation and administration of the Program and the Trust, to the extent
lawfully allowable; provided that to the extent that such claim, liability,
fine, penalty or expense is paid for by liability insurance purchased by or paid
for by the Company, reimbursement shall be limited to amounts which would not
cause the loss of coverage under such insurance and further provided that to the
extent that the Company has reimbursed the Employee, the Company shall be
subrogated to the Trustee's rights to reimbursement under such insurance.
Notwithstanding the foregoing, the Company shall not indemnify any person for
any such amount incurred through any settlement or compromise of any action
unless the Company consents in writing to such settlement or compromise.
Expenses incurred in defending a civil or criminal action, suit or proceeding
shall be paid by the Company in advance of the final disposition of such action,
suit or proceeding as authorized by the Company in the specific case upon
receipt of an undertaking by or on behalf of the member of the Committee, member
of the Board of Directors, individual Trustee or Employee to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Company as authorized in this Section 16.2.
16.3 Employees' Trust. This Program is created for the exclusive purpose
----------------
of providing benefits to the Participants in the Program and their
Beneficiaries, and shall be interpreted in a manner consistent with its being a
plan described in Section 401(a) of the Internal Revenue Code and with the
Trust's being a trust exempt under Section 501(a) of the Internal Revenue Code.
16.4 Nonalienation of Benefits. Benefits payable under this Program shall
-------------------------
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, prior to actually being received by the
person entitled to the benefit under the terms of the Program; and any attempt
to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge,
garnish, execute on, levy or otherwise dispose of any right to benefits payable
hereunder, shall be void. The Trust Fund shall not in any manner be liable for,
or subject to, the debts, contracts, liabilities, engagements or torts of any
person entitled to benefits hereunder. The foregoing provisions of this Section
16.4 shall not preclude the (1) enforcement of a Federal tax
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levy made pursuant to Section 6331 of the Internal Revenue Code or (2)
collection by the United States on a judgment resulting from an unpaid tax
assessment.
16.5 Qualified Domestic Relations Order.
----------------------------------
(a) Qualified Domestic Relations Order means any judgment, decree, or
order (including approval of a property settlement agreement):
(1) which is made pursuant to a state domestic relations law
(including a community property law),
(2) which relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse,
child, or other dependent of a Participant,
(3) which creates or recognizes the existence of an alternate
payee's right to receive all or a portion of the Participant's Net
Balance Account under the Program, and
(4) with respect to which the requirements of paragraphs (b) and
(c) are met.
(b) A domestic relations order can be a Qualified Domestic Relations
Order only if such order clearly specifies:
(1) the name and the last known mailing address, if any, of the
Participant and the name and mailing address of each alternate payee
covered by the order,
(2) the amount or percentage of the Participant's Accrued
Benefit to be paid by the Program to each such alternate payee, or the
manner in which such amount or percentage is to be determined,
(3) the number of payments or period to which such order
applies, and
(4) each Plan to which such order applies.
(c) A domestic relations order can be a Qualified Domestic Relations
Order only if such order does not:
(1) require the plan to provide any type or form of benefit, or
any option not otherwise provided under the Program,
(2) require the Program to provide increased benefits
(determined on the basis of actuarial value), or
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(3) require the payment of benefits to an alternate payee which
are required to be paid to another alternate payee under another order
previously determined to be a Qualified Domestic Relations Order.
(d) In the case of any payment made before a Participant has had a
Termination of Employment, a domestic relations order shall not be treated
as failing to meet the requirements of Section 16.5(c)(1) solely because
such order requires that payment of benefits be made to an alternate payee:
(1) without regard to the Participant's attainment of any
specified age;
(2) as if the Participant had retired on the date on which such
payment is to begin under such order; and
(3) in any form in which such benefits may be paid under the
Program to the Participant (other than in the form of a Qualified
Joint and Survivor Annuity with respect to the alternate payee and his
or her subsequent spouse).
(e) To the extent provided in any Qualified Domestic Relations Order
the former spouse of a Participant if married to the Participant for at
least one year, shall be treated as the surviving spouse of such
Participant for purposes of consenting to the waiver of a Qualified Joint
and Survivor Annuity as provided in Sections 11.2(f) and 11.10 and the
naming of another Beneficiary to the extent provided in Sections 11.3 and
11.10.
(f) Notwithstanding anything to the contrary in Article X, if,
pursuant to a Qualified Domestic Relations Order, a segregated account is
established containing the interest of an alternate payee, the alternate
payee shall direct the manner in which such segregated account shall be
invested in accordance with the procedures under Article X; provided that
such segregated account shall remain invested in the same manner as the
assets were invested before the account was segregated until the alternate
payee's election in accordance with this Section 16.5(f) becomes effective.
16.6 Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of
-----------------
the Accounts of a retired, deceased or terminated Participant (including amounts
held in the Holding Fund with respect to checks which are distributed but which
are not cashed) which cannot be distributed because of the Committee's
inability, after a reasonable search, to locate a Participant or his Beneficiary
within a period of two (2) years after the payment of benefits becomes due.
(a) Unclaimed amounts with respect to Accounts held in the Profit
Sharing Plan portion of the Program for a Plan Year shall become a
Forfeiture and shall be allocated for such Plan Year as determined in
accordance with Section 7.1 hereof, within a reasonable time after the
close of the Plan Year in which such two-year period shall end.
-139-
<PAGE>
(b) The Committee shall allocate Forfeitures with respect to Accounts
held in the McDESOP portion of the Program to Participants' Participant
Elected Contribution Accounts and Employer Matching Contribution Accounts
by crediting such Forfeitures to the McDESOP Holding Fund as of the
Valuation Date following the date the amount of such Forfeitures is
determined for the immediately preceding Plan Year but not later than March
31 of the year following the Plan Year with respect to which such
Forfeitures occurred.
(c) Forfeitures arising in respect to a LESOP Account to
Participants' LESOP Accounts shall be allocated in the same manner as
Forfeitures under Section 7.3 are allocated to such Accounts.
(d) As of the last day of the Plan Year, Forfeitures arising in
respect to the Stock Sharing Accounts of Participants shall be charged with
the expenses of the Stock Sharing portion of the Program without regard to
the limitations on reimbursement for expenses prescribed by Section 409(l)
of the Internal Revenue Code. Any net Forfeitures after such charges and
charges pursuant to Section 16.6(e) shall be allocated as income of the
Stock Sharing portion of the Program as provided in Section 10.13(b).
(e) If an unclaimed amount is subsequently properly claimed by the
Participant or the Participant's Beneficiary ("Reclaimed Amount") and
unless an Employer in its discretion makes a contribution to the Program
for such year in an amount sufficient to pay such Reclaimed Amount, it
shall be charged as follows:
(1) To the extent such Reclaimed Amount originated as an
unclaimed amount with respect to the Accounts held in the Profit
Sharing Plan portion of the Program, it shall be charged against
Forfeitures from the Profit Sharing portion of the Program and, if
such Forfeitures are not sufficient, the remainder shall be treated as
an expense of the Profit Sharing Plan portion of the Program during
the Plan Year in which the Participant or Beneficiary makes such
claim.
(2) To the extent that the Reclaimed Amount originated as an
unclaimed amount with respect to the amounts held in the McDESOP
portion of the Program it shall be charged against Forfeitures for the
Plan Year with respect to Participants' Participant Elected
Contribution Accounts and Employer Matching Contribution Accounts and,
to the extent such Forfeitures are not sufficient, shall be treated as
an expense of the McDESOP portion of the Program.
(3) To the extent that such Reclaimed Amount originated as an
unclaimed amount in respect to a LESOP Account, it shall be treated as
a charge against Forfeitures arising under Sections 11.4 and 16.6 for
the Plan Year with respect to Participants' LESOP Accounts and, to the
extent such Forfeitures are not sufficient, shall be treated as an
expense of the LESOP portion of the Program.
-140-
<PAGE>
(4) To the extent that such Reclaimed Amount originated as an
unclaimed amount with respect to a Stock Sharing Account, it shall be
treated as a charge against Forfeitures arising under Section 16.6 for
the Plan Year with respect to Participants' Stock Sharing Accounts
and, to the extent that such Forfeitures are not sufficient, shall be
treated as an expense of the Stock Sharing portion of the Program.
16.7 Maximum Age Condition. Anything to the contrary herein
---------------------
notwithstanding, eligibility to participate in the Program and to elect or
receive allocations of contributions to the Trust shall not be subject to any
restrictions on account of a maximum age condition.
16.8 Invalidity of Certain Provisions. If any provision of this Program
--------------------------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Program shall be
construed and enforced as if such provisions, to the extent invalid or
unenforceable, had not been included.
16.9 Gender and Number. Except when otherwise indicated by the context,
-----------------
any masculine terminology herein shall also include the feminine and the
singular shall also include the plural.
16.10 Law Governing. This Program and Trust shall be construed and enforced
-------------
according to the laws of the State of Illinois other than its laws respecting
choice of law, to the extent not preempted by ERISA.
Executed in multiple originals this 17th day of December, 1999
McDonald's Corporation
By: Stanley R. Stein
Its: Executive Vice President
-141-
<PAGE>
APPENDIX A
Maximum Percentage of Annuity Benefit Paid to Participant Which Can Be Paid
to a Non-spouse Beneficiary.
Excess of age of employee Applicable
over age of beneficiary percentage
----------------------- ----------
10 years or less 100
11 96
12 93
13 90
14 87
15 84
16 82
17 79
18 77
19 75
20 73
21 72
22 70
23 68
24 67
25 66
26 64
27 63
28 62
29 61
30 60
31 59
32 59
33 58
34 57
35 56
36 56
37 55
38 55
39 54
40 54
41 53
42 53
43 53
44 and greater 52
<PAGE>
APPENDIX B
The Applicable Divisor for purposes of Section 11.2(d)(3) shall be:
Attained Age of Participant
on Birthday in Calendar Year Applicable Divisor
---------------------------- ------------------
70 26.2
71 25.3
72 24.4
73 23.5
74 22.7
75 21.8
76 20.9
77 20.1
78 19.2
79 18.4
80 17.6
81 16.8
82 16.0
83 15.3
84 14.5
85 13.8
86 13.1
87 12.4
88 11.8
89 11.1
90 10.5
91 9.9
92 9.4
93 8.8
94 8.3
95 7.8
96 7.3
97 6.9
98 6.5
99 6.1
100 5.7
101 5.3
102 5.0
103 4.7
104 4.4
105 4.1
106 3.8
107 3.6
108 3.3
109 3.1
110 2.8
111 2.6
112 2.4
113 2.2
114 2.0
115 1.8
<PAGE>
Exhibit 12
<TABLE>
<CAPTION>
McDonald's Corporation Statement Re: Computation of Ratios
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in millions) Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings available for fixed charges
Income before provision for income taxes $2,884.1 $2,307.4(1) $2,407.3 $2,251.0 $2,169.1
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 21.9 23.7 28.3 39.6 19.6
Provision for income taxes of 50% owned affiliates included
in consolidated income before provision for income taxes 72.8 99.9 69.0 73.2 73.3
Portion of rent charges (after reduction for rental income from
subleased properties) considered to be representative of
interest factors* 178.5 161.3 145.9 130.9 103.8
Interest expense, amortization of debt discount and issuance costs,
and depreciation of capitalized interest* 440.1 461.9 424.8 392.2 388.8
- ------------------------------------------------------------------------------------------------------------------------------------
$3,597.4 $3,054.2 $3,075.3 $2,886.9 $2,754.6
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed charges
Portion of rent charges (after reduction for rental income from
subleased properties) considered to be representative of
interest factors* $ 178.5 $ 161.3 $ 145.9 $ 130.9 $ 103.8
Interest expense, amortization of debt discount and issuance costs,
and fixed charges related to redeemable preferred stock* 431.3 453.4 426.1 410.4 403.4
Capitalized interest* 14.7 18.3 23.7 23.5 22.8
- ------------------------------------------------------------------------------------------------------------------------------------
$ 624.5 $ 633.0 $ 595.7 $ 564.8 $ 530.0
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 5.76 4.82(2) 5.16 5.11 5.20
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes amounts of the Registrant and its majority-owned subsidiaries, and
one-half of the amounts of 50% owned affiliates.
(1) Includes $161.6 million of Made For You costs and the $160.0 million
pre-tax special charge related to the home office productivity initiative
for a 1998 pre-tax total of $321.6 million.
(2) Excluding Made For You costs and the special charge, the ratio of earnings
to fixed charges for the year ended December 31, 1998 would have been 5.33.
<PAGE>
Exhibit 21
McDonald's Corporation Subsidiaries of the Registrant
Name of subsidiary (State or country of incorporation)
Domestic Subsidiaries
- --------------------------------------------------------------------------------
McDonald's Australian Property Corporation (Delaware)
McDonald's Deutschland, Inc. (Delaware)
McDonald's Development Italy, Inc. (Delaware)
McDonald's Restaurant Operations Inc. (Delaware)
McDonald's Sistemas de Espana, Inc. (Delaware)
McG Development Co. (Delaware)
Restaurant Realty of Mexico, Inc. (Delaware)
Foreign subsidiaries
- --------------------------------------------------------------------------------
McDonald's Australia Limited (Australia)
McDonald's Properties (Australia) Pty. Ltd. (Australia)
McDonald's Central Europe GmbH (Austria)
McDonald's Restaurants of Canada Limited (Canada)
McDonald's Restaurants Limited (United Kingdom)
McDonald's France, S.A. (France)
McDonald's GmbH (Germany)
McDonald's Immobilien GmbH (Germany)
McDonald's Restaurants Ltd. (Hong Kong)
MDC Inmobiliaria de Mexico S.A. de C.V. (Mexico)
McDonald's Restaurants Pte., Ltd (Singapore)
McDonald's Suisse Holding S.A. (Switzerland)
- --------------------------------------------------------------------------------
The names of certain subsidiaries have been omitted as follows:
(a) 48 wholly-owned subsidiaries of the Company, each of which operates one or
more McDonald's restaurants within the United States.
(b) Additional subsidiaries, including some foreign, other than those mentioned
in (a), because considered in the aggregate as a single subsidiary, they would
not constitute a significant subsidiary.
<PAGE>
Exhibit 23
Consent of independent auditors
We consent to the incorporation by reference in the following Registration
Statements of McDonald's Corporation and in the related prospectuses of our
report dated January 26, 2000 with respect to the consolidated financial
statements of McDonald's Corporation included in this Annual Report (Form 10-K)
for the year ended December 31, 1999.
<TABLE>
<CAPTION>
Commission File No.
------------------------------------------
Form S-8 Form S-3
<S> <C>
33-09267 33-00001
33-24958 33-64873
33-49817 333-25899
33-50701 333-59145
33-58840
333-03409
333-65033
</TABLE>
ERNST & YOUNG LLP
Chicago, Illinois
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Company's Form 10-K for the year ended Dec. 31, 1999 and is qualified in its
entirety by reference to such financial statements. </LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 420
<SECURITIES> 0
<RECEIVABLES> 708
<ALLOWANCES> 0
<INVENTORY> 83
<CURRENT-ASSETS> 1,572
<PP&E> 22,451
<DEPRECIATION> 6,126
<TOTAL-ASSETS> 20,983
<CURRENT-LIABILITIES> 3,274
<BONDS> 5,632
0
0
<COMMON> 17
<OTHER-SE> 15,831
<TOTAL-LIABILITY-AND-EQUITY> 20,983
<SALES> 9,513
<TOTAL-REVENUES> 13,259
<CGS> 7,830
<TOTAL-COSTS> 8,567
<OTHER-EXPENSES> (105)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 396
<INCOME-PRETAX> 2,884
<INCOME-TAX> 936
<INCOME-CONTINUING> 1,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,948
<EPS-BASIC> 1.44
<EPS-DILUTED> 1.39
</TABLE>
