mcdonald’s corporation annual report

McDonald’s

Corporation

2001 Summary

Annual Report

Brought to you by Global Reports

Contents

1 11-year summary

2 Letter to shareholders

6 Perspectives from our CFO

7 What do you have a taste for?

21 Putting sparkle in our service

23 Building on a strong heritage of values

25 Directors and corporate officers

25 Investor information and services

McDonald’s 2001 financial information, including management’s discussion and analysis, consolidated financial statements and notes, is in the McDonald’s Corporation Annual Meeting Notice, Proxy Statement and 2001 Financial Information and is available at www.mcdonalds.com/corporate/investor/financialinfo.

<< About the covers

WHAT DO YOU HAVE A TASTE FOR?People are eating out more often, and their tastes

are becoming more adventuresome. As a result,

they are demanding more variety . . .and McDonald’s

is listening.

Our New Tastes Menu—available in Australia,

Canada, Hong Kong, Taiwan and the U.S.—is

adding excitement and variety for customers

through an ongoing rotation of product offerings.

Designed to firmly establish McDonald’s as a place

for variety, we are supporting our New Tastes Menu

with advertising. We also are making it easy for

customers to determine what’s new by prominently

featuring current selections on our menu boards.

Our goal is to entice regular customers to visit us

even more frequently and to attract new customers

by satisfying their cravings for something different.

Pictured on the covers are McDonald’s World

Famous Fries, a rich triple-thick chocolate shake

and some New Tastes Menu items recently or soon

to be featured in the U.S. on a national or local

level: the mouthwatering McPhilly Cheesesteak

sandwich, the satisfying Cheddar Bacon

Sausage McMuffin, the succulent crispy coated,

all-white-meat Chicken Select Strips with zippy

dipping sauces and the tempting Tin Roof Waffle

Cone Sundae.


Dollars in millions, except per share data 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991

Franchised sales $24,838 24,463 23,830 22,330 20,863 19,969 19,123 17,146 15,756 14,474 12,959Company-operated sales $11,040 10,467 9,512 8,895 8,136 7,571 6,863 5,793 5,157 5,103 4,908Affiliated sales $ 4,752 5,251 5,149 4,754 4,639 4,272 3,928 3,048 2,674 2,308 2,061

Total Systemwide sales $40,630 40,181 38,491 35,979 33,638 31,812 29,914 25,987 23,587 21,885 19,928

Total revenues $14,870 14,243 13,259 12,421 11,409 10,687 9,795 8,321 7,408 7,133 6,695Operating income $ 2,697(1) 3,330 3,320 2,762(3) 2,808 2,633 2,601 2,241 1,984 1,862 1,679Income before taxes $ 2,330(2) 2,882 2,884 2,307(3) 2,407 2,251 2,169 1,887 1,676 1,448 1,299Net income $ 1,637(2) 1,977 1,948 1,550(3) 1,642 1,573 1,427 1,224 1,083 959 860

Cash provided by operations $ 2,688 2,751 3,009 2,766 2,442 2,461 2,296 1,926 1,680 1,426 1,423Capital expenditures $ 1,906 1,945 1,868 1,879 2,111 2,375 2,064 1,539 1,317 1,087 1,129Free cash flow $ 782 806 1,141 887 331 86 232 387 363 339 294Treasury stock purchases $ 1,090 2,002 933 1,162 765 605 321 500 628 92 117

Financial position at year end

Total assets $22,535 21,684 20,983 19,784 18,242 17,386 15,415 13,592 12,035 11,681 11,349Total debt $ 8,918 8,474 7,252 7,043 6,463 5,523 4,836 4,351 3,713 3,857 4,615Total shareholders’ equity $ 9,488 9,204 9,639 9,465 8,852 8,718 7,861 6,885 6,274 5,892 4,835Shares outstanding IN MILLIONS 1,280.7 1,304.9 1,350.8 1,356.2 1,371.4 1,389.2 1,399.5 1,387.4 1,414.7 1,454.1 1,434.5

Per common share

Net income $ 1.27(2) 1.49 1.44 1.14(3) 1.17 1.11 .99 .84 .73 .65 .59Net income–diluted $ 1.25(2) 1.46 1.39 1.10(3) 1.15 1.08 .97 .82 .71 .63 .57Dividends declared $ .23 .22 .20 .18 .16 .15 .13 .12 .11 .10 .09Market price at year end $ 26.47 34.00 40.31 38.41 23.88 22.69 22.56 14.63 14.25 12.19 9.50

Franchised restaurants 17,395 16,795 15,949 15,086 14,197 13,374 12,186 10,944 9,918 9,237 8,735Company-operated restaurants 8,378 7,652 6,059 5,433 4,887 4,294 3,783 3,216 2,733 2,551 2,547Affiliated restaurants 4,320 4,260 4,301 3,994 3,844 3,216 2,330 1,739 1,476 1,305 1,136

Total Systemwide restaurants 30,093 28,707 26,309 24,513 22,928 20,884 18,299 15,899 14,127 13,093 12,418

(1) Includes $378 million of pretax special operating charges primarily related to the U.S. business reorganization and other global change initiatives, and the closing of 163 underperforming restaurants in international markets.

(2) Includes the $378 million of pretax special operating charges noted above and $125 million of net pretax special nonoperating income items primarily related to a gain on the initial public offering of McDonald’s Japan, for a net pretax expense of $253 million ($143 million after tax or $0.11 per share). Net income also reflects an effective tax rate of 29.8 percent, primarily due to the one-time benefit of tax law changes in certain international markets ($147 million).

(3) Includes $162 million of Made For You costs and the $160 million special charge related to the home office productivity initiative for a pretax total of $322 million ($219 million after tax or $0.16 per share).

11-year summary

In 2002, we plan to add between 1,300 and 1,400 McDonald’s restaurants, as well as open 100 to 150 new restaurants under our Partner Brands.

1

5-year performance

1997 1997 2001 (2)

$33.6 $2.8 $18.2

SYSTEMWIDE SALESIN BILLIONS

OPERATING INCOME (1)

IN BILLIONSTOTAL ASSETS

IN BILLIONS

$40.6 $3.1 $22.5

1997 2001

U.S. Europe Asia/Pacific, Middle East and Africa Latin America Canada Partner Brands Corporate(1) Graph excludes Corporate segment and Partner Brands.

(2) Excludes special charges of $378 million.

2001


From many different perspectives, 2001 wasone tough year.

It was a year in which the strength andresolve of the United States was tested. Itwas a year in which the resourcefulness ofmany of the world’s best-known companies,including McDonald’s, was tested.

Clearly, I am disappointed in McDonald’sglobal business performance. I also am deeply concerned about the erosion in totalshareholder value that has occurred as aresult.

Our 2001 performance was hampered by the strong U.S. dollar and weak economies in

many countries in which we operate. And obviously,the tragic events ofSeptember 11 have had an impact.

Additionally, despiteMcDonald’s outstandingquality and safety record,our business suffered fromconsumer concerns aboutbeef safety in Europe and Japan. Fortunately,this negative impact was significantly less on ourbusiness than on othercompanies selling beef inthese markets, because so

many customers knew they could trust ourhigh standards.

Let me state the obvious: we can and must dobetter than the 4 percent constant currencysales increase we generated in 2001. We mustdeliver the kinds of growth in sales and profitsthat can make a positive difference in thevalue of your investment in McDonald’s.

The reality is there will always be challenges. It is our job to manage through the challengesby leveraging our strengths to overcomethem. We often tell our children, “With chal-lenges come opportunities.” The same is truefor businesses. So, more than ever before,McDonald’s must adapt and evolve to seizeopportunities as they unfold.

Over the years, three core strengths have driven our business success. They differenti-ate McDonald’s from other companies, are not easily imitated and can be leveraged tocreate a significant benefit for consumers andshareholders. We intend to build on thesestrengths to return our business to double-digit growth.

The first is our ability to forge bonds of trustwith customers throughout the world. Peopleknow they can enjoy the same great taste of a Big Mac whether they are at a McDonald’sin Paris, France, or Paris, Texas. They alsoknow that they can rely on McDonald’s high-quality and safety standards.

The second strength is our expertise in find-ing, negotiating, building and managing a complex network of real estate locations. Thisis evidenced by the fact that we operate more

Dear shareholder:

Last year, McDonald’s served 46 million customers a day,

an increase of more than 1 millioncustomers a day compared

with 2000.

2

Our goal for 2002is to leverageour powerfulstrengths toimprove performance and ensure thatour foundationfor growth isrock solid.


McDonald’s global supply infrastructure is unparalleled,

allowing us to achieve economies of scale and offer great values

to customers.

3

than 30,000 conveniently located points of distribution in 121 countries across the globe.

The third strength is our ability to execute aretail business model successfully in marketsaround the world. This is about finding theright balance on the global-local continuum...about being able to train and develop a diversegroup of employees, franchisees, joint-venturepartners and suppliers who are committed tocore principles and operating systems.

These are powerful strengths. Our goal for2002 is to leverage them to improve perfor-mance and ensure that our foundation forgrowth is rock solid. We are holding ourselvesaccountable for results.

First and foremost, we plan to improve thecustomers’ experience, especially in marketswhere our customer satisfaction scores haveslipped. Frankly, this is unacceptable.

We have rededicated ourselves to giving cus-tomers the world over an outstanding experi-ence on each and every visit to McDonald’s. Weknow that if we raise the bar on the Quality,Service, Cleanliness and Value we deliver, cus-tomers will visit our restaurants more often.

We also made important changes in 2001 tohelp us achieve better results.

We restructured our global organization tocreate clearer lines of accountability and

McDONALD’S VISION:BE THE WORLD’S BEST QUICK-SERVICE RESTAURANT EXPERIENCE

To achieve our vision, we will:

BE THE BEST EMPLOYER for our people in every market around the world, as only satisfied employees can deliver the friendly, efficient service customers want and deserve

DELIVER EXCEPTIONAL CUSTOMER EXPERIENCES through a combination of great-tasting food, outstanding service, exciting promotions, inviting restaurants and reliable value

EXPAND OUR POWERFUL BRAND by using innovation and technology to enhance customer experiences for years to come

LEVERAGE THE SYSTEM’S STRENGTHS by developing new business concepts

SOLIDIFY OUR LEADERSHIP IN SOCIAL RESPONSIBILITY by giving back to our communities and making the world a better place for future generations

By doing this, we will:

ACHIEVE ENDURING, PROFITABLE GROWTH


greater role clarity in our hamburger busi-ness. We created a single point of leadershipfor our Partner Brands to help us capturemore meal occasions outside the reach ofMcDonald’s. We also elevated the role of corporate strategy and business developmentin order to accelerate ideas for growing ourexisting businesses and to identify new busi-ness opportunities.

In addition, we implemented a number of initiatives around the world in 2001 that areexpected to generate ongoing annual savingsof about $100 million in selling, general andadministrative expenses, starting this year.

In the U.S., we have streamlined the respon-sibilities of our field staff so they can focusmore attention on the Quality, Service andCleanliness that our customers receive. Wehave improved training for our restaurantmanagers to enhance their ability to adapt to changing situations in their day-to-dayrestaurant environments. We are compilingmore objective customer perspectives andusing an enhanced national restaurant evaluation system. And, we are providingmore menu variety and are implementingprograms to improve customers’ perception of the value we represent. Importantly, weare linking employee compensation moredirectly to customer satisfaction, as well as to financial performance.

We won’t see the results of these U.S. initiativesovernight. But our customers will begin to seea noticeable difference as the year progresses.

In 2001, we implemented a similar changeinitiative across Europe. Called EuroMission,the goal is to increase sales and transactionsby collaborating on strategies and implement-ing programs that drive employee satisfaction,customer service and value.

With consumer concerns regarding the safetyof the European beef supply largely behindus, our management team is moving quicklyto take advantage of improved business conditions.

On the other hand, we expect the weak eco-nomic conditions in many Asian and LatinAmerican markets to continue for some time.Yet, these countries represent an enormouslong-term opportunity for McDonald’s, giventheir potential for economic growth and theirlarge populations. Accordingly, in the shortterm, we are focusing on increasing ouraffordability and building our brand.

While attractive prices are important every-where, they are especially important in coun-tries experiencing economic difficulties andwhere income levels are often low. To prof-itably support the great value we offer inthese challenging—yet promising—countries,we have been, and continue to be, focused on improving our cost structures. And sinceattractive prices alone are not enough, we areintent on strengthening the preference forMcDonald’s by delivering on the basics ofcleanliness, quality and speed of service andby providing experiences that build bondswith kids and families.

Fortune magazine ranked McDonald’s among America’s

Most Admired Companies in the area of social responsibility.

4


McDonald’s brand is strong, and our business is resilient.

We have taken action to improve our customers’ experience and

drive long-term success.

5

Globally, we plan to addbetween 1,300 and 1,400McDonald’s restaurantsin 2002. These plansreflect our intent to becautious with invest-ments in markets thatare experiencing eco-nomic difficulties and to increase openings inthose markets withattractive near-termopportunities.

Collectively, the actionswe have taken aredesigned to create astronger, more nimbleMcDonald’s—a globalorganization that is leanerand better aligned, amanagement group that is more focused and more accountable,and a worldwide corps of owner/operators, joint-venture partners, devel-opmental licensees,employees and suppliersthat is committed to the

ideals that have won the trust of so many the world over.

McDonald’s global management team, whichI believe is one of the most talented in theworld, shares my sense of urgency to deliverimproved results. Further, that sense of

urgency permeates the entire organization ofowner/operators, suppliers and employees.

Our shareholders should expect nothing less.

We are a System with a long heritage of success. Certainly, we are not pleased withrecent performance. At the end of the day,there can be no excuses. . . legitimate or otherwise.

The many changes and initiatives we haveundertaken, combined with our powerfulbrand and lead position in most markets inwhich we do business, put us in an excellentposition to improve results.

And that’s what we intend to do.

In closing, I want to thank you for your continued confidence in McDonald’s. Wedeeply appreciate your trust. I am confidentthat the McDonald’s System can, and will,return the business to the kind of growth youexpect and deserve.

Sincerely,

Jack M. GreenbergChairman and Chief Executive Officer Shareholder

March 12, 2002

A TRIBUTE TO AMcDONALD’S VISIONARY

Jim Cantalupo, who mostrecently served as McDonald’sVice Chairman and President,has announced plans to retireafter 28 remarkable years ofservice.

Jim joined the Company as Controller in 1974. Over theyears, he held numerous opera-tions management positions in the U.S. business beforeassuming responsibility forMcDonald’s international operations in 1987. At thattime, the System had nearly2,350 restaurants in 46 coun-tries outside the U.S. Thanks to Jim’s vision and leadership,today the Company has aninternational presenceapproaching 16,000 restaurantsin 120 countries. He truly hasbeen a driving force and chiefbuilder of the greatest globalretail business ever developed.

Jim’s achievements are legendary, and literally each of the 1.5 million members of the McDonald’s Family owes him a debt of gratitude for hisoutstanding contributions.


In July 2001, Matt Paull was appointed Executive

Vice President and Chief Financial Officer of

McDonald’s Corporation. Prior to becoming CFO,

he was the Company’s Senior Vice President—

Finance. Matt brings a wealth of business experi-

ence, as well as financial expertise, to the position.

The brief interview that follows is provided to intro-

duce Matt to investors.

How do you see your role as CFO?

I view my role in very broad terms. Of course,measuring growth in sales and income, as well as

improvements in returns, margins and other financialmetrics are critical to gaugingperformance. I oversee theestablishment and measure-ment of those metrics to ensurethat we are focused on buildingthe business for the benefit ofshareholders.

Yet, that is only part of myjob. I view working with theentire management team tofocus the organization on critical nonfinancial goals asone of my key responsibilities.Setting and achieving the rightnonfinancial goals—such asimproving the speed, accuracyand friendliness of our service,

as well as other customer satisfaction attributes—ultimately will determine whether we achieve ourfinancial goals.

How is the Company determining whether

important nonfinancial goals are being met?

We are assessing the quality of our customers’experiences with metrics that are both timely andactionable. More specifically, we have calibrated andrefined our measurement criteria and essentiallyeliminated the subjectivity that often creeps intoevaluation processes. Perhaps more importantly, weare holding our people more accountable and aretying their compensation more directly to results.

How have world economic situations impacted

the Company’s expansion plans?

Opening profitable restaurants is part of ourgrowth strategy. We have the financial capacity toinvest for the long term. At the same time, we planto invest prudently.

When planning openings, we consider each mar-ket’s current economic conditions, long-term demo-graphic and lifestyle trends, competitive environmentand stage of development, as well as the potentialeffect on existing McDonald’s restaurants and returns.

Based on these criteria, we reduced the numberof restaurant additions over the past few years andexpect to add 1,300 to 1,400 McDonald’s restaurantsin 2002. About 60 percent of these openings will bein the U.S., Europe and Canada, where economiesare relatively stable and returns are strong. We alsoare adding restaurants in China, where the near-and long-term growth potential is enormous.

At the same time, we are reducing openings inmarkets with weak economic environments until wesee signs of improvement. Since we already have aclear competitive lead in these countries, this tempo-rary slowdown makes good business sense.

In addition, we plan to open 100 to 150 newrestaurants under our Partner Brands in 2002.

What are McDonald’s priorities for using the cash

it generates?

McDonald’s consistently generates a significantamount of cash from operations, and our focusremains on using that cash to enhance shareholdervalue.

Clearly, our priority is to invest in growing thebusiness—first by investing in Brand McDonald’sand second, by investing in our Partner Brand con-cepts. Our goal is to put our cash to work to capturemore meal occasions and to generate attractivereturns in the process.

Further, since our annual cash from operationsis more than $2.5 billion, a sizeable amount remainsafter making capital expenditures. We deploy thatexcess cash—together with our credit capacity—torepurchase shares of McDonald’s stock and to paydividends—both uses that benefit shareholders.

Perspectives from our CFO

We continue to achieve returns in excess of our cost of capital,

and our objective is to increase returns over time.

6

. . .we are holdingour people moreaccountable andare tying theircompensationmore directly toresults.


research tells us...

PEOPLE ARE EATING OUT MORE THAN EVER BEFORE.Expenditures on food and drink away from home in the U.S.

are expected to increase by $87 billion—in real terms—

during the 10-year period ending December 2010.

Time pressure is a key factor causing increased demand

for food service in major markets around the world.

THE MORE PEOPLE EAT OUT, THE MORE VARIETY THEY WANT.Due to the desire for a greater variety of tastes and experiences,

new food categories are emerging—such as “fast casual,”

which combines quick counter service and value pricing

with the menu and atmosphere of a casual restaurant.

ONE BRAND CAN’T BE ALL THINGS TO ALL PEOPLE.People choose where to eat based on situational factors, such as

with whom they are dining. . .how much time they have. . .

what is convenient or available . . .how much money they want to spend. . .

the atmosphere they are seeking. . .and the type of food they are craving.

THERE IS A LOT OF OPPORTUNITY FOR GROWTH.In our 10 largest markets, McDonald’s share of total commercial meals

is 12 percent . . .and assuming that people eat three meals a day,

our share of total meals consumed is less than 1 percent.

McDonald’s is pursuing opportunities to serve more

customers, more meals–and to doso more frequently–by offering

convenience, value, taste and variety.

7

WHAT DO YOU HAVE A TASTE FOR?


McDonald’s is the place for a

Big Mac and World Famous Fries

. . . and a whole lot more.


we’re broadening our appeal

The vast majority of McDonald’s futuregrowth will come from our core hambur-ger business, which we are determinedto grow to its fullest potential.

To start, we are building on ourstrengths.

McDonald’s is already a favorite with kids and fami-lies. We have terrific Happy Meals and PlayPlaces. . .we’re the home of Ronald McDonald . . .and we connectwith kids of all ages through our relationship with Disney.

We are building on this special bond with our MightyKids Meal, the perfect transition meal for youngstersbetween the ages of eight and 10. The Mighty Kids Mealsatisfies their growing appetites with larger entrées, such as double cheeseburgers or six-piece Chicken

McNuggets, along with a smallfry and drink, while still providinggreat Happy Meal toys.

We also are reinforcing ourpowerful relationship with kids by appealing to their sense offun. Notably, we are enhancingthe play areas in a number ofour restaurants around the worldby adding interactive electronicgame centers, such asKidzpace.

McDonald’s is also top ofmind when customers want ahand-held meal on the run. So, we are making a visit toMcDonald’s more convenient by speeding up service andimproving the quality of the over-all experience. (See story on page 21.)

In addition, we are creatingnew sales and profit generatorsby increasing the variety weoffer. While we are often the first place customers think of

when they have a craving for great-tasting hamburgersand fries, we’re not always top of mind when they have a taste for something different. So, we have made it apriority to gain recognition as a place for variety, as well as value.

Customers in the U.S. now have more choices, includ-ing Fruit ’N Yogurt Parfaits, McSalad Shakers andBreakfast Bagel sandwiches, as well as traditional favor-ites, such as Big Mac and Quarter Pounder sandwiches.

In several European markets, we offer large beefsandwiches, similar to France’s popular, promotional, premium Le 280. And customers in the U.K. and Belgiumare giving a thumbs up to our new McChickenPremiere sandwich—a tasty chicken breast patty, leaflettuce, salsa and sour cream on a focaccia bun.

In many Asian markets, where customers preferchicken to beef, we offer an array of chicken products—including Chicken McCrispy, Spicy McWings and theSpicy Chicken Filet Burger—designed to appeal tolocal tastes. In addition, we are exploring ways to addvalue and variety to our menus throughout Asia with newfish, pork and rice products.

We also are mixing it up a bit and offering customersongoing food news with our New Tastes Menu inAustralia, Canada, Hong Kong, Taiwan and the U.S. Thisrotating menu allows markets to select and showcase lim-ited-time taste offerings from a wide variety of breakfast,entrée and dessert pleasers. For example, the OutbackOmelette McMuffin—a pepper and onion omeletserved on a toasted English muffin with bacon, cheeseand a tangy BBQ sauce—is a popular choice among customers Down Under.

In addition, we are exploring ways to increase varietyby giving customers more flexibility with our Menú a Tu Pinta, which is available throughout Chile, and ourMcPick Value Meal menu, which is in a small markettest in the U.S. These menus allow customers to createtheir own value meal by selecting one of several entréesand two side items from seven choices, which includeside McSalad Shakers, hot apple pies, French fries andsoft drinks. And for those who prefer to dine a la carte, we are testing value menus that highlight products, suchas cheeseburgers, McChicken sandwiches and soft serve cones, that are available everyday for $1 or less.Currently, such menus are available in more than 4,000McDonald’s restaurants across the U.S.

Looking forward, we will continue to stir the pot and cook up new and different ways to give customersaround the world compelling kinds of tastes, variety, values and experiences that will make them chooseMcDonald’s again and again.

MAGNIFIQUE!

We are attracting meat lovers inFrance with a new, beefy taste andappetite pleaser. . .Le 280. True toits name, this delicious, promotionalsandwich weighs a total of 280grams and has a distinct flavorprofile. Nearly one-third pound of pure beef is first seasoned andgrilled to perfection, then toppedwith cheese, tomatoes, lettuce andbéarnaise sauce–all served on atoasted, home-style Ciabatta bun.

An instant success in France, similar premium sandwiches arenow available as promotionalitems in other European markets.

The restaurant industry’s share of U.S. food dollars has grown from

25% in 1955 to 46% today . . .and it isexpected to grow to 53% by 2010.

National Restaurant Association

10



CREAM CHEESE & JAM BAGELNEW ZEALAND

CHICKEN FAJITAU.S.

TERIYAKI BURGERJAPAN

McPOLLO PREMIUMCHILE

McMUFFIN A LA MEXICANAMEXICO

VEGGIE SURPRISEINDIA

SPICY CRISPY CHICKEN U.S.

ASIAN McSALADU.S.

POUTINECANADA

CHEESE AND TOMATOTOASTED SANDWICH

AUSTRALIA

McHEROU.S.

CHILE CHEESE McDOUBLEU.S.

DRUMSTICK McFLURRYU.S.

CHICKEN BREAST PARMESAN U.S.

BERRY CHERRYFRUIT ’N YOGURT PARFAIT

U.S.

OUTBACK OMELETTEMcMUFFINAUSTRALIA

BBQ BACON BIG N’ TASTY

U.S.

McAFRIKANORWAY

EGG McQUESOCOSTA RICA

CRISPY CHICKEN McCLUBU.S.

MOUNTAIN RASPBERRY SHAKE

U.S.

SPICY CHICKEN FILET BURGER

CHINA

BIG McBACONCHEESEBURGER

U.S.

SPICY McWINGSHONG KONG

LE 280FRANCE

JOHNSONVILLE BRATU.S.

McGOLDEN CORN SOUPHONG KONG

McCHICKEN PREMIEREU.K.

BULGOGI BURGERSOUTH KOREA

HOT HAM ‘N CHEESEU.S.

McRIBU.S.

McBLTU.S.

A sampling of McDonald’smenu variety

Pictured are just a few ofMcDonald’s permanent andpromotional products from

around the world.

CHICKEN McCRISPYSINGAPORE


Bro

ught

to y

ou b

y G

loba

l Rep

orts

McDonald’s is a trusted friend

among kids . . . and grown-ups, too.


Designed to captureMcDonald’s meal occasions

in locations where the sales potential would notsupport a large, traditionalrestaurant, McSnack Spotoffers a limited selection

of McDonald’s menu items, as well as

snack favorites.

TOP RIGHT

STRAWBERRY BANANA

FRUIT ‘N YOGURT PARFAIT

Originally developed in Australia, McCafés generally are attached to existing McDonald’s restaurants and have

a cosmopolitan atmosphere with

distinct adult appeal.

TOP LEFT

CAPPUCCINO AND

BANANA CAKE

This concept brings two great restaurant

experiences together under one roof with classic,

cooked-to-order diner fare and traditional

McDonald’s favorites.

BOTTOM RIGHT

TRIPLE DECKER

TURKEY AND BACON CLUB

McTreat Spot kiosks sell indulgent sweet treats

in high-traffic, high-volume locations.

BOTTOM LEFT

HOT FUDGE BROWNIE SUNDAE

TM


we’re extending our reach

There is more innovation than ever underThe Golden Arches, as we exploreopportunities to extend the ways inwhich we serve our customers.

Take, for example, our McCafécoffee concept. Originally developed

in Australia, McCafés generally are attached to existingMcDonald’s restaurants and have a cosmopolitan atmosphere with distinct adult appeal. Here, customerscan enjoy premium coffees, cakes and pastries—all at a value price compared with typical coffeehouses.

Clearly, the coffee market varies significantly bycountry, and the demographics need to be right. So,McCafés may not be appropriate for all our restaurants.Yet, in the right locations, they can add to the bottom line. In Australia, where the coffee market is growing atan annual rate of 10 percent, we have experienced sig-nificant sales increases with McCafé additions. Theseincreases are being driven by the sale of McCafé offer-ings, as well as incremental regular menu sales to ourcoffee-loving customers. Today, we operate more than300 McCafés in over 15 countries, and we will continueto explore opportunities to add McCafés where theymake sense.

We also want to be top of mind when customerswant an indulgent sweet treat or a snack when they areon the go. So, we are using dessert kiosks and smallrestaurant units to earn such recognition and captureincremental sales.

For example, McDonald’s currently operates morethan 600 dessert kiosks in Latin America. Initially devel-oped about 10 years ago in Brazil, where they have beenvery successful, these kiosks typically sell bottled waterand a variety of soft serve products, including McFlurrydesserts. Since they are situated in shopping malls nearfull McDonald’s restaurants, they serve as billboards for those restaurants, as well as convenient places forcustomers to break to satisfy their sweet tooth.

Now, we are adapting this profit generator for theU.S. market with McTreat Spot kiosks and are testing a variety of dessert concepts in southeast Asia.

In the U.S., our McTreat Spot kiosks are situated inhigh-traffic, high-volume locations, like the Minneapolis,Minnesota, airport, the Circus-Circus Casino in LasVegas, Nevada, and the Woodfield Shopping Mall inSchaumburg, Illinois. Offerings include satisfying

sundaes, rich McFlurry desserts, refreshing Fruit ’NYogurt Parfaits and delicious triple-thick shakes. Initialresults indicate that McTreat Spot kiosks are attractingcustomers who would have gone somewhere else to satisfy their cravings.

We also have a small test of a concept calledMcSnack Spot underway in Texas. It is designed tocapture McDonald’s meal occasions in locations, such as within retail outlets and train stations, where the salespotential would not support alarge, traditional restaurant.McSnack Spots are highly effi-cient operating units that requirelow investments and generatehigh profit margins. They offer alimited selection of McDonald’smenu items, as well as snackfavorites, such as popcorn andpretzels. Early results indicategreat consumer acceptance.

Another concept in early testthat is resonating with consumersis McDonald’s with the DinerInside. It brings two greatrestaurant experiences togetherunder one roof with classic,cooked-to-order diner fare andtraditional McDonald’s favorites.

We opened our first diner inKokomo, Indiana, in 2001 andhave several under construction.Current plans include convertinga number of restaurants in a television market to McDonald’swith the Diner Inside in order toconduct an advertised sales test.

Clearly, we are pursuing a number of opportunities toextend the reach of BrandMcDonald’s and are monitoring results to determinewhether a viable business case can be made for prof-itably expanding each of the concepts in test.

We are committed to ongoing innovation and experi-mentation. Our intent is to tap into our assets to give customers what they want, to enhance their experienceand to build the business under The Golden Arches.

THINKING OUTSIDE THE FRY BOX

We are tapping into the growingtrend for retro-nostalgia with a concept that combines aMcDonald’s restaurant with a classic diner experience. The concept–McDonald’s with theDiner Inside–is designed to be best in class in the midscale diningarena, serving both traditionaldiner fare, such as Belgian waffles,triple decker sandwiches andchicken fried steak, as well as Big Mac sandwiches, ChickenMcNuggets and Happy Meals.

During its first year of opera-tion, the McDonald’s restaurant inKokomo, Indiana, which had beenconverted to a McDonald’s with the Diner Inside, saw significantsales increases.

More than 60% of Americans snack regularly.

2000 Roper Reports, Roper ASW

15



McDonald’s serves up great

experiences all day long.


Growing the core McDonald’s businessis our number one priority.

At the same time, we know customers want—and are spendingtheir eating-out dollars on—a varietyof foods and dining experiences. So,

we plan to supplement the growth of our core businessand add shareholder value with a portfolio of PartnerBrands—concepts that we believe will make a meaning-ful contribution to earnings over the next five to 10 years.

We embarked on our Partner Brand strategy in 1998, with the purchase of a minority interest in Chipotle

Mexican Grill, which then consisted of 14 restaurants inDenver, Colorado. Today, wehave a portfolio of four PartnerBrand concepts—BostonMarket, Chipotle, DonatosPizzeria and Pret A Manger.Collectively, they generateapproximately $1 billion in annualsales. To put this in perspective,there are only 12 quick-servicerestaurant chains with more than $1 billion in annual sales.

For our strategy to succeed,we must ensure that we havethe right portfolio of PartnerBrands. Accordingly, we haveestablished very specific criteriaagainst which to measure eachbrand’s potential. It must demon-strate broad consumer appeal. Itmust have a scalable, replicablebusiness model that producesreturns that exceed our cost ofcapital. It also must have thelong-term potential to have thou-sands of restaurants.

We think our Partner Brandsare best-in-class players in theirrespective large and growing

market segments. Here’s a brief rundown on each brand. Boston Market serves the needs of increasingly

time-pressed consumers who want a home-style mealwithout the fuss. With more than 650 restaurants across

the country, Boston Market is targeting the $18 billionU.S. home-meal replacement opportunity with selectionsthat include rotisserie chicken, grilled chicken, ham,meatloaf and a wide array of salads, side dishes anddesserts. Customers can choose to take their mealshome or dine in the restaurant. They also can takeadvantage of Boston Market’s catering service. In early2002, we opened our first Boston Market in Australia,and we have plans to open in Canada by year end.

Chipotle, which operates more than 175 restaurants,offers fresh, gourmet burritos and tacos in an energetic,contemporary atmosphere. Credited by some industryanalysts as pioneering a new category—“fast casual”—Chipotle competes within and beyond the $13 billion U.S.Mexican restaurant segment. This concept’s unique styleand flavorful food combinations have generated a loyalcustomer following and strong positive comparable salesgrowth.

Donatos Pizzeria competes in the $24 billion U.S.pizza segment. With nearly 200 restaurants across theU.S., Donatos is known for world-class, thin-crust pizzawith fresh Edge-to-Edge toppings. Donatos enjoys a loyalfollowing in its home market of Columbus, Ohio, andplans to build brand awareness and further differentiateitself from the competition with a new and inviting pizzeriaformat. Building on a heritage of innovation, this new format accommodates varied lifestyles with dine-in, take-out and delivery service, as well as a call-ahead pick-upwindow and catering options. The first Donatos inGermany is scheduled to open later this year.

Pret A Manger, in which we have a minority interest,sells upscale, ready-to-eat sandwiches that are prepareddaily on the premises. Pret is relatively new to the $30 billion U.S. cold sandwich segment with seven shopsin New York City, and competes in the $5 billion U.K.segment, with more than 115 shops there. The concept’spopularity is evidenced by its strong comparable salesincreases in 2001. Pret opened its first shop in HongKong early this year and has plans to open in Japan.

We believe these four brands have a lot of potential.We will nurture and grow each carefully and will scale a brand only after it demonstrates that it can meet ourstringent criteria. In the end, we will leverage ourresources and competencies to capture more meal occasions around the world—both under and beyondThe Golden Arches.

we’re exploring new avenues of growth

COOKING UPNEW POTENTIAL

The two-square mile trading areain Dublin, Ohio, pictured above, is home to three successfulMcDonald’s restaurants with combined annual sales of $5.1 million. Frankly, there is little room for an additionalMcDonald’s in the neighborhood.However, we also operate aChipotle, a Boston Market and aDonatos Pizzeria in the area, eachgenerating about $1 million ormore in annual sales.

Together, these six restaurants–representing four different brands,serving four different meal occasions–generate $8.2 million in annualsales. That’s 60 percent more thanwe would have generated withMcDonald’s restaurants alone.

Americans no longer consider going out to eat a luxury.

It has become an integral part of their lives.

Yankelovich Partners

18

$8.2 million salesDublin,Ohio, area



Many consumers want an alternative to cooking that allows them to slow

down and spend more time with loved ones.

Boston Market offers fresh,delicious home-style meals

–without the hassle of preparation and cleanup.

<< CHICKEN WHITE-MEAT INDIVIDUAL

MEAL WITH MASHED POTATOES,

STEAMED VEGETABLE MEDLEY AND

CORNBREAD

Unique in the mainstreampizza category, Donatos’ menu

includes a distinctive line of Signature Pizzas,

plus a selection of oven-baked Big Don Subs and fresh, crispy salads. But it’s the Edge-to-Edge toppings that have made

Donatos famous.

<< “THE WORKS” PIZZA

Pret creates hand-made, natural food.

If it’s not natural, it’s not Pret.

All Pret’s sandwiches,baguettes and wraps are made fresh daily

in every shop.

<< THAI CHICKEN SANDWICH

WITH PRET COOL LEMON DRINK

Chipotle’s recipes are original and innovative,

using only the finest ingredients. The guacamole is

made fresh daily, and marinated meat is grilled

throughout the day.

<< CHICKEN TACOS


experience tells us...

McDONALD’S IS UNIQUELY SUITED TO TAP INTO THE GROWING EATING-OUT DEMAND AROUND THE WORLD.We manage a complex network of 30,000 local community restaurants in 121 countries

and are adding more than 1,300 restaurants annually.

McDONALD’S IS ONE OF THE MOST POWERFUL BRANDS IN THE WORLD.

McDonald’s is a brand that customers the world over recognize and trust.

McDonald’s is known as a great place for kids and families; for convenient,

hand-held meals; for World Famous Fries and Big Macs; and for outstanding value.

We are building on these strengths, while also innovating to become

top of mind as a place for taste and variety.

McDONALD’S PORTFOLIO OF PARTNER BRANDS SERVES NEEDS BEYOND THOSE THAT BRAND McDONALD’S CAN FILL.

Through Boston Market, Chipotle, Donatos Pizzeria and Pret A Manger,

we are meeting customers’ desires for a variety of foods and dining experiences.

WE ARE IN AN EXCELLENT POSITION TO CAPTURE MORE MEAL OCCASIONS BOTH UNDER AND BEYOND

THE GOLDEN ARCHES.

We are leveraging our competencies to seize new growth opportunities...

while, at the same time, maximizing the potential of the existing McDonald’s business.

20


Putting sparkle in our service

One of our key global growth

strategies is to deliver

exceptional customer

experiences through a combination

of great-tasting food, outstanding

service, exciting promotions, inviting

restaurants and reliable value.

However, even the very best food,promotions, restaurants and valueare meaningless without top-notchservice.

But what exactly is outstandingservice? And how are we doing?

Outstanding service starts with a welcoming smile and ends with a satisfied customer. Although weoften get high marks from cus-tomers, both internal and externaldata indicate that at times we missthe mark.

So, we’re taking action.The following are just some initia-

tives underway to put sparkle in ourservice.

TRAINING FOR THE UNEXPECTEDOur restaurant teams must have the knowledge and tools needed todeliver great customer experiences.So, training is an ongoing priorityfor McDonald’s.

An enhanced training programthat is being rolled out in the U.S.teaches our restaurant managershow to plan and prepare for eachshift by simulating a variety of scenarios. For exam-ple, they are being taught how to optimize customerservice if several crewmembers cannot make it intowork or if busloads of hungry tourists unexpectedlyarrive at the same time.

Such simulations really pay off. Restaurantteams that have gone through this training arefinding it easier to do their jobs. They are morefocused and more productive than before, and their

shifts run more smoothly. Most importantly, theyare giving our customers the fast, friendly servicethey deserve.

KEEPING IT SIMPLEOur people in the U.S. are eliminating non-value-added restaurant activities while optimizing ourmenu, merchandising and operations—all to thebenefit of the customer.

“Look after the customer, and the business

will take care of itself.”Ray Kroc, McDonald’s Founder

21


Such efforts are part of an ongoing simplificationprocess that focuses on big and small changes, suchas using easy-to-open sauce tubes. . .eliminatingmenu items that don’t sell well . . .streamlininginventory management by consolidating cup and lid sizes. . .and using fewer, more targeted point-of-purchase materials.

As appropriate, these simplification initiativeswill be shared with other markets around theworld, making our restaurants more employee andcustomer friendly.

DIVIDING AND CONQUERINGMore and more of our restaurant staffs in Japan,the U.S. and Latin America are using a new team-based service approach to enhance our customers’front-counter experiences. It’s really simple: onecrewmember takes the order and payment, whileanother assembles and presents the order.

It’s fast, too. Using this system, the crew at aMcDonald’s on the Pennsylvania Turnpike served a caravan of seven buses in 35 minutes, less thanhalf the time it otherwise would have taken. Also,our people in Venezuela and Costa Rica attributeincreases in transactions and average checks to thebetter customer/crew interaction resulting from thisservicing technique.

In light of these positive results, we are begin-ning to test this team approach to wowing our cus-tomers in a number of other countries.

FASTER IS BETTERCustomers using the drive-thru tend to be pressedfor time. So, we continue to focus on improving thespeed of our drive-thru service.

We are exploring opportunities to enhance thedrive-thru experience by serving two cars at a time.In some locations, we are using double-lane drive-thrus. In others, crew people equipped with remoteorder-taking devices are assisting drive-thru cus-tomers during busy periods.

Adding a creative twist to branding speed of ser-vice at the front counter, as well as in the drive-thru, we have adopted a Formula 1 racecar-inspiredapproach in a number of Asian markets. Racing-

themed signs and uniforms, as well as timers andcrew incentives, make the program fun for crew andcustomers alike. In Indonesia, where this approachoriginated, we have rung up double-digit compara-ble sales increases for the past two years. Further,95 percent of our transactions in that market havebeen completed in 60 seconds or less.

NO MONEY.. .NO WORRYWe also are exploring alternative payment methodsto make a visit to McDonald’s more convenient.

Customers now can pay for their McDonald’smeal by swiping electronic devices or credit/debitcards past an electronic reader at a number ofMcDonald’s restaurants around the world. Forexample, more than 400 restaurants in the Chicago,Illinois, region accept Mobil Speedpasses as a pay-ment method, and many of our restaurants inAustralia, Denmark, France, Germany and NewZealand accept credit or debit cards. In some cases,customers can even get cash back.

This payment option not only speeds service, but customers are finding that being short on cashdoes not mean having to pass up a meal atMcDonald’s.

NOT SO MYSTERIOUS AFTER ALLWe are putting ourselves in our customers’ shoes.We are introducing mystery shopper programs incountries where we have not used them and step-ping up their use in those that do.

In essence, mystery shoppers are “undercover”restaurant visitors who evaluate the experiencefrom a customer’s perspective. The results of mystery shops, which are often accompanied bycrew and manager incentives for excellent perfor-mance, are helping our restaurant staffs to cele-brate successes and identify training opportunities.In addition, the feedback is being used to assisteach restaurant’s management team to developaction plans to raise the bar on service levels.

We believe this relevant measurement tool willdrive improved performance. In fact, customer satisfaction scores in Argentina and Australia haveimproved since mystery shops were introduced.

“Satisfied customers are our goal and our reward.”

Jack Greenberg, McDonald’s Chairman and Chief Executive Officer

22


McDonald’s was founded on values. The

entire McDonald’s System owes a huge

debt of gratitude to the men and women

who shaped the Company in the early days and

defined who we are and that for which we stand.

We have never lost sight of the foundation they laid.

As a result, Brand McDonald’s has earned thetrust and confidence of people the world over. Weearn the right to that trust each and every day. It isa fragile—yet priceless—asset. And we are commit-ted to protecting and nurturing our Brand.

UNWAVERING COMMITMENT TO SAFETY AND QUALITY McDonald’s goes to great lengths to ensure that allaspects of our customers’ experience, from the foodwe serve to the toys in our Happy Meals, meet ourhigh-quality and safety standards.

To start, we are aligned with world-class suppliersthat share our high standards, and our restaurantstaffs around the world are trained in the properstorage, handling and preparation of our products.In addition, we continuously seek opportunities to

raise the bar on our own stringentsafety criteria, which always meet—and often exceed—those establishedby industry and governments.

For example, last year we intensi-fied our leadership efforts in thearea of meat safety through the for-mation of McDonald’s InternationalScientific Advisory Council. ThisCouncil of leading scientists andmedical experts from around theworld reviewed key industry safetypractices for beef. We are pleasedthat the members of the Council not only validated the McDonald’sSystem’s best practices, but alsoworked with us to identify newopportunities to further heighten thesafety of our beef supply.

COMMUNITY INVOLVEMENTWe value the communities we serveand believe that it is important togive back to others on both a localand global level.

We are active in the communitiesin which we do business. Thisinvolvement extends from owner/operators’ support of local soccerteams to being there in times ofneed. After all, that’s what goodneighbors do. The entire System ofemployees, franchisees and suppliershave a long history of helping those

Building on a strong heritage of values

Our commitment to quality and safety extends beyond our food

to all we do.

23


less fortunate, including offering much neededassistance after natural disasters, such as earth-quakes and hurricanes.

McDonald’s also has long held the belief that wehave a responsibility to protect the environment forfuture generations. Consistent with our leadershipposition on a host of environmental issues, we, inpartnership with Conservation International, arecollaborating with McDonald’s suppliers to furtherintegrate environmentally sustainable practicesinto their operations. Primary areas of focus includethe conservation of water and energy and the safe-guarding of animal and plant biodiversity.

RONALD McDONALD HOUSE CHARITIESOne of the more visible aspects of our ongoing commitment to others is our support of RonaldMcDonald House Charities (RMHC). RMHC workstirelessly to improve the health and well being ofchildren by funding programs that meet their spe-cial needs and by supporting more than 200 RonaldMcDonald Houses, which provide a home-away-from-home for families of children with serious illnesses.

We are privileged and pleased that we can havea positive impact on the lives of children around theworld and that many of our employees, franchisees,joint-venture partners, suppliers, shareholders andcustomers share our belief in, and support of, RMHC.

PEOPLE FIRSTAt McDonald’s, we value our people, their ideas andtheir contributions. We are committed to diversity,and do not and will not tolerate discrimination ofany kind. In fact, treating people right is at theheart of our vision to be the best—and it is anexpectation to which we hold the entire System.

We also value hard work and expect McDonald’speople to give their very best. We empower them,hold them accountable for their decisions and actions,pay them fairly and reward them for performance.

We are gratified to note that last year, McDonald’sreceived the prestigious Best Employer Award inBrazil. We also were recognized as one of the 100Best Employers for Working Mothers in the U.S.and ranked third among America’s Best Companies

for Minorities. Although weare proud of these and otherachievements, we know thatwe can—and must—domore in order to become thebest employer in each com-munity around the world.

CASTING ALONG SHADOWHonesty and integrity are atthe very core of who we are.We are demanding. . .yetfair. We expect the samefrom those with whom weassociate.

Our suppliers know thatwe expect them to maintainour high-quality and safetystandards, to share our com-mitment to socially responsi-ble activities, and to valueand respect their employees.

Consistent with our phi-losophy of treating employeesright, we insist that suppliersabide by McDonald’s Code ofConduct, which describeshow we expect them, as wellas their suppliers who workon McDonald’s business, totreat their employees.

Our commitment to goodemployee practices is notnegotiable. We reserve theright to verify compliance byhaving external monitorsconduct periodic, announcedand unannounced inspec-tions of the facilities makingproducts for McDonald’s. Inaddition, we emphasize dia-logues, training and remediation. Although we willterminate suppliers when absolutely necessary, ourobjective is to help them to continuously improve.

RMHC was ranked as one ofAmerica’s 100 Best Charities

by Worth magazine.

24

BEING A GOOD NEIGHBOR

No one can forget the terroristattacks on the U.S. last September.Nor should we. Our hearts go outto the many people who lost theirlives in this tragedy and to theirfamilies and friends.

We are proud of the amazingresponse by those who spentcountless hours working to rescuevictims and remove the rubble.They indeed are heroes–a specialkind of hero, as their work wasboth physically and emotionallydifficult. We salute you!

Many members of McDonald’sFamily–owner/operators, employ-ees, restaurant staffs and suppliers–also made us proud. These indi-viduals pulled together in theaftermath of these horrific eventsto serve food to rescue and reliefworkers at the World TradeCenter, the Pentagon and thecrash site in Pennsylvania. Andacross the country, the McFamilystepped up to feed stranded trav-elers at airports and the volun-teers at countless blood centers.Collectively, more than 750,000McDonald’s meals were served.

Like so many others, we havefamily, friends and colleaguesamong the victims of this tragedy.Yet, we are grateful that no one inthe McDonald’s Family was physi-cally hurt. We also are gratefulthat we could make a small differ-ence by helping others at a timeof dire need.


Account inquiries and online transactionsTransfer agent, registrar andMCDirect Shares Administrator

EquiServe Trust Company, NA

Attn: McDonald’s Shareholder Services

P.O. Box 2591Jersey City NJ 07303-2591

www.equiserve.com

1-800-Mc1-STCK (1-800-621-7825) from the U.S. and Canada

1-201-222-4990 call collect from outside the U.S. and Canada

1-201-222-4489 TDD for the hearing impaired

Other inquiries

Customer-related 1-630-623-6198

Investor-related 1-630-623-7428

Stockbrokers 1-630-623-5137

Financial media 1-630-623-3678

Franchising 1-630-623-6196

Ronald McDonald House Charities 1-630-623-7048

MCDirect Sharesprospectus and enrollment formMCDirect Shares is our directstock purchase plan, throughwhich investors may purchaseMcDonald’s common stock andreinvest dividends.

www.mcdonalds.com/corporate/investor

1-800-228-9623 to obtain a copy via mail

1-630-623-0172 to obtain a copy via fax

2002 individual investor fairs

February 2 NAIC Fair, Atlanta GA

March 9–10 Rukeyser InvestmentConference, Las Vegas NV

October 12 NAIC Fair, Phoenix AZ

Investor information and services

Stock exchange listings

New York, Chicago,Euronext Paris, German and Swiss

Trading symbol

MCD

Annual meeting

May 23, 2002 10:30 a.m. Central TimeThe LodgeMcDonald’s Office CampusOak Brook IL 60523

Live webcast available onwww.mcdonalds.com/corporate/investor

Website

www.mcdonalds.com

Sign up for future onlinedelivery of summaryannual reports, proxymaterials and annualfinancial information

www.econsent.com/mcdfor investors with stock certificates or MCDirectShares/safekeepingaccounts at EquiServe

www.icsdelivery.comfor investors with shares held by a bank or broker

Sign up for e-notification of investor news

www.mcdonalds.com/corporate/investor/news

McDonald’s 2001 annualreport on Form 10-K isavailable free of charge

www.sec.gov

www.mcdonalds.com/corporate/investor

1-630-623-7428

McDonald’s social responsibility report

www.mcdonalds.com/corporate/social

Home office

McDonald’s CorporationMcDonald’s PlazaOak Brook IL 60523

Forward-looking statements

Certain forward-looking statementsare included in this report. They usesuch words as "may," "will,""expect," "believe," "plan" and othersimilar terminology. These state-ments reflect management's currentexpectations regarding future eventsand operating performance andspeak only as of March 12, 2002.These forward-looking statementsinvolve a number of risks and uncer-tainties. The following are some ofthe factors that could cause actualresults to differ materially from thoseexpressed in or underlying our forward-looking statements: theeffectiveness of operating initiativesand advertising and promotionalefforts, as well as changes in: globaland local business and economicconditions; currency exchange andinterest rates; food, labor and otheroperating costs; political or eco-nomic instability in local markets;competition; consumer preferences,spending patterns and demographictrends; legislation and governmentalregulation; and accounting policiesand practices. The foregoing list ofimportant factors is not exclusive.

The Company undertakes no obliga-tion to publicly update or revise anyforward-looking statements,whether as a result of new informa-tion, future events or otherwise.

The following trademarks usedherein are the property ofMcDonald’s Corporation and itsaffiliates: Big Don; Big Mac; Big N’ Tasty; Boston Market; ChickenMcGrill; Chicken McNuggets;Chicken Select Strips; Chipotle;Donatos; Edge To Edge; French FryBox Design; Golden Arches Logo;Happy Meal; Le280, McBacon;McBLT; McCafé; McChicken;McCrispy; MCDirect Shares;McDonald’s; McDouble; McFamily;McFlurry; McHero; McMuffin;McQueso; McPick; McPollo; McRib; McSalad; McSalad Shaker;McSnack; McSnack Spot; McTreatSpot; Mighty Kids Meal; New TastesMenu; PlayPlace; Pret; Pret AManger; Pret Cool; Quality, Service,Cleanliness and Value; QuarterPounder; RMHC; Ronald McDonald;Ronald McDonald Care Mobile;Ronald McDonald House; RonaldMcDonald House Charities;Sausage McMuffin; Spicy McWings;The Golden Arches; The Lodge;World Famous Fries; 1-800-Mc1-STCK; www.mcdonalds.com.

The Summary Annual Report ispublished once a year.Reproduction of photography, illustration and/or text in whole or in part without permission is prohibited.

Design: Robertz & Kobold Inc.Major Photography: Joe DeNataleIllustrations: Tatjana KrizmanicPrinting: George Rice & Sons

Printed in the U.S.A. on recycledpaper with 10% post-consumer content

©2002 McDonald’s Corporation McD 01-4173

Directors and corporate officersAs of February 1, 2002

Board of Directors

Hall Adams, Jr.

James Cantalupo

Jack GreenbergChairman

Enrique Hernandez, Jr.

Jeanne Jackson

Donald Lubin

Walter Massey

Andrew McKenna

Michael Quinlan

Terry Savage

Roger Stone

Robert Thurston

Fred Turner

Gordon GraySenior Director

Donald KeoughSenior Director

June Martino Honorary Director

Corporate Officers

Ralph AlvarezPresident–U.S. Central Division

Claire BabrowskiPresident–Asia/Pacific, Middle East and Africa

Charles Bell President–Europe

James CantalupoVice Chairman, Emeritus and President, Emeritus

Lynn Crump-CaineExecutive Vice President

Henry Gonzalez, Jr. President–U.S. East Division

Jack GreenbergChairman and Chief Executive Officer

Mats LederhausenExecutive Vice President

Raymond Mines, Jr. Executive Vice President

Matthew PaullExecutive Vice President,Chief Financial Officer

Michael Roberts President–U.S.A.

Thomas RyanExecutive Vice President

Eduardo SanchezPresident–Latin America

James SkinnerPresident and Chief OperatingOfficer–McDonald’s WorldwideRestaurant Group

Russell SmythPresident–Partner Brands

Stanley SteinExecutive Vice President

Donald ThompsonPresident–U.S. West Division

Marvin WhaleyPresident–North Asia

Corporate Controller

David Pojman

General Counsel andCorporate Secretary

Gloria Santona


McDonald’s Corporation

McDonald’s Plaza

Oak Brook IL 60523

www.mcdonalds.com


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info

rmat

ion

stat

emen

ts in

corp

orat

ed b

y re

fere

nce

in P

art I

II o

f th

is F

orm

10-

K o

r an

y am

endm

ent t

o th

is F

orm

10-

K. [

X]

The

agg

rega

te m

arke

t val

ue o

f vo

ting

stoc

k he

ld b

y no

naff

iliat

es o

f th

e re

gist

rant

is $

34,7

49,6

48,8

63 a

nd th

e nu

mbe

r of

sha

res

of c

omm

on s

tock

out

stan

ding

is 1

,281

,311

,354

as

of J

anua

ry 3

1, 2

002.

Doc

umen

ts in

corp

orat

ed b

y re

fere

nce.

Par

t III

of

this

10-

K in

corp

orat

es in

form

atio

n by

ref

eren

ce f

rom

the

regi

stra

nt's

200

1 de

fini

tive

prox

y st

atem

ent w

hich

will

be

file

d no

late

r th

an 1

20 d

ays

afte

rD

ecem

ber

31, 2

001.

McD

onal

d's

Cor

pora

tion

3

Par

t I

Item

1. B

usin

ess

McD

onal

d's

Cor

pora

tion,

the

regi

stra

nt, t

oget

her

with

its

subs

idia

ries

, is

refe

rred

to h

erei

n as

the

"Com

pany

."

(a)

GE

NE

RA

L D

EV

EL

OPM

EN

T O

F B

USI

NE

SS

The

re h

ave

been

no

sign

ific

ant c

hang

es to

the

Com

pany

's c

orpo

rate

str

uctu

re d

urin

g 20

01, o

r m

ater

ial c

hang

es in

the

Com

pany

's m

etho

d of

con

duct

ing

busi

ness

.

(b)

FIN

AN

CIA

L I

NFO

RM

AT

ION

AB

OU

T I

ND

UST

RY

SE

GM

EN

TS

Indu

stry

seg

men

t dat

a fo

r th

e ye

ars

ende

d D

ecem

ber

31, 2

001,

200

0 an

d 19

99 a

re in

clud

ed in

Par

t II,

Ite

m 8

, pag

es 3

0-31

of

this

For

m 1

0-K

.

(c)

NA

RR

AT

IVE

DE

SCR

IPT

ION

OF

BU

SIN

ESS

Gen

eral

The

Com

pany

ope

rate

s in

the

food

ser

vice

indu

stry

and

pri

mar

ily o

pera

tes

quic

k-se

rvic

e re

stau

rant

bus

ines

ses

unde

r th

e M

cDon

ald'

s br

and.

The

se r

esta

uran

ts s

erve

a v

arie

d, y

et li

mite

d, v

alue

-pri

ced

men

u

gp

y

(see

Pro

duct

s) in

121

cou

ntri

es a

roun

d th

e w

orld

.

To

capt

ure

addi

tiona

l mea

l occ

asio

ns, t

he C

ompa

ny o

pera

tes

othe

r re

stau

rant

con

cept

s un

der

its P

artn

er B

rand

s: B

osto

n M

arke

t, C

hipo

tle a

nd D

onat

os P

izze

ria

whi

ch a

re a

ll lo

cate

d pr

imar

ily in

the

U.S

.an

d A

rom

a C

afe,

loca

ted

prim

arily

in th

e U

.K. I

n ad

ditio

n, th

e C

ompa

ny h

as a

min

ority

ow

ners

hip

in U

.K.-

base

d Pr

et A

Man

ger.

In

four

th q

uart

er 2

001,

the

Com

pany

app

rove

d a

plan

to d

ispo

se o

f its

Aro

ma

Caf

e bu

sine

ss in

the

U.K

. and

exp

ects

to c

ompl

ete

the

sale

in th

e fi

rst h

alf

of 2

002.

Sinc

e M

cDon

ald'

s re

stau

rant

bus

ines

s co

mpr

ises

vir

tual

ly a

ll of

the

Com

pany

's c

onso

lidat

ed o

pera

ting

resu

lts, t

his

narr

ativ

e pr

imar

ily r

elat

es to

the

McD

onal

d's

rest

aura

nt b

usin

ess,

unl

ess

othe

rwis

e no

ted.

All

rest

aura

nts

are

oper

ated

by

the

Com

pany

or,

und

er th

e te

rms

of f

ranc

hise

arr

ange

men

ts, b

y fr

anch

isee

s w

ho a

re in

depe

nden

t ent

repr

eneu

rs, o

r by

aff

iliat

es o

pera

ting

unde

r jo

int-

vent

ure

agre

emen

tsbe

twee

n th

e C

ompa

ny a

nd lo

cal b

usin

ess

peop

le.

The

Com

pany

's o

pera

tions

are

des

igne

d to

ass

ure

cons

iste

ncy

and

high

qua

lity

at e

very

McD

onal

d's

rest

aura

nt. W

hen

gran

ting

fran

chis

es a

nd f

orm

ing

join

t-ve

ntur

e ag

reem

ents

, the

Com

pany

is s

elec

tive

and

is n

ot in

the

prac

tice

of f

ranc

hisi

ng to

, or

part

neri

ng w

ith, i

nves

tor

grou

ps o

r pa

ssiv

e in

vest

ors.

Und

er th

e co

nven

tiona

l fra

nchi

se a

rran

gem

ent,

fran

chis

ees

prov

ide

capi

tal b

y in

itial

ly in

vest

ing

in th

e eq

uipm

ent,

sign

s, s

eatin

g an

d de

cor

of th

eir

rest

aura

nt b

usin

esse

s, a

nd b

y re

inve

stin

g in

the

busi

ness

over

tim

e. T

he C

ompa

ny s

hare

s th

e in

vest

men

t by

gene

rally

ow

ning

or

leas

ing

the

land

and

bui

ldin

g. F

ranc

hise

es in

the

U.S

. gen

eral

ly h

ave

the

optio

n to

ow

n ne

w r

esta

uran

t bui

ldin

gs w

hile

leas

ing

the

land

fro

m th

e C

ompa

ny. F

ranc

hise

es c

ontr

ibut

e to

the

Com

pany

's r

even

ue s

trea

m th

roug

h pa

ymen

t of

rent

and

ser

vice

fee

s ba

sed

upon

a p

erce

nt o

f sa

les,

with

spe

cifi

ed m

inim

um p

aym

ents

, alo

ng w

ithin

itial

fee

s. T

he c

onve

ntio

nal f

ranc

hise

arr

ange

men

t typ

ical

ly la

sts

20 y

ears

and

fra

nchi

sing

pra

ctic

es a

re g

ener

ally

con

sist

ent t

hrou

ghou

t the

wor

ld. A

dis

cuss

ion

rega

rdin

g si

te s

elec

tion

is in

clud

ed in

Par

tI,

Ite

m 2

, pag

e 5

of th

is F

orm

10-

K.

The

Com

pany

, its

fra

nchi

sees

and

aff

iliat

es p

urch

ase

food

, pac

kagi

ng, e

quip

men

t, et

c. f

rom

num

erou

s in

depe

nden

t sup

plie

rs w

ho h

ave

been

app

rove

d by

the

Com

pany

. The

Com

pany

has

est

ablis

hed

and

stri

ctly

enf

orce

s hi

gh-q

ualit

y st

anda

rds.

We

have

qua

lity

assu

ranc

e la

bs a

roun

d th

e w

orld

that

wor

k to

ens

ure

that

our

hig

h st

anda

rds

are

cons

iste

ntly

met

. The

qua

lity

assu

ranc

e pr

oces

s no

t onl

y in

volv

eson

goin

g pr

oduc

t rev

iew

s, b

ut a

lso

on-s

ite in

spec

tions

of

supp

liers

' fac

ilitie

s. F

urth

er, w

e ha

ve a

Qua

lity

Ass

uran

ce B

oard

, com

pose

d of

the

Com

pany

's te

chni

cal,

safe

ty a

nd s

uppl

y ch

ain

spec

ialis

ts, w

hich

prov

ides

str

ateg

ic g

loba

l lea

ders

hip

for

all a

spec

ts o

f fo

od q

ualit

y an

d sa

fety

. In

addi

tion,

the

Com

pany

wor

ks c

lose

ly w

ith M

cDon

ald'

s su

pplie

rs to

enc

oura

ge in

nova

tion,

ass

ure

best

pra

ctic

es a

nd d

rive

cont

inuo

us im

prov

emen

t.

Inde

pend

ently

ow

ned

and

oper

ated

dis

trib

utio

n ce

nter

s, a

lso

appr

oved

by

the

Com

pany

, dis

trib

ute

prod

ucts

and

sup

plie

s to

mos

t McD

onal

d's

rest

aura

nts.

In

addi

tion,

res

taur

ant p

erso

nnel

are

trai

ned

in th

epr

oper

sto

rage

, han

dlin

g an

d pr

epar

atio

n of

our

pro

duct

s an

d in

the

deliv

ery

of c

usto

mer

ser

vice

exp

ecta

tions

.

McD

onal

d's

glob

al b

rand

is w

ell k

now

n. M

arke

ting,

pro

mot

iona

l and

pub

lic r

elat

ions

act

iviti

es a

re d

esig

ned

to n

urtu

re th

is b

rand

imag

e an

d di

ffer

entia

te th

e C

ompa

ny f

rom

com

petit

ors.

Mar

ketin

g an

dpr

omot

iona

l eff

orts

foc

us o

n va

lue,

foo

d ta

ste

and

the

cust

omer

exp

erie

nce.

In

addi

tion,

the

Com

pany

is f

ocus

ed o

n be

ing

a le

ader

in th

e ar

ea o

f so

cial

res

pons

ibili

ty, a

s w

e be

lieve

it is

impo

rtan

t to

give

back

to th

e pe

ople

aro

und

the

wor

ld w

ho a

re r

espo

nsib

le f

or o

ur s

ucce

ss.

Pro

duct

s

McD

onal

d's

rest

aura

nts

offe

r a

subs

tant

ially

uni

form

men

u. I

n ad

ditio

n, M

cDon

ald'

s te

sts

new

pro

duct

s on

an

ongo

ing

basi

s.

McD

onal

d's

men

u in

clud

es h

ambu

rger

s an

d ch

eese

burg

ers,

Big

Mac

, Qua

rter

Pou

nder

with

Che

ese,

File

t-O

-Fis

h an

d se

vera

l chi

cken

san

dwic

hes,

Chi

cken

McN

ugge

ts, f

renc

h fr

ies,

sal

ads,

milk

sha

kes,

McF

lurr

y de

sser

ts, s

unda

es a

nd s

oft-

serv

e co

nes,

pie

s, c

ooki

es a

nd s

oft d

rink

s an

d ot

her

beve

rage

s. I

n ad

ditio

n, th

e re

stau

rant

s se

ll a

vari

ety

of o

ther

pro

duct

s du

ring

lim

ited-

time

prom

otio

ns.

McD

onal

d's

rest

aura

nts

oper

atin

g in

the

U. S

. and

cer

tain

inte

rnat

iona

l mar

kets

are

ope

n du

ring

bre

akfa

st h

ours

and

off

er a

ful

l-or

lim

ited-

brea

kfas

t men

u. B

reak

fast

off

erin

gs in

clud

e E

gg M

cMuf

fin

and

Saus

age

McM

uffi

n w

ith E

gg s

andw

iche

s, h

otca

kes,

bis

cuit

and

bage

l san

dwic

hes,

and

muf

fins

.

4 M

cDon

ald'

s C

orpo

ratio

n

Chi

potle

is a

fre

sh-M

ex g

rill

serv

ing

gour

met

bur

rito

s an

d ta

cos.

Don

atos

sel

ls p

izza

, sub

s an

d sa

lads

. Bos

ton

Mar

ket i

s a

hom

e-m

eal r

epla

cem

ent c

once

pt s

ervi

ng c

hick

en, m

eatlo

af a

nd a

var

iety

of

side

dish

es. P

ret A

Man

ger

is a

qui

ck-s

ervi

ce f

ood

conc

ept t

hat s

erve

s m

ainl

y co

ld s

andw

iche

s, s

nack

s an

d dr

inks

dur

ing

lunc

htim

e.

Food

pre

para

tion

The

Mad

e Fo

r Y

ou f

ood

prep

arat

ion

syst

em is

inst

alle

d in

vir

tual

ly a

ll M

cDon

ald'

s re

stau

rant

s in

the

U.S

., C

anad

a an

d Pu

erto

Ric

o as

wel

l as

abou

t one

-thi

rd o

f th

e re

stau

rant

s in

Jap

an. M

ade

For

You

isba

sed

on a

just

-in-

time

prod

uctio

n ph

iloso

phy

whe

re e

ach

sand

wic

h is

ass

embl

ed to

ord

er. T

hrou

gh a

dvan

ces

in e

quip

men

t and

tech

nolo

gy, t

he n

ew s

yste

m a

ims

to p

rovi

de c

usto

mer

s w

ith f

resh

-tas

ting

food

. In

addi

tion,

the

syst

em c

an s

uppo

rt f

utur

e gr

owth

thro

ugh

prod

uct d

evel

opm

ent b

ecau

se it

can

eas

ily a

ccom

mod

ate

an e

xpan

ded

men

u.

Inte

llect

ual P

rope

rty

The

Com

pany

ow

ns v

alua

ble

inte

llect

ual p

rope

rty

incl

udin

g tr

adem

arks

, ser

vice

mar

ks, p

aten

ts, c

opyr

ight

s, tr

ade

secr

ets

and

othe

r pr

opri

etar

y in

form

atio

n, s

ome

of w

hich

, inc

ludi

ng "

McD

onal

d's,

""R

onal

d M

cDon

ald,

" "B

ig M

ac"

and

othe

r re

late

d m

arks

, are

of

mat

eria

l im

port

ance

to th

e C

ompa

ny's

bus

ines

s. T

he C

ompa

ny a

lso

has

cert

ain

pate

nts

on r

esta

uran

t equ

ipm

ent w

hich

, whi

le v

alua

ble,

are

gp

y

not m

ater

ial t

o its

bus

ines

s.

Seas

onal

ope

ratio

ns

The

Com

pany

doe

s no

t con

side

r its

ope

ratio

ns to

be

seas

onal

to a

ny m

ater

ial d

egre

e.

Wor

king

cap

ital p

ract

ices

Info

rmat

ion

abou

t the

Com

pany

's w

orki

ng c

apita

l pra

ctic

es is

inco

rpor

ated

her

ein

by r

efer

ence

to M

anag

emen

t's d

iscu

ssio

n an

d an

alys

is o

f fi

nanc

ial c

ondi

tion

and

resu

lts o

f op

erat

ions

for

the

year

s en

ded

Dec

embe

r 31

, 200

1, 2

000

and

1999

in P

art I

I, I

tem

7, p

ages

8-2

0, a

nd th

e C

onso

lidat

ed s

tate

men

t of

cash

flo

ws

for

the

year

s en

ded

Dec

embe

r 31

, 200

1, 2

000

and

1999

in P

art I

I, I

tem

8, p

age

24 o

f th

isFo

rm 1

0-K

.

Cus

tom

ers

The

Com

pany

's b

usin

ess

is n

ot d

epen

dent

upo

n a

sing

le c

usto

mer

or

smal

l gro

up o

f cu

stom

ers.

Bac

klog

Com

pany

-ope

rate

d re

stau

rant

s ha

ve n

o ba

cklo

g or

ders

.

Gov

ernm

ent c

ontr

acts

No

mat

eria

l por

tion

of th

e bu

sine

ss is

sub

ject

to r

eneg

otia

tion

of p

rofi

ts o

r te

rmin

atio

n of

con

trac

ts o

r su

bcon

trac

ts a

t the

ele

ctio

n of

the

U.S

. gov

ernm

ent.

Com

peti

tion

McD

onal

d's

rest

aura

nts

com

pete

with

inte

rnat

iona

l, na

tiona

l, re

gion

al a

nd lo

cal r

etai

lers

of

food

pro

duct

s. T

he C

ompa

ny c

ompe

tes

on th

e ba

sis

of p

rice

, con

veni

ence

and

ser

vice

and

by

offe

ring

qua

lity

food

pro

duct

s. T

he C

ompa

ny's

com

petit

ion

in th

e br

oade

st p

ersp

ectiv

e in

clud

es r

esta

uran

ts, q

uick

-ser

vice

eat

ing

esta

blis

hmen

ts, p

izza

par

lors

, cof

fee

shop

s, s

tree

t ven

dors

, con

veni

ence

foo

d st

ores

,de

licat

esse

ns a

nd s

uper

mar

kets

.

In th

e U

.S.,

ther

e ar

e ab

out 5

15,0

00 r

esta

uran

ts th

at g

ener

ate

$303

bill

ion

in a

nnua

l sal

es. M

cDon

ald'

s re

stau

rant

bus

ines

s ac

coun

ts f

or 2

.5%

of

thos

e re

stau

rant

s an

d 6.

6% o

f th

e sa

les.

No

reas

onab

lees

timat

e ca

n be

mad

e of

the

num

ber

of c

ompe

titor

s ou

tsid

e th

e U

.S.;

how

ever

, the

Com

pany

's b

usin

ess

in f

orei

gn m

arke

ts c

ontin

ues

to g

row

.

Res

earc

h an

d de

velo

pmen

t

The

Com

pany

ope

rate

s a

rese

arch

and

dev

elop

men

t fac

ility

in I

llino

is. W

hile

res

earc

h an

d de

velo

pmen

t act

iviti

es a

re im

port

ant t

o th

e C

ompa

ny's

bus

ines

s, th

ese

expe

nditu

res

are

not m

ater

ial.

Inde

pend

ent

supp

liers

als

o co

nduc

t res

earc

h ac

tiviti

es f

or th

e be

nefi

t of

the

McD

onal

d's

Syst

em, w

hich

incl

udes

fra

nchi

sees

and

sup

plie

rs, a

s w

ell a

s th

e C

ompa

ny, i

ts s

ubsi

diar

ies

and

join

t ven

ture

s.

Env

iron

men

tal m

atte

rs

The

Com

pany

is n

ot a

war

e of

any

fed

eral

, sta

te o

r lo

cal e

nvir

onm

enta

l law

s or

reg

ulat

ions

that

will

mat

eria

lly a

ffec

t its

ear

ning

s or

com

petit

ive

posi

tion,

or

resu

lt in

mat

eria

l cap

ital e

xpen

ditu

res;

how

ever

,th

e C

ompa

ny c

anno

t pre

dict

the

effe

ct o

n its

ope

ratio

ns o

f po

ssib

le f

utur

e en

viro

nmen

tal l

egis

latio

n or

reg

ulat

ions

. Dur

ing

2001

, the

re w

ere

no m

ater

ial c

apita

l exp

endi

ture

s fo

r en

viro

nmen

tal c

ontr

olfa

cilit

ies

and

no s

uch

mat

eria

l exp

endi

ture

s ar

e an

ticip

ated

.

Num

ber

of e

mpl

oyee

s

Dur

ing

2001

, the

Com

pany

's a

vera

ge n

umbe

r of

em

ploy

ees

wor

ldw

ide,

incl

udin

g C

ompa

ny-o

pera

ted

rest

aura

nt e

mpl

oyee

s, w

as a

ppro

xim

atel

y 39

5,00

0. T

his

incl

udes

McD

onal

d's

rest

aura

nts

as w

ell a

sot

her

rest

aura

nt c

once

pts

oper

ated

by

the

Com

pany

.

(d)

FIN

AN

CIA

L I

NFO

RM

AT

ION

AB

OU

T F

OR

EIG

N A

ND

DO

ME

STIC

OPE

RA

TIO

NS

Fina

ncia

l inf

orm

atio

n ab

out f

orei

gn a

nd d

omes

tic m

arke

ts is

inco

rpor

ated

her

ein

by r

efer

ence

to M

anag

emen

t's d

iscu

ssio

n an

d an

alys

is o

f fi

nanc

ial c

ondi

tion

and

resu

lts o

f op

erat

ions

in P

art I

I, I

tem

7,

page

s 8-

20 a

nd S

egm

ent a

nd g

eogr

aphi

c in

form

atio

n in

Par

t II,

Ite

m 8

, pag

es 3

0-31

of

this

For

m 1

0-K

.

McD

onal

d's

Cor

pora

tion

5

Item

2. P

rope

rtie

s

gp

y

The

Com

pany

iden

tifie

s an

d de

velo

ps s

ites

that

off

er c

onve

nien

ce to

cus

tom

ers

and

prov

ide

for

long

-ter

m s

ales

and

pro

fit p

oten

tial.

To

asse

ss p

oten

tial,

the

Com

pany

ana

lyze

s tr

affi

c an

d w

alki

ng p

atte

rns,

cens

us d

ata,

sch

ool e

nrol

lmen

ts a

nd o

ther

rel

evan

t dat

a. T

he C

ompa

ny's

exp

erie

nce

and

acce

ss to

adv

ance

d te

chno

logy

aid

in e

valu

atin

g th

is in

form

atio

n. T

he C

ompa

ny g

ener

ally

ow

ns o

r se

cure

slo

ng-t

erm

land

and

bui

ldin

g le

ases

for

res

taur

ant s

ites,

whi

ch e

nsur

es lo

ng-t

erm

occ

upan

cy r

ight

s an

d he

lps

cont

rol r

elat

ed c

osts

. Res

taur

ant p

rofi

tabi

lity

for

both

the

Com

pany

and

fra

nchi

sees

is im

port

ant;

ther

efor

e, o

ngoi

ng e

ffor

ts a

re m

ade

to c

ontr

ol a

vera

ge d

evel

opm

ent c

osts

thro

ugh

cons

truc

tion

and

desi

gn e

ffic

ienc

ies

and

stan

dard

izat

ion

and

by le

vera

ging

the

Com

pany

's g

loba

l sou

rcin

g ne

twor

k.A

dditi

onal

info

rmat

ion

abou

t the

Com

pany

's p

rope

rtie

s is

incl

uded

in M

anag

emen

t's d

iscu

ssio

n an

d an

alys

is o

f fi

nanc

ial c

ondi

tion

and

resu

lts o

f op

erat

ions

in P

art I

I, I

tem

7, p

ages

8-2

0 an

d in

Fin

anci

alst

atem

ents

and

sup

plem

enta

ry d

ata

in P

art I

I, I

tem

8, p

ages

21-

36 o

f th

is F

orm

10-

K.

Item

3. L

egal

pro

ceed

ings

The

Com

pany

has

pen

ding

a n

umbe

r of

law

suits

whi

ch h

ave

been

file

d fr

om ti

me

to ti

me

in v

ario

us ju

risd

ictio

ns. T

hese

law

suits

cov

er a

bro

ad v

arie

ty o

f al

lega

tions

spa

nnin

g th

e C

ompa

ny's

ent

ire

busi

ness

. The

fol

low

ing

is a

bri

ef d

escr

iptio

n of

the

mor

e si

gnif

ican

t of

thes

e ca

tego

ries

of

law

suits

. In

addi

tion,

the

Com

pany

is s

ubje

ct to

var

ious

fed

eral

, sta

te a

nd lo

cal r

egul

atio

ns th

at im

pact

var

ious

aspe

cts

of it

s bu

sine

ss, a

s di

scus

sed

belo

w. T

he C

ompa

ny d

oes

not b

elie

ve th

at a

ny s

uch

clai

ms,

law

suits

or

regu

latio

ns w

ill h

ave

a m

ater

ial a

dver

se e

ffec

t on

its f

inan

cial

con

ditio

n or

res

ults

of

oper

atio

ns.

Fra

nchi

sing

A s

ubst

antia

l num

ber

of M

cDon

ald'

s re

stau

rant

s ar

e fr

anch

ised

to in

depe

nden

t ent

repr

eneu

rs o

pera

ting

unde

r ar

rang

emen

ts w

ith th

e C

ompa

ny. I

n th

e co

urse

of

the

fran

chis

e re

latio

nshi

p, o

ccas

iona

ldi

sput

es a

rise

bet

wee

n th

e C

ompa

ny a

nd it

s fr

anch

isee

s re

latin

g to

a b

road

ran

ge o

f su

bjec

ts in

clud

ing,

with

out l

imita

tion,

qua

lity,

ser

vice

and

cle

anlin

ess

issu

es, c

onte

ntio

ns r

egar

ding

gra

nts

orte

rmin

atio

ns o

f fr

anch

ises

, fra

nchi

see

clai

ms

for

addi

tiona

l fra

nchi

ses

or r

ewri

tes

of f

ranc

hise

s, a

nd d

elin

quen

t pay

men

ts. A

dditi

onal

ly, o

n oc

casi

on, d

ispu

tes

aris

e be

twee

n th

e C

ompa

ny a

nd in

divi

dual

sw

ho c

laim

they

sho

uld

have

bee

n gr

ante

d a

McD

onal

d's

fran

chis

e.

Supp

liers

The

Com

pany

and

its

affi

liate

s an

d su

bsid

iari

es d

o no

t sup

ply,

with

min

or e

xcep

tions

out

side

the

U.S

., fo

od, p

aper

, or

rela

ted

item

s to

any

McD

onal

d's

rest

aura

nts.

The

Com

pany

rel

ies

upon

num

erou

sin

depe

nden

t sup

plie

rs th

at a

re r

equi

red

to m

eet a

nd m

aint

ain

the

Com

pany

's h

igh

stan

dard

s an

d sp

ecif

icat

ions

. On

occa

sion

, dis

pute

s ar

ise

betw

een

the

Com

pany

and

its

supp

liers

on

a nu

mbe

r of

issu

esin

clud

ing,

by

way

of

exam

ple,

com

plia

nce

with

pro

duct

spe

cifi

catio

ns a

nd th

e C

ompa

ny's

bus

ines

s re

latio

nshi

p w

ith s

uppl

iers

. In

addi

tion,

on

occa

sion

, dis

pute

s ar

ise

on a

num

ber

of is

sues

bet

wee

n th

eC

ompa

ny a

nd in

divi

dual

s or

ent

ities

who

cla

im th

at th

ey s

houl

d be

(or

sho

uld

have

bee

n) g

rant

ed th

e op

port

unity

to s

uppl

y pr

oduc

ts o

r se

rvic

es to

the

Com

pany

's r

esta

uran

ts.

Em

ploy

ees

Tho

usan

ds o

f pe

ople

are

em

ploy

ed b

y th

e C

ompa

ny a

nd in

res

taur

ants

ow

ned

and

oper

ated

by

subs

idia

ries

of

the

Com

pany

. In

addi

tion,

thou

sand

s of

peo

ple,

fro

m ti

me

to ti

me,

see

k em

ploy

men

t in

such

rest

aura

nts.

In

the

ordi

nary

cou

rse

of b

usin

ess,

dis

pute

s ar

ise

rega

rdin

g hi

ring

, fir

ing

and

prom

otio

n pr

actic

es.

Cus

tom

ers

The

Com

pany

's r

esta

uran

ts s

erve

a la

rge

cros

s-se

ctio

n of

the

publ

ic a

nd in

the

cour

se o

f se

rvin

g so

man

y pe

ople

, dis

pute

s ar

ise

as to

pro

duct

s, s

ervi

ce, a

ccid

ents

, adv

ertis

ing

and

othe

r m

atte

rs ty

pica

l of

anex

tens

ive

rest

aura

nt b

usin

ess

such

as

that

of

the

Com

pany

.

Inte

llect

ual P

rope

rty

The

Com

pany

has

reg

iste

red

trad

emar

ks a

nd s

ervi

ce m

arks

, som

e of

whi

ch a

re o

f m

ater

ial i

mpo

rtan

ce to

the

Com

pany

's b

usin

ess.

The

Com

pany

als

o ha

s ce

rtai

n pa

tent

s on

res

taur

ant e

quip

men

t, w

hich

whi

le v

alua

ble,

are

not

mat

eria

l to

its b

usin

ess.

Fro

m ti

me

to ti

me,

the

Com

pany

may

bec

ome

invo

lved

in li

tigat

ion

to d

efen

d an

d pr

otec

t its

use

of

its in

telle

ctua

l pro

pert

y.

Gov

ernm

ent r

egul

atio

ns

Loc

al, s

tate

and

fed

eral

gov

ernm

ents

hav

e ad

opte

d la

ws

and

regu

latio

ns in

volv

ing

vari

ous

aspe

cts

of th

e re

stau

rant

bus

ines

s, in

clud

ing,

but

not

lim

ited

to, f

ranc

hisi

ng, h

ealth

, saf

ety,

env

iron

men

t, zo

ning

and

empl

oym

ent.

The

Com

pany

doe

s no

t bel

ieve

that

it is

in v

iola

tion

of a

ny e

xist

ing

stat

utor

y or

adm

inis

trat

ive

rule

s, b

ut it

can

not p

redi

ct th

e ef

fect

on

its o

pera

tions

fro

m th

e is

suan

ce o

f ad

ditio

nal

requ

irem

ents

in th

e fu

ture

.

6 M

cDon

ald'

s C

orpo

ratio

n

Item

4. S

ubm

issi

on o

f m

atte

rs t

o a

vote

of

shar

ehol

ders

Non

e.

TH

E F

OL

LO

WIN

G A

RE

TH

E E

XE

CU

TIV

E O

FF

ICE

RS

OF

OU

R C

OM

PA

NY

:

gp

y

Jack

M. G

reen

berg

, 59,

is C

hair

man

and

Chi

ef E

xecu

tive

Off

icer

. He

was

app

oint

ed to

that

pos

ition

in M

ay 1

999.

Pre

viou

sly,

he

was

Pre

side

nt a

nd C

hief

Exe

cutiv

e O

ffic

er s

ince

Aug

ust 1

998.

Pri

or to

that

, he

serv

ed a

s V

ice

Cha

irm

an o

f M

cDon

ald'

s C

orpo

ratio

n, a

nd C

hair

man

and

Chi

ef E

xecu

tive

Off

icer

of

McD

onal

d's

U.S

.A. M

r. G

reen

berg

has

bee

n w

ith th

e C

ompa

ny f

or m

ore

than

20

year

s.

Mat

s L

eder

haus

en, 3

9, is

Exe

cutiv

e V

ice

Pres

iden

t--S

trat

egy

and

Bus

ines

s D

evel

opm

ent.

He

has

serv

ed in

that

pos

ition

sin

ce h

is a

ppoi

ntm

ent i

n Ju

ly 2

001.

Fro

m M

ay to

Jul

y 20

01, M

r. L

eder

haus

ense

rved

as

Seni

or V

ice

Pres

iden

t, C

orpo

rate

Str

ateg

y. P

rior

to th

at, h

e se

rved

as

Vic

e Pr

esid

ent,

Cor

pora

te S

trat

egy

follo

win

g hi

s ap

poin

tmen

t to

that

pos

ition

in A

pril

1999

. Bef

ore

join

ing

McD

onal

d's

corp

orat

e st

aff,

Mr.

Led

erha

usen

was

Man

agin

g D

irec

tor

and

Join

t Ven

ture

Par

tner

for

Sve

nska

McD

onal

d's

Dev

elop

men

t AB

, a s

ubsi

diar

y of

the

Com

pany

. He

is n

o lo

nger

Man

agin

g D

irec

tor

and

Join

tV

entu

re P

artn

er o

f th

e su

bsid

iary

. Mr.

Led

erha

usen

has

bee

n w

ith th

e M

cDon

ald'

s Sy

stem

for

17

year

s.

Mat

thew

H. P

aull,

50,

is E

xecu

tive

Vic

e Pr

esid

ent,

Chi

ef F

inan

cial

Off

icer

, a p

ositi

on to

whi

ch h

e w

as a

ppoi

nted

in J

uly

2001

. Pri

or to

that

tim

e, h

e se

rved

as

Seni

or V

ice

Pres

iden

t, C

orpo

rate

Tax

and

Fina

nce

from

Dec

embe

r 20

00 to

Jul

y 20

01, S

enio

r V

ice

Pres

iden

t fro

m J

anua

ry 2

000

to D

ecem

ber

2000

, and

Vic

e Pr

esid

ent f

rom

Jun

e 19

93 to

Jan

uary

200

0. M

r. P

aull

has

been

with

the

Com

pany

for

8ye

ars.

Dav

id M

. Poj

man

, 42,

is S

enio

r V

ice

Pres

iden

t-C

ontr

olle

r, a

pos

ition

he

has

held

sin

ce M

arch

200

2. P

revi

ousl

y, h

e se

rved

as

Vic

e Pr

esid

ent a

nd C

orpo

rate

Con

trol

ler

from

Jan

uary

200

2. P

rior

to th

at ti

me,

he s

erve

d as

Vic

e Pr

esid

ent a

nd A

ctin

g C

ontr

olle

r fr

om O

ctob

er 2

001.

Fro

m J

anua

ry 2

000

to O

ctob

er 2

001,

Mr.

Poj

man

ser

ved

as V

ice

Pres

iden

t and

Ass

ista

nt C

orpo

rate

Con

trol

ler.

Fro

m J

uly

1997

toJa

nuar

y 20

00, h

e se

rved

as

Vic

e Pr

esid

ent a

nd I

nter

natio

nal C

ontr

olle

r. M

r. P

ojm

an h

as b

een

with

the

Com

pany

for

19

year

s.

Glo

ria

Sant

ona,

51,

is S

enio

r V

ice

Pres

iden

t, G

ener

al C

ouns

el a

nd S

ecre

tary

, a p

ositi

on s

he h

as h

eld

sinc

e Ju

ne 2

001.

Fro

m D

ecem

ber

2000

to J

une

2001

, she

was

Vic

e Pr

esid

ent,

U.S

. Gen

eral

Cou

nsel

and

Secr

etar

y; f

rom

Mar

ch 1

997

to D

ecem

ber

2000

, she

was

Vic

e Pr

esid

ent,

Dep

uty

Gen

eral

Cou

nsel

and

Sec

reta

ry; a

nd f

rom

Jan

uary

199

6 to

Mar

ch 1

997,

she

ser

ved

as V

ice

Pres

iden

t, A

ssoc

iate

Gen

eral

Cou

nsel

and

Sec

reta

ry. M

s. S

anto

na h

as b

een

with

the

Com

pany

for

24

year

s.

Jam

es A

. Ski

nner

, 57,

is P

resi

dent

and

Chi

ef O

pera

ting

Off

icer

--M

cDon

ald'

s W

orld

wid

e R

esta

uran

t Gro

up. M

r. S

kinn

er w

as p

rom

oted

to h

is c

urre

nt p

ositi

on in

Jan

uary

200

2. P

revi

ousl

y, h

e se

rved

as

Pres

iden

t and

Chi

ef O

pera

ting

Off

icer

of

McD

onal

d's

Eur

ope/

Asi

a/Pa

cifi

c si

nce

May

200

1. P

rior

to th

at, h

e w

as P

resi

dent

of

McD

onal

d's

Eur

ope.

Mr.

Ski

nner

has

bee

n w

ith th

e C

ompa

ny f

or 3

1 ye

ars.

Stan

ley

R. S

tein

, 59,

is E

xecu

tive

Vic

e Pr

esid

ent,

Glo

bal H

uman

Res

ourc

es, a

pos

ition

he

has

held

sin

ce J

uly

1997

. Pri

or to

that

tim

e M

r. S

tein

ser

ved

as S

enio

r V

ice

Pres

iden

t. H

e ha

s be

en w

ith th

eC

ompa

ny f

or 2

7 ye

ars.

Fred

L. T

urne

r, 6

9, is

Sen

ior

Cha

irm

an. H

e ha

s be

en w

ith th

e C

ompa

ny f

or m

ore

than

45

year

s.

Par

t II

Item

5. M

arke

t fo

r re

gist

rant

's c

omm

on e

quit

y an

d re

late

d sh

areh

olde

r m

atte

rs

The

Com

pany

's c

omm

on s

tock

trad

es u

nder

the

sym

bol M

CD

and

is li

sted

on

the

New

Yor

k an

d C

hica

go s

tock

exc

hang

es in

the

U.S

.

The

fol

low

ing

tabl

e se

ts f

orth

the

com

mon

sto

ck p

rice

ran

ges

on th

e N

ew Y

ork

Stoc

k E

xcha

nge

com

posi

te ta

pe a

nd d

ivid

ends

dec

lare

d pe

r co

mm

on s

hare

.

--------------------------------------------------------------------------------

2001 2000

DOLLARS ------------------------- ---------------------------

PER SHARE High Low Dividend High Low Dividend

================================================================================

Quarter:

First 35.06 24.75 -- 43.63 29.81 --

Second 30.96 25.39 -- 39.94 31.00 --

Third 31.00 26.00 -- 34.25 26.38 .215

Fourth 30.10 25.00 .225 34.50 27.56 --

--------------------------------------------------------------------------------

Year 35.06 24.75 .225 43.63 26.38 .215

================================================================================

The

app

roxi

mat

e nu

mbe

r of

sha

reho

lder

s of

rec

ord

and

bene

fici

al o

wne

rs o

f th

e C

ompa

ny's

com

mon

sto

ck a

s of

Jan

uary

31,

200

2 w

as e

stim

ated

to b

e 1,

027,

000.

gp

y

Giv

en th

e C

ompa

ny's

ret

urns

on

equi

ty a

nd a

sset

s, m

anag

emen

t bel

ieve

s it

is p

rude

nt to

rei

nves

t a s

igni

fica

nt p

ortio

n of

ear

ning

s ba

ck in

to th

e bu

sine

ss a

nd u

se f

ree

cash

flo

w f

or s

hare

rep

urch

ases

.A

ccor

ding

ly, t

he c

omm

on s

tock

div

iden

d yi

eld

is m

odes

t. T

he C

ompa

ny h

as p

aid

divi

dend

s on

com

mon

sto

ck f

or 2

6 co

nsec

utiv

e ye

ars

thro

ugh

2001

and

has

incr

ease

d th

e di

vide

nd a

mou

nt a

t lea

st o

nce

ever

y ye

ar. A

dditi

onal

div

iden

d in

crea

ses

will

be

cons

ider

ed a

fter

rev

iew

ing

retu

rns

to s

hare

hold

ers,

pro

fita

bilit

y ex

pect

atio

ns a

nd f

inan

cing

nee

ds. D

ivid

ends

are

dec

lare

d an

d pa

id o

n an

ann

ual b

asis

. As

in th

e pa

st, f

utur

e di

vide

nds

will

be

decl

ared

at t

he d

iscr

etio

n of

the

Com

pany

's B

oard

of

Dir

ecto

rs.

McD

onal

d's

Cor

pora

tion

7

Item

6. S

elec

ted

fina

ncia

l dat

a

----------------------------------------------------------------------------------------------------------------------------------

11-year summary

----------------------------------------------------------------------------------------------------------------------------------

DOLLARS IN MILLIONS,

EXCEPT PER SHARE DATA 2001 2000 1999 1998 1997 1996 1995 1994

1993 1992 1991

==================================================================================================================================

Franchised sales $24,838 24,463 23,830 22,330 20,863 19,969 19,123 17,146

15,756 14,474 12,959

Company-operated sales $11,040 10,467 9,512 8,895 8,136 7,571 6,863 5,793

5,157 5,103 4,908

Affiliated sales $ 4,752 5,251 5,149 4,754 4,639 4,272 3,928 3,048

2,674 2,308 2,061

----------------------------------------------------------------------------------------------------------------------------------

Total Systemwide sales $40,630 40,181 38,491 35,979 33,638 31,812 29,914 25,987

23,587 21,885 19,928

----------------------------------------------------------------------------------------------------------------------------------

Total revenues $14,870 14,243 13,259 12,421 11,409 10,687 9,795 8,321

7,408 7,133 6,695

Operating income $ 2,697(1) 3,330 3,320 2,762(3) 2,808 2,633 2,601 2,241

1,984 1,862 1,679

Income before taxes $ 2,330(2) 2,882 2,884 2,307(3) 2,407 2,251 2,169 1,887

1,676 1,448 1,299

Net income $ 1,637(2) 1,977 1,948 1,550(3) 1,642 1,573 1,427 1,224

1,083 959 860

----------------------------------------------------------------------------------------------------------------------------------

Cash provided by operations $ 2,688 2,751 3,009 2,766 2,442 2,461 2,296 1,926

1,680 1,426 1,423

Capital expenditures $ 1,906 1,945 1,868 1,879 2,111 2,375 2,064 1,539

1,317 1,087 1,129

Free cash flow $ 782 806 1,141 887 331 86 232 387

363 339 294

Treasury stock purchases $ 1,090 2,002 933 1,162 765 605 321 500

628 92 117

----------------------------------------------------------------------------------------------------------------------------------

Financial position at year end

Total assets $22,535 21,684 20,983 19,784 18,242 17,386 15,415 13,592

12,035 11,681 11,349

Total debt $ 8,918 8,474 7,252 7,043 6,463 5,523 4,836 4,351

3,713 3,857 4,615

gp

y

Total shareholders' equity $ 9,488 9,204 9,639 9,465 8,852 8,718 7,861 6,885

6,274 5,892 4,835

Shares outstanding IN MILLIONS 1,280.7 1,304.9 1,350.8 1,356.2 1,371.4 1,389.2 1,399.5 1,387.4

1,414.7 1,454.1 1,434.5

----------------------------------------------------------------------------------------------------------------------------------

Per common share

Net income $ 1.27(2) 1.49 1.44 1.14(3) 1.17 1.11 .99 .84

.73 .65 .59

Net income-diluted $ 1.25(2) 1.46 1.39 1.10(3) 1.15 1.08 .97 .82

.71 .63 .57

Dividends declared $ .23 .22 .20 .18 .16 .15 .13 .12

.11 .10 .09

Market price at year end $ 26.47 34.00 40.31 38.41 23.88 22.69 22.56 14.63

14.25 12.19 9.50

----------------------------------------------------------------------------------------------------------------------------------

Franchised restaurants 17,395 16,795 15,949 15,086 14,197 13,374 12,186 10,944

9,918 9,237 8,735

Company-operated restaurants 8,378 7,652 6,059 5,433 4,887 4,294 3,783 3,216

2,733 2,551 2,547

Affiliated restaurants 4,320 4,260 4,301 3,994 3,844 3,216 2,330 1,739

1,476 1,305 1,136

----------------------------------------------------------------------------------------------------------------------------------

Total Systemwide restaurants 30,093 28,707 26,309 24,513 22,928 20,884 18,299 15,899

14,127 13,093 12,418

----------------------------------------------------------------------------------------------------------------------------------

(1)

Incl

udes

$37

8 m

illio

n of

pre

tax

spec

ial o

pera

ting

char

ges

prim

arily

rel

ated

to th

e U

.S. b

usin

ess

reor

gani

zatio

n an

d ot

her

glob

al c

hang

e in

itiat

ives

, and

the

clos

ing

of 1

63 u

nder

perf

orm

ing

rest

aura

nts

inin

tern

atio

nal m

arke

ts d

iscu

ssed

on

page

9.

(2)

Incl

udes

the

$378

mill

ion

of p

reta

x sp

ecia

l ope

ratin

g ch

arge

s no

ted

abov

e an

d $1

25 m

illio

n of

net

pre

tax

spec

ial n

onop

erat

ing

inco

me

item

s pr

imar

ily r

elat

ed to

a g

ain

on th

e in

itial

pub

lic o

ffer

ing

ofM

cDon

ald'

s Ja

pan,

for

a n

et p

reta

x ex

pens

e of

$25

3 m

illio

n ($

143

mill

ion

afte

r ta

x or

$0.

11 p

er s

hare

). N

et in

com

e al

so r

efle

cts

an e

ffec

tive

tax

rate

of

29.8

per

cent

, pri

mar

ily d

ue to

the

one-

time

bene

fit o

fta

x la

w c

hang

es in

cer

tain

inte

rnat

iona

l mar

kets

($1

47 m

illio

n). S

ee p

age

9 fo

r fu

rthe

r de

tails

.

(3)

Incl

udes

$16

2 m

illio

n of

Mad

e Fo

r Y

ou c

osts

and

the

$160

mill

ion

spec

ial c

harg

e re

late

d to

the

hom

e of

fice

pro

duct

ivity

initi

ativ

e fo

r a

pret

ax to

tal o

f $3

22 m

illio

n ($

219

mill

ion

afte

r ta

x or

$0.

16 p

ersh

are)

.

8 M

cDon

ald'

s C

orpo

ratio

n

Item

7. M

anag

emen

t's

disc

ussi

on a

nd a

naly

sis

of f

inan

cial

con

diti

on a

nd r

esul

tsof

ope

ratio

ns

Nat

ure

of b

usin

ess

The

Com

pany

ope

rate

s in

the

food

ser

vice

indu

stry

and

pri

mar

ily o

pera

tes

quic

k-se

rvic

e re

stau

rant

bus

ines

ses

unde

r th

e M

cDon

ald'

s br

and.

App

roxi

mat

ely

80%

of

McD

onal

d's

rest

aura

nts

and

mor

e th

an80

% o

f th

e Sy

stem

wid

e sa

les

of M

cDon

ald'

s re

stau

rant

s ar

e in

eig

ht m

arke

ts: A

ustr

alia

, Bra

zil,

Can

ada,

Fra

nce,

Ger

man

y, J

apan

, the

Uni

ted

Kin

gdom

and

the

Uni

ted

Stat

es. T

hrou

ghou

t thi

s di

scus

sion

,M

cDon

ald'

s re

stau

rant

bus

ines

ses

in th

ese

eigh

t mar

kets

col

lect

ivel

y ar

e re

ferr

ed to

as

"maj

or m

arke

ts."

To

capt

ure

addi

tiona

l mea

l occ

asio

ns, t

he C

ompa

ny a

lso

oper

ates

oth

er r

esta

uran

t con

cept

s un

der

its P

artn

er B

rand

s: A

rom

a C

afe,

Bos

ton

Mar

ket,

Chi

potle

and

Don

atos

Piz

zeri

a. I

n ad

ditio

n, th

e C

ompa

nyha

s a

min

ority

ow

ners

hip

in P

ret A

Man

ger.

In

four

th q

uart

er o

f 20

01, t

he C

ompa

ny a

ppro

ved

a pl

an to

dis

pose

of

its A

rom

a C

afe

busi

ness

in th

e U

.K.,

and

expe

cts

to c

ompl

ete

the

sale

in th

e fi

rst h

alf

of20

02.g

py

The

seg

men

ts p

rese

nted

in a

ll ta

bles

and

rel

ated

dis

cuss

ion

refl

ect t

he C

ompa

ny's

cur

rent

man

agem

ent s

truc

ture

. Pre

viou

sly,

McD

onal

d's

rest

aura

nt o

pera

tions

in C

anad

a, th

e M

iddl

e E

ast a

nd A

fric

a, a

sw

ell a

s th

e Pa

rtne

r B

rand

s w

ere

incl

uded

in th

e O

ther

seg

men

t. T

he n

ew A

PME

A s

egm

ent i

nclu

des

resu

lts f

or M

cDon

ald'

s re

stau

rant

ope

ratio

ns in

Asi

a/Pa

cifi

c, th

e M

iddl

e E

ast a

nd A

fric

a, w

hile

Can

ada

and

the

Part

ner

Bra

nds

are

now

pre

sent

ed a

s in

divi

dual

ope

ratin

g se

gmen

ts. I

n ad

ditio

n, U

.S. a

nd C

orpo

rate

sel

ling,

gen

eral

& a

dmin

istr

ativ

e ex

pens

es r

efle

ct a

rea

lignm

ent o

f ce

rtai

n ho

me

offi

cede

part

men

ts' r

espo

nsib

ilitie

s, f

or a

ll ye

ars

pres

ente

d.

Con

solid

ated

ope

ratin

g re

sults

Operating results

-------------------------------------------------------------------------------------------------------------------------

2001 2000

1999

----------------------------- -----------------------------

-------

DOLLARS IN MILLIONS,

EXCEPT PER SHARE DATA Amount Increase/(decrease) Amount Increase/(decrease)

Amount

=========================================================================================================================

Systemwide sales $40,630 1% $40,181 4%

$38,491

-------------------------------------------------------------------------------------------------------------------------

Revenues

Sales by Company-operated restaurants $11,041 5% $10,467 10%

$ 9,512

Revenues from franchised and affiliated 3,829 1 3,776 1

3,747

restaurants

-------------------------------------------------------------------------------------------------------------------------

Total revenues 14,870 4 14,243 7

13,259

-------------------------------------------------------------------------------------------------------------------------

Operating costs and expenses

Company-operated restaurants 9,454 8 8,750 12

7,829

Franchised restaurants 800 4 772 5

738

Selling, general & administrative expenses 1,662 5 1,587 7

1,477

Special charge-global change initiatives 200 nm - -

- Other operating (income) expense, net 57 nm (196) nm

(105)

-------------------------------------------------------------------------------------------------------------------------

Total operating costs and expenses 12,173 12 10,913 10

9,939

-------------------------------------------------------------------------------------------------------------------------

Operating income 2,697 (19) 3,330 -

3,320

-------------------------------------------------------------------------------------------------------------------------

Interest expense 452 5 430 8

gp

y

396

McDonald's Japan IPO gain (137) nm - -

- Nonoperating expense, net 52 nm 18 nm

40-------------------------------------------------------------------------------------------------------------------------

Income before provision for income taxes 2,330 (19) 2,882 -

2,884

-------------------------------------------------------------------------------------------------------------------------

Provision for income taxes 693 (23) 905 (3)

936

-------------------------------------------------------------------------------------------------------------------------

Net income $ 1,637 (17)% $ 1,977 2%

$ 1,948

=========================================================================================================================

Net income per common share $ 1.27 (15)% $ 1.49 3%

$ 1.44

Net income per common share -diluted 1.25 (14) 1.46 5

1.39

=========================================================================================================================

nm Not meaningful.

McD

onal

d's

Cor

pora

tion

9

The

fol

low

ing

tabl

e pr

esen

ts th

e 20

01 g

row

th r

ates

for

rep

orte

d re

sults

, res

ults

adj

uste

d fo

r th

e sp

ecia

l ite

ms

note

d be

low

, and

the

adju

sted

res

ults

on

a co

nsta

nt c

urre

ncy

basi

s. I

n ad

ditio

n, th

e ta

ble

incl

udes

the

2000

gro

wth

rat

es f

or r

epor

ted

and

cons

tant

cur

renc

y re

sults

. All

info

rmat

ion

in c

onst

ant c

urre

ncie

s ex

clud

es th

e ef

fect

of

fore

ign

curr

ency

tran

slat

ion

on r

epor

ted

resu

lts, e

xcep

t for

hype

rinf

latio

nary

eco

nom

ies,

suc

h as

Rus

sia,

who

se f

unct

iona

l cur

renc

y is

the

U.S

. Dol

lar.

Con

stan

t cur

renc

y re

sults

are

cal

cula

ted

by tr

ansl

atin

g th

e cu

rren

t yea

r re

sults

at p

rior

yea

r m

onth

ly a

vera

geex

chan

ge r

ates

.

---------------------------------------------------------------------------------------------------

Key highlights

---------------------------------------------------------------------------------------------------

2001 2000

Increase (decrease) Increase

-------------------------------------------- ---------------------

Adjusted

As constant As Constant

reported/(1)/ Adjusted/(2)/ currency/(2,3)/ reported currency/(3)/

===================================================================================================

Systemwide sales 1% 1% 4% 4% 7%

---------------------------------------------------------------------------------------------------

Revenues 4 4 8 7 12

---------------------------------------------------------------------------------------------------

Operating income (19) (8) (5) - 5

---------------------------------------------------------------------------------------------------

Net income (17) (10) (8) 2 6

---------------------------------------------------------------------------------------------------

Net income per

common share (15) (7) (5) 3 8

gp

y

---------------------------------------------------------------------------------------------------

Net income per

common share-

diluted (14) (7) (5) 5 10

---------------------------------------------------------------------------------------------------

(1)

The

rep

orte

d ef

fect

ive

tax

rate

was

29.

8%, p

rim

arily

due

to th

e on

e-tim

e be

nefi

t of

tax

law

cha

nges

in c

erta

in in

tern

atio

nal m

arke

ts (

$147

mill

ion)

.

(2)

Adj

uste

d op

erat

ing

inco

me

of $

3.1

billi

on a

nd a

djus

ted

net i

ncom

e of

$1.

8 bi

llion

exc

lude

the

follo

win

g sp

ecia

l ite

ms:

Ope

ratin

g in

com

e:

* $2

00 m

illio

n of

cha

rges

($1

36 m

illio

n af

ter

tax)

rel

ated

to th

e U

.S.

busi

ness

reo

rgan

izat

ion

and

othe

r gl

obal

cha

nge

initi

ativ

es d

iscu

ssed

on

page

13.

* $9

1 m

illio

n of

cha

rges

($6

9 m

illio

n af

ter

tax)

rel

ated

to th

e cl

osin

g of

163

und

erpe

rfor

min

g re

stau

rant

s in

inte

rnat

iona

l mar

kets

.

* $2

5 m

illio

n of

cha

rges

($1

7 m

illio

n af

ter

tax)

pri

mar

ily r

elat

ed to

unr

ecov

erab

le c

osts

incu

rred

in c

onne

ctio

n w

ith th

e th

eft o

f pr

omot

iona

l gam

e pi

eces

and

the

rela

ted

term

inat

ion

of a

sup

plie

r di

scus

sed

on p

age

14.

* $2

4 m

illio

n as

set i

mpa

irm

ent c

harg

e (p

re a

nd a

fter

tax)

in T

urke

y.

* $2

0 m

illio

n ch

arge

($1

4 m

illio

n af

ter

tax)

rel

ated

to th

e an

ticip

ated

dis

posi

tion

of A

rom

a C

afe

in th

e U

.K.

* $1

8 m

illio

n of

cha

rges

($1

2 m

illio

n af

ter

tax)

pri

mar

ily r

elat

ed to

the

wri

te-o

ff o

f ce

rtai

n te

chno

logy

cos

ts.

Non

oper

atin

g in

com

e:

* $1

37 m

illio

n ga

in (

pre

and

afte

r ta

x) o

n th

e in

itial

pub

lic o

ffer

ing

of M

cDon

ald'

s Ja

pan.

* $1

2 m

illio

n of

cha

rges

($8

mill

ion

afte

r ta

x) p

rim

arily

rel

ated

to th

e w

rite

-off

of

a co

rpor

ate

inve

stm

ent.

(3)

Exc

lude

s th

e ef

fect

of

fore

ign

curr

ency

tran

slat

ion

on r

epor

ted

resu

lts.

The

pri

mar

y cu

rren

cies

neg

ativ

ely

affe

ctin

g re

port

ed r

esul

ts in

200

1 an

d 20

00 w

ere

the

Eur

o, w

hich

is th

e cu

rren

cy in

12

of o

ur E

urop

ean

mar

kets

incl

udin

g Fr

ance

and

Ger

man

y, th

e B

ritis

h Po

und

and

the

Aus

tral

ian

Dol

lar.

In

addi

tion,

the

Japa

nese

Yen

and

Can

adia

n D

olla

r ne

gativ

ely

impa

cted

rep

orte

d re

sults

in 2

001,

whi

le th

e Ja

pane

se Y

en p

ositi

vely

impa

cted

rep

orte

d re

sults

in 2

000.

SYST

EM

WID

E S

AL

ES

Syst

emw

ide

sale

s in

clud

e sa

les

by a

ll re

stau

rant

s, w

heth

er o

pera

ted

by th

e C

ompa

ny, b

y fr

anch

isee

s or

by

affi

liate

s op

erat

ing

unde

r jo

int-

vent

ure

agre

emen

ts. W

e co

ntin

ue to

foc

us o

n gr

owin

g m

arke

tsh

are

by in

crea

sing

com

para

ble

sale

s w

ith a

n em

phas

is o

n im

prov

ing

cust

omer

sat

isfa

ctio

n th

roug

h Q

ualit

y, S

ervi

ce, C

lean

lines

s an

d V

alue

as

wel

l as

stra

tegi

c re

stau

rant

dev

elop

men

t. R

esta

uran

tex

pans

ion,

par

tly o

ffse

t by

nega

tive

com

para

ble

sale

s, d

rove

the

cons

tant

cur

renc

y sa

les

incr

ease

in 2

001,

whi

le r

esta

uran

t exp

ansi

on a

long

with

pos

itive

com

para

ble

sale

s dr

ove

the

incr

ease

in 2

000.

--------------------------------------------------------------------------------------------------------------------

Systemwide sales

--------------------------------------------------------------------------------------------------------------------

2001 2000

1999

------------------- -------------------

--------

Increase/(decrease) Increase/(decrease)

---------------------------------- -----------------------------------

DOLLARS IN As Constant As Constant

MILLIONS Amount reported currency/(1)/ Amount reported currency/(1)/

Amount

gp

y

====================================================================================================================

U.S. $ 20,051 2% na $ 19,573 3% na $

19,006

Europe 9,412 1 5% 9,293 (3) 9%

9,557

APMEA 7,010 (6) 3 7,477 10 9

6,826

Latin America 1,733 (3) 6 1,790 7 9

1,665

Canada 1,447 - 5 1,443 7 7

1,346

Partner Brands 977 61 62 605 nm nm

91

--------------------------------------------------------------------------------------------------------------------

Total $ 40,630 1% 4% $ 40,181 4% 7% $

38,491

====================================================================================================================

(1)

Exc

lude

s th

e ef

fect

of

fore

ign

curr

ency

tran

slat

ion

on r

epor

ted

resu

lts.

na N

ot a

pplic

able

.

nm N

ot m

eani

ngfu

l.

In a

ll se

gmen

ts, t

he c

onst

ant c

urre

ncy

sale

s in

crea

ses

in 2

001

and

2000

wer

e pr

imar

ily d

rive

n by

exp

ansi

on.

In th

e U

.S.,

com

para

ble

sale

s w

ere

slig

htly

pos

itive

in 2

001

and

posi

tive

in 2

000.

The

intr

oduc

tion

of th

e N

ew T

aste

s M

enu

in e

arly

200

1 an

d su

cces

sful

pro

mot

ions

and

new

pro

duct

intr

oduc

tions

in 2

000,

com

bine

d w

ith lo

cal m

arke

t ini

tiativ

es in

bot

h ye

ars,

con

trib

uted

to th

e in

crea

ses.

In E

urop

e, c

ompa

rabl

e sa

les

wer

e ne

gativ

e in

200

1 an

d po

sitiv

e in

200

0. T

he p

rim

ary

cont

ribu

tors

to E

urop

e's

cons

tant

cur

renc

y sa

les

grow

th in

bot

h ye

ars

wer

e Fr

ance

and

the

U.K

. In

addi

tion,

the

Net

herl

ands

and

Rus

sia

deliv

ered

str

ong

perf

orm

ance

s in

200

1, w

hile

res

ults

in 2

000

also

ben

efite

d fr

om in

crea

ses

in G

erm

any,

Ita

ly a

nd S

pain

. Des

pite

the

Com

pany

's o

utst

andi

ng q

ualit

y an

d sa

fety

reco

rd, E

urop

e's

resu

lts in

bot

h ye

ars

wer

e ne

gativ

ely

impa

cted

by

cons

umer

con

fide

nce

issu

es r

egar

ding

the

Eur

opea

n be

ef s

uppl

y. H

owev

er, t

he im

pact

less

ened

as

we

prog

ress

ed th

roug

h 20

01, a

nd w

edo

not

exp

ect t

he n

egat

ive

impa

ct f

rom

thes

e is

sues

to b

e si

gnif

ican

t goi

ng f

orw

ard.

In A

PME

A, c

ompa

rabl

e sa

les

wer

e ne

gativ

e in

200

1 an

d sl

ight

ly n

egat

ive

in 2

000.

Sal

es in

200

1 w

ere

impa

cted

by

wea

k ec

onom

ic c

ondi

tions

in J

apan

, Tai

wan

and

Tur

key

and

wea

k co

nsum

er s

pend

ing

inA

ustr

alia

, whi

ch a

lso

impa

cted

the

seco

nd h

alf

of 2

000.

Beg

inni

ng in

the

four

th q

uart

er o

f 20

01, s

ales

wer

e al

so d

ampe

ned

by c

onsu

mer

con

fide

nce

issu

es r

egar

ding

the

Japa

nese

bee

f su

pply

,

10 M

cDon

ald'

s C

orpo

ratio

n

desp

ite th

e fa

ct th

at M

cDon

ald'

s Ja

pan

does

not

use

Jap

anes

e be

ef. A

lthou

gh w

e ar

e pr

oact

ivel

y co

mm

unic

atin

g ou

r st

rong

bee

f sa

fety

and

qua

lity

mes

sage

s, w

e ex

pect

Jap

an's

res

ults

in th

e ne

ar te

rm to

cont

inue

to b

e ne

gativ

ely

affe

cted

by

thes

e co

nsum

er c

once

rns.

Pos

itive

com

para

ble

sale

s in

Chi

na c

ontr

ibut

ed to

this

seg

men

t's to

tal c

onst

ant c

urre

ncy

sale

s in

crea

ses

in b

oth

year

s.

In L

atin

Am

eric

a, c

ompa

rabl

e sa

les

wer

e ne

gativ

e in

200

1 an

d 20

00 a

s w

eak

econ

omic

con

ditio

ns a

ffec

ted

mos

t mar

kets

in th

is s

egm

ent.

Posi

tive

com

para

ble

sale

s in

Mex

ico

and

Ven

ezue

la h

elpe

d dr

ive

this

seg

men

t's to

tal c

onst

ant c

urre

ncy

sale

s in

crea

ses

in b

oth

year

s.

We

expe

ct th

e w

eak

econ

omic

con

ditio

ns in

man

y A

sian

, Mid

dle

Eas

tern

and

Lat

in A

mer

ican

mar

kets

to c

ontin

ue in

the

near

term

.

In C

anad

a, c

ompa

rabl

e sa

les

wer

e po

sitiv

e in

200

1 an

d 20

00. C

anad

a's

valu

e pr

ogra

m c

ombi

ned

with

dri

ve-t

hru

initi

ativ

es, e

xten

ded

hour

s an

d ne

w p

rodu

ct in

trod

uctio

ns d

rove

the

incr

ease

s in

bot

h ye

ars.

The

sal

es in

crea

ses

in th

e Pa

rtne

r B

rand

s in

200

1 an

d 20

00 w

ere

prim

arily

due

to th

e ac

quis

ition

of

Bos

ton

Mar

ket i

n se

cond

qua

rter

200

0. E

xpan

sion

of

Chi

potle

alo

ng w

ith s

tron

g co

mpa

rabl

e sa

les

atC

hipo

tle a

nd B

osto

n M

arke

t als

o he

lped

dri

ve th

e in

crea

ses

in b

oth

year

s.

Ave

rage

ann

ual s

ales

--M

cDon

ald'

s re

stau

rant

s

gp

y

2001 2000 1999

------------------ ------------------ -------

Increase/ Increase/

(decrease) (decrease)

--------- ---------

Constant Constant

DOLLARS IN THOUSANDS Amount currency/(2)/ Amount currency/(2)/ Amount

------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------

Per restaurant/(1)/

------------------------------------------------------------------------------------------------

Traditional:

U.S. $1,650 - $1,647 1% $1,625

Europe 1,722 (4)% 1,851 (2) 2,130

APMEA 1,190 (5) 1,376 (2) 1,411

Latin America 1,154 (5) 1,333 (7) 1,464

Canada 1,469 - 1,530 6 1,451

------------------------------------------------------------------------------------------------

Satellite:

U.S. $ 546 2% $ 536 9% $ 490

Outside the U.S./(3)/ 533 (1) 598 2 561

================================================================================================

Per new restaurant/(4)/

------------------------------------------------------------------------------------------------

Traditional:

U.S. $1,550 (1)% $1,570 7% $1,473

Europe 1,304 (6) 1,430 (4) 1,673

APMEA 984 (6) 1,143 2 1,110

Latin America 888 (5) 1,030 (9) 1,152

Canada 1,144 (7) 1,278 5 1,218

------------------------------------------------------------------------------------------------

Satellite:/(5)/

Outside the U.S./(3)/ $ 591 2% $ 649 8% $ 574

================================================================================================

(1)

McD

onal

d's

rest

aura

nts

in o

pera

tion

at le

ast 1

3 co

nsec

utiv

e m

onth

s.

(2)

Exc

lude

s th

e ef

fect

of

fore

ign

curr

ency

tran

slat

ion

on r

epor

ted

resu

lts.

(3)

Rep

rese

nts

sate

llite

res

taur

ants

loca

ted

in C

anad

a an

d Ja

pan,

whi

ch c

ompr

ise

subs

tant

ially

all

sate

llite

s ou

tsid

e th

e U

.S.

(4)

McD

onal

d's

rest

aura

nts

in o

pera

tion

at le

ast 1

3 co

nsec

utiv

e m

onth

s bu

t not

mor

e th

an 2

5 m

onth

s.

(5)

Exc

lude

s U

.S. b

ecau

se th

e C

ompa

ny d

id n

ot o

pen

a si

gnif

ican

t num

ber

of s

atel

lite

rest

aura

nts

in th

e U

.S.

Ave

rage

sal

es p

er r

esta

uran

t in

cons

tant

cur

renc

ies

are

affe

cted

by

com

para

ble

sale

s as

wel

l as

the

size

, loc

atio

n an

d nu

mbe

r of

new

res

taur

ants

. The

num

ber

of n

ew r

esta

uran

ts a

ffec

ts a

vera

ge s

ales

beca

use

new

res

taur

ants

typi

cally

take

a f

ew y

ears

to r

each

long

-ter

m s

ales

vol

umes

. In

addi

tion,

ove

r th

e la

st s

ever

al y

ears

mor

e re

stau

rant

s ou

tsid

e th

e U

.S. h

ave

open

ed in

low

er-d

ensi

ty a

reas

and

inco

untr

ies

with

low

er a

vera

ge s

ales

vol

umes

and

cor

resp

ondi

ngly

low

er a

vera

ge d

evel

opm

ent c

osts

.

In 2

001,

ave

rage

ann

ual s

ales

per

trad

ition

al r

esta

uran

t wer

e re

lativ

ely

flat

for

the

U.S

. and

Can

ada

in c

onst

ant c

urre

ncie

s. I

n th

e ot

her

segm

ents

, ave

rage

ann

ual s

ales

per

trad

ition

al r

esta

uran

t dec

lined

inco

nsta

nt c

urre

ncie

s du

e to

neg

ativ

e co

mpa

rabl

e sa

les

and

the

sign

ific

ant n

umbe

r of

new

res

taur

ants

add

ed, p

artly

off

set b

y th

e be

nefi

t of

clos

ing

163

unde

rper

form

ing

rest

aura

nts.

In

2000

, pos

itive

com

para

ble

sale

s in

the

U.S

. and

Can

ada

drov

e th

eir

incr

ease

s in

ave

rage

ann

ual s

ales

per

trad

ition

al r

esta

uran

t. In

the

othe

r se

gmen

ts, t

he d

eclin

es w

ere

mai

nly

due

to n

ew r

esta

uran

t dev

elop

men

t.

gp

y

Sate

llite

res

taur

ants

gen

eral

ly h

ave

sign

ific

antly

low

er d

evel

opm

ent c

osts

and

sal

es v

olum

es th

an tr

aditi

onal

res

taur

ants

. The

use

of

thes

e sm

all,

limite

d-m

enu

rest

aura

nts

has

allo

wed

pro

fita

ble

expa

nsio

nin

to a

reas

that

oth

erw

ise

wou

ld n

ot h

ave

been

fea

sibl

e. I

n 20

01 a

nd 2

000,

ave

rage

ann

ual s

ales

for

sat

ellit

e re

stau

rant

s in

crea

sed

in th

e U

.S. p

artly

due

to th

e cl

osin

g of

cer

tain

low

-vol

ume

sate

llite

s.O

utsi

de th

e U

.S.,

aver

age

annu

al s

ales

for

sat

ellit

e re

stau

rant

s de

clin

ed s

light

ly in

con

stan

t cur

renc

ies

in 2

001

prim

arily

due

to n

egat

ive

com

para

ble

sale

s in

Jap

an, a

fter

incr

easi

ng in

200

0 pr

imar

ily d

ue to

high

er s

ales

vol

umes

for

ope

ning

s in

Jap

an.

In 2

001,

ave

rage

sal

es f

or n

ew tr

aditi

onal

res

taur

ants

in th

e U

.S. r

emai

ned

at a

bout

$1.

6 m

illio

n as

we

cont

inue

d ou

r se

lect

ive

expa

nsio

n in

hig

her

volu

me

loca

tions

with

the

deve

lopm

ent o

f la

rger

fac

ilitie

sth

at s

uppo

rt h

ighe

r av

erag

e sa

les.

In

segm

ents

out

side

the

U.S

., av

erag

e sa

les

for

new

trad

ition

al r

esta

uran

ts in

con

stan

t cur

renc

ies

decl

ined

due

to a

hig

her

prop

ortio

n of

ope

ning

s in

low

er v

olum

e m

arke

tssu

ch a

s So

uth

Kor

ea a

nd M

exic

o an

d lo

wer

sal

es v

olum

es f

or n

ew tr

aditi

onal

res

taur

ants

ope

ned

in G

erm

any,

Ita

ly, t

he U

.K.,

Japa

n, A

rgen

tina

and

Can

ada.

The

low

er v

olum

es in

Ger

man

y, I

taly

and

Jap

anw

ere

part

ly d

ue to

the

cons

umer

con

fide

nce

issu

es r

egar

ding

the

beef

sup

ply.

In 2

000,

ave

rage

sal

es f

or n

ew tr

aditi

onal

res

taur

ants

in th

e U

.S. i

ncre

ased

due

to s

elec

tive

expa

nsio

n an

d th

e de

velo

pmen

t of

larg

er f

acili

ties.

In

Eur

ope

and

Lat

in A

mer

ica,

ave

rage

sal

es f

or n

ewtr

aditi

onal

res

taur

ants

in c

onst

ant c

urre

ncie

s de

crea

sed

due

to a

hig

her

prop

ortio

n of

ope

ning

s in

low

er v

olum

e m

arke

ts. I

n A

PME

A, a

vera

ge s

ales

for

new

trad

ition

al r

esta

uran

ts in

crea

sed

due

to h

ighe

rsa

les

volu

mes

in C

hina

and

a h

ighe

r pr

opor

tion

of o

peni

ngs

in h

ighe

r vo

lum

e m

arke

ts s

uch

as J

apan

.

McD

onal

d's

Cor

pora

tion

11

TO

TA

L R

EV

EN

UE

S

Tot

al r

even

ues

incl

ude

sale

s by

Com

pany

-ope

rate

d re

stau

rant

s an

d fe

es f

rom

res

taur

ants

ope

rate

d by

fra

nchi

sees

and

aff

iliat

es. T

hese

fee

s in

clud

e re

nt, s

ervi

ce f

ees

and

roya

lties

that

are

bas

ed o

n a

perc

ent

of s

ales

with

spe

cifi

ed m

inim

um p

aym

ents

alo

ng w

ith in

itial

fee

s. F

ees

vary

by

type

of

site

and

inve

stm

ent b

y th

e C

ompa

ny a

nd a

lso

acco

rdin

g to

loca

l bus

ines

s co

nditi

ons.

The

se f

ees,

alo

ng w

ithoc

cupa

ncy

and

oper

atin

g ri

ghts

, are

stip

ulat

ed in

fra

nchi

se a

gree

men

ts th

at g

ener

ally

hav

e 20

-yea

r te

rms.

Rev

enue

s gr

ow a

s ne

w r

esta

uran

ts a

re a

dded

and

as

sale

s bu

ild in

exi

stin

g re

stau

rant

s. M

enu

pric

e ch

ange

s al

so a

ffec

t rev

enue

s an

d sa

les,

but

it is

impr

actic

al to

qua

ntif

y th

eir

impa

ct b

ecau

se o

f di

ffer

ent

pric

ing

stru

ctur

es, n

ew p

rodu

cts,

pro

mot

ions

and

pro

duct

-mix

var

iatio

ns a

mon

g re

stau

rant

s an

d m

arke

ts.

Rev

enue

s

2001 2000

1999

------------------------------- --------------------------------

------


------------------ ------------------


MILLIONS Amount reported currency/(1)/ Amount reported currency/(1)/

Amount

-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------

U.S. $ 5,396 3% na $ 5,259 3% na $

5,093

Europe 4,752 - 4% 4,754 (3) 7%

4,925

APMEA 2,203 5 12 2,102 9 11

1,928

Latin America 971 2 12 949 40 41

680

Canada 608 (1) 3 615 7 7

576

Partner Brands 940 67 67 564 nm nm

57

gp

y

-----------------------------------------------------------------------------------------------------------------

Total $14,870 4% 8% $14,243 7% 12%

$13,259

=================================================================================================================

(1)

Exc

lude

s th

e ef

fect

of

fore

ign

curr

ency

tran

slat

ion

on r

epor

ted

resu

lts.

na N

ot a

pplic

able

.

nm N

ot m

eani

ngfu

l.

On

a co

nsta

nt c

urre

ncy

basi

s, to

tal r

even

ues

incr

ease

d at

a h

ighe

r ra

te th

an s

ales

in 2

001

prim

arily

due

to th

e se

cond

qua

rter

200

0 ac

quis

ition

of

Bos

ton

Mar

ket r

esta

uran

ts, w

hich

are

all

Com

pany

-ope

rate

d, a

nd th

e re

stru

ctur

ing

of o

ur o

wne

rshi

p in

the

Phili

ppin

es, e

ffec

tive

July

1, 2

001.

As

a re

sult

of th

e re

stru

ctur

ing,

mos

t of

our

rest

aura

nts

in th

e Ph

ilipp

ines

are

now

Com

pany

-ope

rate

dra

ther

than

fra

nchi

sed.

In

addi

tion,

rev

enue

s be

nefi

ted

from

an

incr

ease

in th

e ro

yalty

per

cent

rec

eive

d fr

om o

ur J

apan

ese

affi

liate

, eff

ectiv

e Ja

nuar

y 1,

200

1. I

n 20

00, t

otal

rev

enue

s in

crea

sed

at a

hig

her

rate

than

sal

es d

ue th

e ac

quis

ition

of

Bos

ton

Mar

ket a

nd th

e ac

quis

ition

of

Don

atos

in th

ird

quar

ter

1999

as

wel

l as

the

cons

olid

atio

n of

Arg

entin

a an

d In

done

sia

for

fina

ncia

l rep

ortin

g pu

rpos

es in

200

0.

OP

ER

AT

ING

IN

CO

ME

Con

solid

ated

ope

ratin

g in

com

e de

crea

sed

19%

in 2

001

and

was

rel

ativ

ely

flat

in 2

000

com

pare

d w

ith 1

999.

Exc

ludi

ng th

e sp

ecia

l ite

ms

note

d in

the

foot

note

to th

e ta

ble

on p

age

9, a

djus

ted

oper

atin

gin

com

e de

crea

sed

5% in

con

stan

t cur

renc

ies

in 2

001.

Adj

uste

d op

erat

ing

inco

me

decr

ease

d in

200

1 pr

imar

ily d

ue to

low

er c

ombi

ned

oper

atin

g m

argi

n do

llars

and

low

er o

ther

ope

ratin

g in

com

e al

ong

with

high

er s

ellin

g, g

ener

al &

adm

inis

trat

ive

expe

nses

. In

cons

tant

cur

renc

ies,

ope

ratin

g in

com

e in

crea

sed

5% in

200

0, p

rim

arily

due

to h

ighe

r co

mbi

ned

oper

atin

g m

argi

n do

llars

and

hig

her

othe

r op

erat

ing

inco

me,

par

tly o

ffse

t by

high

er s

ellin

g, g

ener

al &

adm

inis

trat

ive

expe

nses

.

Ope

ratin

g in

com

e fr

om th

e m

ajor

mar

kets

acc

ount

ed f

or m

ore

than

90%

of

cons

olid

ated

ope

ratin

g in

com

e in

200

1, 2

000

and

1999

.

Ope

ratin

g in

com

e

2001

2000 1999

---------------------------------

------------------ ------

Increase/(decrease)

Increase/(decrease)

---------------------------------

------------------

Adjusted

DOLLARS IN As Constant constant As

Constant

MILLIONS Amount reported currency/(1)/ currency/(1,2)/ Amount reported

currency/(1)/ Amount

---------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------

U.S. $ 1,622 (10)% na - $ 1,795 7%

na $ 1,679

Europe 1,063 (10) (7)% (3)% 1,180 (6)

6% 1,257

APMEA 325 (28) (20) (10) 451 4

5 433

Latin America 11 (89) (91) (46) 103 (23)

(23) 133

Canada 124 (2) 2 10 126 12

gp

y

11 113

Partner

Brands (66) (61) (62) (1) (41) nm

nm (7)

Corporate (382) (35) na (22) (284) 1

na (288)

---------------------------------------------------------------------------------------------------------------------------------

Total $ 2,697 (19)% (17)% (5)% $ 3,330 -%

5% $ 3,320

=================================================================================================================================

(1)

Exc

lude

s th

e ef

fect

of

fore

ign

curr

ency

tran

slat

ion

on r

epor

ted

resu

lts.

(2)

Exc

lude

s th

e sp

ecia

l ite

ms

note

d in

the

foot

note

to th

e ta

ble

on p

age

9 an

d qu

antif

ied

belo

w.

na N

ot a

pplic

able

.

nm N

ot m

eani

ngfu

l.

U.S

. ope

ratin

g in

com

e fo

r 20

01 in

clud

ed $

181

mill

ion

of s

peci

al c

harg

es, p

rim

arily

rel

ated

to th

e U

.S. b

usin

ess

reor

gani

zatio

n an

d co

sts

incu

rred

in c

onne

ctio

n w

ith th

e th

eft o

f pr

omot

iona

l gam

e pi

eces

and

rela

ted

term

inat

ion

of a

sup

plie

r di

scus

sed

on p

age

14. U

.S. o

pera

ting

inco

me

acco

unte

d fo

r ov

er 5

0% o

f co

nsol

idat

ed o

pera

ting

inco

me

in 2

001,

200

0 an

d 19

99. E

xclu

ding

the

spec

ial c

harg

es, U

.S.

adju

sted

ope

ratin

g in

com

e w

as r

elat

ivel

y fl

at in

200

1 co

mpa

red

with

an

incr

ease

of

$116

mill

ion

or 7

% in

200

0. T

he in

crea

se in

200

0 w

as d

ue to

hig

her

com

bine

d op

erat

ing

mar

gin

dolla

rs a

nd h

ighe

r ot

her

oper

atin

g in

com

e.

Eur

ope'

s op

erat

ing

inco

me

for

2001

incl

uded

$46

mill

ion

of s

peci

al c

harg

es r

elat

ed to

the

clos

ing

of 5

0 un

derp

erfo

rmin

g re

stau

rant

s ac

ross

Eur

ope

and

glob

al c

hang

e in

itiat

ives

. Eur

ope'

s op

erat

ing

inco

me

acco

unte

d fo

r m

ore

than

35%

of

cons

olid

ated

ope

ratin

g in

com

e in

200

1, 2

000

and

1999

. Exc

ludi

ng th

e sp

ecia

l cha

rges

, Eur

ope'

s ad

just

ed o

pera

ting

inco

me

decr

ease

d 3%

in 2

001

and

incr

ease

d 6%

in 2

000

in c

onst

ant c

urre

ncie

s. I

n bo

th y

ears

, con

sum

er c

onfi

denc

e is

sues

reg

ardi

ng th

e E

urop

ean

beef

sup

ply

nega

tivel

y im

pact

ed r

esul

ts. T

his

segm

ent's

res

ults

in 2

001

bene

fite

d fr

om s

tron

g pe

rfor

man

ces

inFr

ance

and

Rus

sia.

The

incr

ease

in 2

000

was

pri

mar

ily d

rive

n by

str

ong

oper

atin

g re

sults

in F

ranc

e, I

taly

and

Spa

in. F

ranc

e, G

erm

any

and

the

U.K

. acc

ount

ed f

or a

bout

75%

of

Eur

ope'

s op

erat

ing

inco

me

in 2

001,

200

0 an

d 19

99.

APM

EA

's o

pera

ting

inco

me

for

2001

incl

uded

$42

mill

ion

of s

peci

al c

harg

es, p

rim

arily

rel

ated

to th

e cl

osin

g of

50

unde

rper

form

ing

rest

aura

nts,

mai

nly

in M

alay

sia

and

the

Phili

ppin

es, a

nd th

e as

set

impa

irm

ent c

harg

e in

12 M

cDon

ald'

s C

orpo

ratio

n

Tur

key.

Exc

ludi

ng th

e sp

ecia

l cha

rges

, APM

EA

's a

djus

ted

oper

atin

g in

com

e de

crea

sed

10%

in 2

001

and

incr

ease

d 5%

in 2

000

in c

onst

ant c

urre

ncie

s. I

n 20

01, s

tron

g re

sults

in C

hina

, the

incr

ease

in th

ero

yalty

per

cent

rec

eive

d fr

om o

ur a

ffili

ate

in J

apan

and

a g

ain

on th

e sa

le o

f re

al e

stat

e in

Sin

gapo

re w

ere

mor

e th

an o

ffse

t by

wea

k op

erat

ing

resu

lts in

Aus

tral

ia, J

apan

, Tai

wan

and

Tur

key.

The

incr

ease

in 2

000

was

dri

ven

prim

arily

by

Japa

n, w

hich

ben

efite

d fr

om th

e pa

rtia

l sal

e of

its

owne

rshi

p in

Toy

s `R

' Us

Japa

n, a

s w

ell a

s st

rong

res

ults

in C

hina

and

Sou

th K

orea

. Res

ults

in b

oth

year

s w

ere

nega

tivel

yaf

fect

ed b

y th

e in

trod

uctio

n of

the

good

s an

d se

rvic

es ta

x in

Aus

tral

ia in

Jul

y 20

00. A

ustr

alia

and

Jap

an a

ccou

nted

for

mor

e th

an 6

0% o

f A

PME

A's

ope

ratin

g in

com

e in

200

1, 2

000

and

1999

.

Lat

in A

mer

ica'

s op

erat

ing

inco

me

for

2001

incl

uded

$40

mill

ion

of s

peci

al c

harg

es r

elat

ed to

the

clos

ing

of 5

8 un

derp

erfo

rmin

g re

stau

rant

s, p

rim

arily

in B

razi

l and

Pue

rto

Ric

o, a

nd g

loba

l cha

nge

initi

ativ

es. E

xclu

ding

the

spec

ial c

harg

es, L

atin

Am

eric

a's

adju

sted

ope

ratin

g in

com

e de

crea

sed

46%

in 2

001

and

23%

in 2

000

in c

onst

ant c

urre

ncie

s. R

esul

ts in

bot

h ye

ars

wer

e ne

gativ

ely

impa

cted

by

the

cont

inui

ng d

iffi

cult

econ

omic

con

ditio

ns e

xper

ienc

ed b

y m

ost m

arke

ts in

the

segm

ent.

Bra

zil a

ccou

nted

for

mor

e th

an 5

5% o

f L

atin

Am

eric

a's

oper

atin

g in

com

e in

eac

h of

the

past

thre

e ye

ars.

Can

ada'

s op

erat

ing

inco

me

for

2001

incl

uded

$10

mill

ion

of s

peci

al c

harg

es r

elat

ed to

the

clos

ing

of f

ive

unde

rper

form

ing

rest

aura

nts

and

to g

loba

l cha

nge

initi

ativ

es.

Ope

ratin

g in

com

e fo

r th

e Pa

rtne

r B

rand

s in

200

1 in

clud

ed s

peci

al c

harg

es o

f $2

0 m

illio

n re

late

d to

the

antic

ipat

ed d

ispo

sal o

f A

rom

a C

afe

and

$5 m

illio

n re

late

d to

glo

bal c

hang

e in

itiat

ives

.

Res

ults

in th

e C

orpo

rate

seg

men

t inc

lude

d $3

4 m

illio

n of

spe

cial

cha

rges

rel

ated

to g

loba

l cha

nge

initi

ativ

es a

nd th

e w

rite

-off

of

cert

ain

tech

nolo

gy c

osts

. Exc

ludi

ng th

e sp

ecia

l cha

rges

, the

adj

uste

dde

crea

se in

the

Cor

pora

te s

egm

ent o

f 22

% in

200

1 w

as p

rim

arily

due

to in

crea

sed

spen

ding

on

futu

re r

esta

uran

t-re

late

d te

chno

logy

impr

ovem

ents

.

As

a re

sult

of c

ontin

uing

eco

nom

ic w

eakn

ess

in L

atin

Am

eric

a an

d T

urke

y, th

e C

ompa

ny e

xpec

ts to

rec

ord

a no

n-ca

sh c

harg

e of

app

roxi

mat

ely

$45

mill

ion

(pre

and

aft

er ta

x) r

elat

ed to

the

impa

irm

ent o

fas

sets

in L

atin

Am

eric

a an

d cl

osin

g of

und

erpe

rfor

min

g re

stau

rant

s in

Tur

key

in f

irst

qua

rter

200

2.

OP

ER

AT

ING

MA

RG

INS

gp

y

Ope

ratin

g m

argi

n in

form

atio

n an

d di

scus

sion

s re

late

to M

cDon

ald'

s re

stau

rant

s on

ly a

nd e

xclu

de P

artn

er B

rand

s.

Com

pany

-ope

rate

d m

argi

ns

Com

pany

-ope

rate

d m

argi

n do

llars

are

equ

al to

sal

es b

y C

ompa

ny-o

pera

ted

rest

aura

nts

less

the

oper

atin

g co

sts

of th

ese

rest

aura

nts.

Com

pany

-ope

rate

d m

argi

n do

llars

dec

lined

$14

5 m

illio

n in

200

1 an

d $4

mill

ion

in 2

000.

In

cons

tant

cur

renc

ies,

Com

pany

-ope

rate

d m

argi

n do

llars

dec

lined

$96

mill

ion

or 6

% in

200

1, c

ompa

red

with

an

incr

ease

of

$73

mill

ion

or 4

% in

200

0. T

he 2

001

cons

tant

cur

renc

yde

crea

se w

as p

rim

arily

due

to n

egat

ive

com

para

ble

sale

s, p

artly

off

set b

y ex

pans

ion,

whi

le th

e 20

00 c

onst

ant c

urre

ncy

incr

ease

was

due

to e

xpan

sion

and

pos

itive

com

para

ble

sale

s.

Com

pany

-ope

rate

d m

argi

ns w

ere

15.1

% o

f sa

les

in 2

001,

16.

9% in

200

0 an

d 17

.7%

in 1

999.

Ope

ratin

g co

st tr

ends

as

a pe

rcen

t of

sale

s w

ere

as f

ollo

ws:

foo

d &

pap

er c

osts

as

wel

l as

occu

panc

y &

oth

erop

erat

ing

expe

nses

incr

ease

d in

200

1 an

d 20

00; p

ayro

ll co

sts

incr

ease

d in

200

1 an

d w

ere

flat

in 2

000.

Com

pany

-ope

rate

d m

argi

ns--

McD

onal

d's

rest

aura

nts

IN MILLIONS 2001 2000 1999

===============================================================================

U.S. $ 501 $ 521 $ 516

Europe 626 683 743

APMEA 240 296 274

Latin America 83 95 70

Canada 75 75 71

-------------------------------------------------------------------------------

Total $1,525 $1,670 $1,674

===============================================================================

PERCENT OF SALES

-------------------------------------------------------------------------------

U.S. 16.0% 17.0% 17.5%

Europe 16.8 18.3 19.2

APMEA 12.4 15.9 16.4

Latin America 10.1 12.4 14.1

Canada 15.6 15.4 15.7

-------------------------------------------------------------------------------

Total 15.1% 16.9% 17.7%

===============================================================================

In th

e U

.S.,

food

& p

aper

cos

ts w

ere

low

er a

s a

perc

ent o

f sa

les

in 2

001

and

2000

, whi

le p

ayro

ll co

sts

and

occu

panc

y &

oth

er e

xpen

ses

wer

e hi

gher

in b

oth

year

s.

Eur

ope'

s C

ompa

ny-o

pera

ted

mar

gins

as

a pe

rcen

t of

sale

s de

clin

ed in

200

1, p

rim

arily

due

to h

ighe

r pa

yrol

l cos

ts a

nd n

egat

ive

com

para

ble

sale

s. I

n 20

00, E

urop

e's

Com

pany

-ope

rate

d m

argi

n pe

rcen

tde

clin

ed a

s al

l cos

ts in

crea

sed

as a

per

cent

of

sale

s.

In A

PME

A, n

egat

ive

com

para

ble

sale

s in

200

1 an

d sl

ight

ly n

egat

ive

com

para

ble

sale

s in

200

0 af

fect

ed C

ompa

ny-o

pera

ted

mar

gins

as

a pe

rcen

t of

sale

s. I

n 20

01, t

he c

hang

e in

res

taur

ant c

lass

ific

atio

n in

the

Phili

ppin

es a

lso

cont

ribu

ted

to A

PME

A's

mar

gin

decl

ine

beca

use

its C

ompa

ny-o

pera

ted

mar

gins

wer

e lo

wer

than

the

aver

age

for

the

segm

ent.

In L

atin

Am

eric

a, th

e m

argi

n de

clin

es w

ere

due

to d

iffi

cult

econ

omic

con

ditio

ns in

mos

t mar

kets

and

neg

ativ

e co

mpa

rabl

e sa

les

in b

oth

year

s.

Fran

chis

ed m

argi

ns

Fran

chis

ed m

argi

n do

llars

are

equ

al to

rev

enue

s fr

om f

ranc

hise

d an

d af

filia

ted

rest

aura

nts

less

the

Com

pany

's o

ccup

ancy

cos

ts (

rent

and

dep

reci

atio

n) a

ssoc

iate

d w

ith th

ose

site

s. F

ranc

hise

d m

argi

n do

llars

repr

esen

ted

mor

e th

an 6

0% o

f th

e co

mbi

ned

oper

atin

g m

argi

ns in

200

1, 2

000

and

1999

. Fra

nchi

sed

mar

gin

dolla

rs in

crea

sed

$26

mill

ion

in 2

001,

com

pare

d w

ith a

$6

mill

ion

decl

ine

in 2

000.

In

cons

tant

curr

enci

es, t

he f

ranc

hise

d m

argi

n do

llars

incr

ease

d $9

1 m

illio

n or

3%

in 2

001

and

$119

mill

ion

or 4

% in

200

0, p

rim

arily

dri

ven

by th

e in

crea

se in

the

Japa

n ro

yalty

per

cent

eff

ectiv

e Ja

nuar

y 1,

200

1, a

sw

ell a

s ex

pans

ion

in b

oth

year

s an

d po

sitiv

e co

mpa

rabl

e sa

les

in 2

000.

gp

y

McD

onal

d's

Cor

pora

tion

13

Fran

chis

ed m

argi

ns--

McD

onal

d's

rest

aura

nts

IN MILLIONS 2001 2000 1999

-------------------------------------------------------------------------------

-------------------------------------------------------------------------------

U.S. $ 1,799 $ 1,765 $ 1,730

Europe 792 802 828

APMEA 229 199 211

Latin America 103 135 144

Canada 105 101 95

-------------------------------------------------------------------------------

Total $ 3,028 $ 3,002 $ 3,008

===============================================================================

PERCENT OF REVENUES

-------------------------------------------------------------------------------

U.S. 79.7% 80.4% 81.0%

Europe 77.2 78.3 79.0

APMEA 86.2 81.5 82.3


Canada 80.4 80.2 79.9

-------------------------------------------------------------------------------

Total 79.1% 79.5% 80.3%

===============================================================================

The

dec

lines

in th

e co

nsol

idat

ed f

ranc

hise

d m

argi

n pe

rcen

t in

2001

and

200

0 re

flec

ted

high

er o

ccup

ancy

cos

ts d

ue to

an

incr

ease

d nu

mbe

r of

leas

ed s

ites

in a

ll ge

ogra

phic

seg

men

ts. O

ur s

trat

egy

of le

asin

ga

high

er p

ropo

rtio

n of

new

site

s ov

er th

e pa

st f

ew y

ears

has

red

uced

initi

al c

apita

l req

uire

men

ts a

nd r

elat

ed in

tere

st e

xpen

se. H

owev

er, a

s an

ticip

ated

, fra

nchi

sed

mar

gins

as

a pe

rcen

t of

appl

icab

le r

even

ues

have

bee

n ne

gativ

ely

impa

cted

bec

ause

fin

anci

ng c

osts

impl

icit

in th

e le

ase

are

incl

uded

in r

ent e

xpen

se, w

hich

aff

ects

thes

e m

argi

ns. F

or o

wne

d si

tes,

fin

anci

ng c

osts

are

ref

lect

ed in

inte

rest

exp

ense

,w

hich

doe

s no

t aff

ect t

hese

mar

gins

.

In 2

001,

fra

nchi

sed

mar

gins

as

a pe

rcen

t of

appl

icab

le r

even

ues

decr

ease

d in

Eur

ope

and

Lat

in A

mer

ica

part

ly d

ue to

ren

t ass

ista

nce

prov

ided

to f

ranc

hise

es in

cer

tain

mar

kets

and

neg

ativ

e co

mpa

rabl

esa

les.

We

expe

ct to

con

tinue

pro

vidi

ng r

ent a

ssis

tanc

e in

cer

tain

Lat

in A

mer

ican

mar

kets

in 2

002.

The

fra

nchi

sed

mar

gin

perc

ent i

n A

PME

A in

crea

sed

for

2001

and

dec

reas

ed in

200

0. T

he 2

001

incr

ease

was

pri

mar

ily d

ue to

an

incr

ease

in th

e ro

yalty

per

cent

rec

eive

d fr

om o

ur J

apan

ese

affi

liate

and

the

rest

ruct

urin

g of

the

Phili

ppin

es' o

pera

tions

that

res

ulte

d in

the

recl

assi

fica

tion

of f

ranc

hise

d m

argi

ns th

atw

ere

low

er th

an th

e av

erag

e fo

r th

e se

gmen

t. In

200

0, o

ur p

urch

ase

of a

maj

ority

inte

rest

in c

erta

in a

ffili

ate

mar

kets

in b

oth

APM

EA

and

Lat

in A

mer

ica

shif

ted

reve

nues

fro

m f

ranc

hise

d an

d af

filia

ted

rest

aura

nts

to C

ompa

ny-o

pera

ted

rest

aura

nts,

whi

ch c

ontr

ibut

ed to

the

redu

ctio

n in

the

fran

chis

ed r

esta

uran

t mar

gin

perc

ents

.

SEL

LIN

G, G

EN

ER

AL

& A

DM

INIS

TR

AT

IVE

EX

PE

NSE

S

Con

solid

ated

sel

ling,

gen

eral

& a

dmin

istr

ativ

e ex

pens

es in

crea

sed

5% in

200

1 an

d 7%

in 2

000

(7%

and

11%

in c

onst

ant c

urre

ncie

s). S

ellin

g, g

ener

al &

adm

inis

trat

ive

expe

nses

as

a pe

rcen

t of

sale

s w

ere

4.1%

in 2

001,

4.0

% in

200

0 an

d 3.

8% in

199

9. T

he in

crea

se in

200

1 w

as p

artly

due

to in

crea

sed

spen

ding

on

futu

re r

esta

uran

t-re

late

d te

chno

logy

impr

ovem

ents

in th

e C

orpo

rate

seg

men

t and

hig

her

selli

ng, g

ener

al &

adm

inis

trat

ive

expe

nses

for

the

Part

ner

Bra

nds.

The

incr

ease

in 2

000

was

pri

mar

ily d

ue to

spe

ndin

g to

sup

port

the

deve

lopm

ent o

f Pa

rtne

r B

rand

s an

d th

e co

nsol

idat

ion

of A

rgen

tina

and

Indo

nesi

a fo

r fi

nanc

ial r

epor

ting

purp

oses

. Sel

ling,

gen

eral

& a

dmin

istr

ativ

e ex

pens

es in

bot

h ye

ars

bene

fite

d fr

om w

eake

r fo

reig

n cu

rren

cies

and

low

er e

xpen

se f

or p

erfo

rman

ce-b

ased

ince

ntiv

eco

mpe

nsat

ion.

As

a re

sult

of th

e gl

obal

cha

nge

initi

ativ

es d

escr

ibed

bel

ow, t

he C

ompa

ny e

xpec

ts o

ngoi

ng a

nnua

l sel

ling,

gen

eral

& a

dmin

istr

ativ

e sa

ving

s of

abo

ut $

100

mill

ion

in 2

002,

com

pare

d w

ith w

hat o

ther

wis

ew

ould

hav

e be

en s

pent

.

Selli

ng, g

ener

al &

adm

inis

trat

ive

expe

nses

gp

y

2001 2000 1999

------------------------------- -------------------------------- ------


------------------ ------------------


MILLIONS Amount reported currency/(1)/ Amount reported currency/(1)/ Amount

--------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------

U.S. $ 563 1% na $ 559 - na $ 559

Europe 328 (2) 1% 336 (3)% 8% 348

APMEA 152 2 9 149 10 16 135

Latin America 126 5 14 120 45 45 83

Canada 51 (6) (2) 54 4 4 52

Partner Brands 102 20 20 85 nm nm 12

Corporate 340 20 na 284 (1) na 288

--------------------------------------------------------------------------------------------------------------

Total $1,662 5% 7% $1,587 7% 11% $1,477

==============================================================================================================

(1)

Exc

lude

s th

e ef

fect

of

fore

ign

curr

ency

tran

slat

ion

on r

epor

ted

resu

lts.

na N

ot a

pplic

able

.

nm N

ot m

eani

ngfu

l.

Cor

pora

te e

xpen

ses

cons

ist o

f ho

me

offi

ce s

uppo

rt c

osts

in a

reas

suc

h as

fac

ilitie

s, f

inan

ce, h

uman

res

ourc

es, i

nfor

mat

ion

tech

nolo

gy, l

egal

, sup

ply

chai

n m

anag

emen

t and

trai

ning

.

SPE

CIA

L C

HA

RG

E--

GL

OB

AL

CH

AN

GE

IN

ITIA

TIV

ES

In f

ourt

h qu

arte

r 20

01, t

he C

ompa

ny r

ecor

ded

a $2

00 m

illio

n pr

etax

spe

cial

cha

rge

($13

6 m

illio

n af

ter

tax)

rel

ated

to s

trat

egic

cha

nges

and

ong

oing

res

taur

ant i

nitia

tives

in th

e U

.S. a

nd c

erta

inin

tern

atio

nal m

arke

ts. T

he c

hang

es a

nd in

itiat

ives

are

des

igne

d to

impr

ove

the

cust

omer

exp

erie

nce

and

grow

McD

onal

d's

glob

al b

usin

ess.

The

cha

nges

in th

e U

.S. i

nclu

ded

stre

amlin

ing

oper

atio

ns b

yre

duci

ng th

e nu

mbe

r of

reg

ions

and

div

isio

ns, e

nabl

ing

the

Com

pany

to c

ombi

ne s

taff

fun

ctio

ns a

nd im

prov

e ef

fici

ency

. In

addi

tion,

the

U.S

. bus

ines

s in

trod

uced

a v

arie

ty o

f in

itiat

ives

des

igne

d to

impr

ove

the

rest

aura

nt e

xper

ienc

e in

clud

ing

acce

lera

ted

oper

atio

ns tr

aini

ng, r

esta

uran

t sim

plif

icat

ion,

ince

ntiv

es f

or o

utst

andi

ng r

esta

uran

t ope

ratio

ns a

nd a

n en

hanc

ed n

atio

nal r

esta

uran

t eva

luat

ion

syst

em.

In c

onne

ctio

n w

ith th

ese

initi

ativ

es, t

he C

ompa

ny e

limin

ated

app

roxi

mat

ely

850

posi

tions

, con

sist

ing

of 7

00 p

ositi

ons

in th

e U

.S.,

prim

arily

in th

e di

visi

ons

and

regi

ons,

and

150

pos

ition

s in

inte

rnat

iona

lm

arke

ts.

The

spe

cial

cha

rge

cons

iste

d of

$11

4 m

illio

n of

sev

eran

ce a

nd o

ther

em

ploy

ee-r

elat

ed c

osts

; $69

mill

ion

of le

ase

canc

ella

tion

and

othe

r co

sts

rela

ted

to th

e cl

osin

g of

reg

ion

and

divi

sion

fac

ilitie

s; a

nd $

17m

illio

n of

oth

er c

ash

cost

s, p

rim

arily

con

sist

ing

of p

aym

ents

mad

e to

fac

ilita

te a

tim

ely

and

smoo

th c

hang

e of

ow

ners

hip

from

fra

nchi

sees

who

hav

e ha

d a

hist

ory

of f

inan

cial

dif

ficu

lty a

nd c

onse

quen

tlyw

ere

unab

le to

del

iver

the

leve

l of

oper

atio

nal e

xcel

lenc

e ne

eded

to s

ucce

ed in

the

futu

re.

14 M

cDon

ald'

s C

orpo

ratio

n

Of

the

orig

inal

$20

0 m

illio

n pr

etax

spe

cial

cha

rge,

the

rem

aini

ng a

ccru

al o

f ap

prox

imat

ely

$126

mill

ion

at y

ear-

end

2001

pri

mar

ily r

elat

ed to

em

ploy

ee s

ever

ance

and

leas

e pa

ymen

ts f

or f

acili

ties

that

hav

ebe

en c

lose

d an

d w

as in

clud

ed in

oth

er a

ccru

ed li

abili

ties

in th

e C

onso

lidat

ed b

alan

ce s

heet

. Em

ploy

ee s

ever

ance

is p

aid

in in

stal

lmen

ts o

ver

a pe

riod

of

up to

one

yea

r af

ter

term

inat

ion,

and

the

rem

aini

ngle

ase

paym

ents

for

fac

ilitie

s th

at h

ave

been

clo

sed

will

be

paid

thro

ugh

2010

. No

sign

ific

ant a

djus

tmen

ts h

ave

been

mad

e to

the

orig

inal

pla

n ap

prov

ed b

y m

anag

emen

t. T

he C

ompa

ny e

xpec

ts to

use

cas

hpr

ovid

ed b

y op

erat

ions

to f

und

the

rem

aini

ng e

mpl

oyee

sev

eran

ce a

nd le

ase

oblig

atio

ns.

OT

HE

R O

PE

RA

TIN

G (

INC

OM

E)

EX

PE

NSE

, NE

T

gp

y

Oth

er o

pera

ting

(inc

ome)

exp

ense

incl

udes

gai

ns o

n sa

les

of r

esta

uran

t bus

ines

ses,

equ

ity in

ear

ning

s of

unc

onso

lidat

ed a

ffili

ates

, res

taur

ant c

losi

ng a

nd a

sset

impa

irm

ent c

harg

es, a

nd o

ther

tran

sact

ions

rela

ted

to f

ranc

hisi

ng a

nd th

e fo

od s

ervi

ce b

usin

ess.

--------------------------------------------------------------------------------

Other operating (income) expense, net

--------------------------------------------------------------------------------

IN MILLIONS 2001 2000 1999

================================================================================

Gains on sales of restaurant businesses $(112) $ (87) $ (75)

Equity in earnings of unconsolidated affiliates (62) (121) (138)

Charges for underperforming restaurant closings 91 - -

Asset impairment charges 44 - -

Other, net 96 12 108

--------------------------------------------------------------------------------

Total $ 57 $(196) $(105)

================================================================================

Gai

ns o

n sa

les

of r

esta

uran

t bus

ines

ses

incl

ude

gain

s fr

om s

ales

of

Com

pany

-ope

rate

d re

stau

rant

s as

wel

l as

gain

s fr

om e

xerc

ises

of

purc

hase

opt

ions

by

fran

chis

ees

with

bus

ines

s fa

cilit

ies

leas

ear

rang

emen

ts (

arra

ngem

ents

whe

re th

e C

ompa

ny le

ases

the

busi

ness

es, i

nclu

ding

equ

ipm

ent,

to f

ranc

hise

es w

ho h

ave

optio

ns to

pur

chas

e th

e bu

sine

sses

). T

he C

ompa

ny's

pur

chas

es a

nd s

ales

of

busi

ness

esw

ith it

s fr

anch

isee

s an

d af

filia

tes

are

aim

ed a

t ach

ievi

ng a

n op

timal

ow

ners

hip

mix

in e

ach

mar

ket.

Res

ultin

g ga

ins

or lo

sses

are

rec

orde

d in

ope

ratin

g in

com

e be

caus

e th

e tr

ansa

ctio

ns a

re a

n in

tegr

al p

art o

fou

r bu

sine

ss.

Equ

ity in

ear

ning

s of

unc

onso

lidat

ed a

ffili

ates

--bu

sine

sses

in w

hich

the

Com

pany

act

ivel

y pa

rtic

ipat

es b

ut d

oes

not c

ontr

ol--

is r

epor

ted

afte

r in

tere

st e

xpen

se a

nd in

com

e ta

xes,

exc

ept f

or U

.S. r

esta

uran

tpa

rtne

rshi

ps, w

hich

are

rep

orte

d be

fore

inco

me

taxe

s. T

he d

ecre

ase

in 2

001

was

due

to w

eake

r re

sults

in J

apan

, the

incr

ease

in J

apan

's r

oyal

ty e

xpen

se a

nd a

wea

ker

Japa

nese

Yen

. Alth

ough

the

incr

ease

inro

yalty

exp

ense

red

uced

McD

onal

d's

equi

ty in

ear

ning

s fo

r Ja

pan,

it w

as m

ore

than

off

set b

y th

e ro

yalty

ben

efit

McD

onal

d's

rece

ived

in f

ranc

hise

d re

venu

es. I

n 19

99, e

quity

in e

arni

ngs

of u

ncon

solid

ated

affi

liate

s in

clud

ed a

$21

mill

ion

gain

fro

m th

e sa

le o

f re

al e

stat

e in

a U

.S. p

artn

ersh

ip.

The

Com

pany

rec

orde

d $9

1 m

illio

n of

pre

tax

char

ges

($69

mill

ion

afte

r ta

x) in

200

1 re

late

d to

the

clos

ing

of 1

63 u

nder

perf

orm

ing

rest

aura

nts

in in

tern

atio

nal m

arke

ts. T

he lo

sses

on

thes

e cl

osed

rest

aura

nts

wer

e re

cogn

ized

in th

e pe

riod

the

rest

aura

nt c

ease

d op

erat

ions

, and

the

char

ges

prim

arily

con

sist

ed o

f as

set w

rite

-off

s an

d le

ase

term

inat

ion

cost

s.

The

ass

et im

pair

men

t cha

rges

in 2

001

cons

iste

d of

a $

24 m

illio

n ch

arge

(pr

e an

d af

ter

tax)

as

a re

sult

of a

n as

sess

men

t of

the

ongo

ing

impa

ct o

f si

gnif

ican

t cur

renc

y de

valu

atio

n on

McD

onal

d's

cash

flo

ws

in T

urke

y an

d a

pret

ax c

harg

e of

$20

mill

ion

($14

mill

ion

afte

r ta

x) r

elat

ed to

the

antic

ipat

ed s

ale

of A

rom

a w

hich

we

expe

ct to

be

com

plet

ed in

the

firs

t hal

f of

200

2.

Oth

er e

xpen

se f

or 2

001

incl

uded

a p

reta

x ch

arge

of

$25

mill

ion

($17

mill

ion

afte

r ta

x) in

the

U.S

., pr

imar

ily r

elat

ed to

unr

ecov

erab

le c

osts

incu

rred

in c

onne

ctio

n w

ith th

e th

eft o

f w

inni

ng g

ame

piec

esfr

om th

e C

ompa

ny's

Mon

opol

y an

d ce

rtai

n ot

her

prom

otio

nal g

ames

ove

r an

ext

ende

d pe

riod

of

time,

and

the

rela

ted

term

inat

ion

of th

e su

pplie

r of

the

gam

e pi

eces

. Fif

ty-o

ne p

eopl

e (n

one

of w

hom

wer

eC

ompa

ny e

mpl

oyee

s) w

ere

subs

eque

ntly

indi

cted

on

cons

pira

cy a

nd m

ail f

raud

cha

rges

. In

2001

, the

Com

pany

als

o re

cord

ed a

pre

tax

char

ge o

f $1

7 m

illio

n ($

12 m

illio

n af

ter

tax)

, pri

mar

ily r

elat

ed to

the

wri

te-o

ff o

f ce

rtai

n te

chno

logy

cos

ts in

the

Cor

pora

te s

egm

ent.

Oth

er e

xpen

se f

or 1

999

incl

uded

the

wri

te-o

ff o

f $2

4 m

illio

n ($

16 m

illio

n af

ter

tax)

of

soft

war

e no

t use

d in

the

busi

ness

.

INT

ER

EST

EX

PE

NSE

Inte

rest

exp

ense

incr

ease

d in

200

1 an

d 20

00 d

ue to

hig

her

aver

age

debt

leve

ls, p

artly

off

set b

y w

eake

r fo

reig

n cu

rren

cies

in b

oth

year

s an

d lo

wer

ave

rage

inte

rest

rat

es in

200

1. A

vera

ge d

ebt l

evel

s w

ere

high

er in

bot

h ye

ars

beca

use

the

Com

pany

use

d its

ava

ilabl

e cr

edit

capa

city

to r

epur

chas

e sh

ares

of

its c

omm

on s

tock

. Bas

ed o

n cu

rren

t int

eres

t rat

es, w

e an

ticip

ate

inte

rest

exp

ense

will

dec

line

in 2

002.

McD

ON

AL

D'S

JA

PA

N I

NIT

IAL

PU

BL

IC O

FF

ER

ING

(IP

O)

GA

IN

In th

ird

quar

ter

2001

, McD

onal

d's

Japa

n, th

e C

ompa

ny's

larg

est m

arke

t in

the

APM

EA

seg

men

t, co

mpl

eted

an

IPO

of

12 m

illio

n sh

ares

at a

n of

feri

ng p

rice

of

4,30

0 Y

en p

er s

hare

($3

4.77

per

sha

re).

The

Com

pany

ow

ns 5

0% o

f M

cDon

ald'

s Ja

pan

whi

le th

e C

ompa

ny's

par

tner

Den

Fuj

ita a

nd h

is f

amily

ow

n ap

prox

imat

ely

26%

and

con

tinue

to b

e in

volv

ed in

the

busi

ness

. The

Com

pany

rec

orde

d a

$137

mill

ion

gain

(pr

e an

d af

ter

tax)

in n

onop

erat

ing

inco

me

to r

efle

ct a

n in

crea

se in

the

carr

ying

val

ue o

f its

inve

stm

ent a

s a

resu

lt of

the

cash

pro

ceed

s fr

om th

e IP

O r

ecei

ved

by M

cDon

ald'

s Ja

pan.

NO

NO

PE

RA

TIN

G E

XP

EN

SE, N

ET

Non

oper

atin

g ex

pens

e in

clud

es m

isce

llane

ous

inco

me

and

expe

nse

item

s su

ch a

s in

tere

st in

com

e, m

inor

ity in

tere

sts,

and

gai

ns a

nd lo

sses

rel

ated

to o

ther

inve

stm

ents

, fin

anci

ngs

and

tran

slat

ion.

Res

ults

in20

01 in

clud

ed th

e w

rite

-off

of

a co

rpor

ate

inve

stm

ent,

the

wri

te-o

ff o

f a

fina

ncin

g

gp

y

McD

onal

d's

Cor

pora

tion

15

rece

ivab

le f

rom

a s

uppl

ier

in L

atin

Am

eric

a an

d m

inor

ity in

tere

st e

xpen

se r

elat

ed to

the

sale

of

real

est

ate

in S

inga

pore

, par

tly o

ffse

t by

tran

slat

ion

gain

s. R

esul

ts in

200

0 re

flec

ted

low

er m

inor

ity in

tere

stex

pens

e an

d lo

wer

tran

slat

ion

loss

es th

an 1

999

and

a ga

in r

elat

ed to

the

sale

of

a pa

rtia

l ow

ners

hip

inte

rest

in a

maj

ority

-ow

ned

inte

rnat

iona

l sub

sidi

ary.

PR

OV

ISIO

N F

OR

IN

CO

ME

TA

XE

S

The

eff

ectiv

e in

com

e ta

x ra

te w

as 2

9.8%

in 2

001,

31.

4% in

200

0 an

d 32

.5%

in 1

999.

The

low

er e

ffec

tive

inco

me

tax

rate

in 2

001

was

pri

mar

ily d

ue to

the

one-

time

bene

fit o

f ta

x la

w c

hang

es in

cer

tain

inte

rnat

iona

l mar

kets

. Als

o co

ntri

butin

g to

the

decr

ease

in th

e in

com

e ta

x ra

te w

as th

e Ja

pan

IPO

gai

n, p

artly

off

set b

y ce

rtai

n re

stau

rant

clo

sing

cha

rges

and

the

Tur

key

asse

t im

pair

men

t cha

rge,

non

e of

whi

ch w

ere

tax-

affe

cted

for

fin

anci

al r

epor

ting

purp

oses

. The

dec

reas

e in

the

inco

me

tax

rate

in 2

000

was

the

resu

lt of

a ta

x be

nefi

t res

ultin

g fr

om a

n in

tern

atio

nal t

rans

actio

n. T

he C

ompa

ny e

xpec

ts it

s20

02 e

ffec

tive

inco

me

tax

rate

to b

e ap

prox

imat

ely

32.0

% to

33.

0%.

Con

solid

ated

net

def

erre

d ta

x lia

bilit

ies

incl

uded

tax

asse

ts, n

et o

f va

luat

ion

allo

wan

ce, o

f $7

20 m

illio

n in

200

1 an

d $5

23 m

illio

n in

200

0. S

ubst

antia

lly a

ll of

the

net t

ax a

sset

s ar

ose

in th

e U

.S. a

nd o

ther

prof

itabl

e m

arke

ts.

NE

T I

NC

OM

E A

ND

NE

T I

NC

OM

E P

ER

CO

MM

ON

SH

AR

E

In 2

001,

net

inco

me

decr

ease

d 17

%, a

nd d

ilute

d ne

t inc

ome

per

com

mon

sha

re d

ecre

ased

14%

. Exc

ludi

ng th

e sp

ecia

l ite

ms

note

d in

the

foot

note

to th

e ta

ble

on p

age

9, n

et in

com

e de

crea

sed

8%, a

nddi

lute

d ne

t inc

ome

per

com

mon

sha

re d

ecre

ased

5%

in c

onst

ant c

urre

ncie

s. I

n 20

00, n

et in

com

e in

crea

sed

2%, a

nd d

ilute

d ne

t inc

ome

per

com

mon

sha

re in

crea

sed

5%. O

n a

cons

tant

cur

renc

y ba

sis,

thes

ein

crea

ses

wer

e 6%

and

10%

. The

spr

ead

betw

een

the

perc

ent c

hang

e in

net

inco

me

and

dilu

ted

net i

ncom

e pe

r co

mm

on s

hare

for

bot

h ye

ars

was

due

to lo

wer

wei

ghte

d av

erag

e sh

ares

out

stan

ding

as

are

sult

of s

hare

s re

purc

hase

d an

d a

less

dilu

tive

effe

ct f

rom

sto

ck o

ptio

ns.

Cas

h fl

ows

The

Com

pany

gen

erat

es s

igni

fica

nt c

ash

from

ope

ratio

ns a

nd h

as s

ubst

antia

l cre

dit c

apac

ity to

fun

d op

erat

ing

and

disc

retio

nary

spe

ndin

g. C

ash

from

ope

ratio

ns to

tale

d $2

.7 b

illio

n in

200

1 an

d, a

lthou

ghsl

ight

ly lo

wer

than

the

amou

nt in

200

0, e

xcee

ded

capi

tal e

xpen

ditu

res

for

the

elev

enth

con

secu

tive

year

. In

2000

, cas

h fr

om o

pera

tions

tota

led

$2.8

bill

ion.

Thi

s am

ount

was

less

than

in 1

999,

pri

mar

ily d

ueto

hig

her

inco

me

tax

paym

ents

in 2

000

as a

res

ult o

f bo

th lo

wer

tax

bene

fits

rel

ated

to s

tock

opt

ion

exer

cise

s an

d hi

gher

gai

ns o

n th

e te

rmin

atio

n of

for

eign

cur

renc

y ex

chan

ge a

gree

men

ts. C

ash

prov

ided

by o

pera

tions

, alo

ng w

ith b

orro

win

gs a

nd o

ther

sou

rces

of

cash

, is

used

for

cap

ital e

xpen

ditu

res,

sha

re r

epur

chas

es, d

ivid

ends

and

deb

t rep

aym

ents

.

--------------------------------------------------------------------------------

Cash provided by operations

--------------------------------------------------------------------------------

DOLLARS IN MILLIONS 2001 2000 1999

================================================================================

Cash provided by operations $ 2,688 $ 2,751 $ 3,009

Free cash flow/(1)/ 782 806 1,141


as a percent of capital expenditures 141% 141% 161%


as a percent of average total debt 31 35 42

================================================================================

(1)

Cas

h pr

ovid

ed b

y op

erat

ions

less

cap

ital e

xpen

ditu

res.

In a

dditi

on to

its

free

cas

h fl

ow, t

he C

ompa

ny c

an m

eet s

hort

-ter

m f

undi

ng n

eeds

thro

ugh

com

mer

cial

pap

er b

orro

win

gs a

nd li

ne o

f cr

edit

agre

emen

ts. A

ccor

ding

ly, t

he C

ompa

ny s

trat

egic

ally

and

purp

osef

ully

mai

ntai

ns a

rel

ativ

ely

low

cur

rent

rat

io, w

hich

was

.81

at y

ear-

end

2001

.

CA

PIT

AL

EX

PE

ND

ITU

RE

S A

ND

RE

STA

UR

AN

T D

EV

EL

OP

ME

NT

Cap

ital e

xpen

ditu

res

decr

ease

d $3

9 m

illio

n or

2%

in 2

001

and

incr

ease

d $7

7 m

illio

n or

4%

in 2

000.

Cap

ital e

xpen

ditu

res

for

McD

onal

d's

rest

aura

nts

in 2

001,

200

0 an

d 19

99 r

efle

cted

our

str

ateg

y of

leas

ing

a hi

gher

pro

port

ion

of n

ew s

ites

and

the

U.S

. bui

ldin

g pr

ogra

m, w

hich

giv

es f

ranc

hise

es th

e op

tion

to o

wn

new

res

taur

ant b

uild

ings

. Abo

ut 8

0% o

f ne

w a

nd r

ebui

lt U

.S. t

radi

tiona

l fra

nchi

sed

and

affi

liate

d re

stau

rant

bui

ldin

gs in

200

1 an

d 20

00 a

re o

wne

d by

fra

nchi

sees

and

aff

iliat

es. T

he d

ecre

ase

in c

apita

l exp

endi

ture

s in

200

1 w

as p

rim

arily

due

to lo

wer

spe

ndin

g in

Eur

ope

and

Lat

in A

mer

ica

and

gp

y

wea

ker

fore

ign

curr

enci

es, p

artly

off

set b

y ad

ditio

nal e

xpen

ditu

res

for

Part

ner

Bra

nds

and

McD

onal

d's

rest

aura

nt b

usin

ess

in th

e U

.S. a

nd C

hina

. Cap

ital e

xpen

ditu

res

in 2

000

incr

ease

d du

e to

hig

her

spen

ding

for

Par

tner

Bra

nds

and

the

cons

olid

atio

n of

Arg

entin

a an

d In

done

sia,

par

tly o

ffse

t by

wea

ker

fore

ign

curr

enci

es.

App

roxi

mat

ely

60%

of

capi

tal e

xpen

ditu

res

was

inve

sted

in m

ajor

mar

kets

exc

ludi

ng J

apan

in 2

001,

200

0 an

d 19

99 (

Japa

n is

acc

ount

ed f

or u

nder

the

equi

ty m

etho

d, a

nd a

ccor

ding

ly, i

ts c

apita

lex

pend

iture

s ar

e no

t inc

lude

d in

con

solid

ated

am

ount

s). C

apita

l exp

endi

ture

s in

mar

kets

out

side

the

U.S

. acc

ount

ed f

or a

bout

65%

of

tota

l exp

endi

ture

s in

200

1 an

d ab

out 7

0% in

200

0 an

d 19

99.

The

Com

pany

's e

xpen

ditu

res

for

new

res

taur

ants

in th

e U

.S. a

re lo

wer

than

they

wou

ld h

ave

been

as

a re

sult

of th

e le

asin

g st

rate

gy a

nd th

e U

.S. b

uild

ing

prog

ram

. For

new

fra

nchi

sed

and

affi

liate

dre

stau

rant

s, w

hich

rep

rese

nt a

bout

85%

of

U.S

. res

taur

ants

, the

Com

pany

gen

eral

ly in

curs

no

capi

tal e

xpen

ditu

res.

How

ever

, the

Com

pany

mai

ntai

ns lo

ng-t

erm

occ

upan

cy r

ight

s fo

r th

e la

nd a

nd r

ecei

ves

rela

ted

rent

al in

com

e.

Whi

le th

e C

ompa

ny n

o lo

nger

mak

es s

igni

fica

nt e

xpen

ditu

res

on n

ew s

ites

in th

e U

.S.,

we

cont

inue

to f

ocus

on

the

Syst

em's

ave

rage

dev

elop

men

t cos

ts (

land

, bui

ldin

g an

d eq

uipm

ent)

to e

nsur

e an

appr

opri

ate

retu

rn o

n in

vest

men

t for

the

Syst

em. A

vera

ge d

evel

opm

ent c

osts

for

new

trad

ition

al r

esta

uran

ts in

the

U.S

. Sys

tem

wer

e $1

.7 m

illio

n in

200

1, $

1.6

mill

ion

in 2

000

and

$1.5

mill

ion

in 1

999.

The

16 M

cDon

ald'

s C

orpo

ratio

n

incr

ease

s w

ere

prim

arily

due

to th

e co

nstr

uctio

n of

larg

er f

acili

ties

desi

gned

to s

uppo

rt h

ighe

r av

erag

e sa

les

volu

mes

.

Cer

tain

of

the

land

the

Com

pany

leas

es in

the

U.S

. is

leas

ed f

rom

Sys

tem

Cap

ital C

orpo

ratio

n (S

CC

). T

he C

ompa

ny a

nd s

ix o

ther

una

ffili

ated

com

pani

es th

at s

uppl

y th

e M

cDon

ald'

s Sy

stem

are

equ

alow

ners

of

SCC

. No

empl

oyee

s of

SC

C a

re e

mpl

oyee

s of

the

seve

n sh

areh

olde

rs. T

he C

ompa

ny's

inve

stm

ent i

n SC

C is

acc

ount

ed f

or o

n th

e co

st b

asis

. SC

C's

pur

pose

is to

pro

vide

fun

ding

to M

cDon

ald'

sfr

anch

isee

s, s

uppl

iers

to th

e M

cDon

ald'

s Sy

stem

and

McD

onal

d's

Cor

pora

tion

and

to b

uild

equ

ity w

ithin

SC

C th

at w

ill b

enef

it th

e M

cDon

ald'

s Sy

stem

. Its

fun

ctio

n is

sim

ilar

to th

at o

f a

coop

erat

ive.

SC

C's

prim

ary

oper

atin

g ac

tiviti

es in

clud

e (1

) pr

ovid

ing

loan

s to

qua

lifyi

ng U

.S. f

ranc

hise

es to

pur

chas

e ex

istin

g re

stau

rant

bus

ines

ses

as w

ell a

s fi

nanc

e eq

uipm

ent,

build

ings

and

wor

king

cap

ital,

(2)

cont

ract

ing

for

cons

truc

tion

of r

esta

uran

t bui

ldin

gs a

nd s

ellin

g th

em to

U.S

. fra

nchi

sees

, (3)

pur

chas

ing

acco

unts

rec

eiva

ble

and

fina

ncin

g in

vent

ory

and

othe

r ne

eds

of e

ligib

le s

uppl

iers

and

dis

trib

utor

s, a

nd (

4)ac

quir

ing

and

leas

ing

land

to M

cDon

ald'

s C

orpo

ratio

n fo

r ne

w r

esta

uran

ts, p

rim

arily

in th

e U

.S. T

he C

ompa

ny's

com

mitm

ents

und

er th

ese

leas

es a

re in

clud

ed in

ope

ratin

g le

ase

com

mitm

ents

on

page

s 19

and

31 a

nd to

tal a

ppro

xim

atel

y $1

4 m

illio

n an

nual

ly b

ased

on

curr

ent i

nter

est r

ates

.

SCC

fun

ds it

self

in th

e ca

pita

l mar

kets

on

an in

depe

nden

t bas

is. M

oody

's, S

tand

ard

& P

oor's

and

Fitc

h pe

riod

ical

ly r

evie

w S

CC

, inc

ludi

ng r

evie

ws

of k

ey p

erfo

rman

ce in

dica

tors

and

ass

et q

ualit

y. T

hese

ratin

g ag

enci

es c

urre

ntly

rat

e SC

C's

fun

ding

sub

sidi

ary'

s co

mm

erci

al p

aper

A-1

, P-1

and

F1;

and

its

long

-ter

m d

ebt A

a2, A

A a

nd A

A, r

espe

ctiv

ely.

SC

C c

ompe

tes

with

oth

er le

nder

s w

ho p

rovi

de s

imila

rfi

nanc

ing

to f

ranc

hise

es a

nd s

uppl

iers

.

SCC

is n

ot p

erm

itted

to h

old

McD

onal

d's

stoc

k, a

nd M

cDon

ald'

s ha

s no

com

mitm

ents

or

guar

ante

es th

at p

rovi

de f

or th

e po

tent

ial i

ssua

nce

of it

s st

ock

to S

CC

. SC

C d

oes

not e

ngag

e in

spe

cula

tive

deri

vativ

e ac

tiviti

es, a

nd S

CC

doe

s no

t hed

ge M

cDon

ald'

s po

sitio

ns. I

n ad

ditio

n, n

o M

cDon

ald'

s em

ploy

ee is

per

mitt

ed to

inve

st in

SC

C.

--------------------------------------------------------------------------------

Capital expenditures

--------------------------------------------------------------------------------

IN MILLIONS 2001 2000 1999

================================================================================

New restaurants $ 1,198 $ 1,308 $ 1,231

Existing restaurants/(1)/ 571 507 515

Other properties/(2)/ 137 130 122

--------------------------------------------------------------------------------

Total $ 1,906 $ 1,945 $ 1,868

================================================================================

Total assets $22,535 $21,684 $20,983

================================================================================

(1)

Incl

udes

tech

nolo

gy to

impr

ove

serv

ice

and

food

qua

lity

and

enha

ncem

ents

to o

lder

fac

ilitie

s in

ord

er to

ach

ieve

hig

her

leve

ls o

f cu

stom

er s

atis

fact

ion.

(2)

Prim

arily

for

com

pute

r eq

uipm

ent a

nd f

urni

shin

gs f

or o

ffic

e bu

ildin

gs.

Ave

rage

dev

elop

men

t cos

ts o

utsi

de th

e U

.S. v

ary

wid

ely

by m

arke

t dep

endi

ng o

n th

e ty

pes

of r

esta

uran

ts b

uilt

and

the

real

est

ate

and

cons

truc

tion

cost

s w

ithin

eac

h m

arke

t. T

hese

cos

ts, w

hich

incl

ude

land

, bui

ldin

gs a

nd e

quip

men

t ow

ned

by th

e C

ompa

ny, a

re m

anag

ed th

roug

h th

e us

e of

opt

imal

ly s

ized

res

taur

ants

, con

stru

ctio

n an

d de

sign

eff

icie

ncie

s, s

tand

ardi

zatio

n an

d gl

obal

sou

rcin

g. I

n ad

ditio

n,

gp

y

fore

ign

curr

ency

flu

ctua

tions

aff

ect a

vera

ge d

evel

opm

ent c

osts

.

Ave

rage

dev

elop

men

t cos

ts f

or n

ew tr

aditi

onal

res

taur

ants

in m

ajor

mar

kets

out

side

the

U.S

. exc

ludi

ng J

apan

wer

e ap

prox

imat

ely

$1.5

mill

ion

in 2

001,

$1.

6 m

illio

n in

200

0 an

d $1

.8 m

illio

n in

199

9.A

vera

ge a

nnua

l sal

es f

or n

ew tr

aditi

onal

res

taur

ants

in th

e sa

me

mar

kets

wer

e ab

out $

1.4

mill

ion

in 2

001,

$1.

5 m

illio

n in

200

0 an

d $1

.7 m

illio

n in

199

9. A

vera

ge d

evel

opm

ent c

osts

for

new

sat

ellit

ere

stau

rant

s lo

cate

d in

Can

ada

and

Japa

n, w

hich

com

pris

e m

ore

than

90%

of

the

sate

llite

s ou

tsid

e th

e U

.S.,

wer

e ab

out $

200,

000

(exc

ludi

ng le

ase

cost

s) in

200

1, 2

000

and

1999

. The

use

of

thes

e sm

all,

limite

d-m

enu

rest

aura

nts,

for

whi

ch th

e la

nd a

nd b

uild

ing

gene

rally

are

leas

ed, h

as a

llow

ed e

xpan

sion

into

are

as th

at o

ther

wis

e w

ould

not

hav

e be

en f

easi

ble.

The

Com

pany

and

its

affi

liate

s ow

ned

38%

of

the

land

for

its

rest

aura

nt s

ites

at y

ear-

end

2001

and

40%

at y

ear-

end

2000

.

Cap

ital e

xpen

ditu

res

by a

ffili

ates

, whi

ch w

ere

not i

nclu

ded

in c

onso

lidat

ed a

mou

nts,

wer

e ab

out $

181

mill

ion

in 2

001,

$20

4 m

illio

n in

200

0 an

d $2

59 m

illio

n in

199

9. T

he d

ecre

ase

in 2

000

was

pri

mar

ilydu

e to

the

cons

olid

atio

n of

Arg

entin

a in

200

0.

Syst

emw

ide

rest

aura

nts

at y

ear

end/

(1)/

2001 2000 1999

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

U.S. 13,099 12,804 12,629

Europe 5,794 5,460 4,943

APMEA 7,321 6,771 6,097

Latin America 1,581 1,510 1,299

Canada 1,223 1,154 1,125

Partner Brands 1,075 1,008 216

--------------------------------------------------------------------------------

Total 30,093 28,707 26,309

================================================================================

(1)

Incl

udes

sat

ellit

e un

its a

t Dec

embe

r 31

, 200

1, 2

000

and

1999

as

follo

ws:

U.S

.--1

,004

, 999

, 1,0

48; E

urop

e--6

3, 4

6, 4

4; A

PME

A (

prim

arily

Jap

an)-

-1,8

79, 1

,681

, 1,3

54; L

atin

Am

eric

a--4

6, 4

5, 4

1; a

nd C

anad

a--3

07, 2

80, 2

59.

McD

onal

d's

cont

inue

s to

foc

us o

n m

anag

ing

capi

tal o

utla

ys e

ffec

tivel

y th

roug

h se

lect

ive

expa

nsio

n. I

n 20

01, t

he C

ompa

ny a

dded

1,3

19 M

cDon

ald'

s re

stau

rant

s Sy

stem

wid

e, c

ompa

red

with

1,6

06 in

200

0an

d 1,

598

in 1

999.

In

addi

tion,

the

Com

pany

add

ed 6

7 re

stau

rant

s in

200

1 op

erat

ed b

y Pa

rtne

r B

rand

s, c

ompa

red

with

792

res

taur

ants

in 2

000,

707

of

whi

ch w

ere

the

resu

lt of

the

Bos

ton

Mar

ket

acqu

isiti

on. I

n 20

02, t

he C

ompa

ny e

xpec

ts to

add

1,3

00 to

1,4

00 M

cDon

ald'

s re

stau

rant

s an

d op

en 1

00 to

150

new

Par

tner

Bra

nds'

res

taur

ants

.

In 2

001,

mor

e th

an 6

0% o

f M

cDon

ald'

s re

stau

rant

add

ition

s w

as in

the

maj

or m

arke

ts, a

nd w

e an

ticip

ate

a si

mila

r pe

rcen

t for

200

2. A

lmos

t 50%

of

Com

pany

-ope

rate

d re

stau

rant

s an

d ne

arly

85%

of

fran

chis

ed r

esta

uran

ts w

ere

loca

ted

in th

e m

ajor

mar

kets

at t

he e

nd o

f 20

01. F

ranc

hise

es a

nd a

ffili

ates

ope

rate

d 74

% o

f M

cDon

ald'

s re

stau

rant

s at

yea

r-en

d 20

01. P

artn

er B

rand

s' r

esta

uran

ts a

re p

rim

arily

Com

pany

-ope

rate

d.

McD

onal

d's

Cor

pora

tion

17

SHA

RE

RE

PU

RC

HA

SES

AN

D D

IVID

EN

DS

The

Com

pany

use

s fr

ee c

ash

flow

and

cre

dit c

apac

ity to

rep

urch

ase

shar

es, a

s w

e be

lieve

this

enh

ance

s sh

areh

olde

r va

lue.

Dur

ing

2001

, the

Com

pany

pur

chas

ed 3

6.1

mill

ion

shar

es f

or a

ppro

xim

atel

y $1

.1bi

llion

. Cum

ulat

ive

shar

e pu

rcha

ses

over

the

past

fiv

e ye

ars

tota

led

$6.0

bill

ion

or 1

87.4

mill

ion

shar

es. I

n 20

02, t

he C

ompa

ny b

egan

pur

chas

ing

shar

es u

nder

a n

ew $

5.0

billi

on s

hare

rep

urch

ase

prog

ram

anno

unce

d in

Oct

ober

200

1. W

e ex

pect

to p

urch

ase

shar

es u

nder

this

pro

gram

ove

r th

e ne

xt f

our

year

s, d

epen

ding

on

free

cas

h fl

ow.

To

redu

ce th

e ov

eral

l cos

t of

trea

sury

sto

ck p

urch

ases

, the

Com

pany

sel

ls c

omm

on e

quity

put

opt

ions

in c

onne

ctio

n w

ith it

s sh

are

repu

rcha

se p

rogr

am a

nd r

ecei

ves

prem

ium

s fo

r th

ese

optio

ns. T

heC

ompa

ny s

old

12.2

mill

ion

com

mon

equ

ity p

ut o

ptio

ns in

200

1 an

d 16

.8 m

illio

n in

200

0 an

d re

ceiv

ed p

rem

ium

s of

$32

mill

ion

in 2

001

and

$56

mill

ion

in 2

000.

The

se p

rem

ium

s w

ere

refl

ecte

d in

shar

ehol

ders

' equ

ity a

s a

redu

ctio

n of

the

cost

of

trea

sury

sto

ck p

urch

ased

. At D

ecem

ber

31, 2

001,

12.

2 m

illio

n co

mm

on e

quity

put

opt

ions

wer

e ou

tsta

ndin

g, o

f w

hich

3.0

mill

ion

wer

e ex

erci

sed

inFe

brua

ry 2

002

at a

cos

t of

$87

mill

ion.

The

rem

aini

ng o

ptio

ns e

xpir

e at

var

ious

dat

es th

roug

h N

ovem

ber

2002

, with

exe

rcis

e pr

ices

bet

wee

n $2

6.37

and

$30

.23.

Dur

ing

2001

, the

Com

pany

als

o en

tere

d in

to e

quity

for

war

d co

ntra

cts

in c

onne

ctio

n w

ith it

s sh

are

repu

rcha

se p

rogr

am. T

he e

quity

for

war

d co

ntra

cts,

tota

ling

$151

mill

ion

for

5.5

mill

ion

shar

es, s

ettle

d in

gp

y

Mar

ch 2

002

at a

n av

erag

e pr

ice

of $

27.4

1 pe

r sh

are.

Giv

en th

e C

ompa

ny's

ret

urns

on

equi

ty a

nd a

sset

s, m

anag

emen

t bel

ieve

s it

is p

rude

nt to

rei

nves

t a s

igni

fica

nt p

ortio

n of

ear

ning

s ba

ck in

to th

e bu

sine

ss a

nd u

se f

ree

cash

flo

w f

or s

hare

rep

urch

ases

.A

ccor

ding

ly, t

he c

omm

on s

tock

div

iden

d yi

eld

is m

odes

t. H

owev

er, t

he C

ompa

ny h

as p

aid

divi

dend

s on

com

mon

sto

ck f

or 2

6 co

nsec

utiv

e ye

ars

and

has

incr

ease

d th

e di

vide

nd a

mou

nt e

very

yea

r.A

dditi

onal

div

iden

d in

crea

ses

will

be

cons

ider

ed a

fter

rev

iew

ing

retu

rns

to s

hare

hold

ers,

pro

fita

bilit

y ex

pect

atio

ns a

nd f

inan

cing

nee

ds. C

ash

divi

dend

s ar

e de

clar

ed a

nd p

aid

on a

n an

nual

bas

is. A

s in

the

past

, fut

ure

divi

dend

s w

ill b

e de

clar

ed a

t the

dis

cret

ion

of th

e B

oard

of

Dir

ecto

rs.

Fina

ncia

l pos

ition

and

cap

ital r

esou

rces

TO

TA

L A

SSE

TS

AN

D R

ET

UR

NS

Tot

al a

sset

s gr

ew b

y $8

51 m

illio

n or

4%

in 2

001

and

$700

mill

ion

or 3

% in

200

0. A

t yea

r-en

d 20

01 a

nd 2

000,

mor

e th

an 6

0% o

f co

nsol

idat

ed a

sset

s w

as lo

cate

d in

the

maj

or m

arke

ts e

xclu

ding

Jap

an. N

etpr

oper

ty a

nd e

quip

men

t ros

e $2

42 m

illio

n in

200

1 an

d re

pres

ente

d 77

% o

f to

tal a

sset

s at

yea

r en

d.

Ope

ratin

g in

com

e is

use

d to

com

pute

ret

urn

on a

vera

ge a

sset

s, w

hile

net

inco

me

is u

sed

to c

alcu

late

ret

urn

on a

vera

ge c

omm

on e

quity

. Mon

th-e

nd b

alan

ces

are

used

to c

ompu

te b

oth

aver

age

asse

ts a

ndav

erag

e co

mm

on e

quity

.

--------------------------------------------------------------------------------

Returns on assets and equity

--------------------------------------------------------------------------------

2001/(1)/ 2000 1999

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Return on average assets 14.1% 15.9% 16.6%

Return on average common equity 19.1 21.6 20.8

================================================================================

(1)

Exc

lude

s th

e sp

ecia

l ite

ms

note

d in

foo

tnot

e 2

to th

e ta

ble

on p

age

9. I

nclu

ding

the

spec

ial i

tem

s, r

etur

n on

ave

rage

ass

ets

was

12.

3% a

nd r

etur

n on

ave

rage

com

mon

equ

ity w

as 1

7.5%

.

Bot

h re

turn

on

aver

age

asse

ts a

nd r

etur

n on

ave

rage

com

mon

equ

ity d

eclin

ed in

200

1, p

rim

arily

due

to lo

wer

ope

ratin

g in

com

e as

a r

esul

t of

cons

umer

con

fide

nce

issu

es r

egar

ding

the

Eur

opea

n be

efsu

pply

and

wea

k op

erat

ing

resu

lts in

APM

EA

and

Lat

in A

mer

ica

prev

ious

ly d

iscu

ssed

. In

gene

ral,

retu

rns

bene

fite

d fr

om th

e C

ompa

ny's

con

tinue

d fo

cus

on m

ore

effi

cien

t cap

ital d

eplo

ymen

t. T

his

incl

uded

a m

ore

prud

ent s

ite s

elec

tion

proc

ess,

leas

ing

a hi

gher

pro

port

ion

of n

ew s

ites,

the

U.S

. bui

ldin

g pr

ogra

m a

nd th

e us

e of

fre

e ca

sh f

low

for

sha

re r

epur

chas

es. I

n 20

00, r

etur

n on

ave

rage

com

mon

equi

ty b

enef

ited

from

an

incr

ease

in th

e av

erag

e am

ount

of

com

mon

equ

ity p

ut o

ptio

ns o

utst

andi

ng c

ompa

red

with

199

9, w

hich

red

uced

ave

rage

com

mon

equ

ity.

FIN

AN

CIN

GS

AN

D M

AR

KE

T R

ISK

The

Com

pany

gen

eral

ly b

orro

ws

on a

long

-ter

m b

asis

and

is e

xpos

ed to

the

impa

ct o

f in

tere

st-r

ate

chan

ges

and

fore

ign

curr

ency

flu

ctua

tions

. In

man

agin

g th

e im

pact

of

thes

e ch

ange

s, th

e C

ompa

ny u

ses

inte

rest

-rat

e ex

chan

ge a

gree

men

ts a

nd f

inan

ces

in th

e cu

rren

cies

in w

hich

ass

ets

are

deno

min

ated

. All

deri

vativ

es u

sed

to m

inim

ize

thes

e ri

sks

wer

e re

cord

ed a

t fai

r va

lue

in th

e C

ompa

ny's

Con

solid

ated

bala

nce

shee

t at D

ecem

ber

31, 2

001,

and

tota

led

$213

mill

ion

in m

isce

llane

ous

othe

r as

sets

and

$13

4 m

illio

n in

oth

er lo

ng-t

erm

liab

ilitie

s. S

ee s

umm

ary

of s

igni

fica

nt a

ccou

ntin

g po

licie

s re

late

d to

fina

ncia

l ins

trum

ents

on

page

s 27

-28

for

addi

tiona

l inf

orm

atio

n re

gard

ing

thei

r us

e an

d th

e im

pact

of

SFA

S N

o.13

3 re

gard

ing

deri

vativ

es.

The

Com

pany

use

s m

ajor

cap

ital m

arke

ts, b

ank

fina

ncin

gs a

nd d

eriv

ativ

es to

mee

t its

fin

anci

ng r

equi

rem

ents

and

red

uce

inte

rest

exp

ense

. For

exa

mpl

e, f

orei

gn c

urre

ncy

exch

ange

agr

eem

ents

inco

njun

ctio

n w

ith b

orro

win

gs h

elp

obta

in d

esir

ed c

urre

ncie

s at

attr

activ

e ra

tes

and

mat

uriti

es. I

nter

est-

rate

exc

hang

e ag

reem

ents

eff

ectiv

ely

conv

ert f

ixed

-rat

e to

flo

atin

g-ra

te d

ebt,

or v

ice

vers

a. T

heC

ompa

ny a

lso

man

ages

the

leve

l of

fixe

d-ra

te d

ebt t

o ta

ke a

dvan

tage

of

chan

ges

in in

tere

st r

ates

.

The

Com

pany

use

s fo

reig

n cu

rren

cy d

ebt a

nd d

eriv

ativ

es to

hed

ge c

erta

in f

orei

gn c

urre

ncy

roya

lties

, int

erco

mpa

ny f

inan

cing

s an

d lo

ng-t

erm

inve

stm

ents

in f

orei

gn s

ubsi

diar

ies

and

affi

liate

s. T

his

redu

ces

the

impa

ct o

f fl

uctu

atin

g fo

reig

n cu

rren

cies

on

net i

ncom

e an

d sh

areh

olde

rs' e

quity

. Tot

al f

orei

gn c

urre

ncy

deno

min

ated

deb

t, in

clud

ing

the

effe

cts

of f

orei

gn c

urre

ncy

exch

ange

agr

eem

ents

, was

$5.

0bi

llion

and

$5.

1 bi

llion

at y

ear-

end

2001

and

200

0, r

espe

ctiv

ely.

18 M

cDon

ald'

s C

orpo

ratio

n

The

Com

pany

doe

s no

t hav

e si

gnif

ican

t exp

osur

e to

any

indi

vidu

al c

ount

erpa

rty

and

has

mas

ter

agre

emen

ts th

at c

onta

in n

ettin

g ar

rang

emen

ts. C

erta

in o

f th

ese

agre

emen

ts a

lso

requ

ire

each

par

ty to

pos

tco

llate

ral i

f cr

edit

ratin

gs f

all b

elow

, or

aggr

egat

e ex

posu

res

exce

ed, c

erta

in c

ontr

actu

al li

mits

. At D

ecem

ber

31, 2

001,

nei

ther

the

Com

pany

nor

its

coun

terp

artie

s w

as r

equi

red

to p

ost c

olla

tera

l for

any

gp

y

oblig

atio

n.

--------------------------------------------------------------------------------

Debt highlights/(1)/

--------------------------------------------------------------------------------

2001 2000 1999

================================================================================

Fixed-rate debt as a percent of total debt 45% 58% 70%

Weighted-average annual interest rate

of total debt 5.4 5.8 5.9

Foreign currency-denominated debt as a

percent of total debt 57 60 76

Total debt as a percent of total capitalization

(total debt and total shareholders' equity) 48 48 43

================================================================================

(1)

All

perc

enta

ges

are

as o

f D

ecem

ber

31, e

xcep

t for

the

wei

ghte

d-av

erag

e an

nual

inte

rest

rat

e, w

hich

is f

or th

e ye

ar.

Moo

dy's

, Sta

ndar

d &

Poo

r's a

nd F

itch

curr

ently

rat

e M

cDon

ald'

s de

bt A

a3, A

+ a

nd A

A, r

espe

ctiv

ely.

A s

tron

g ra

ting

is im

port

ant t

o th

e C

ompa

ny b

ecau

se o

f its

glo

bal d

evel

opm

ent p

lans

. The

Com

pany

has

not e

xper

ienc

ed, a

nd d

oes

not e

xpec

t to

expe

rien

ce, d

iffi

culty

in o

btai

ning

fin

anci

ng o

r in

ref

inan

cing

exi

stin

g de

bt. C

erta

in o

f th

e C

ompa

ny's

deb

t obl

igat

ions

con

tain

cro

ss-d

efau

lt pr

ovis

ions

and

rest

rict

ions

on

Com

pany

and

sub

sidi

ary

mor

tgag

es a

nd th

e lo

ng-t

erm

deb

t of

cert

ain

subs

idia

ries

. The

re a

re n

o pr

ovis

ions

in th

e C

ompa

ny's

deb

t obl

igat

ions

that

wou

ld a

ccel

erat

e re

paym

ent o

f de

bt a

s a

resu

lt of

a c

hang

e in

cre

dit r

atin

gs.

At y

ear-

end

2001

, the

Com

pany

had

$1.

3 bi

llion

ava

ilabl

e un

der

com

mitt

ed li

ne o

f cr

edit

agre

emen

ts (

see

debt

fin

anci

ng n

ote

on p

age

31)

as w

ell a

s $1

.2 b

illio

n un

der

a U

.S. s

helf

reg

istr

atio

n an

d $1

.1bi

llion

und

er a

Eur

o M

ediu

m-T

erm

Not

es p

rogr

am f

or f

utur

e de

bt is

suan

ce. I

n ea

rly

2002

, the

Com

pany

issu

ed $

450

mill

ion

of M

ediu

m-T

erm

Not

es (

$150

mill

ion

at a

rat

e of

4.1

5% d

ue 2

005

and

$300

mill

ion

at a

rat

e of

5.7

5% d

ue 2

012)

und

er th

e U

.S. s

helf

reg

istr

atio

n to

pay

dow

n co

mm

erci

al p

aper

. At t

he ti

me

of th

ese

issu

ance

s, th

e C

ompa

ny e

nter

ed in

to in

tere

st-r

ate

exch

ange

agr

eem

ents

to c

onve

rtfi

xed-

rate

inte

rest

pay

men

ts o

n th

e de

bt to

a f

loat

ing-

rate

bas

ed o

n L

IBO

R. A

lso

in e

arly

200

2, th

e C

ompa

ny r

edee

med

$50

mill

ion

of 6

.0%

Med

ium

-Ter

m N

otes

ori

gina

lly d

ue 2

008.

The

not

es w

ere

rede

emed

at 1

00%

of

prin

cipa

l plu

s ac

crue

d in

tere

st.

The

Com

pany

man

ages

its

debt

por

tfol

io in

res

pons

e to

cha

nges

in in

tere

st r

ates

and

for

eign

cur

renc

y ra

tes

by p

erio

dica

lly r

etir

ing,

red

eem

ing

and

repu

rcha

sing

deb

t, te

rmin

atin

g ex

chan

ge a

gree

men

ts a

ndus

ing

deri

vativ

es. T

he C

ompa

ny d

oes

not u

se d

eriv

ativ

es w

ith a

leve

l of

com

plex

ity o

r w

ith a

ris

k hi

gher

than

the

expo

sure

s to

be

hedg

ed a

nd d

oes

not h

old

or is

sue

deri

vativ

es f

or tr

adin

g pu

rpos

es. A

llex

chan

ge a

gree

men

ts a

re o

ver-

the-

coun

ter

inst

rum

ents

.

The

Com

pany

act

ivel

y he

dges

sel

ecte

d cu

rren

cies

to m

inim

ize

the

cash

exp

osur

e of

for

eign

cur

renc

y ro

yalty

and

oth

er p

aym

ents

rec

eive

d in

the

U.S

. In

addi

tion,

whe

re p

ract

ical

, McD

onal

d's

rest

aura

nts

purc

hase

goo

ds a

nd s

ervi

ces

in lo

cal c

urre

ncie

s re

sulti

ng in

nat

ural

hed

ges,

and

the

Com

pany

typi

cally

fin

ance

s in

loca

l cur

renc

ies,

cre

atin

g ec

onom

ic h

edge

s.

The

Com

pany

's e

xpos

ure

is d

iver

sifi

ed a

mon

g a

broa

d ba

sket

of

curr

enci

es. A

t yea

r-en

d 20

01 a

nd 2

000,

ass

ets

in h

yper

infl

atio

nary

mar

kets

wer

e pr

inci

pally

fin

ance

d in

U.S

. Dol

lars

. The

Com

pany

'sla

rges

t net

ass

et e

xpos

ures

(de

fine

d as

for

eign

cur

renc

y as

sets

less

for

eign

cur

renc

y lia

bilit

ies)

at y

ear

end

wer

e as

fol

low

s:

Foreign currency exposures

--------------------------------------------------------------------------------

IN MILLIONS OF U.S. DOLLARS 2001 2000

================================================================================

Euro $1,251 $1,185

British Pounds Sterling 786 638

Canadian Dollars 738 763

Australian Dollars 516 329

Brazilian Reais 490 491

================================================================================

gp

y

The

Com

pany

pre

pare

d se

nsiti

vity

ana

lyse

s of

its

fina

ncia

l ins

trum

ents

to d

eter

min

e th

e im

pact

of

hypo

thet

ical

cha

nges

in in

tere

st r

ates

and

for

eign

cur

renc

y ex

chan

ge r

ates

on

the

Com

pany

's r

esul

ts o

fop

erat

ions

, cas

h fl

ows

and

the

fair

val

ue o

f its

fin

anci

al in

stru

men

ts. T

he in

tere

st-r

ate

anal

ysis

ass

umed

a o

ne p

erce

ntag

e po

int a

dver

se c

hang

e in

inte

rest

rat

es o

n al

l fin

anci

al in

stru

men

ts b

ut d

id n

otco

nsid

er th

e ef

fect

s of

the

redu

ced

leve

l of

econ

omic

act

ivity

that

cou

ld e

xist

in s

uch

an e

nvir

onm

ent.

The

for

eign

cur

renc

y ra

te a

naly

sis

assu

med

that

eac

h fo

reig

n cu

rren

cy r

ate

wou

ld c

hang

e by

10%

inth

e sa

me

dire

ctio

n re

lativ

e to

the

U.S

. Dol

lar

on a

ll fi

nanc

ial i

nstr

umen

ts; h

owev

er, t

he a

naly

sis

did

not i

nclu

de th

e po

tent

ial i

mpa

ct o

n sa

les

leve

ls o

r lo

cal c

urre

ncy

pric

es o

r th

e ef

fect

of

fluc

tuat

ing

curr

enci

es o

n th

e C

ompa

ny's

ant

icip

ated

for

eign

cur

renc

y ro

yalti

es a

nd o

ther

pay

men

ts r

ecei

ved

in th

e U

.S. B

ased

on

the

resu

lts o

f th

ese

anal

yses

of

the

Com

pany

's f

inan

cial

inst

rum

ents

, nei

ther

a o

nepe

rcen

tage

poi

nt a

dver

se c

hang

e in

inte

rest

rat

es f

rom

200

1 le

vels

nor

a 1

0% a

dver

se c

hang

e in

for

eign

cur

renc

y ra

tes

from

200

1 le

vels

wou

ld m

ater

ially

aff

ect t

he C

ompa

ny's

res

ults

of

oper

atio

ns, c

ash

flow

s or

the

fair

val

ue o

f its

fin

anci

al in

stru

men

ts.

CO

NT

RA

CT

UA

L O

BL

IGA

TIO

NS

AN

D C

OM

MIT

ME

NT

S

The

Com

pany

has

long

-ter

m c

ontr

actu

al o

blig

atio

ns p

rim

arily

in th

e fo

rm o

f le

ase

and

debt

obl

igat

ions

. In

addi

tion,

the

Com

pany

has

long

-ter

m c

ontr

actu

al r

even

ue a

nd c

ash

flow

str

eam

s th

at r

elat

e to

its

fran

chis

e ar

rang

emen

ts. C

ash

prov

ided

by

oper

atio

ns (

incl

udin

g ca

sh p

rovi

ded

by th

ese

fran

chis

e ar

rang

emen

ts)

alon

g w

ith o

ur b

orro

win

g ca

paci

ty a

nd o

ther

sou

rces

of

cash

will

be

used

to s

atis

fy th

eob

ligat

ions

. The

fol

low

ing

tabl

e su

mm

ariz

es th

e C

ompa

ny's

con

trac

tual

obl

igat

ions

and

thei

r ag

greg

ate

mat

uriti

es a

s w

ell a

s fu

ture

min

imum

con

trac

tual

ren

t pay

men

ts d

ue to

the

Com

pany

und

er e

xist

ing

fran

chis

e ar

rang

emen

ts a

s of

Dec

embe

r 31

, 200

1 (s

ee d

iscu

ssio

ns o

f ca

sh f

low

s, f

inan

cial

pos

ition

and

cap

ital r

esou

rces

in

McDonald's Corporation 19

Management's discussion and analysis as well as the Notes to the consolidated

financial statements for further details):

--------------------------------------------------------------------------------

Contractual cash flows

--------------------------------------------------------------------------------

Outflows Inflows

----------------------------- ----------------------

Operating Debt Minimum rent under

IN MILLIONS leases obligations/(1)/ franchise arrangements

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

2002 $ 841 $ 363 $ 1,669

2003 815 796 1,651

2004 779 1,621 1,624

2005 722 1,072 1,576

2006 690 844 1,532

Thereafter 6,069 4,128 13,368

--------------------------------------------------------------------------------

Total $9,916 $8,824 $21,420

================================================================================

(1)

The

mat

uriti

es r

efle

ct r

ecla

ssif

icat

ions

of

shor

t-te

rm o

blig

atio

ns to

long

-ter

m o

blig

atio

ns o

f $7

50 m

illio

n in

200

4 an

d $5

00 m

illio

n in

200

7 as

they

are

sup

port

ed b

y lo

ng-t

erm

line

of

cred

it ag

reem

ents

.D

ebt o

blig

atio

ns d

o no

t inc

lude

$94

mill

ion

of f

air

valu

e ad

just

men

ts r

ecor

ded

as a

res

ult o

f SF

AS

No.

133,

Acc

ount

ing

for

Der

ivat

ive

Inst

rum

ents

and

Hed

ging

Act

iviti

es.

In a

dditi

on to

long

-ter

m o

blig

atio

ns, t

he C

ompa

ny h

ad c

erta

in o

ther

com

mitm

ents

at D

ecem

ber

31, 2

001.

In

conn

ectio

n w

ith it

s sh

are

repu

rcha

se p

rogr

am, t

he C

ompa

ny h

ad 1

2.2

mill

ion

com

mon

equ

itypu

t opt

ions

out

stan

ding

at D

ecem

ber

31, 2

001,

with

a to

tal e

xerc

ise

pric

e of

$35

0 m

illio

n, o

f w

hich

3.0

mill

ion

wer

e ex

erci

sed

in F

ebru

ary

2002

at a

cos

t of

$87

mill

ion.

The

rem

aini

ng o

ptio

ns e

xpir

e at

vari

ous

date

s th

roug

h N

ovem

ber

2002

with

exe

rcis

e pr

ices

bet

wee

n $2

6.37

and

$30

.23.

In

addi

tion,

the

Com

pany

ent

ered

into

equ

ity f

orw

ard

cont

ract

s, in

con

nect

ion

with

its

shar

e re

purc

hase

pro

gram

,to

talin

g $1

51 m

illio

n fo

r 5.

5 m

illio

n sh

ares

that

set

tled

in M

arch

200

2. T

he C

ompa

ny a

lso

guar

ante

ed c

erta

in a

ffili

ate

and

othe

r lo

ans

tota

ling

$148

mill

ion.

Oth

er m

atte

rs

CR

ITIC

AL

AC

CO

UN

TIN

G P

OL

ICIE

S A

ND

EST

IMA

TE

S

gp

y

Man

agem

ent's

dis

cuss

ion

and

anal

ysis

of

fina

ncia

l con

ditio

n an

d re

sults

of

oper

atio

ns a

re b

ased

upo

n th

e C

ompa

ny's

con

solid

ated

fin

anci

al s

tate

men

ts, w

hich

hav

e be

en p

repa

red

in a

ccor

danc

e w

ithac

coun

ting

prin

cipl

es g

ener

ally

acc

epte

d in

the

U.S

. The

pre

para

tion

of th

ese

fina

ncia

l sta

tem

ents

req

uire

s th

e C

ompa

ny to

mak

e es

timat

es a

nd ju

dgm

ents

that

aff

ect t

he r

epor

ted

amou

nts

of a

sset

s,lia

bilit

ies,

rev

enue

s an

d ex

pens

es a

nd r

elat

ed d

iscl

osur

es. O

n an

ong

oing

bas

is, t

he C

ompa

ny e

valu

ates

its

estim

ates

and

judg

men

ts b

ased

on

hist

oric

al e

xper

ienc

e an

d va

riou

s ot

her

fact

ors

that

are

bel

ieve

dto

be

reas

onab

le u

nder

the

circ

umst

ance

s. A

ctua

l res

ults

may

dif

fer

from

thes

e es

timat

es u

nder

dif

fere

nt a

ssum

ptio

ns o

r co

nditi

ons.

The

Com

pany

ann

ually

rev

iew

s its

fin

anci

al r

epor

ting

and

disc

losu

re p

ract

ices

and

acc

ount

ing

polic

ies

to e

nsur

e th

at it

s fi

nanc

ial r

epor

ting

and

disc

losu

res

prov

ide

accu

rate

and

tran

spar

ent i

nfor

mat

ion

rela

tive

to th

e cu

rren

t eco

nom

ic a

nd b

usin

ess

envi

ronm

ent.

The

Com

pany

bel

ieve

s th

at o

f its

sig

nifi

cant

acc

ount

ing

polic

ies

(see

sum

mar

y of

sig

nifi

cant

acc

ount

ing

polic

ies

mor

e fu

lly d

escr

ibed

on

page

s26

-28)

, the

fol

low

ing

polic

ies

invo

lve

a hi

gher

deg

ree

of ju

dgm

ent a

nd/o

r co

mpl

exity

.

Prop

erty

and

equ

ipm

ent

Prop

erty

and

equ

ipm

ent a

re d

epre

ciat

ed o

r am

ortiz

ed o

ver

thei

r us

eful

live

s ba

sed

on m

anag

emen

t's e

stim

ates

of

the

peri

od o

ver

whi

ch th

e as

sets

will

gen

erat

e re

venu

e. T

he C

ompa

ny p

erio

dica

lly r

evie

ws

thes

e liv

es r

elat

ive

to p

hysi

cal f

acto

rs, e

cono

mic

fac

tors

and

indu

stry

tren

ds.

Ass

et im

pair

men

t

In a

sses

sing

the

reco

vera

bilit

y of

the

Com

pany

's f

ixed

ass

ets,

goo

dwill

and

oth

er n

on-c

urre

nt a

sset

s, th

e C

ompa

ny c

onsi

ders

cha

nges

in e

cono

mic

con

ditio

ns a

nd m

akes

ass

umpt

ions

reg

ardi

ng e

stim

ated

futu

re c

ash

flow

s an

d ot

her

fact

ors.

If

thes

e es

timat

es o

r th

eir

rela

ted

assu

mpt

ions

cha

nge

in th

e fu

ture

, the

Com

pany

may

be

requ

ired

to r

ecor

d im

pair

men

t cha

rges

.

Res

truc

turi

ng a

nd li

tigat

ion

accr

uals

In 2

001,

the

Com

pany

rec

orde

d a

$200

mill

ion

pret

ax s

peci

al c

harg

e re

late

d to

str

ateg

ic c

hang

es a

nd o

ngoi

ng r

esta

uran

t ini

tiativ

es in

the

U.S

. and

cer

tain

inte

rnat

iona

l mar

kets

. The

acc

rual

rec

orde

din

clud

ed e

stim

ates

per

tain

ing

to e

mpl

oyee

term

inat

ion

cost

s an

d re

mai

ning

leas

e ob

ligat

ions

for

clo

sed

faci

litie

s. A

lthou

gh w

e do

not

ant

icip

ate

sign

ific

ant c

hang

es, t

he a

ctua

l cos

ts m

ay d

iffe

r fr

om th

ese

estim

ates

.

From

tim

e to

tim

e, th

e C

ompa

ny is

sub

ject

to p

roce

edin

gs, l

awsu

its a

nd o

ther

cla

ims

prim

arily

rel

ated

to f

ranc

hise

es, s

uppl

iers

, em

ploy

ees,

cus

tom

ers

and

com

petit

ors.

We

are

requ

ired

to a

sses

s th

elik

elih

ood

of a

ny a

dver

se ju

dgm

ents

or

outc

omes

to th

ese

mat

ters

as

wel

l as

pote

ntia

l ran

ges

of p

roba

ble

loss

es. A

det

erm

inat

ion

of th

e am

ount

of

accr

ual r

equi

red,

if a

ny, f

or th

ese

cont

inge

ncie

s is

mad

eaf

ter

care

ful a

naly

sis

of e

ach

mat

ter.

The

req

uire

d ac

crua

l may

cha

nge

in th

e fu

ture

due

to n

ew d

evel

opm

ents

in e

ach

mat

ter

or c

hang

es in

app

roac

h su

ch a

s a

chan

ge in

set

tlem

ent s

trat

egy

in d

ealin

g w

ithth

ese

mat

ters

. The

Com

pany

doe

s no

t bel

ieve

that

any

suc

h m

atte

r w

ill h

ave

a m

ater

ial a

dver

se e

ffec

t on

its f

inan

cial

con

ditio

n or

res

ults

of

oper

atio

ns.

Fina

ncia

l ins

trum

ents

The

Com

pany

's d

eriv

ativ

es a

re r

ecor

ded

in th

e C

onso

lidat

ed b

alan

ce s

heet

at f

air

valu

e. F

air

valu

e is

est

imat

ed u

sing

var

ious

pri

cing

mod

els

or d

isco

unte

d ca

sh f

low

ana

lyse

s th

at in

corp

orat

e qu

oted

mar

ket p

rice

s. T

he u

se o

f di

ffer

ent p

rici

ng m

odel

s or

ass

umpt

ions

cou

ld p

rodu

ce d

iffe

rent

res

ults

.

Inco

me

taxe

s

The

Com

pany

rec

ords

a v

alua

tion

allo

wan

ce to

red

uce

its d

efer

red

tax

asse

ts if

it is

mor

e lik

ely

than

not

that

som

e po

rtio

n or

all

of th

e de

ferr

ed a

sset

s w

ill n

ot b

e re

aliz

ed. W

hile

the

Com

pany

has

cons

ider

ed f

utur

e ta

xabl

e in

com

e an

d on

goin

g fe

asib

le ta

x st

rate

gies

in a

sses

sing

the

need

for

the

valu

atio

n al

low

ance

, if

thes

e es

timat

es a

nd a

ssum

ptio

ns c

hang

e in

the

futu

re, t

he C

ompa

ny m

ay b

ere

quir

ed to

adj

ust i

ts v

alua

tion

allo

wan

ce. T

his

coul

d re

sult

in a

cha

rge

to, o

r an

incr

ease

in, i

ncom

e in

the

peri

od s

uch

dete

rmin

atio

n is

mad

e.

20 M

cDon

ald'

s C

orpo

ratio

n

Def

erre

d U

.S. i

ncom

e ta

xes

have

not

bee

n re

cord

ed f

or b

asis

dif

fere

nces

tota

ling

$2.7

bill

ion

rela

ted

to in

vest

men

ts in

cer

tain

for

eign

sub

sidi

arie

s or

aff

iliat

es. T

he b

asis

dif

fere

nces

con

sist

pri

mar

ily o

fun

dist

ribu

ted

earn

ings

con

side

red

perm

anen

tly in

vest

ed in

the

busi

ness

es. I

f m

anag

emen

t's in

tent

ions

cha

nge

in th

e fu

ture

, def

erre

d ta

xes

may

nee

d to

be

prov

ided

.

In a

dditi

on, t

he C

ompa

ny o

pera

tes

with

in m

ultip

le ta

xing

juri

sdic

tions

and

is s

ubje

ct to

aud

it in

thes

e ju

risd

ictio

ns. T

he C

ompa

ny r

ecor

ds a

ccru

als

for

the

estim

ated

out

com

es o

f th

ese

audi

ts, a

nd th

eac

crua

ls m

ay c

hang

e in

the

futu

re d

ue to

new

dev

elop

men

ts in

eac

h m

atte

r.

NE

W A

CC

OU

NT

ING

ST

AN

DA

RD

S

Goo

dwill

In J

une

2001

, the

Fin

anci

al A

ccou

ntin

g St

anda

rds

Boa

rd is

sued

SFA

S N

o.14

1, B

usin

ess

Com

bina

tions

, eff

ectiv

e fo

r ac

quis

ition

s in

itiat

ed o

n or

aft

er J

uly

1, 2

001,

and

No.

142,

Goo

dwill

and

Oth

erIn

tang

ible

Ass

ets,

eff

ectiv

e fo

r fi

scal

yea

rs b

egin

ning

aft

er D

ecem

ber

15, 2

001.

SFA

S N

o.14

1 re

quir

es th

at th

e pu

rcha

se m

etho

d of

acc

ount

ing

be u

sed

for

all b

usin

ess

com

bina

tions

initi

ated

aft

er J

une

30,

2001

, and

incl

udes

gui

danc

e on

the

initi

al r

ecog

nitio

n an

d m

easu

rem

ent o

f go

odw

ill a

nd o

ther

inta

ngib

le a

sset

s ar

isin

g fr

om b

usin

ess

com

bina

tions

. SFA

S N

o.14

2 in

dica

tes

that

goo

dwill

(an

d in

tang

ible

asse

ts d

eem

ed to

hav

e in

defi

nite

live

s) w

ill n

o lo

nger

be

amor

tized

but

will

be

subj

ect t

o an

nual

impa

irm

ent t

ests

. Oth

er in

tang

ible

ass

ets

will

con

tinue

to b

e am

ortiz

ed o

ver

thei

r us

eful

live

s.

gp

y

The

Com

pany

beg

an a

pply

ing

the

new

rul

es o

n ac

coun

ting

for

good

will

and

oth

er in

tang

ible

ass

ets

Janu

ary

1, 2

002.

App

licat

ion

of th

e no

nam

ortiz

atio

n pr

ovis

ions

of

SFA

S N

o.14

2 w

ould

hav

e in

crea

sed

2001

net

inco

me

by a

ppro

xim

atel

y $3

0 m

illio

n ($

0.02

per

sha

re)

and

is e

xpec

ted

to r

esul

t in

a si

mila

r in

crea

se in

200

2. T

he C

ompa

ny is

per

form

ing

the

firs

t of

requ

ired

goo

dwill

impa

irm

ent t

ests

as

ofJa

nuar

y 1,

200

2, a

nd e

xpec

ts to

rec

ord

a no

n-ca

sh c

harg

e of

abo

ut $

100

mill

ion

afte

r ta

x ($

0.08

per

sha

re),

pri

mar

ily in

cer

tain

Lat

in A

mer

ican

mar

kets

. The

impa

irm

ent c

harg

e re

quir

ed to

be

reco

gniz

edup

on a

dopt

ion

of S

FAS

No.

142

will

be

refl

ecte

d as

the

cum

ulat

ive

effe

ct o

f a

chan

ge in

acc

ount

ing

prin

cipl

e in

the

firs

t qua

rter

of

2002

.

Lon

g-liv

ed a

sset

s

In A

ugus

t 200

1, th

e Fi

nanc

ial A

ccou

ntin

g St

anda

rds

Boa

rd is

sued

SFA

S N

o.14

4, A

ccou

ntin

g fo

r th

e Im

pair

men

t or

Dis

posa

l of

Lon

g-L

ived

Ass

ets,

whi

ch p

rovi

des

addi

tiona

l gui

danc

e on

the

fina

ncia

lac

coun

ting

and

repo

rtin

g fo

r th

e im

pair

men

t or

disp

osal

of

long

-liv

ed a

sset

s. T

he C

ompa

ny a

dopt

ed th

e ne

w r

ules

as

of J

anua

ry 1

, 200

2, a

nd th

e ad

optio

n w

ill n

ot h

ave

a m

ater

ial e

ffec

t on

the

Com

pany

'sre

sults

of

oper

atio

ns o

r fi

nanc

ial p

ositi

on.

EF

FE

CT

S O

F C

HA

NG

ING

PR

ICE

S--I

NF

LA

TIO

N

The

Com

pany

has

dem

onst

rate

d an

abi

lity

to m

anag

e in

flat

iona

ry c

ost i

ncre

ases

eff

ectiv

ely.

Thi

s is

bec

ause

of

rapi

d in

vent

ory

turn

over

, the

abi

lity

to a

djus

t men

u pr

ices

, cos

t con

trol

s an

d su

bsta

ntia

lpr

oper

ty h

oldi

ngs-

-man

y of

whi

ch a

re a

t fix

ed c

osts

and

par

tly f

inan

ced

by d

ebt m

ade

less

exp

ensi

ve b

y in

flat

ion.

In

hype

rinf

latio

nary

mar

kets

, men

u bo

ard

pric

es ty

pica

lly a

re a

djus

ted

to k

eep

pace

with

infl

atio

n, m

itiga

ting

the

effe

ct o

n re

port

ed r

esul

ts.

EU

RO

CO

NV

ER

SIO

N

Tw

elve

mem

ber

coun

trie

s of

the

Eur

opea

n U

nion

hav

e es

tabl

ishe

d fi

xed

conv

ersi

on r

ates

bet

wee

n th

eir

exis

ting

curr

enci

es (

"leg

acy

curr

enci

es")

and

one

com

mon

cur

renc

y, th

e E

uro.

Sin

ce J

anua

ry 1

,20

02, t

he n

ew E

uro-

deno

min

ated

not

es a

nd c

oins

are

in c

ircu

latio

n, a

nd le

gacy

cur

renc

ies

have

bee

n w

ithdr

awn

from

cir

cula

tion.

The

Com

pany

has

res

taur

ants

loca

ted

in a

ll m

embe

r co

untr

ies,

and

the

conv

ersi

on to

the

Eur

o ha

s el

imin

ated

cur

renc

y ex

chan

ge r

ate

risk

for

tran

sact

ions

am

ong

the

mem

ber

coun

trie

s, w

hich

for

the

Com

pany

pri

mar

ily c

onsi

sts

of p

aym

ents

to s

uppl

iers

. In

addi

tion,

bec

ause

the

Com

pany

use

s fo

reig

n-de

nom

inat

ed d

ebt a

nd d

eriv

ativ

es to

mee

t its

fin

anci

ng r

equi

rem

ents

and

to r

educ

e its

for

eign

cur

renc

y ri

sks,

cer

tain

of

thes

e fi

nanc

ial i

nstr

umen

ts a

re d

enom

inat

ed in

Eur

o. T

heC

ompa

ny s

ucce

ssfu

lly a

ddre

ssed

all

issu

es in

volv

ed w

ith c

onve

rtin

g to

the

new

cur

renc

y, a

nd th

e co

nver

sion

did

not

hav

e a

sign

ific

ant i

mpa

ct o

n its

fin

anci

al p

ositi

on, r

esul

ts o

f op

erat

ions

or

cash

flo

ws.

FO

RW

AR

D-L

OO

KIN

G S

TA

TE

ME

NT

S

Cer

tain

for

war

d-lo

okin

g st

atem

ents

are

incl

uded

in th

is r

epor

t. T

hey

use

such

wor

ds a

s "m

ay,"

"w

ill,"

"ex

pect

," "

belie

ve,"

"pl

an"

and

othe

r si

mila

r te

rmin

olog

y. T

hese

sta

tem

ents

ref

lect

man

agem

ent's

curr

ent e

xpec

tatio

ns r

egar

ding

fut

ure

even

ts a

nd o

pera

ting

perf

orm

ance

and

spe

ak o

nly

as o

f th

e da

te o

f th

is r

epor

t. T

hese

for

war

d-lo

okin

g st

atem

ents

invo

lve

a nu

mbe

r of

ris

ks a

nd u

ncer

tain

ties.

The

follo

win

g ar

e so

me

of th

e fa

ctor

s th

at c

ould

cau

se a

ctua

l res

ults

to d

iffe

r m

ater

ially

fro

m th

ose

expr

esse

d in

or

unde

rlyi

ng o

ur f

orw

ard-

look

ing

stat

emen

ts: t

he e

ffec

tiven

ess

of o

pera

ting

initi

ativ

es a

ndad

vert

isin

g an

d pr

omot

iona

l eff

orts

as

wel

l as

chan

ges

in: g

loba

l and

loca

l bus

ines

s an

d ec

onom

ic c

ondi

tions

; cur

renc

y ex

chan

ge a

nd in

tere

st r

ates

; foo

d, la

bor

and

othe

r op

erat

ing

cost

s; p

oliti

cal o

rec

onom

ic in

stab

ility

in lo

cal m

arke

ts; c

ompe

titio

n; c

onsu

mer

pre

fere

nces

, spe

ndin

g pa

ttern

s an

d de

mog

raph

ic tr

ends

; leg

isla

tion

and

gove

rnm

enta

l reg

ulat

ion;

and

acc

ount

ing

polic

ies

and

prac

tices

. The

fore

goin

g lis

t of

impo

rtan

t fac

tors

is n

ot e

xclu

sive

.

The

Com

pany

und

erta

kes

no o

blig

atio

n to

pub

licly

upd

ate

or r

evis

e an

y fo

rwar

d-lo

okin

g st

atem

ents

, whe

ther

as

a re

sult

of n

ew in

form

atio

n, f

utur

e ev

ents

or

othe

rwis

e.

Item

7A

. Qua

ntit

ativ

e an

d qu

alit

ativ

e di

sclo

sure

s ab

out

mar

ket

risk

Qua

ntita

tive

and

qual

itativ

e di

sclo

sure

s ab

out m

arke

t ris

k ar

e in

clud

ed in

Par

t II,

Ite

m 7

, pag

es 1

7-18

of

this

For

m 1

0-K

.

McD

onal

d's

Cor

pora

tion

21

Item

8. F

inan

cial

sta

tem

ents

and

sup

plem

enta

ry d

ata

gp

y

Index to consolidated financial statements

====================================================================================================================================

PAGE REFERENCE

------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------

Consolidated statement of income for each of the three years in the period ended December 31, 2001

22Consolidated balance sheet at December 31, 2001 and 2000

23Consolidated statement of cash flows for each of the three years in the period ended December 31, 2001

24Consolidated statement of shareholders' equity for each of the three years in the period ended December 31,

2001 25

Notes to consolidated financial statements

26Quarterly results (unaudited)

35Management's report

36Report of independent auditors

36------------------------------------------------------------------------------------------------------------------------------------

22 M

cDon

ald'

s C

orpo

ratio

n

Con

solid

ated

sta

tem

ent o

f in

com

e

===================================================================================================================

IN MILLIONS, EXCEPT PER SHARE DATA Years ended December 31, 2001 2000

1999

===================================================================================================================

Revenues

Sales by Company-operated restaurants $11,040.7 $10,467.0 $

9,512.5

Revenues from franchised and affiliated restaurants 3,829.3 3,776.0

3,746.8

-------------------------------------------------------------------------------------------------------------------

Total revenues 14,870.0 14,243.0

13,259.3

-------------------------------------------------------------------------------------------------------------------

Operating costs and expenses

Food and packaging 3,802.1 3,557.1

3,204.6

Payroll and employee benefits 2,901.2 2,690.2

2,418.3

Occupancy and other operating expenses 2,750.4 2,502.8

gp

y

2,206.7

-------------------------------------------------------------------------------------------------------------------

Total Company-operated restaurant expenses 9,453.7 8,750.1

7,829.6

-------------------------------------------------------------------------------------------------------------------

Franchised restaurants-occupancy expenses 800.2 772.3

737.7

Selling, general & administrative expenses 1,661.7 1,587.3

1,477.6

Special charge-global change initiatives 200.0

Other operating (income) expense, net 57.4 (196.4)

(105.2)

-------------------------------------------------------------------------------------------------------------------

Total operating costs and expenses 12,173.0 10,913.3

9,939.7

-------------------------------------------------------------------------------------------------------------------

Operating income 2,697.0 3,329.7

3,319.6

-------------------------------------------------------------------------------------------------------------------

Interest expense-net of capitalized interest of $15.2, $16.3 and $14.3 452.4 429.9

396.3

McDonald's Japan IPO gain (137.1)

Nonoperating expense, net 52.0 17.5

39.2

-------------------------------------------------------------------------------------------------------------------

Income before provision for income taxes 2,329.7 2,882.3

2,884.1

-------------------------------------------------------------------------------------------------------------------

Provision for income taxes 693.1 905.0

936.2

-------------------------------------------------------------------------------------------------------------------

Net income $ 1,636.6 $ 1,977.3 $

1,947.9

===================================================================================================================

Net income per common share $ 1.27 $ 1.49 $

1.44

Net income per common share-diluted $ 1.25 $ 1.46 $

1.39

-------------------------------------------------------------------------------------------------------------------

Dividends per common share $ .23 $ .22 $

.20

-------------------------------------------------------------------------------------------------------------------

Weighted-average shares 1,289.7 1,323.2

1,355.3

Weighted-average shares-diluted 1,309.3 1,356.5

1,404.2

===================================================================================================================

See notes to consolidated financial statements.

gp

y

McD

onal

d's

Cor

pora

tion

23

Consolidated balance sheet

=============================================================================================================

IN MILLIONS, EXCEPT PER SHARE DATA December 31, 2001 2000

=============================================================================================================

Assets

Current assets

Cash and equivalents $ 418.1 $ 421.7

Accounts and notes receivable 881.9 796.5

Inventories, at cost, not in excess of market 105.5 99.3

Prepaid expenses and other current assets 413.8 344.9

-------------------------------------------------------------------------------------------------------------

Total current assets 1,819.3 1,662.4

-------------------------------------------------------------------------------------------------------------

Other assets

Investments in and advances to affiliates 990.2 824.2

Goodwill, net 1,419.8 1,278.2

Miscellaneous 1,015.7 871.1

-------------------------------------------------------------------------------------------------------------

Total other assets 3,425.7 2,973.5

-------------------------------------------------------------------------------------------------------------

Property and equipment

Property and equipment, at cost 24,106.0 23,569.0

Accumulated depreciation and amortization (6,816.5) (6,521.4)

-------------------------------------------------------------------------------------------------------------

Net property and equipment 17,289.5 17,047.6

-------------------------------------------------------------------------------------------------------------

Total assets $22,534.5 $21,683.5

=============================================================================================================

Liabilities and shareholders' equity

Current liabilities

Notes payable $ 184.9 $ 275.5

Accounts payable 689.5 684.9

Income taxes 20.4 92.2

Other taxes 180.4 195.5

Accrued interest 170.6 149.9

Other accrued liabilities 824.9 608.4

Current maturities of long-term debt 177.6 354.5

-------------------------------------------------------------------------------------------------------------

Total current liabilities 2,248.3 2,360.9

-------------------------------------------------------------------------------------------------------------

Long-term debt 8,555.5 7,843.9

Other long-term liabilities and minority interests 629.3 489.5

Deferred income taxes 1,112.2 1,084.9

Common equity put options and forward contracts 500.8 699.9

Shareholders' equity

Preferred stock, no par value; authorized--165.0 million shares;

issued-none

Common stock, $.01 par value; authorized--3.5 billion shares;

gp

y

issued-1,660.6 million shares 16.6 16.6

Additional paid-in capital 1,591.2 1,441.8

Unearned ESOP compensation (106.7) (115.0)

Retained earnings 18,608.3 17,259.4

Accumulated other comprehensive income (1,708.8) (1,287.3)

Common stock in treasury, at cost; 379.9 and 355.7 million shares (8,912.2) (8,111.1)

-------------------------------------------------------------------------------------------------------------

Total shareholders' equity 9,488.4 9,204.4

-------------------------------------------------------------------------------------------------------------

Total liabilities and shareholders' equity $22,534.5 $21,683.5

=============================================================================================================

See

note

s to

con

solid

ated

fin

anci

al s

tate

men

ts.

24 M

cDon

ald'

s C

orpo

ratio

n

Consolidated statement of cash flows

============================================================================================================

IN MILLIONS Years ended December 31, 2001 2000 1999

============================================================================================================

Operating activities

Net income $ 1,636.6 $ 1,977.3 $ 1,947.9

Adjustments to reconcile to cash provided by operations

Depreciation and amortization 1,086.3 1,010.7 956.3

Deferred income taxes (87.6) 60.5 52.9

Changes in operating working capital items

Accounts receivable (104.7) (67.2) (81.9)

Inventories, prepaid expenses and other current assets (62.9) (29.6) (47.7)

Accounts payable 10.2 89.7 (23.9)

Taxes and other liabilities 160.0 (45.8) 270.4

Other 50.4 (244.1) (65.1)

------------------------------------------------------------------------------------------------------------

Cash provided by operations 2,688.3 2,751.5 3,008.9

------------------------------------------------------------------------------------------------------------

Investing activities

Property and equipment expenditures (1,906.2) (1,945.1) (1,867.8)

Purchases of restaurant businesses (331.6) (425.5) (340.7)

Sales of restaurant businesses and property 375.9 302.8 262.4

Other (206.3) (144.8) (315.7)

------------------------------------------------------------------------------------------------------------

Cash used for investing activities (2,068.2) (2,212.6) (2,261.8)

------------------------------------------------------------------------------------------------------------

Financing activities

Net short-term borrowings (repayments) (248.0) 59.1 116.7

Long-term financing issuances 1,694.7 2,381.3 902.5

Long-term financing repayments (919.4) (761.9) (682.8)

Treasury stock purchases (1,068.1) (2,023.4) (891.5)

Common stock dividends (287.7) (280.7) (264.7)

gp

y

Other 204.8 88.9 193.0

------------------------------------------------------------------------------------------------------------

Cash used for financing activities (623.7) (536.7) (626.8)

------------------------------------------------------------------------------------------------------------

Cash and equivalents increase (decrease) (3.6) 2.2 120.3

------------------------------------------------------------------------------------------------------------

Cash and equivalents at beginning of year 421.7 419.5 299.2

------------------------------------------------------------------------------------------------------------

Cash and equivalents at end of year $ 418.1 $ 421.7 $ 419.5

============================================================================================================

Supplemental cash flow disclosures

Interest paid $ 446.9 $ 469.7 $ 411.5

Income taxes paid 773.8 854.2 642.2

============================================================================================================

See

note

s to

con

solid

ated

fin

anci

al s

tate

men

ts.

McD

onal

d's

Cor

pora

tion

25

Consolidated statement of shareholders' equity

===================================================================================================================================

Accumulated other

comprehensive income

--------------------

Common Stock Addi- Unearned Deferred Foreign

Common stock Total

issued tional ESOP hedging currency

in treasury share-

IN MILLIONS, ------------- paid-in compen- Retained adjust- trans-

----------------- holders'

EXCEPT PER SHARE DATA Shares Amount capital sation earnings ment lation Shares

Amount equity

===================================================================================================================================

Balance at December 31,1998 1,660.6 $16.6 $ 989.2 $ (148.7) $13,879.6 $ -- $ (522.5) (304.4)

$(4,749.5) $9,464.7

-----------------------------------------------------------------------------------------------------------------------------------

Net income 1,947.9

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)

(264.7)

gp

y

-----------------------------------------------------------------------------------------------------------------------------------

ESOP loan payment 15.8

15.8

-----------------------------------------------------------------------------------------------------------------------------------

Treasury stock purchases (24.2)

(932.7) (932.7)

-----------------------------------------------------------------------------------------------------------------------------------

Common equity put option

issuances and expirations, net

(665.9) (665.9)

-----------------------------------------------------------------------------------------------------------------------------------

Stock option exercises and other

(including tax benefits of $185.3) 299.1 (0.4) 18.8

139.6 438.3

-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1999 1,660.6 16.6 1,288.3 (133.3) 15,562.8 -- (886.8) (309.8)

(6,208.5) 9,639.1

===================================================================================================================================

Net income 1,977.3

1,977.3

-----------------------------------------------------------------------------------------------------------------------------------



(400.5)

-----------------------------------------------------------------------------------------------------------------------------------


1,576.8

-----------------------------------------------------------------------------------------------------------------------------------


($.22 per share) (280.7)

(280.7)

-----------------------------------------------------------------------------------------------------------------------------------


20.1

-----------------------------------------------------------------------------------------------------------------------------------


(2,002.2) (2,002.2)

-----------------------------------------------------------------------------------------------------------------------------------



25.5 25.5

-----------------------------------------------------------------------------------------------------------------------------------


(including tax benefits of $80.3) 153.5 (1.8) 10.8

74.1 225.8

-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 2000 1,660.6 16.6 1,441.8 (115.0) 17,259.4 -- (1,287.3) (355.7)

(8,111.1) 9,204.4

===================================================================================================================================

Net income 1,636.6

1,636.6

-----------------------------------------------------------------------------------------------------------------------------------

gp

y



(412.2)

-----------------------------------------------------------------------------------------------------------------------------------

SFAS No. 133 transition adjustment

(including tax benefits of $9.2) (17.0)

(17.0)

-----------------------------------------------------------------------------------------------------------------------------------

Fair value adjustments-cash flow

hedges (including taxes of $1.4) 7.7

7.7

-----------------------------------------------------------------------------------------------------------------------------------


1,215.1

-----------------------------------------------------------------------------------------------------------------------------------


($.23 per share) (287.7)

(287.7)

-----------------------------------------------------------------------------------------------------------------------------------


8.0

-----------------------------------------------------------------------------------------------------------------------------------


(1,090.2) (1,090.2)

-----------------------------------------------------------------------------------------------------------------------------------



and forward contracts

199.2 199.2

-----------------------------------------------------------------------------------------------------------------------------------


(including tax benefits of $70.0) 149.4 0.3 11.9

89.9 239.6

-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 2001 1,660.6 $16.6 $1,591.2 $ (106.7) $18,608.3 $ (9.3) $(1,699.5) (379.9)

$(8,912.2) $9,488.4

===================================================================================================================================

See

note

s to

con

solid

ated

fin

anci

al s

tate

men

ts.

26 M

cDon

ald'

s C

orpo

ratio

n

Not

es to

con

solid

ated

fin

anci

al s

tate

men

ts

Sum

mar

y of

sig

nifi

cant

acc

ount

ing

polic

ies

NA

TU

RE

OF

BU

SIN

ESS

The

Com

pany

ope

rate

s in

the

food

ser

vice

indu

stry

and

pri

mar

ily o

pera

tes

quic

k-se

rvic

e re

stau

rant

bus

ines

ses

unde

r th

e M

cDon

ald'

s br

and.

To

capt

ure

addi

tiona

l mea

l occ

asio

ns, t

he C

ompa

ny o

pera

tes

othe

r re

stau

rant

con

cept

s un

der

its P

artn

er B

rand

s: A

rom

a C

afe,

Bos

ton

Mar

ket,

Chi

potle

and

Don

atos

Piz

zeri

a. I

n ad

ditio

n, th

e C

ompa

ny h

as a

min

ority

ow

ners

hip

in P

ret A

Man

ger.

In

four

th q

uart

er

gp

y

2001

, the

Com

pany

app

rove

d a

plan

to d

ispo

se o

f its

Aro

ma

Caf

e bu

sine

ss in

the

U.K

. and

exp

ects

to c

ompl

ete

the

sale

in th

e fi

rst h

alf

of 2

002.

All

rest

aura

nts

are

oper

ated

by

the

Com

pany

or,

und

er th

e te

rms

of f

ranc

hise

arr

ange

men

ts, b

y fr

anch

isee

s w

ho a

re in

depe

nden

t ent

repr

eneu

rs, o

r by

aff

iliat

es o

pera

ting

unde

r jo

int-

vent

ure

agre

emen

tsbe

twee

n th

e C

ompa

ny a

nd lo

cal b

usin

ess

peop

le.

CO

NSO

LID

AT

ION

The

con

solid

ated

fin

anci

al s

tate

men

ts in

clud

e th

e ac

coun

ts o

f th

e C

ompa

ny a

nd it

s su

bsid

iari

es. S

ubst

antia

lly a

ll in

vest

men

ts in

aff

iliat

es o

wne

d 50

% o

r le

ss a

re a

ccou

nted

for

by

the

equi

ty m

etho

d.

EST

IMA

TE

S IN

FIN

AN

CIA

L S

TA

TE

ME

NT

S

The

pre

para

tion

of f

inan

cial

sta

tem

ents

in c

onfo

rmity

with

acc

ount

ing

prin

cipl

es g

ener

ally

acc

epte

d in

the

U.S

. req

uire

s m

anag

emen

t to

mak

e es

timat

es a

nd a

ssum

ptio

ns th

at a

ffec

t the

am

ount

s re

port

ed in

the

fina

ncia

l sta

tem

ents

and

acc

ompa

nyin

g no

tes.

Act

ual r

esul

ts c

ould

dif

fer

from

thos

e es

timat

es.

RE

VE

NU

E R

EC

OG

NIT

ION

Sale

s by

Com

pany

-ope

rate

d re

stau

rant

s ar

e re

cogn

ized

on

a ca

sh b

asis

. Rev

enue

s fr

om f

ranc

hise

d an

d af

filia

ted

rest

aura

nts

incl

ude

cont

inui

ng r

ent a

nd s

ervi

ce f

ees

as w

ell a

s in

itial

fee

s. C

ontin

uing

fee

sar

e re

cogn

ized

in th

e pe

riod

ear

ned.

Ini

tial f

ees

are

reco

gniz

ed u

pon

open

ing

of a

res

taur

ant,

whi

ch is

whe

n th

e C

ompa

ny h

as p

erfo

rmed

sub

stan

tially

all

initi

al s

ervi

ces

requ

ired

by

the

fran

chis

ear

rang

emen

t.

FO

RE

IGN

CU

RR

EN

CY

TR

AN

SLA

TIO

N

The

fun

ctio

nal c

urre

ncy

of s

ubst

antia

lly a

ll op

erat

ions

out

side

the

U.S

. is

the

resp

ectiv

e lo

cal c

urre

ncy,

exc

ept f

or a

sm

all n

umbe

r of

cou

ntri

es w

ith h

yper

infl

atio

nary

eco

nom

ies,

whe

re th

e fu

nctio

nal

curr

ency

is th

e U

.S. D

olla

r.

AD

VE

RT

ISIN

G C

OST

S

Prod

uctio

n co

sts

for

radi

o an

d te

levi

sion

adv

ertis

ing,

whi

ch a

re p

rim

arily

in th

e U

.S.,

are

expe

nsed

whe

n th

e co

mm

erci

als

are

initi

ally

air

ed. A

dver

tisin

g ex

pens

es in

clud

ed in

cos

ts o

f C

ompa

ny-o

pera

ted

rest

aura

nts

and

in s

ellin

g, g

ener

al &

adm

inis

trat

ive

expe

nses

wer

e (i

n m

illio

ns):

200

1-$6

00.9

; 200

0-$5

95.3

; 199

9-$5

22.9

.

STO

CK

-BA

SED

CO

MP

EN

SAT

ION

The

Com

pany

acc

ount

s fo

r st

ock

optio

ns a

s pr

escr

ibed

by

Acc

ount

ing

Prin

cipl

es B

oard

Opi

nion

No.

25 a

nd in

clud

es p

ro f

orm

a in

form

atio

n in

the

stoc

k op

tions

not

e, a

s pr

ovid

ed b

y St

atem

ent o

f Fi

nanc

ial

Acc

ount

ing

Stan

dard

s (S

FAS)

No.

123,

Acc

ount

ing

for

Stoc

k-B

ased

Com

pens

atio

n.

PR

OP

ER

TY

AN

D E

QU

IPM

EN

T

Prop

erty

and

equ

ipm

ent a

re s

tate

d at

cos

t, w

ith d

epre

ciat

ion

and

amor

tizat

ion

prov

ided

usi

ng th

e st

raig

ht-l

ine

met

hod

over

the

follo

win

g es

timat

ed u

sefu

l liv

es: b

uild

ings

-up

to 4

0 ye

ars;

leas

ehol

dim

prov

emen

ts-t

he le

sser

of

usef

ul li

ves

of a

sset

s or

leas

e te

rms

incl

udin

g op

tion

peri

ods;

and

equ

ipm

ent-

thre

e to

12

year

s.

GO

OD

WIL

L

Goo

dwill

rep

rese

nts

the

exce

ss o

f co

st o

ver

the

valu

e of

net

tang

ible

ass

ets

of a

cqui

red

rest

aura

nt b

usin

esse

s an

d, f

or a

cqui

sitio

ns p

rior

to J

uly

1, 2

001,

is a

mor

tized

usi

ng th

e st

raig

ht-l

ine

met

hod

over

an

aver

age

life

of a

bout

30

year

s.

In J

une

2001

, the

Fin

anci

al A

ccou

ntin

g St

anda

rds

Boa

rd is

sued

SFA

S N

o.14

1, B

usin

ess

Com

bina

tions

, eff

ectiv

e fo

r ac

quis

ition

s in

itiat

ed o

n or

aft

er J

uly

1, 2

001,

and

No.

142,

Goo

dwill

and

Oth

erIn

tang

ible

Ass

ets,

eff

ectiv

e fo

r fi

scal

yea

rs b

egin

ning

aft

er D

ecem

ber

15, 2

001.

SFA

S N

o.14

1 re

quir

es th

at th

e pu

rcha

se m

etho

d of

acc

ount

ing

be u

sed

for

all b

usin

ess

com

bina

tions

initi

ated

aft

er J

une

30,

2001

, and

incl

udes

gui

danc

e on

the

initi

al r

ecog

nitio

n an

d m

easu

rem

ent o

f go

odw

ill a

nd o

ther

inta

ngib

le a

sset

s ar

isin

g fr

om b

usin

ess

com

bina

tions

. SFA

S N

o.14

2 in

dica

tes

that

goo

dwill

(an

d in

tang

ible

asse

ts d

eem

ed to

hav

e in

defi

nite

live

s) w

ill n

o lo

nger

be

amor

tized

but

will

be

subj

ect t

o an

nual

impa

irm

ent t

ests

. Oth

er in

tang

ible

ass

ets

will

con

tinue

to b

e am

ortiz

ed o

ver

thei

r us

eful

live

s.

The

Com

pany

beg

an a

pply

ing

the

new

rul

es o

n ac

coun

ting

for

good

will

and

oth

er in

tang

ible

ass

ets

Janu

ary

1, 2

002.

App

licat

ion

of th

e no

nam

ortiz

atio

n pr

ovis

ions

of

SFA

S N

o.14

2 w

ould

hav

e in

crea

sed

2001

net

inco

me

by a

ppro

xim

atel

y $3

0 m

illio

n ($

0.02

per

sha

re)

and

is e

xpec

ted

to r

esul

t in

a si

mila

r in

crea

se in

200

2.

In th

e fi

rst q

uart

er o

f 20

02, t

he C

ompa

ny is

per

form

ing

the

firs

t of

requ

ired

goo

dwill

impa

irm

ent t

ests

as

of J

anua

ry 1

, 200

2. T

he im

pair

men

t tes

t com

pare

s th

e fa

ir v

alue

of

a re

port

ing

unit,

gen

eral

ly b

ased

on d

isco

unte

d ca

sh f

low

s, w

ith it

s ca

rryi

ng a

mou

nt in

clud

ing

good

will

(w

e ha

ve d

efin

ed r

epor

ting

units

as

each

indi

vidu

al c

ount

ry f

or M

cDon

ald'

s re

stau

rant

bus

ines

s an

d ea

ch in

divi

dual

Par

tner

Bra

nd).

If

the

carr

ying

am

ount

of

a re

port

ing

unit

exce

eds

its f

air

valu

e, a

n im

pair

men

t los

s is

mea

sure

d as

the

diff

eren

ce b

etw

een

the

fair

val

ue o

f re

port

ing

unit

good

will

and

the

carr

ying

am

ount

of

the

good

will

.

Bas

ed o

n th

e C

ompa

ny's

pre

limin

ary

anal

ysis

, the

Com

pany

exp

ects

to r

ecor

d a

non-

cash

goo

dwill

impa

irm

ent c

harg

e of

abo

ut $

100

mill

ion

afte

r ta

x ($

0.08

per

sha

re),

pri

mar

ily in

cer

tain

Lat

in A

mer

ican

mar

kets

. Any

impa

irm

ent

gp

y

McD

onal

d's

Cor

pora

tion

27

that

is r

equi

red

to b

e re

cogn

ized

whe

n ad

optin

g SF

AS

No.

142

will

be

refl

ecte

d as

the

cum

ulat

ive

effe

ct o

f a

chan

ge in

acc

ount

ing

prin

cipl

e in

the

firs

t qua

rter

of

2002

.

LO

NG

-LIV

ED

ASS

ET

S

In a

ccor

danc

e w

ith S

FAS

No.

121,

Acc

ount

ing

for

the

Impa

irm

ent o

f L

ong-

Liv

ed A

sset

s an

d fo

r L

ong-

Liv

ed A

sset

s to

Be

Dis

pose

d O

f, lo

ng-l

ived

ass

ets

are

revi

ewed

for

impa

irm

ent w

hene

ver

even

ts o

rch

ange

s in

cir

cum

stan

ces

indi

cate

that

the

carr

ying

am

ount

of

an a

sset

may

not

be

reco

vera

ble.

For

pur

pose

s of

rev

iew

ing

McD

onal

d's

rest

aura

nt a

sset

s fo

r po

tent

ial i

mpa

irm

ent,

asse

ts a

re g

roup

ed to

geth

erat

a te

levi

sion

mar

ket l

evel

in th

e U

.S. a

nd a

t a c

ount

ry le

vel f

or e

ach

of th

e in

tern

atio

nal m

arke

ts. F

or P

artn

er B

rand

s, a

sset

s ar

e gr

oupe

d by

eac

h in

divi

dual

bra

nd. I

f an

indi

cato

r of

impa

irm

ent (

e.g.

,ne

gativ

e op

erat

ing

cash

flo

ws

for

the

mos

t rec

ent c

alen

dar

year

) ex

ists

for

any

gro

upin

g of

ass

ets,

an

estim

ate

of u

ndis

coun

ted

futu

re c

ash

flow

s pr

oduc

ed b

y ea

ch r

esta

uran

t with

in th

e as

set g

roup

ing

isco

mpa

red

to it

s ca

rryi

ng v

alue

. If

a re

stau

rant

is d

eter

min

ed to

be

impa

ired

, the

loss

is m

easu

red

by th

e ex

cess

of

the

carr

ying

am

ount

of

the

rest

aura

nt o

ver

its f

air

valu

e as

det

erm

ined

by

an e

stim

ate

ofdi

scou

nted

fut

ure

cash

flo

ws.

Los

ses

on a

sset

s he

ld f

or d

ispo

sal a

re r

ecog

nize

d w

hen

man

agem

ent h

as a

ppro

ved

and

com

mitt

ed to

a p

lan

to d

ispo

se o

f th

e as

sets

, and

the

asse

ts a

re a

vaila

ble

for

disp

osal

. Gen

eral

ly, s

uch

loss

es r

elat

e to

eith

er r

esta

uran

ts th

at h

ave

clos

ed a

nd c

ease

d op

erat

ions

or

busi

ness

es th

at a

re a

vaila

ble

for

sale

.

In A

ugus

t 200

1, th

e Fi

nanc

ial A

ccou

ntin

g St

anda

rds

Boa

rd is

sued

SFA

S N

o.14

4, A

ccou

ntin

g fo

r th

e Im

pair

men

t or

Dis

posa

l of

Lon

g-L

ived

Ass

ets,

whi

ch p

rovi

des

addi

tiona

l gui

danc

e on

the

fina

ncia

lac

coun

ting

and

repo

rtin

g fo

r th

e im

pair

men

t or

disp

osal

of

long

-liv

ed a

sset

s. T

he C

ompa

ny w

ill a

dopt

the

new

rul

es a

s of

Jan

uary

1, 2

002,

and

the

adop

tion

will

not

hav

e a

mat

eria

l eff

ect o

n th

e C

ompa

ny's

resu

lts o

f op

erat

ions

or

fina

ncia

l pos

ition

.

FIN

AN

CIA

L I

NST

RU

ME

NT

S

The

Com

pany

gen

eral

ly b

orro

ws

on a

long

-ter

m b

asis

and

is e

xpos

ed to

the

impa

ct o

f in

tere

st-r

ate

chan

ges

and

fore

ign

curr

ency

flu

ctua

tions

. In

man

agin

g th

e im

pact

of

thes

e ch

ange

s, th

e C

ompa

ny u

ses

inte

rest

-rat

e ex

chan

ge a

gree

men

ts a

nd f

inan

ces

in th

e cu

rren

cies

in w

hich

ass

ets

are

deno

min

ated

. The

Com

pany

use

s fo

reig

n cu

rren

cy d

enom

inat

ed d

ebt a

nd d

eriv

ativ

es to

hed

ge f

orei

gn c

urre

ncy

roya

lties

, int

erco

mpa

ny f

inan

cing

s an

d lo

ng-t

erm

inve

stm

ents

in f

orei

gn s

ubsi

diar

ies

and

affi

liate

s. T

his

redu

ces

the

impa

ct o

f fl

uctu

atin

g fo

reig

n cu

rren

cies

on

net i

ncom

e an

d sh

areh

olde

rs' e

quity

. The

Com

pany

doe

s no

t use

der

ivat

ives

with

a le

vel o

f co

mpl

exity

or

with

a r

isk

high

er th

an th

e ex

posu

res

to b

e he

dged

and

doe

s no

t hol

d or

issu

e de

riva

tives

for

trad

ing

purp

oses

.

The

cou

nter

part

ies

to th

ese

agre

emen

ts c

onsi

st o

f a

dive

rse

grou

p of

fin

anci

al in

stitu

tions

. The

Com

pany

con

tinua

lly m

onito

rs it

s po

sitio

ns a

nd th

e cr

edit

ratin

gs o

f its

cou

nter

part

ies,

and

adj

usts

pos

ition

sas

app

ropr

iate

. The

Com

pany

did

not

hav

e si

gnif

ican

t exp

osur

e to

any

indi

vidu

al c

ount

erpa

rty

at D

ecem

ber

31, 2

001

and

has

mas

ter

agre

emen

ts th

at c

onta

in n

ettin

g ar

rang

emen

ts. C

erta

in o

f th

ese

agre

emen

ts a

lso

requ

ire

each

par

ty to

pos

t col

late

ral i

f cr

edit

ratin

gs f

all b

elow

, or

aggr

egat

e ex

posu

res

exce

ed, c

erta

in c

ontr

actu

al li

mits

. At D

ecem

ber

31, 2

001,

nei

ther

the

Com

pany

nor

its

coun

terp

artie

sw

as r

equi

red

to p

ost c

olla

tera

l for

any

obl

igat

ion.

Eff

ectiv

e Ja

nuar

y 1,

200

1, th

e C

ompa

ny a

dopt

ed S

FAS

No.

133,

Acc

ount

ing

for

Der

ivat

ive

Inst

rum

ents

and

Hed

ging

Act

iviti

es, a

s am

ende

d. S

FAS

No.

133

requ

ires

com

pani

es to

rec

ogni

ze a

ll de

riva

tives

as e

ither

ass

ets

or li

abili

ties

in th

e ba

lanc

e sh

eet a

t fai

r va

lue.

SFA

S N

o.13

3 al

so r

equi

res

com

pani

es to

des

igna

te a

ll de

riva

tives

that

qua

lify

as h

edgi

ng in

stru

men

ts a

s ei

ther

fai

r va

lue

hedg

es, c

ash

flow

hedg

es o

r he

dges

of

net i

nves

tmen

ts in

for

eign

ope

ratio

ns. T

his

desi

gnat

ion

is b

ased

upo

n th

e ex

posu

re b

eing

hed

ged.

The

Com

pany

rec

orde

d a

tran

sitio

n ad

just

men

t at J

anua

ry 1

, 200

1 re

late

d to

cas

h fl

ow h

edge

s, w

hich

red

uced

acc

umul

ated

oth

er c

ompr

ehen

sive

inco

me

in s

hare

hold

ers'

equ

ity b

y $1

7.0

mill

ion,

aft

er ta

x.T

his

adju

stm

ent w

as p

rim

arily

rel

ated

to in

tere

st-r

ate

exch

ange

agr

eem

ents

use

d to

lock

in lo

ng-t

erm

bor

row

ing

rate

s. T

he c

umul

ativ

e ef

fect

of

adop

ting

SFA

S N

o.13

3 at

Jan

uary

1, 2

001

was

not

mat

eria

lto

the

Com

pany

's s

tate

men

t of

inco

me.

All

deri

vativ

es, p

rim

arily

inte

rest

-rat

e ex

chan

ge a

gree

men

ts a

nd f

orei

gn c

urre

ncy

exch

ange

agr

eem

ents

, wer

e cl

assi

fied

in th

e C

ompa

ny's

Con

solid

ated

bal

ance

she

et a

t Dec

embe

r 31

, 200

1 as

eith

erm

isce

llane

ous

othe

r as

sets

or

othe

r lo

ng-t

erm

liab

ilitie

s (e

xclu

ding

acc

rued

inte

rest

) an

d to

tale

d $2

12.6

mill

ion

and

$134

.2 m

illio

n, r

espe

ctiv

ely.

Fair

val

ue h

edge

s

The

Com

pany

ent

ers

into

fai

r va

lue

hedg

es to

red

uce

the

expo

sure

to c

hang

es in

the

fair

val

ue o

f an

ass

et o

r a

liabi

lity,

or

an id

entif

ied

port

ion

ther

eof,

whi

ch is

attr

ibut

able

to a

par

ticul

ar r

isk.

The

type

s of

fair

val

ue h

edge

s th

e C

ompa

ny e

nter

s in

to in

clud

e: (

1) in

tere

st-r

ate

exch

ange

agr

eem

ents

to c

onve

rt a

por

tion

of it

s fi

xed-

rate

deb

t to

floa

ting-

rate

deb

t and

(2)

for

eign

cur

renc

y ex

chan

ge a

gree

men

ts f

or th

eex

chan

ge o

f va

riou

s cu

rren

cies

and

inte

rest

rat

es. T

he f

orei

gn c

urre

ncy

exch

ange

agr

eem

ents

are

ent

ered

into

to h

edge

the

curr

ency

ris

k as

soci

ated

with

deb

t and

inte

rcom

pany

loan

s de

nom

inat

ed in

fore

ign

curr

enci

es, a

nd e

ssen

tially

res

ult i

n fl

oatin

g-ra

te a

sset

s or

liab

ilitie

s de

nom

inat

ed in

U.S

. Dol

lars

or

appr

opri

ate

func

tiona

l cur

renc

ies.

For

fair

val

ue h

edge

s, th

e ga

ins

or lo

sses

on

deri

vativ

es a

s w

ell a

s th

e of

fset

ting

gain

s or

loss

es o

n th

e re

late

d he

dged

item

s ar

e re

cogn

ized

in c

urre

nt e

arni

ngs.

Dur

ing

the

year

end

ed D

ecem

ber

31, 2

001,

ther

e w

as n

o si

gnif

ican

t im

pact

to th

e C

ompa

ny's

ear

ning

s re

late

d to

the

inef

fect

ive

port

ion

of f

air

valu

e he

dgin

g in

stru

men

ts.

Cas

h fl

ow h

edge

s

The

Com

pany

ent

ers

into

cas

h fl

ow h

edge

s to

miti

gate

the

expo

sure

to v

aria

bilit

y in

exp

ecte

d fu

ture

cas

h fl

ows

attr

ibut

able

to a

par

ticul

ar r

isk.

The

type

s of

cas

h fl

ow h

edge

s

gp

y

28 M

cDon

ald'

s C

orpo

ratio

n

the

Com

pany

ent

ers

into

incl

ude:

(1)

inte

rest

-rat

e ex

chan

ge a

gree

men

ts th

at e

ffec

tivel

y co

nver

t a p

ortio

n of

flo

atin

g-ra

te d

ebt t

o fi

xed-

rate

deb

t and

are

des

igne

d to

red

uce

the

impa

ct o

f in

tere

st-r

ate

chan

ges

on f

utur

e in

tere

st e

xpen

se, (

2) f

orw

ard

fore

ign

exch

ange

con

trac

ts a

nd f

orei

gn c

urre

ncy

optio

ns th

at a

re d

esig

ned

to p

rote

ct a

gain

st th

e re

duct

ion

in v

alue

of

fore

cast

ed f

orei

gn c

urre

ncy

cash

flo

ws

such

as

roya

lties

and

oth

er p

aym

ents

den

omin

ated

in f

orei

gn c

urre

ncie

s, a

nd (

3) f

orei

gn c

urre

ncy

exch

ange

agr

eem

ents

for

the

exch

ange

of

vari

ous

curr

enci

es a

nd in

tere

st r

ates

. The

for

eign

cur

renc

yex

chan

ge a

gree

men

ts a

re e

nter

ed in

to to

hed

ge th

e cu

rren

cy r

isk

asso

ciat

ed w

ith d

ebt a

nd in

terc

ompa

ny lo

ans

deno

min

ated

in f

orei

gn c

urre

ncie

s, a

nd e

ssen

tially

res

ult i

n fi

xed-

rate

ass

ets

or li

abili

ties

deno

min

ated

in U

.S. D

olla

rs o

r ap

prop

riat

e fu

nctio

nal c

urre

ncie

s.

For

cash

flo

w h

edge

s, th

e ef

fect

ive

port

ion

of th

e ga

ins

or lo

sses

on

deri

vativ

es is

rep

orte

d in

the

defe

rred

hed

ging

adj

ustm

ent c

ompo

nent

of

accu

mul

ated

oth

er c

ompr

ehen

sive

inco

me

in s

hare

hold

ers'

equi

ty a

nd r

ecla

ssif

ied

into

ear

ning

s in

the

sam

e pe

riod

or

peri

ods

in w

hich

the

hedg

ed tr

ansa

ctio

n af

fect

s ea

rnin

gs. T

he r

emai

ning

gai

n or

loss

in e

xces

s of

the

cum

ulat

ive

chan

ge in

the

pres

ent v

alue

of

futu

re c

ash

flow

s of

the

hedg

ed it

em, i

f an

y, is

rec

ogni

zed

in c

urre

nt e

arni

ngs

duri

ng th

e pe

riod

of

chan

ge. D

urin

g th

e ye

ar e

nded

Dec

embe

r 31

, 200

1, th

ere

was

no

sign

ific

ant i

mpa

ct to

the

Com

pany

'sea

rnin

gs r

elat

ed to

the

inef

fect

ive

port

ion

of c

ash

flow

hed

ging

inst

rum

ents

.

Subs

eque

nt to

the

tran

sitio

n ad

just

men

t rec

orde

d at

Jan

uary

1, 2

001,

the

Com

pany

rec

orde

d in

crea

ses

to th

e de

ferr

ed h

edgi

ng a

djus

tmen

t com

pone

nt o

f ac

cum

ulat

ed o

ther

com

preh

ensi

ve in

com

e in

shar

ehol

ders

' equ

ity o

f $7

.7 m

illio

n, a

fter

tax,

rel

ated

to c

ash

flow

hed

ges

duri

ng th

e ye

ar e

nded

Dec

embe

r 31

, 200

1. B

ased

on

inte

rest

rat

es a

nd f

orei

gn c

urre

ncy

exch

ange

rat

es a

t Dec

embe

r 31

, 200

1, n

osi

gnif

ican

t am

ount

of

defe

rred

hed

ging

adj

ustm

ents

, aft

er ta

x, in

clud

ed in

acc

umul

ated

oth

er c

ompr

ehen

sive

inco

me

in s

hare

hold

ers'

equ

ity a

t Dec

embe

r 31

, 200

1, w

ill b

e re

cogn

ized

in e

arni

ngs

in 2

002

asth

e un

derl

ying

hed

ged

tran

sact

ions

are

rea

lized

. The

max

imum

mat

urity

dat

e of

any

cas

h fl

ow h

edge

of

fore

cast

ed tr

ansa

ctio

ns a

t Dec

embe

r 31

, 200

1 w

as 1

5 m

onth

s, e

xclu

ding

inst

rum

ents

hed

ging

fore

cast

ed p

aym

ents

of

vari

able

inte

rest

on

exis

ting

fina

ncia

l ins

trum

ents

that

hav

e va

riou

s m

atur

ity d

ates

thro

ugh

2011

.

Hed

ges

of n

et in

vest

men

ts in

for

eign

ope

ratio

ns

The

Com

pany

use

s fo

rwar

d fo

reig

n ex

chan

ge c

ontr

acts

and

for

eign

cur

renc

y de

nom

inat

ed d

ebt t

o he

dge

its in

vest

men

ts in

cer

tain

for

eign

sub

sidi

arie

s an

d af

filia

tes.

Rea

lized

and

unr

ealiz

ed tr

ansl

atio

nad

just

men

ts f

rom

thes

e he

dges

are

incl

uded

in s

hare

hold

ers'

equ

ity in

the

fore

ign

curr

ency

tran

slat

ion

com

pone

nt o

f ac

cum

ulat

ed o

ther

com

preh

ensi

ve in

com

e an

d of

fset

tran

slat

ion

adju

stm

ents

on

the

unde

rlyi

ng n

et a

sset

s of

for

eign

sub

sidi

arie

s an

d af

filia

tes,

whi

ch a

lso

are

reco

rded

in a

ccum

ulat

ed o

ther

com

preh

ensi

ve in

com

e.

Dur

ing

the

year

end

ed D

ecem

ber

31, 2

001,

the

Com

pany

rec

orde

d in

crea

ses

in tr

ansl

atio

n ad

just

men

ts in

acc

umul

ated

oth

er c

ompr

ehen

sive

inco

me

of $

168.

5 m

illio

n, a

fter

tax,

rel

ated

pri

mar

ily to

for

eign

curr

ency

den

omin

ated

deb

t des

igna

ted

as h

edge

s of

net

inve

stm

ents

.

CO

MM

ON

EQ

UIT

Y P

UT

OP

TIO

NS

AN

D F

OR

WA

RD

CO

NT

RA

CT

S

Dur

ing

2001

, 200

0 an

d 19

99, t

he C

ompa

ny s

old

12.2

mill

ion,

16.

8 m

illio

n an

d 27

.0 m

illio

n co

mm

on e

quity

put

opt

ions

, res

pect

ivel

y, in

con

nect

ion

with

its

shar

e re

purc

hase

pro

gram

. Pre

miu

ms

rece

ived

are

reco

rded

in s

hare

hold

ers'

equ

ity a

s a

redu

ctio

n of

the

cost

of

trea

sury

sto

ck p

urch

ased

and

wer

e $3

1.8

mill

ion

in 2

001,

$56

.0 m

illio

n in

200

0 an

d $9

7.5

mill

ion

in 1

999.

At D

ecem

ber

31, 2

001,

12.

2m

illio

n co

mm

on e

quity

put

opt

ions

wer

e ou

tsta

ndin

g. T

he o

ptio

ns e

xpir

e at

var

ious

dat

es th

roug

h N

ovem

ber

2002

at e

xerc

ise

pric

es b

etw

een

$26.

37 a

nd $

30.2

3. A

t Dec

embe

r 31

, 200

1, th

e $3

50.0

mill

ion

tota

l exe

rcis

e pr

ice

of th

ese

outs

tand

ing

optio

ns w

as c

lass

ifie

d in

com

mon

equ

ity p

ut o

ptio

ns a

nd f

orw

ard

cont

ract

s in

the

Con

solid

ated

bal

ance

she

et, a

nd th

e re

late

d of

fset

was

rec

orde

d in

com

mon

sto

ckin

trea

sury

, net

of

the

prem

ium

s re

ceiv

ed.

Dur

ing

2001

, the

Com

pany

als

o en

tere

d in

to e

quity

for

war

d co

ntra

cts

in c

onne

ctio

n w

ith it

s sh

are

repu

rcha

se p

rogr

am. T

he f

orw

ard

cont

ract

s, f

or 5

.5 m

illio

n sh

ares

, set

tle in

Mar

ch 2

002

and

have

an

aver

age

purc

hase

pri

ce o

f $2

7.41

. At D

ecem

ber

31, 2

001,

the

$150

.8 m

illio

n to

tal p

urch

ase

pric

e of

thes

e ou

tsta

ndin

g fo

rwar

d co

ntra

cts

was

cla

ssif

ied

in c

omm

on e

quity

put

opt

ions

and

for

war

d co

ntra

cts,

and

the

rela

ted

offs

et w

as r

ecor

ded

in c

omm

on s

tock

in tr

easu

ry.

SAL

ES

OF

ST

OC

K B

Y S

UB

SID

IAR

IES

AN

D A

FF

ILIA

TE

S

As

perm

itted

by

Staf

f A

ccou

ntin

g B

ulle

tin N

o. 5

1 is

sued

by

the

Secu

ritie

s an

d E

xcha

nge

Com

mis

sion

, whe

n a

subs

idia

ry o

r af

filia

te s

ells

uni

ssue

d sh

ares

in a

pub

lic o

ffer

ing,

the

Com

pany

rec

ords

an

adju

stm

ent t

o re

flec

t an

incr

ease

or

decr

ease

in th

e ca

rryi

ng v

alue

of

its in

vest

men

t and

a r

esul

ting

gain

or

loss

in n

onop

erat

ing

(inc

ome)

exp

ense

.

PE

R C

OM

MO

N S

HA

RE

IN

FO

RM

AT

ION

Dilu

ted

net i

ncom

e pe

r co

mm

on s

hare

is c

alcu

late

d us

ing

net i

ncom

e di

vide

d by

dilu

ted

wei

ghte

d-av

erag

e sh

ares

. Dilu

ted

wei

ghte

d-av

erag

e sh

ares

incl

ude

wei

ghte

d-av

erag

e sh

ares

out

stan

ding

plu

s th

edi

lutiv

e ef

fect

of

stoc

k op

tions

, cal

cula

ted

usin

g th

e tr

easu

ry s

tock

met

hod.

The

dilu

tive

effe

ct o

f st

ock

optio

ns w

as (

in m

illio

ns o

f sh

ares

): 2

001-

19.6

; 200

0-33

.3; 1

999-

48.9

. Sto

ck o

ptio

ns th

at w

ere

not

incl

uded

in d

ilutiv

e w

eigh

ted-

aver

age

shar

es b

ecau

se th

ey w

ould

hav

e be

en a

ntid

ilutiv

e w

ere

(in

mill

ions

of

shar

es):

200

1-83

.1; 2

000-

49.2

; 199

9-9.

9. T

he d

ilutiv

e ef

fect

of

com

mon

equ

ity p

ut o

ptio

ns a

ndfo

rwar

d co

ntra

cts

was

not

sig

nifi

cant

.

STA

TE

ME

NT

OF

CA

SH F

LO

WS

The

Com

pany

con

side

rs s

hort

-ter

m, h

ighl

y liq

uid

inve

stm

ents

to b

e ca

sh e

quiv

alen

ts. T

he im

pact

of

fluc

tuat

ing

fore

ign

curr

enci

es o

n ca

sh a

nd e

quiv

alen

ts w

as n

ot m

ater

ial.

gp

y

McD

onal

d's

Cor

pora

tion

29

Oth

er o

pera

ting

(inc

ome)

exp

ense

, net

===============================================================================

-------------------------------------------------------------------------------

IN MILLIONS 2001 2000 1999

===============================================================================

Gains on sales of restaurant businesses $(112.4) $ (86.9) $ (75.0)

Equity in earnings of unconsolidated affiliates (61.5) (120.9) (138.3)

Charges for underperforming restaurant closings 91.2

Asset impairment charges 44.0

Other, net 96.1 11.4 108.1

-------------------------------------------------------------------------------

Other operating (income) expense, net $ 57.4 $(196.4) $(105.2)

===============================================================================

CH

AR

GE

S F

OR

UN

DE

RP

ER

FO

RM

ING

RE

STA

UR

AN

T C

LO

SIN

GS

In th

ird

and

four

th q

uart

ers

2001

, the

Com

pany

rec

orde

d $9

1.2

mill

ion

of p

reta

x ch

arge

s ($

68.8

mill

ion

afte

r ta

x) r

elat

ed to

the

clos

ing

of 1

63 u

nder

perf

orm

ing

rest

aura

nts

in in

tern

atio

nal m

arke

ts. T

hech

arge

s pr

imar

ily c

onsi

st o

f as

set w

rite

-off

s an

d le

ase

term

inat

ion

paym

ents

.

ASS

ET

IM

PA

IRM

EN

T C

HA

RG

ES

In s

econ

d qu

arte

r 20

01, t

he C

ompa

ny r

ecor

ded

a $2

4.0

mill

ion

asse

t im

pair

men

t cha

rge

(pre

and

aft

er ta

x) d

ue to

an

asse

ssm

ent o

f th

e on

goin

g im

pact

of

sign

ific

ant c

urre

ncy

deva

luat

ion

on M

cDon

ald'

sca

sh f

low

s in

Tur

key.

In f

ourt

h qu

arte

r 20

01, t

he C

ompa

ny r

ecor

ded

a pr

etax

cha

rge

of $

20.0

mill

ion

($13

.6 m

illio

n af

ter

tax)

rel

ated

to th

e an

ticip

ated

dis

posa

l of

Aro

ma

Caf

e in

the

U.K

.

OT

HE

R, N

ET

Oth

er, n

et in

clud

es m

isce

llane

ous

oper

atin

g in

com

e an

d ex

pens

e ite

ms

incl

udin

g ne

t gai

ns o

r lo

sses

fro

m p

rope

rty

disp

ositi

ons,

pro

visi

ons

for

bad

debt

s an

d ot

her

tran

sact

ions

rel

ated

to f

ranc

hisi

ng a

nd th

efo

od s

ervi

ce b

usin

ess.

In th

ird

quar

ter

2001

, the

Com

pany

rec

orde

d a

pret

ax c

harg

e of

$17

.4 m

illio

n ($

12.0

mill

ion

afte

r ta

x) p

rim

arily

rel

ated

to th

e w

rite

-off

of

cert

ain

tech

nolo

gy c

osts

in th

e C

orpo

rate

seg

men

t.

In f

ourt

h qu

arte

r 20

01, t

he C

ompa

ny r

ecor

ded

a pr

etax

cha

rge

of $

25.0

mill

ion

($17

.0 m

illio

n af

ter

tax)

in th

e U

.S. p

rim

arily

rel

ated

to u

nrec

over

able

cos

ts in

curr

ed in

con

nect

ion

with

the

thef

t of

win

ning

gam

e pi

eces

fro

m th

e C

ompa

ny's

Mon

opol

y an

d ce

rtai

n ot

her

prom

otio

nal g

ames

ove

r an

ext

ende

d pe

riod

of

time,

and

the

rela

ted

term

inat

ion

of th

e su

pplie

r of

the

gam

e pi

eces

. Fif

ty-o

ne p

eopl

e (n

one

ofw

hom

wer

e C

ompa

ny e

mpl

oyee

s) w

ere

subs

eque

ntly

indi

cted

on

cons

pira

cy a

nd m

ail f

raud

cha

rges

.

In 1

999,

the

Com

pany

wro

te o

ff $

24.0

mill

ion

($16

.3 m

illio

n af

ter

tax)

of

soft

war

e no

t use

d in

the

busi

ness

.

Spec

ial c

harg

e-gl

obal

cha

nge

initi

ativ

es

In f

ourt

h qu

arte

r 20

01, t

he C

ompa

ny r

ecor

ded

a $2

00.0

mill

ion

pret

ax s

peci

al c

harg

e ($

136.

1 m

illio

n af

ter

tax)

rel

ated

to s

trat

egic

cha

nges

and

ong

oing

res

taur

ant i

nitia

tives

in th

e U

.S. a

nd c

erta

inin

tern

atio

nal m

arke

ts. T

he c

hang

es a

nd in

itiat

ives

are

des

igne

d to

impr

ove

the

cust

omer

exp

erie

nce

and

grow

McD

onal

d's

glob

al b

usin

ess.

The

cha

nges

in th

e U

.S. i

nclu

ded

stre

amlin

ing

oper

atio

ns b

yre

duci

ng th

e nu

mbe

r of

reg

ions

and

div

isio

ns, e

nabl

ing

the

Com

pany

to c

ombi

ne s

taff

fun

ctio

ns a

nd im

prov

e ef

fici

ency

. In

addi

tion,

the

U.S

. bus

ines

s in

trod

uced

a v

arie

ty o

f in

itiat

ives

des

igne

d to

impr

ove

the

rest

aura

nt e

xper

ienc

e in

clud

ing

acce

lera

ted

oper

atio

ns tr

aini

ng, r

esta

uran

t sim

plif

icat

ion,

ince

ntiv

es f

or o

utst

andi

ng r

esta

uran

t ope

ratio

ns a

nd a

n en

hanc

ed n

atio

nal r

esta

uran

t eva

luat

ion

syst

em.

In c

onne

ctio

n w

ith th

ese

initi

ativ

es, t

he C

ompa

ny e

limin

ated

app

roxi

mat

ely

850

posi

tions

, con

sist

ing

of 7

00 p

ositi

ons

in th

e U

.S.,

prim

arily

in th

e di

visi

ons

and

regi

ons,

and

150

pos

ition

s in

inte

rnat

iona

lm

arke

ts.

The

spe

cial

cha

rge

cons

iste

d of

$11

4.4

mill

ion

of s

ever

ance

and

oth

er e

mpl

oyee

-rel

ated

cos

ts; $

68.8

mill

ion

of le

ase

canc

ella

tion

and

othe

r co

sts

rela

ted

to th

e cl

osin

g of

reg

ion

and

divi

sion

fac

ilitie

s; a

nd$1

6.8

mill

ion

of o

ther

cas

h co

sts,

pri

mar

ily c

onsi

stin

g of

pay

men

ts m

ade

to f

acili

tate

a ti

mel

y an

d sm

ooth

cha

nge

of o

wne

rshi

p fr

om f

ranc

hise

es w

ho h

ave

had

a hi

stor

y of

fin

anci

al d

iffi

culty

and

cons

eque

ntly

wer

e un

able

to d

eliv

er th

e le

vel o

f op

erat

iona

l exc

elle

nce

need

ed to

suc

ceed

in th

e fu

ture

.

Of

the

orig

inal

$20

0.0

mill

ion

pret

ax s

peci

al c

harg

e, th

e re

mai

ning

acc

rual

of

appr

oxim

atel

y $1

26.0

mill

ion

at y

ear-

end

2001

pri

mar

ily r

elat

ed to

em

ploy

ee s

ever

ance

and

leas

e pa

ymen

ts f

or f

acili

ties

that

gp

y

have

bee

n cl

osed

and

was

incl

uded

in o

ther

acc

rued

liab

ilitie

s in

the

Con

solid

ated

bal

ance

she

et. E

mpl

oyee

sev

eran

ce is

pai

d in

inst

allm

ents

ove

r a

peri

od o

f up

to o

ne y

ear

afte

r te

rmin

atio

n, a

nd th

ere

mai

ning

leas

e pa

ymen

ts f

or f

acili

ties

that

hav

e be

en c

lose

d w

ill b

e pa

id th

roug

h 20

10. N

o si

gnif

ican

t adj

ustm

ents

hav

e be

en m

ade

to th

e or

igin

al p

lan

appr

oved

by

man

agem

ent.

McD

onal

d's

Japa

n in

itial

pub

lic o

ffer

ing

(IPO

) ga

in

In th

ird

quar

ter

2001

, McD

onal

d's

Japa

n, th

e C

ompa

ny's

larg

est m

arke

t in

the

Asi

a/Pa

cifi

c, M

iddl

e E

ast a

nd A

fric

a se

gmen

t, co

mpl

eted

an

IPO

of

12 m

illio

n sh

ares

at a

n of

feri

ng p

rice

of

4,30

0 Y

en p

ersh

are

($34

.77

per

shar

e). T

he C

ompa

ny o

wns

50%

of

McD

onal

d's

Japa

n w

hile

the

Com

pany

's p

artn

er D

en F

ujita

and

his

fam

ily n

ow o

wn

appr

oxim

atel

y 26

% a

nd c

ontin

ue to

be

invo

lved

in th

e bu

sine

ss.

The

Com

pany

rec

orde

d a

$137

.1 m

illio

n ga

in (

pre

and

afte

r ta

x) in

non

oper

atin

g in

com

e to

ref

lect

an

incr

ease

in th

e ca

rryi

ng v

alue

of

its in

vest

men

t as

a re

sult

of th

e ca

sh p

roce

eds

from

the

IPO

rec

eive

dby

McD

onal

d's

Japa

n.

Fran

chis

e ar

rang

emen

ts

Indi

vidu

al f

ranc

hise

arr

ange

men

ts g

ener

ally

incl

ude

a le

ase

and

a lic

ense

and

pro

vide

for

pay

men

t of

initi

al f

ees

as w

ell a

s co

ntin

uing

ren

t and

ser

vice

fee

s to

the

Com

pany

bas

ed u

pon

a pe

rcen

t of

sale

s,w

ith m

inim

um r

ent p

aym

ents

. McD

onal

d's

fran

chis

ees

are

gran

ted

the

righ

t to

oper

ate

a re

stau

rant

usi

ng th

e M

cDon

ald'

s sy

stem

and

, in

cert

ain

case

s, th

e us

e of

a r

esta

uran

t fac

ility

, gen

eral

ly f

or a

per

iod

of 2

0 ye

ars.

Fra

nchi

sees

pay

rel

ated

occ

upan

cy c

osts

incl

udin

g pr

oper

ty ta

xes,

insu

ranc

e an

d m

aint

enan

ce. F

ranc

hise

es in

the

U.S

. gen

eral

ly h

ave

the

optio

n to

ow

n

30 M

cDon

ald'

s C

orpo

ratio

n

new

res

taur

ant b

uild

ings

, whi

le le

asin

g th

e la

nd f

rom

McD

onal

d's.

In

addi

tion,

fra

nchi

sees

out

side

the

U.S

. gen

eral

ly p

ay a

ref

unda

ble,

non

inte

rest

-bea

ring

sec

urity

dep

osit.

For

eign

aff

iliat

es p

ay a

roy

alty

to th

e C

ompa

ny b

ased

upo

n a

perc

ent o

f sa

les.

The

res

ults

of

oper

atio

ns o

f re

stau

rant

bus

ines

ses

purc

hase

d an

d so

ld in

tran

sact

ions

with

fra

nchi

sees

, aff

iliat

es a

nd o

ther

s w

ere

not m

ater

ial t

o th

e co

nsol

idat

ed f

inan

cial

sta

tem

ents

for

per

iods

pri

or to

purc

hase

and

sal

e.

Rev

enue

s fr

om f

ranc

hise

d an

d af

filia

ted

rest

aura

nts

cons

iste

d of

:

--------------------------------------------------------------------------------

IN MILLIONS 2001 2000 1999

================================================================================

Minimum rents $ 1,477.9 $ 1,465.3 $ 1,473.8

Percent rent and service fees 2,290.2 2,247.0 2,208.8

Initial fees 61.2 63.7 64.2

--------------------------------------------------------------------------------

Revenues from franchised

and affiliated restaurants $ 3,829.3 $ 3,776.0 $ 3,746.8

================================================================================

Futu

re m

inim

um r

ent p

aym

ents

due

to th

e C

ompa

ny u

nder

exi

stin

g fr

anch

ise

arra

ngem

ents

are

:

--------------------------------------------------------------------------------

Owned Leased

IN MILLIONS sites sites Total

================================================================================

2002 $ 948.7 $ 707.5 $ 1,656.2

2003 935.9 701.4 1,637.3

2004 920.3 689.3 1,609.6

2005 895.7 666.7 1,562.4

2006 870.8 647.2 1,518.0

Thereafter 7,384.0 5,771.9 13,155.9

--------------------------------------------------------------------------------

Total minimum payments $11,955.4 $9,184.0 $21,139.4

================================================================================

gp

y

At D

ecem

ber

31, 2

001,

net

pro

pert

y an

d eq

uipm

ent u

nder

fra

nchi

se a

rran

gem

ents

tota

led

$9.0

bill

ion

(inc

ludi

ng la

nd o

f $2

.7 b

illio

n) a

fter

ded

uctin

g ac

cum

ulat

ed d

epre

ciat

ion

and

amor

tizat

ion

of $

3.4

billi

on.

Inco

me

taxe

s

Inco

me

befo

re p

rovi

sion

for

inco

me

taxe

s, c

lass

ifie

d by

sou

rce

of in

com

e, w

as a

s fo

llow

s:

--------------------------------------------------------------------------------

IN MILLIONS 2001 2000 1999

================================================================================

U.S. $ 958.2 $1,280.6 $1,222.2

Outside the U.S. 1,371.5 1,601.7 1,661.9

--------------------------------------------------------------------------------

Income before provision for

income taxes $2,329.7 $2,882.3 $2,884.1

================================================================================

The

pro

visi

on f

or in

com

e ta

xes,

cla

ssif

ied

by th

e tim

ing

and

loca

tion

of p

aym

ent,

was

as

follo

ws:

--------------------------------------------------------------------------------

IN MILLIONS 2001 2000 1999

================================================================================

U.S. federal $ 357.3 $ 361.1 $ 347.4

U.S. state 59.7 77.0 68.9

Outside the U.S. 363.7 406.4 467.0

--------------------------------------------------------------------------------

Current tax provision 780.7 844.5 883.3

--------------------------------------------------------------------------------

U.S. federal 57.7 75.2 31.3

U.S. state 4.3 9.5 12.3

Outside the U.S. (149.6) (24.2) 9.3

--------------------------------------------------------------------------------

Deferred tax provision/(1)/ (87.6) 60.5 52.9

--------------------------------------------------------------------------------

Provision for income taxes $ 693.1 $ 905.0 $ 936.2

================================================================================

(1)

Incl

udes

the

one-

time

bene

fit o

f ta

x la

w c

hang

es in

cer

tain

inte

rnat

iona

l mar

kets

: 200

1-$(

147.

3) m

illio

n; a

mou

nts

in 2

000

and

1999

wer

e no

t sig

nifi

cant

.

Net

def

erre

d ta

x lia

bilit

ies

cons

iste

d of

:

gp

y

--------------------------------------------------------------------------------

IN MILLIONS December 31, 2001 2000

================================================================================

Property and equipment basis differences $ 1,304.4 $ 1,202.6

Other 429.9 353.3

--------------------------------------------------------------------------------

Total deferred tax liabilities 1,734.3 1,555.9

--------------------------------------------------------------------------------

Deferred tax assets before valuation allowance/(1)/ (899.9) (646.9)

Valuation allowance 180.1 124.0

--------------------------------------------------------------------------------

Net deferred tax liabilities/(2)/ $ 1,014.5 $ 1,033.0

================================================================================

(1)

Incl

udes

tax

effe

cts

of lo

ss c

arry

forw

ards

(in

mill

ions

): 2

001-

$166

.0; 2

000-

$129

.4, a

nd f

orei

gn ta

x cr

edit

carr

yfor

war

ds: 2

001-

$21.

6; 2

000-

$41.

2.

(2)

Net

of

curr

ent t

ax a

sset

s in

clud

ed in

pre

paid

exp

ense

s an

d ot

her

curr

ent a

sset

s in

the

Con

solid

ated

bal

ance

she

et (

in m

illio

ns):

200

1-$9

7.7;

200

0-$5

1.9.

The

sta

tuto

ry U

.S. f

eder

al in

com

e ta

x ra

te r

econ

cile

d to

the

effe

ctiv

e in

com

e ta

x ra

tes

as f

ollo

ws:

--------------------------------------------------------------------------------

2001 2000 1999

================================================================================

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 1.9 1.8

Benefits and taxes related to

foreign operations/(1)/ (7.8) (4.8) (4.4)

Other, net .8 (.7) .1

--------------------------------------------------------------------------------

Effective income tax rates 29.8% 31.4% 32.5%

================================================================================

(1)

Incl

udes

the

one-

time

bene

fit o

f ta

x la

w c

hang

es.

Def

erre

d U

.S. i

ncom

e ta

xes

have

not

bee

n re

cord

ed f

or b

asis

dif

fere

nces

rel

ated

to in

vest

men

ts in

cer

tain

for

eign

sub

sidi

arie

s an

d af

filia

tes.

The

se b

asis

dif

fere

nces

wer

e ap

prox

imat

ely

$2.7

bill

ion

atD

ecem

ber

31, 2

001,

and

con

sist

ed p

rim

arily

of

undi

stri

bute

d ea

rnin

gs c

onsi

dere

d pe

rman

ently

inve

sted

in th

e bu

sine

sses

. Det

erm

inat

ion

of th

e de

ferr

ed in

com

e ta

x lia

bilit

y on

thes

e un

rem

itted

ear

ning

s is

not p

ract

icab

le b

ecau

se s

uch

liabi

lity,

if a

ny, i

s de

pend

ent o

n ci

rcum

stan

ces

exis

ting

if a

nd w

hen

rem

ittan

ce o

ccur

s.

Segm

ent a

nd g

eogr

aphi

c in

form

atio

n

The

Com

pany

ope

rate

s in

the

food

ser

vice

indu

stry

. Sub

stan

tially

all

reve

nues

res

ult f

rom

the

sale

of

men

u pr

oduc

ts a

t res

taur

ants

ope

rate

d by

the

Com

pany

, fra

nchi

sees

or

affi

liate

s. A

ll in

terc

ompa

nyre

venu

es a

nd e

xpen

ses

are

elim

inat

ed in

com

putin

g re

venu

es a

nd o

pera

ting

inco

me.

Ope

ratin

g in

com

e in

clud

es th

e C

ompa

ny's

sha

re o

f op

erat

ing

resu

lts o

f af

filia

tes

afte

r in

tere

st e

xpen

se a

nd in

com

eta

xes,

exc

ept f

or U

.S. a

ffili

ates

, whi

ch a

re r

epor

ted

befo

re in

com

e ta

xes.

Roy

altie

s an

d ot

her

paym

ents

rec

eive

d fr

om s

ubsi

diar

ies

outs

ide

the

U.S

. wer

e (i

n m

illio

ns):

200

1-$6

07.7

; 200

0-$6

03.6

;19

99-$

568.

3.

Segm

ent i

nfor

mat

ion

refl

ects

the

Com

pany

's c

urre

nt m

anag

emen

t str

uctu

re. T

he n

ew A

PME

A s

egm

ent i

nclu

des

resu

lts f

or M

cDon

ald'

s re

stau

rant

ope

ratio

ns in

Asi

a/Pa

cifi

c, th

e M

iddl

e E

ast a

nd A

fric

a.T

he P

artn

er B

rand

s se

gmen

t inc

lude

s re

sults

for

Aro

ma

Caf

e, B

osto

n M

arke

t, C

hipo

tle, D

onat

os a

nd P

ret A

Man

ger.

In

addi

tion,

U.S

. and

Cor

pora

te s

ellin

g, g

ener

al &

adm

inis

trat

ive

McD

onal

d's

Cor

pora

tion

31

gp

y

expe

nses

hav

e be

en r

esta

ted

to r

efle

ct a

rea

lignm

ent o

f ce

rtai

n ho

me

offi

ce d

epar

tmen

ts' r

espo

nsib

ilitie

s.

Cor

pora

te g

ener

al &

adm

inis

trat

ive

expe

nses

are

incl

uded

in th

e co

rpor

ate

segm

ent o

f op

erat

ing

inco

me

and

cons

ist o

f ho

me

offi

ce s

uppo

rt c

osts

in a

reas

suc

h as

fac

ilitie

s, f

inan

ce, h

uman

res

ourc

es,

info

rmat

ion

tech

nolo

gy, l

egal

, sup

ply

chai

n m

anag

emen

t and

trai

ning

. Cor

pora

te a

sset

s in

clud

e co

rpor

ate

cash

and

equ

ival

ents

, ass

et p

ortio

ns o

f fi

nanc

ing

inst

rum

ents

, hom

e of

fice

fac

ilitie

s an

d de

ferr

edta

x as

sets

.

-----------------------------------------------------------------------------------

IN MILLIONS 2001 2000 1999

===================================================================================

U.S. $ 5,395.6 $ 5,259.1 $ 5,093.0

Europe 4,751.8 4,753.9 4,924.9

APMEA 2,203.3 2,101.8 1,928.8

Latin America 971.3 949.3 680.3

Canada 608.1 615.1 575.6

Partner Brands 939.9 563.8 56.7

-----------------------------------------------------------------------------------

Total revenues $14,870.0 $14,243.0 $13,259.3

===================================================================================

U.S. $ 1,622.5 $ 1,795.7 $ 1,678.6

Europe 1,063.2 1,180.1 1,256.5

APMEA 325.0 451.2 433.5


Canada 123.7 126.3 113.3

Partner Brands (66.5) (41.5) (7.5)

Corporate (381.8) (284.4) (287.8)

-----------------------------------------------------------------------------------

Total operating income $ 2,697.0/(1)/ $ 3,329.7 $ 3,319.6

===================================================================================

U.S. $ 8,213.7 $ 7,798.1 $ 7,607.4

Europe 7,139.1 7,083.7 6,966.8

APMEA 3,144.5 2,983.4 3,030.5

Latin America 1,898.3 1,855.6 1,477.5

Canada 574.2 552.0 573.6


Corporate 927.6 960.0 1,124.2

-----------------------------------------------------------------------------------

Total assets $22,534.5 $21,683.5 $20,983.2

===================================================================================

U.S. $ 545.9 $ 468.6 $ 426.4

Europe 635.8 797.6 881.8

APMEA 275.7 253.5 221.3

Latin America 197.5 245.7 213.2

Canada 80.4 52.5 63.0


Corporate 17.6 47.6 45.7

-----------------------------------------------------------------------------------

Total capital expenditures $ 1,906.2 $ 1,945.1 $ 1,867.8

===================================================================================

U.S. $ 449.9 $ 417.6 $ 399.7

Europe 313.7 296.5 305.2

APMEA 133.2 129.8 123.5

gp

y


Canada 32.9 34.9 35.3


Corporate 40.5 45.9 44.8

-----------------------------------------------------------------------------------

Total depreciation and amortization $ 1,086.3 $ 1,010.7 $ 956.3

===================================================================================

(1)

Incl

udes

$37

7.6

mill

ion

of p

reta

x sp

ecia

l cha

rges

(U

.S.-

$181

.0; E

urop

e-$4

5.8;

APM

EA

-$41

.5; L

atin

Am

eric

a-$4

0.4;

Can

ada-

$9.8

; Par

tner

Bra

nds-

$24.

9 an

d C

orpo

rate

-$34

.2)

prim

arily

rel

ated

to th

eU

.S. b

usin

ess

reor

gani

zatio

n an

d ot

her

glob

al c

hang

e in

itiat

ives

, the

clo

sing

of

163

unde

rper

form

ing

rest

aura

nts

in in

tern

atio

nal m

arke

ts a

nd a

sset

impa

irm

ent c

harg

es. S

ee o

ther

ope

ratin

g (i

ncom

e)ex

pens

e, n

et a

nd s

peci

al c

harg

e-gl

obal

cha

nge

initi

ativ

es n

otes

for

fur

ther

dis

cuss

ion.

Tot

al lo

ng-l

ived

ass

ets,

pri

mar

ily p

rope

rty

and

equi

pmen

t and

goo

dwill

, wer

e (i

n m

illio

ns)-

-Con

solid

ated

: 200

1-$2

0,35

5.3;

200

0-$1

9,79

8.3;

199

9-$1

9,08

2.8.

U.S

. bas

ed: 2

001-

$8,6

70.4

; 200

0-$8

,373

.2;

1999

-$7,

984.

9.

Lea

sing

arr

ange

men

ts

At D

ecem

ber

31, 2

001,

the

Com

pany

was

less

ee a

t 6,8

66 r

esta

uran

t loc

atio

ns th

roug

h gr

ound

leas

es (

the

Com

pany

leas

es th

e la

nd a

nd th

e C

ompa

ny o

r fr

anch

isee

ow

ns th

e bu

ildin

g) a

nd a

t 7,0

89 r

esta

uran

tlo

catio

ns th

roug

h im

prov

ed le

ases

(th

e C

ompa

ny le

ases

land

and

bui

ldin

gs).

Lea

se te

rms

for

mos

t res

taur

ants

are

gen

eral

ly f

or 2

0 to

25

year

s an

d, in

man

y ca

ses,

pro

vide

for

ren

t esc

alat

ions

and

ren

ewal

optio

ns, w

ith c

erta

in le

ases

pro

vidi

ng p

urch

ase

optio

ns. F

or m

ost l

ocat

ions

, the

Com

pany

is o

blig

ated

for

the

rela

ted

occu

panc

y co

sts

incl

udin

g pr

oper

ty ta

xes,

insu

ranc

e an

d m

aint

enan

ce. I

n ad

ditio

n, th

eC

ompa

ny is

less

ee u

nder

non

canc

elab

le le

ases

cov

erin

g of

fice

s an

d ve

hicl

es.

Futu

re m

inim

um p

aym

ents

req

uire

d un

der

exis

ting

oper

atin

g le

ases

with

initi

al te

rms

of o

ne y

ear

or m

ore

are:

--------------------------------------------------------------------------------

IN MILLIONS Restaurant Other Total

================================================================================

2002 $ 772.3 $ 69.1 $ 841.4

2003 756.8 57.7 814.5

2004 731.1 48.2 779.3

2005 681.1 41.1 722.2

2006 653.5 36.4 689.9

Thereafter 5,901.6 166.8 6,068.4

--------------------------------------------------------------------------------

Total minimum payments $9,496.4 $419.3 $9,915.7

================================================================================

Ren

t exp

ense

was

(in

mill

ions

): 2

001-

$958

.6; 2

000-

$886

.4; 1

999-

$796

.3. T

hese

am

ount

s in

clud

ed p

erce

nt r

ents

in e

xces

s of

min

imum

ren

ts (

in m

illio

ns):

2001

-$11

9.6;

200

0-$1

33.0

; 199

9-$1

17.1

.

Deb

t fin

anci

ng

LIN

E O

F C

RE

DIT

AG

RE

EM

EN

TS

At D

ecem

ber

31, 2

001,

the

Com

pany

had

sev

eral

line

of

cred

it ag

reem

ents

with

var

ious

ban

ks to

talin

g $1

.3 b

illio

n, a

ll of

whi

ch r

emai

ned

unus

ed a

t yea

r-en

d 20

01. S

ubse

quen

t to

year

end

, the

Com

pany

rene

gotia

ted

thes

e lin

e of

cre

dit a

gree

men

ts a

s fo

llow

s: a

$75

0.0

mill

ion

line

expi

ring

in 2

003

with

a te

rm o

f 36

4 da

ys a

nd f

ees

of .0

45%

per

ann

um o

n th

e to

tal c

omm

itmen

t, w

ith a

fea

ture

that

allo

ws

the

Com

pany

to c

onve

rt th

e bo

rrow

ings

to a

one

-yea

r te

rm lo

an a

t any

tim

e pr

ior

to e

xpir

atio

n; a

$50

0.0

mill

ion

line

expi

ring

in F

ebru

ary

2007

with

fee

s of

.065

% p

er a

nnum

on

the

tota

l com

mitm

ent;

and

a$2

5.0

mill

ion

line

expi

ring

in 2

003

with

a te

rm o

f 36

4 da

ys a

nd f

ees

of .0

7% p

er a

nnum

on

the

tota

l com

mitm

ent.

Bor

row

ings

und

er th

e ag

reem

ents

bea

r in

tere

st a

t one

of

seve

ral s

peci

fied

flo

atin

g ra

tes

sele

cted

by

the

Com

pany

at t

he ti

me

of b

orro

win

g. I

n ad

ditio

n, c

erta

in s

ubsi

diar

ies

outs

ide

the

U.S

. had

unu

sed

lines

of

cred

it to

talin

g $7

85.3

mill

ion

at D

ecem

ber

31, 2

001;

thes

e w

ere

prin

cipa

lly s

hort

term

and

den

omin

ated

in v

ario

us c

urre

ncie

s at

loca

l mar

ket r

ates

of

inte

rest

.

gp

y

32 M

cDon

ald'

s C

orpo

ratio

n

The

wei

ghte

d-av

erag

e in

tere

st r

ate

of s

hort

-ter

m b

orro

win

gs, c

onsi

stin

g of

U.S

. Dol

lar

and

Eur

o co

mm

erci

al p

aper

and

for

eign

cur

renc

y ba

nk li

ne b

orro

win

gs, w

as3.

4% a

t Dec

embe

r 31

, 200

1 an

d 6.

9% a

t Dec

embe

r 31

, 200

0.

FA

IR V

AL

UE

S

At D

ecem

ber

31, 2

001,

the

fair

val

ue o

f th

e C

ompa

ny's

deb

t and

not

es p

ayab

le o

blig

atio

ns w

as e

stim

ated

at $

9.1

billi

on, c

ompa

red

to a

car

ryin

g am

ount

of

$8.9

bill

ion.

Thi

s fa

ir v

alue

was

est

imat

ed u

sing

vari

ous

pric

ing

mod

els

or d

isco

unte

d ca

sh f

low

ana

lyse

s th

at in

corp

orat

ed q

uote

d m

arke

t pri

ces.

The

Com

pany

has

no

curr

ent p

lans

to r

etir

e a

sign

ific

ant a

mou

nt o

f its

deb

t pri

or to

mat

urity

.

The

car

ryin

g am

ount

s fo

r bo

th c

ash

and

equi

vale

nts

and

note

s re

ceiv

able

app

roxi

mat

e fa

ir v

alue

. For

eign

cur

renc

y an

d in

tere

st-r

ate

exch

ange

agr

eem

ents

, for

eign

cur

renc

y op

tions

and

for

war

d fo

reig

nex

chan

ge c

ontr

acts

wer

e re

cord

ed in

the

Con

solid

ated

bal

ance

she

et a

t fai

r va

lue

estim

ated

usi

ng v

ario

us p

rici

ng m

odel

s or

dis

coun

ted

cash

flo

w a

naly

ses

that

inco

rpor

ated

quo

ted

mar

ket p

rice

s. N

o fa

irva

lue

was

est

imat

ed f

or n

onin

tere

st-b

eari

ng s

ecur

ity d

epos

its b

y fr

anch

isee

s, b

ecau

se th

ese

depo

sits

are

an

inte

gral

par

t of

the

over

all f

ranc

hise

arr

ange

men

ts. G

iven

the

mar

ket v

alue

of

its c

omm

on s

tock

and

its s

igni

fica

nt r

eal e

stat

e ho

ldin

gs, t

he C

ompa

ny b

elie

ves

that

the

fair

val

ue o

f its

tota

l ass

ets

was

sub

stan

tially

hig

her

than

the

carr

ying

val

ue a

t Dec

embe

r 31

, 200

1.

ESO

P L

OA

NS

AN

D O

TH

ER

GU

AR

AN

TE

ES

The

Com

pany

has

gua

rant

eed

and

incl

uded

in to

tal d

ebt a

t Dec

embe

r 31

, 200

1 $2

6.8

mill

ion

of N

otes

issu

ed b

y th

e L

ever

aged

Em

ploy

ee S

tock

Ow

ners

hip

Plan

(E

SOP)

with

pay

men

ts th

roug

h 20

06.

Bor

row

ings

rel

ated

to th

e E

SOP

at D

ecem

ber

31, 2

001,

whi

ch in

clud

e $8

9.1

mill

ion

of lo

ans

from

the

Com

pany

to th

e E

SOP

and

the

$26.

8 m

illio

n of

Not

es g

uara

ntee

d by

the

Com

pany

, are

ref

lect

ed a

slo

ng-t

erm

deb

t with

a c

orre

spon

ding

red

uctio

n of

sha

reho

lder

s' e

quity

(un

earn

ed E

SOP

com

pens

atio

n). T

he E

SOP

is r

epay

ing

the

loan

s an

d in

tere

st th

roug

h 20

18 u

sing

Com

pany

con

trib

utio

ns a

nddi

vide

nds

from

its

McD

onal

d's

com

mon

sto

ck h

oldi

ngs.

As

the

prin

cipa

l am

ount

of

the

borr

owin

gs is

rep

aid,

the

debt

and

the

unea

rned

ESO

P co

mpe

nsat

ion

are

bein

g re

duce

d.

The

Com

pany

als

o ha

s gu

aran

teed

cer

tain

aff

iliat

e an

d ot

her

loan

s to

talin

g $1

48.0

mill

ion

at D

ecem

ber

31, 2

001.

DE

BT

OB

LIG

AT

ION

S

The

Com

pany

has

incu

rred

deb

t obl

igat

ions

pri

ncip

ally

thro

ugh

publ

ic a

nd p

riva

te o

ffer

ings

and

ban

k lo

ans.

The

re a

re n

o pr

ovis

ions

in th

e C

ompa

ny's

deb

t obl

igat

ions

that

wou

ld a

ccel

erat

e re

paym

ent o

fde

bt a

s a

resu

lt of

a c

hang

e in

cre

dit r

atin

gs. C

erta

in o

f th

e C

ompa

ny's

deb

t obl

igat

ions

con

tain

cro

ss-d

efau

lt pr

ovis

ions

and

res

tric

tions

on

Com

pany

and

sub

sidi

ary

mor

tgag

es a

nd th

e lo

ng-t

erm

deb

t of

cert

ain

subs

idia

ries

. Und

er c

erta

in a

gree

men

ts, t

he C

ompa

ny h

as th

e op

tion

to r

etir

e de

bt p

rior

to m

atur

ity, e

ither

at p

ar o

r at

a p

rem

ium

ove

r pa

r. T

he f

ollo

win

g ta

ble

sum

mar

izes

the

Com

pany

's d

ebt

oblig

atio

ns (

the

inte

rest

rat

es r

efle

cted

in th

e ta

ble

incl

ude

the

effe

cts

of in

tere

st-r

ate

and

fore

ign

curr

ency

exc

hang

e ag

reem

ents

):

-------------------------------------------------------------------------------------------

Interest rates(1) Amounts outstanding

December 31 December 31

Maturity ----------- ------------------------

IN MILLIONS OF U.S. DOLLARS dates 2001 2000 2001 2000

===========================================================================================

Fixed-original issue(2) 6.2% 6.8% $ 3,293.8 $ 2,793.2

Fixed-converted via

exchange agreements(3) 5.3 6.1 (1,829.9) (351.5)

Floating 2.3 6.6 2,364.8 914.1

-------------------------------------------------------------------------------------------

Total U.S. Dollars 2002-2033 3,828.7 3,355.8

-------------------------------------------------------------------------------------------

Fixed 5.7 5.7 629.7 679.1

Floating 3.5 4.8 1,724.9 1,609.6

-------------------------------------------------------------------------------------------

Total Euro 2002-2015 2,354.6 2,288.7

-------------------------------------------------------------------------------------------

Fixed 6.1 6.2 698.8 524.6

Floating 5.6 7.2 150.3 233.3

-------------------------------------------------------------------------------------------

Total British Pounds

Sterling 2002-2021 849.1 757.9

-------------------------------------------------------------------------------------------

gp

y

Fixed 4.5 5.5 276.9 346.5

Floating 6.2 6.7 58.9 25.7

-------------------------------------------------------------------------------------------

Total other European

currencies(4) 2002-2006 335.8 372.2

-------------------------------------------------------------------------------------------

Fixed 2.3 2.7 584.0 589.0

Floating 0.1 0.5 227.9 262.4

-------------------------------------------------------------------------------------------

Total Japanese Yen 2005-2030 811.9 851.4

-------------------------------------------------------------------------------------------

Fixed 7.1 8.6 317.6 322.0

Floating 6.2 7.6 300.0 453.5

-------------------------------------------------------------------------------------------

Total other Asia/Pacific

currencies(5) 2002-2006 617.6 775.5

-------------------------------------------------------------------------------------------

Fixed 5.8 5.6 3.2 4.1

Floating 15.5 12.8 23.2 68.3

-------------------------------------------------------------------------------------------

Total other currencies 2002-2021 26.4 72.4

-------------------------------------------------------------------------------------------

Debt obligations before fair

value adjustments(6) 8,824.1 8,473.9

-------------------------------------------------------------------------------------------

Fair value adjustments(7) 93.9

-------------------------------------------------------------------------------------------

Total debt obligations $ 8,918.0 $ 8,473.9

===========================================================================================

(1)

Wei

ghte

d-av

erag

e ef

fect

ive

rate

, com

pute

d on

a s

emia

nnua

l bas

is.

(2)

Incl

udes

$15

0 m

illio

n of

deb

entu

res

that

mat

ure

in 2

027

($50

0 m

illio

n of

deb

entu

res

in 2

000)

, whi

ch a

re s

ubor

dina

ted

to s

enio

r de

bt a

nd p

rovi

de f

or th

e ab

ility

to d

efer

inte

rest

pay

men

ts u

p to

fiv

eye

ars

unde

r ce

rtai

n co

nditi

ons.

(3)

A p

ortio

n of

U.S

. Dol

lar

fixe

d-ra

te d

ebt e

ffec

tivel

y ha

s be

en c

onve

rted

into

oth

er c

urre

ncie

s an

d/or

into

flo

atin

g-ra

te d

ebt t

hrou

gh th

e us

e of

exc

hang

e ag

reem

ents

. The

rat

es s

how

n re

flec

t the

fix

ed r

ate

on th

e re

ceiv

able

por

tion

of th

e ex

chan

ge a

gree

men

ts. A

ll ot

her

oblig

atio

ns in

this

tabl

e re

flec

t the

net

eff

ects

of

thes

e an

d ot

her

inte

rest

-rat

e ex

chan

ge a

gree

men

ts.

(4)

Prim

arily

con

sist

s of

Sw

iss

Fran

cs, S

wed

ish

Kro

nor

and

Dan

ish

Kro

ner

in 2

001

(Sw

iss

Fran

cs in

200

0).

(5)

Prim

arily

con

sist

s of

Kor

ean

Won

, Chi

nese

Ren

min

bi a

nd N

ew T

aiw

anes

e D

olla

rs in

200

1 (A

ustr

alia

n D

olla

rs a

nd N

ew T

aiw

anes

e D

olla

rs in

200

0).

(6)

Agg

rega

te m

atur

ities

for

deb

t bal

ance

s at

Dec

embe

r 31

, 200

1, b

efor

e fa

ir v

alue

adj

ustm

ents

, wer

e as

fol

low

s: 2

002-

$362

.5; 2

003-

$796

.4; 2

004-

$1,6

21.6

; 200

5-$1

,072

.0; 2

006-

$843

.9; a

ndth

erea

fter

-$4,

127.

7. T

hese

am

ount

s in

clud

e re

clas

sifi

catio

ns o

f sh

ort-

term

obl

igat

ions

to lo

ng-t

erm

obl

igat

ions

of

$750

.0 in

200

4 an

d $5

00.0

in 2

007

as th

ey a

re s

uppo

rted

by

long

-ter

m li

ne o

f cr

edit

agre

emen

ts d

iscu

ssed

on

page

31.

(7)

Eff

ectiv

e Ja

nuar

y 1,

200

1, th

e C

ompa

ny a

dopt

ed S

FAS

133.

As

a re

sult,

deb

t obl

igat

ions

are

adj

uste

d to

fai

r va

lue

to th

e ex

tent

of

rela

ted

hedg

ing

inst

rum

ents

. The

rel

ated

hed

ging

inst

rum

ents

are

als

ore

cord

ed a

t fai

r va

lue

in e

ither

mis

cella

neou

s ot

her

asse

ts o

r lo

ng-t

erm

liab

ilitie

s.

gp

y


Property and equipment

===============================================================================

Net property and equipment consisted of:

-------------------------------------------------------------------------------

IN MILLIONS December 31, 2001 2000

===============================================================================

Land $ 3,975.6 $ 3,932.7

Buildings and improvements on owned land 8,127.0 8,250.0

Buildings and improvements on leased land 8,020.2 7,513.3

Equipment, signs and seating 3,371.7 3,172.2

Other 611.5 700.8

-------------------------------------------------------------------------------

24,106.0 23,569.0

-------------------------------------------------------------------------------

Accumulated depreciation and amortization (6,816.5) (6,521.4)

-------------------------------------------------------------------------------

Net property and equipment $ 17,289.5 $ 17,047.6

===============================================================================

Dep

reci

atio

n an

d am

ortiz

atio

n ex

pens

e w

as (

in m

illio

ns):

200

1-$9

45.6

; 200

0-$9

00.9

; 199

9-$8

58.1

.

Em

ploy

ee b

enef

it pl

ans

The

Com

pany

's P

rofi

t Sha

ring

and

Sav

ings

Pla

n fo

r U

.S.-

base

d em

ploy

ees

incl

udes

pro

fit s

hari

ng, 4

01(k

) an

d le

vera

ged

empl

oyee

sto

ck o

wne

rshi

p (E

SOP)

fea

ture

s. T

he 4

01(k

) fe

atur

e al

low

s pa

rtic

ipan

tsto

mak

e pr

etax

con

trib

utio

ns th

at a

re p

artly

mat

ched

fro

m s

hare

s re

leas

ed u

nder

the

ESO

P. M

cDon

ald'

s ex

ecut

ives

, sta

ff a

nd r

esta

uran

t man

ager

s pa

rtic

ipat

e in

add

ition

al E

SOP

allo

catio

ns a

nd p

rofi

tsh

arin

g co

ntri

butio

ns, b

ased

on

thei

r co

mpe

nsat

ion.

The

pro

fit s

hari

ng c

ontr

ibut

ion

is d

iscr

etio

nary

, and

the

Com

pany

det

erm

ines

the

amou

nt e

ach

year

.

Part

icip

ant 4

01(k

) co

ntri

butio

ns, p

rofi

t sha

ring

con

trib

utio

ns a

nd a

ny r

elat

ed e

arni

ngs

can

be in

vest

ed in

McD

onal

d's

com

mon

sto

ck o

r am

ong

seve

ral o

ther

inve

stm

ent a

ltern

ativ

es. T

he C

ompa

ny's

mat

chin

g co

ntri

butio

ns a

nd E

SOP

allo

catio

ns a

re g

ener

ally

inve

sted

in M

cDon

ald'

s co

mm

on s

tock

. Beg

inni

ng in

fir

st q

uart

er 2

002,

the

Com

pany

's m

atch

ing

cont

ribu

tions

can

be

inve

sted

in M

cDon

ald'

sco

mm

on s

tock

or

amon

g th

e ot

her

inve

stm

ent a

ltern

ativ

es.

In a

dditi

on, t

he C

ompa

ny m

aint

ains

a n

onqu

alif

ied,

unf

unde

d Su

pple

men

tal P

lan

that

allo

ws

part

icip

ants

to m

ake

tax-

defe

rred

con

trib

utio

ns a

nd r

ecei

ve C

ompa

ny-p

rovi

ded

allo

catio

ns th

at c

anno

t be

mad

eun

der

the

Prof

it Sh

arin

g an

d Sa

ving

s Pl

an b

ecau

se o

f In

tern

al R

even

ue S

ervi

ce li

mita

tions

. The

inve

stm

ent a

ltern

ativ

es in

the

Supp

lem

enta

l Pla

n in

clud

e ce

rtai

n of

the

sam

e in

vest

men

ts a

s th

e Pr

ofit

Shar

ing

and

Savi

ngs

Plan

. Tot

al li

abili

ties

unde

r th

e Su

pple

men

tal P

lan

wer

e $3

01.1

mill

ion

at D

ecem

ber

31, 2

001

and

$288

.8 m

illio

n at

Dec

embe

r 31

, 200

0, a

nd w

ere

incl

uded

in o

ther

long

-ter

mlia

bilit

ies

in th

e C

onso

lidat

ed b

alan

ce s

heet

.

The

Com

pany

has

ent

ered

into

der

ivat

ive

cont

ract

s to

hed

ge th

e ch

ange

s in

thes

e lia

bilit

ies.

At D

ecem

ber

31, 2

001,

der

ivat

ives

with

a f

air

valu

e of

$68

.2 m

illio

n in

dexe

d to

the

Com

pany

's s

tock

and

$18

.5m

illio

n in

dexe

d to

cer

tain

mar

ket i

ndic

es w

ere

incl

uded

in m

isce

llane

ous

othe

r as

sets

in th

e C

onso

lidat

ed b

alan

ce s

heet

. All

chan

ges

in P

lan

liabi

litie

s an

d in

the

fair

val

ue o

f th

e de

riva

tives

are

rec

orde

d in

selli

ng, g

ener

al &

adm

inis

trat

ive

expe

nses

. Cha

nges

in f

air

valu

e of

the

deri

vativ

es in

dexe

d to

the

Com

pany

's s

tock

are

rec

orde

d in

the

inco

me

stat

emen

t bec

ause

the

cont

ract

s pr

ovid

e th

e co

unte

rpar

ty w

itha

choi

ce o

f ca

sh s

ettle

men

t or

settl

emen

t in

shar

es.

Tot

al U

.S. c

osts

for

the

Prof

it Sh

arin

g an

d Sa

ving

s Pl

an, i

nclu

ding

non

qual

ifie

d be

nefi

ts a

nd r

elat

ed h

edgi

ng a

ctiv

ities

, wer

e (i

n m

illio

ns):

2001

-$54

.6; 2

000-

$49.

6; 1

999-

$49.

4.

Cer

tain

sub

sidi

arie

s ou

tsid

e th

e U

.S. a

lso

offe

r pr

ofit

shar

ing,

sto

ck p

urch

ase

or o

ther

sim

ilar

bene

fit p

lans

. Tot

al p

lan

cost

s ou

tsid

e th

e U

.S. w

ere

(in

mill

ions

): 2

001-

$39.

7; 2

000-

$38.

1; 1

999-

$37.

2.

Oth

er p

ostr

etir

emen

t ben

efits

and

pos

tem

ploy

men

t ben

efits

, exc

ludi

ng s

ever

ance

ben

efits

rel

ated

to th

e gl

obal

cha

nge

initi

ativ

es, w

ere

imm

ater

ial.

Stoc

k op

tions

At D

ecem

ber

31, 2

001,

the

Com

pany

had

fiv

e st

ock-

base

d co

mpe

nsat

ion

plan

s fo

r em

ploy

ees

and

none

mpl

oyee

dir

ecto

rs. O

ptio

ns to

pur

chas

e co

mm

on s

tock

are

gra

nted

at t

he f

air

mar

ket v

alue

of

the

gp

y

stoc

k on

the

date

of

gran

t. T

here

fore

, no

com

pens

atio

n co

st h

as b

een

reco

gniz

ed in

the

cons

olid

ated

fin

anci

al s

tate

men

ts f

or th

ese

plan

s.

Subs

tant

ially

all

of th

e op

tions

bec

ome

exer

cisa

ble

in f

our

equa

l ins

tallm

ents

, beg

inni

ng a

yea

r fr

om th

e da

te o

f th

e gr

ant,

and

expi

re 1

0 ye

ars

from

the

gran

t dat

e. I

n 20

01, t

he B

oard

of

Dir

ecto

rs a

ppro

ved

a th

ree-

year

ext

ensi

on to

the

term

of

44.2

mill

ion

optio

ns g

rant

ed b

etw

een

May

1, 1

999

and

Dec

embe

r 31

, 200

0 w

ith a

n ex

erci

se p

rice

gre

ater

than

$28

.90.

Bec

ause

the

mar

ket v

alue

of

the

stoc

k w

as le

ssth

an th

e ex

erci

se p

rice

of

the

optio

ns a

t the

tim

e of

ext

ensi

on, n

o co

mpe

nsat

ion

expe

nse

was

req

uire

d to

be

reco

rded

.

Als

o in

200

1, th

e B

oard

of

Dir

ecto

rs a

ppro

ved

a sp

ecia

l gra

nt o

f 11

.9 m

illio

n op

tions

at a

pri

ce o

f $2

8.90

as

an in

cent

ive

to m

eet a

n op

erat

ing

inco

me

perf

orm

ance

goa

l for

cal

enda

r ye

ar 2

003.

The

opt

ions

vest

on

Janu

ary

31, 2

004,

and

if th

e pe

rfor

man

ce g

oal i

s m

et, t

he o

ptio

ns w

ill r

etai

n th

eir

orig

inal

10-

year

term

; oth

erw

ise,

they

will

exp

ire

on J

une

30, 2

004.

34 M

cDon

ald'

s C

orpo

ratio

n

At D

ecem

ber

31, 2

001,

the

num

ber

of s

hare

s of

com

mon

sto

ck r

eser

ved

for

issu

ance

und

er th

e pl

ans

was

263

.5 m

illio

n in

clud

ing

70.6

mill

ion

avai

labl

e fo

r fu

ture

gra

nts.

A s

umm

ary

of th

e st

atus

of

the

Com

pany

's p

lans

as

of D

ecem

ber

31, 2

001,

200

0 an

d 19

99, a

nd c

hang

es d

urin

g th

e ye

ars

then

end

ed, i

s pr

esen

ted

in th

e fo

llow

ing

tabl

e.

---------------------------------------------------------------------------------------------------------

2001 2000 1999

----------------------- ----------------------- ----------------------

Weighted- Weighted- Weighted-

average average average

Shares exercise Shares exercise Shares exercise

Options IN MILLIONS price IN MILLIONS price IN MILLIONS price

=========================================================================================================

Outstanding at

beginning of year 175.8 $25.34 164.7 $23.06 164.0 $ 19.32

Granted(1) 38.6 29.37 26.5 35.16 25.4 40.35

Exercised (11.9) 13.70 (10.8) 13.68 (18.8) 13.89

Forfeited (9.6) 29.03 (4.6) 27.81 (5.9) 18.01

---------------------------------------------------------------------------------------------------------

Outstanding at

end of year 192.9 $26.65 175.8 $25.34 164.7 $ 23.06

=========================================================================================================

Exercisable at

end of year 98.2 79.3 69.4

=========================================================================================================

(1)

Incl

udes

the

spec

ial g

rant

in 2

001

of 1

1.9

mill

ion

optio

ns d

iscu

ssed

on

page

33.

Opt

ions

gra

nted

eac

h ye

ar w

ere

3.0%

, 2.0

% a

nd 1

.9%

of

wei

ghte

d av

erag

e co

mm

on s

hare

s ou

tsta

ndin

g fo

r 20

01, 2

000

and

1999

, rep

rese

ntin

g gr

ants

to a

ppro

xim

atel

y 15

,100

, 14,

100

and

12,7

00em

ploy

ees

in th

ose

thre

e ye

ars.

Whe

n st

ock

optio

ns a

re e

xerc

ised

, sha

res

are

issu

ed f

rom

trea

sury

sto

ck. T

he a

vera

ge p

er s

hare

cos

t of

trea

sury

sto

ck is

sued

for

opt

ion

exer

cise

s ov

er th

e la

st th

ree

year

s w

as $

7.29

, whi

le th

e av

erag

eop

tion

exer

cise

pri

ce o

ver

this

per

iod

was

$13

.79.

In

addi

tion,

sto

ck o

ptio

n ex

erci

ses

resu

lted

in $

335.

6 m

illio

n of

tax

bene

fits

for

the

Com

pany

dur

ing

the

thre

e ye

ars

ende

d D

ecem

ber

31, 2

001.

The

fol

low

ing

tabl

e pr

esen

ts in

form

atio

n re

late

d to

opt

ions

out

stan

ding

and

opt

ions

exe

rcis

able

at D

ecem

ber

31, 2

001,

bas

ed o

n ra

nges

of

exer

cise

pri

ces.

gp

y

-----------------------------------------------------------------------------------

December 31, 2001

-----------------------------------------------------------------------------------

Options outstanding Options exercisable

--------------------------------------- ------------------------

Weighted-

average

remaining Weighted- Weighted-

Range Number contractual average Number average

of exercise of options life exercise of options exercise

prices IN MILLIONS IN YEARS price IN MILLIONS price

===================================================================================

$10 to 15 26.9 1.7 $ 13.58 26.9 $ 13.56

16 to 23 36.1 4.4 20.64 22.3 20.05

24 to 34 83.6 7.2 27.25 29.9 25.64

35 to 46 46.3 10.6 37.85 19.1 38.60

-----------------------------------------------------------------------------------

$10 to 46 192.9 6.7 $ 26.65 98.2 $ 23.60

===================================================================================

Pro

form

a ne

t inc

ome

and

net i

ncom

e pe

r co

mm

on s

hare

wer

e de

term

ined

as

if th

e C

ompa

ny h

ad a

ccou

nted

for

its

empl

oyee

sto

ck o

ptio

ns u

nder

the

fair

val

ue m

etho

d of

SFA

S N

o. 1

23. F

or p

ro f

orm

adi

sclo

sure

s, th

e op

tions

' est

imat

ed f

air

valu

e w

as a

mor

tized

ove

r th

eir

expe

cted

sev

en-y

ear

life.

SFA

S N

o. 1

23 d

oes

not a

pply

to g

rant

s be

fore

199

5. A

s a

resu

lt, th

e pr

o fo

rma

disc

losu

res

for

2000

and

199

9do

not

incl

ude

a fu

ll se

ven

year

s of

gra

nts

and,

ther

efor

e, m

ay n

ot b

e in

dica

tive

of a

ntic

ipat

ed f

utur

e di

sclo

sure

s. T

he f

air

valu

e fo

r th

ese

optio

ns w

as e

stim

ated

at t

he d

ate

of g

rant

usi

ng a

n op

tion

pric

ing

mod

el. T

he m

odel

was

des

igne

d to

est

imat

e th

e fa

ir v

alue

of

exch

ange

-tra

ded

optio

ns th

at, u

nlik

e em

ploy

ee s

tock

opt

ions

, can

be

trad

ed a

t any

tim

e an

d ar

e fu

lly tr

ansf

erab

le. I

n ad

ditio

n, s

uch

mod

els

requ

ire

the

inpu

t of

high

ly s

ubje

ctiv

e as

sum

ptio

ns in

clud

ing

the

expe

cted

vol

atili

ty o

f th

e st

ock

pric

e. T

here

fore

, in

man

agem

ent's

opi

nion

, the

exi

stin

g m

odel

s do

not

pro

vide

a r

elia

ble

sing

le m

easu

re o

fth

e va

lue

of e

mpl

oyee

sto

ck o

ptio

ns. T

he f

ollo

win

g ta

bles

pre

sent

the

pro

form

a di

sclo

sure

s an

d th

e w

eigh

ted-

aver

age

assu

mpt

ions

use

d to

est

imat

e th

e fa

ir v

alue

of

thes

e op

tions

:

---------------------------------------------------------------------------------------------

Pro forma disclosures 2001 2000 1999

=============================================================================================

Net income-pro forma IN MILLIONS $ 1,481.8 $ 1,842.4 $ 1,844.0

Net income per common share-

pro forma

Basic 1.15 1.39 1.36

Diluted 1.13 1.36 1.31

Weighted-average fair value

per option granted 10.66 14.11 14.06

=============================================================================================

---------------------------------------------------------------------------------------------

Assumptions 2001 2000 1999

---------------------------------------------------------------------------------------------

Expected dividend yield .65% .65% .65%

Expected stock price volatility 29.9% 38.8% 22.9%

Risk-free interest rate 5.03% 6.39% 5.72%

Expected life of options IN YEARS 7 7 7

=============================================================================================

gp

y

McD

onal

d's

Cor

pora

tion

35

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 2001 2000 2001 2000 2001 2000

2001 2000

------------------------------------------------------------------------------------------------------------------------------------

Systemwide sales $10,112.7 $9,924.5 $10,629.2 $10,512.4 $10,238.8 $10,237.6

$9,649.7 $9,506.7

------------------------------------------------------------------------------------------------------------------------------------

Revenues

Sales by Company-operated

restaurants $ 2,811.4 $2,676.6 $ 2,876.9 $ 2,768.5 $ 2,738.2 $ 2,582.0

$2,614.2 $2,439.9

Revenues from franchised

and affiliated restaurants 960.1 913.0 1,002.4 980.5 969.3 978.6

897.5 903.9

------------------------------------------------------------------------------------------------------------------------------------

Total revenues 3,771.5 3,589.6 3,879.3 3,749.0 3,707.5 3,560.6

3,511.7 3,343.8

------------------------------------------------------------------------------------------------------------------------------------

Company-operated margin 383.5 404.2 436.1 470.9 396.6 435.0

370.8 406.8

Franchised margin 758.1 721.1 799.0 788.5 771.4 784.0

700.6 710.1

Operating income 482.7(1) 774.0 746.6(2) 910.8 772.5(4) 876.3

695.2 768.6

Net income $ 271.9(1) $ 452.0 $ 545.5(3) $ 548.5 $ 440.9(4) $ 525.9

$ 378.3 $ 450.9

------------------------------------------------------------------------------------------------------------------------------------

Net income per common share $ .21(1) $ .35 $ .42(3) $ .42 $ .34(4) $ .40

$ .29 $ .34

Net income per common

share-diluted .21(1) .34 .42(3) .41 .34(4) .39

.29 .33

------------------------------------------------------------------------------------------------------------------------------------

Dividends per common share $ .225 $ -- $ -- $ .215 $ -- $ --

$ -- $ --

------------------------------------------------------------------------------------------------------------------------------------

Weighted-average shares 1,282.7 1,307.0 1,286.1 1,315.6 1,289.7 1,327.1

1,300.7 1,343.4

Weighted-average

shares-diluted 1,299.3 1,335.8 1,305.8 1,346.0 1,311.1 1,365.5

1,325.3 1,383.8

gp

y

------------------------------------------------------------------------------------------------------------------------------------

Market price per common share

High $ 30.10 $ 34.50 $ 31.00 $ 34.25 $ 30.96 $ 39.94

$ 35.06 $ 43.63

Low 25.00 27.56 26.00 26.38 25.39 31.00

24.75 29.81

Close 26.47 34.00 27.14 30.19 27.06 32.94

26.55 37.38

====================================================================================================================================

(1)

Incl

udes

the

follo

win

g pr

etax

spe

cial

cha

rges

tota

ling

$0.1

3 of

exp

ense

per

sha

re:

. $20

0.0

mill

ion

($13

6.1

mill

ion

afte

r ta

x) r

elat

ed to

the

U.S

. bus

ines

s re

orga

niza

tion

and

glob

al c

hang

e in

itiat

ives

.. $

25.0

mill

ion

($17

.0 m

illio

n af

ter

tax)

rel

ated

to u

nrec

over

able

cos

ts in

curr

ed in

con

nect

ion

with

the

thef

t of

prom

otio

nal g

ame

piec

es a

nd th

e re

late

d te

rmin

atio

n of

a s

uppl

ier.

. $20

.0 m

illio

n ($

13.6

mill

ion

afte

r ta

x) r

elat

ed to

the

antic

ipat

ed d

ispo

sitio

n of

Aro

ma

Caf

e in

the

U.K

.. $

7.1

mill

ion

($4.

8 m

illio

n af

ter

tax)

rel

ated

to th

e cl

osin

g of

an

addi

tiona

l nin

e un

derp

erfo

rmin

g re

stau

rant

s in

inte

rnat

iona

l mar

kets

.(2

) In

clud

es $

101.

5 m

illio

n of

pre

tax

spec

ial c

harg

es (

$76.

0 m

illio

n af

ter

tax)

rel

ated

pri

mar

ily to

the

clos

ing

of 1

54 u

nder

perf

orm

ing

rest

aura

nts

in in

tern

atio

nal m

arke

ts a

nd th

e w

rite

-off

of

cert

ain

tech

nolo

gy c

osts

.(3

) In

add

ition

to th

e $1

01.5

mill

ion

of p

reta

x sp

ecia

l cha

rges

not

ed in

(2)

abo

ve, i

nclu

des

$137

.1 m

illio

n ga

in (

pre

and

afte

r ta

x) o

n th

e in

itial

pub

lic o

ffer

ing

of M

cDon

ald'

s Ja

pan

and

$12.

4 m

illio

n of

pret

ax s

peci

al c

harg

es (

$8.1

mill

ion

afte

r ta

x) p

rim

arily

rel

ated

to th

e w

rite

-off

of

a co

rpor

ate

inve

stm

ent (

tota

ling

$0.0

4 of

inco

me

per

shar

e).

(4)

Incl

udes

$24

.0 m

illio

n as

set i

mpa

irm

ent c

harg

e (p

re a

nd a

fter

tax

or $

0.02

per

sha

re)

in T

urke

y.

36 M

cDon

ald'

s C

orpo

ratio

n

Man

agem

ent's

rep

ort

Man

agem

ent i

s re

spon

sibl

e fo

r th

e pr

epar

atio

n, in

tegr

ity a

nd f

air

pres

enta

tion

of th

e co

nsol

idat

ed f

inan

cial

sta

tem

ents

and

fin

anci

al c

omm

ents

. The

fin

anci

al s

tate

men

ts w

ere

prep

ared

in a

ccor

danc

e w

ithac

coun

ting

prin

cipl

es g

ener

ally

acc

epte

d in

the

U.S

. and

incl

ude

cert

ain

amou

nts

base

d on

man

agem

ent's

judg

men

t and

bes

t est

imat

es. O

ther

fin

anci

al in

form

atio

n pr

esen

ted

is c

onsi

sten

t with

the

fina

ncia

lst

atem

ents

.

The

Com

pany

mai

ntai

ns a

sys

tem

of

inte

rnal

con

trol

s ov

er f

inan

cial

rep

ortin

g in

clud

ing

safe

guar

ding

of

asse

ts a

gain

st u

naut

hori

zed

acqu

isiti

on, u

se o

r di

spos

ition

, whi

ch is

des

igne

d to

pro

vide

rea

sona

ble

assu

ranc

e to

the

Com

pany

's m

anag

emen

t and

Boa

rd o

f D

irec

tors

reg

ardi

ng th

e pr

epar

atio

n of

rel

iabl

e pu

blis

hed

fina

ncia

l sta

tem

ents

and

ass

et s

afeg

uard

ing.

The

sys

tem

incl

udes

a d

ocum

ente

dor

gani

zatio

nal s

truc

ture

and

app

ropr

iate

div

isio

n of

res

pons

ibili

ties;

est

ablis

hed

polic

ies

and

proc

edur

es th

at a

re c

omm

unic

ated

thro

ugho

ut th

e C

ompa

ny; c

aref

ul s

elec

tion,

trai

ning

, and

dev

elop

men

t of

our

peop

le; a

nd u

tiliz

atio

n of

an

inte

rnal

aud

it pr

ogra

m. P

olic

ies

and

proc

edur

es p

resc

ribe

that

the

Com

pany

and

all

empl

oyee

s ar

e to

mai

ntai

n hi

gh s

tand

ards

of

prop

er b

usin

ess

prac

tices

thro

ugho

ut th

e w

orld

.

The

re a

re in

here

nt li

mita

tions

to th

e ef

fect

iven

ess

of a

ny s

yste

m o

f in

tern

al c

ontr

ol, i

nclu

ding

the

poss

ibili

ty o

f hu

man

err

or a

nd th

e ci

rcum

vent

ion

or o

verr

idin

g of

con

trol

s. A

ccor

ding

ly, e

ven

an e

ffec

tive

inte

rnal

con

trol

sys

tem

can

pro

vide

onl

y re

ason

able

ass

uran

ce w

ith r

espe

ct to

fin

anci

al s

tate

men

t pre

para

tion

and

safe

guar

ding

of

asse

ts. F

urth

erm

ore,

the

effe

ctiv

enes

s of

an

inte

rnal

con

trol

sys

tem

can

chan

ge w

ith c

ircu

mst

ance

s. T

he C

ompa

ny b

elie

ves

that

it m

aint

ains

an

effe

ctiv

e sy

stem

of

inte

rnal

con

trol

ove

r fi

nanc

ial r

epor

ting

and

safe

guar

ding

of

asse

ts a

gain

st u

naut

hori

zed

acqu

isiti

on, u

se o

rdi

spos

ition

.

The

con

solid

ated

fin

anci

al s

tate

men

ts h

ave

been

aud

ited

by in

depe

nden

t aud

itors

, Ern

st &

You

ng L

LP,

who

wer

e gi

ven

unre

stri

cted

acc

ess

to a

ll fi

nanc

ial r

ecor

ds a

nd r

elat

ed d

ata.

The

aud

it re

port

of

Ern

st&

You

ng L

LP

is p

rese

nted

her

ein.

The

Boa

rd o

f D

irec

tors

, ope

ratin

g th

roug

h its

Aud

it C

omm

ittee

com

pose

d en

tirel

y of

inde

pend

ent D

irec

tors

, pro

vide

s ov

ersi

ght t

o th

e fi

nanc

ial r

epor

ting

proc

ess.

Ern

st &

You

ng L

LP

has

unre

stri

cted

acce

ss to

the

Aud

it C

omm

ittee

and

reg

ular

ly m

eets

with

the

Com

mitt

ee to

dis

cuss

acc

ount

ing,

aud

iting

and

fin

anci

al r

epor

ting

mat

ters

.

McD

ON

AL

D'S

CO

RP

OR

AT

ION

Janu

ary

24, 2

002

Rep

ort o

f in

depe

nden

t aud

itors

The

Boa

rd o

f D

irec

tors

and

Sha

reho

lder

s M

cDon

ald'

s C

orpo

rati

on

gp

y

We

have

aud

ited

the

acco

mpa

nyin

g C

onso

lidat

ed b

alan

ce s

heet

of

McD

onal

d's

Cor

pora

tion

as o

f D

ecem

ber

31, 2

001

and

2000

, and

the

rela

ted

Con

solid

ated

sta

tem

ents

of

inco

me,

sha

reho

lder

s' e

quity

and

cash

flo

ws

for

each

of

the

thre

e ye

ars

in th

e pe

riod

end

ed D

ecem

ber

31, 2

001.

The

se f

inan

cial

sta

tem

ents

are

the

resp

onsi

bilit

y of

McD

onal

d's

Cor

pora

tion

man

agem

ent.

Our

res

pons

ibili

ty is

to e

xpre

ss a

nop

inio

n on

thes

e fi

nanc

ial s

tate

men

ts b

ased

on

our

audi

ts.

We

cond

ucte

d ou

r au

dits

in a

ccor

danc

e w

ith a

uditi

ng s

tand

ards

gen

eral

ly a

ccep

ted

in th

e U

.S. T

hose

sta

ndar

ds r

equi

re th

at w

e pl

an a

nd p

erfo

rm th

e au

dit t

o ob

tain

rea

sona

ble

assu

ranc

e ab

out w

heth

er th

efi

nanc

ial s

tate

men

ts a

re f

ree

of m

ater

ial m

isst

atem

ent.

An

audi

t inc

lude

s ex

amin

ing,

on

a te

st b

asis

, evi

denc

e su

ppor

ting

the

amou

nts

and

disc

losu

res

in th

e fi

nanc

ial s

tate

men

ts. A

n au

dit a

lso

incl

udes

asse

ssin

g th

e ac

coun

ting

prin

cipl

es u

sed

and

sign

ific

ant e

stim

ates

mad

e by

man

agem

ent,

as w

ell a

s ev

alua

ting

the

over

all f

inan

cial

sta

tem

ent p

rese

ntat

ion.

We

belie

ve th

at o

ur a

udits

pro

vide

a r

easo

nabl

eba

sis

for

our

opin

ion.

In o

ur o

pini

on, t

he f

inan

cial

sta

tem

ents

ref

erre

d to

abo

ve p

rese

nt f

airl

y, in

all

mat

eria

l res

pect

s, th

e co

nsol

idat

ed f

inan

cial

pos

ition

of

McD

onal

d's

Cor

pora

tion

at D

ecem

ber

31, 2

001

and

2000

, and

the

cons

olid

ated

res

ults

of

its o

pera

tions

and

its

cash

flo

ws

for

each

of

the

thre

e ye

ars

in th

e pe

riod

end

ed D

ecem

ber

31, 2

001,

in c

onfo

rmity

with

acc

ount

ing

prin

cipl

es g

ener

ally

acc

epte

d in

the

U.S

.

As

disc

usse

d in

the

Not

es to

the

cons

olid

ated

fin

anci

al s

tate

men

ts, e

ffec

tive

Janu

ary

1, 2

001,

the

Com

pany

cha

nged

its

met

hod

for

acco

untin

g fo

r de

riva

tive

fina

ncia

l ins

trum

ents

to c

onfo

rm w

ith S

FAS

No.

133

, Acc

ount

ing

for

Der

ivat

ive

Inst

rum

ents

and

Hed

ging

Act

iviti

es.

ER

NST

& Y

OU

NG

LL

PC

hica

go, I

llino

isJa

nuar

y 24

, 200

2

McD

onal

d's

Cor

pora

tion

37

Item

9. C

hang

es in

and

dis

agre

emen

ts w

ith

acco

unta

nts

on a

ccou

ntin

g an

dfi

nanc

ial d

iscl

osur

e

Non

e.

Par

t II

I

Item

10.

Dir

ecto

rs a

nd E

xecu

tive

Off

icer

s of

the

reg

istr

ant

Info

rmat

ion

rega

rdin

g di

rect

ors

is in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

the

Com

pany

's d

efin

itive

pro

xy s

tate

men

t, w

hich

will

be

file

d no

late

r th

an 1

20 d

ays

afte

r D

ecem

ber

31, 2

001.

Info

rmat

ion

rega

rdin

g al

l of

the

Com

pany

's e

xecu

tive

offi

cers

is in

clud

ed in

Par

t I, I

tem

4, p

age

6 of

this

For

m 1

0-K

.

Item

11.

Exe

cuti

ve c

ompe

nsat

ion

Inco

rpor

ated

her

ein

by r

efer

ence

fro

m th

e C

ompa

ny's

def

initi

ve p

roxy

sta

tem

ent,

whi

ch w

ill b

e fi

led

no la

ter

than

120

day

s af

ter

Dec

embe

r 31

, 200

1.

Item

12.

Sec

urit

y ow

ners

hip

of c

erta

in b

enef

icia

l ow

ners

and

man

agem

ent

Inco

rpor

ated

her

ein

by r

efer

ence

fro

m th

e C

ompa

ny's

def

initi

ve p

roxy

sta

tem

ent,

whi

ch w

ill b

e fi

led

no la

ter

than

120

day

s af

ter

Dec

embe

r 31

, 200

1.

Item

13.

Cer

tain

rel

atio

nshi

ps a

nd r

elat

ed t

rans

acti

ons

Inco

rpor

ated

her

ein

by r

efer

ence

fro

m th

e C

ompa

ny's

def

initi

ve p

roxy

sta

tem

ent,

whi

ch w

ill b

e fi

led

no la

ter

than

120

day

s af

ter

Dec

embe

r 31

, 200

1.

gp

y

Par

t IV

Item

14.

Fin

anci

al s

tate

men

t sc

hedu

les,

exh

ibit

s, a

nd r

epor

ts o

n F

orm

8-K

(a)

1. F

INA

NC

IAL

ST

AT

EM

EN

TS

Con

solid

ated

fin

anci

al s

tate

men

ts f

iled

as p

art o

f th

is r

epor

t are

list

ed u

nder

Part

II,

Ite

m 8

, pag

es 2

2-25

of

this

For

m 1

0-K

.

2.FI

NA

NC

IAL

ST

AT

EM

EN

T S

CH

ED

UL

ES

No

sche

dule

s ar

e re

quir

ed b

ecau

se e

ither

the

requ

ired

info

rmat

ion

is n

ot p

rese

nt o

r is

not

pre

sent

in a

mou

nts

suff

icie

nt to

req

uire

sub

mis

sion

of

the

sche

dule

, or

beca

use

the

info

rmat

ion

requ

ired

is in

clud

edin

the

cons

olid

ated

fin

anci

al s

tate

men

ts o

r th

e no

tes

ther

eto.

(b)

RE

POR

TS

ON

FO

RM

8-K

The

fol

low

ing

repo

rts

on F

orm

8-K

wer

e fi

led

for

the

last

qua

rter

cov

ered

by

this

rep

ort,

and

subs

eque

ntly

up

to M

arch

25,

200

2.

--------------------------------------------------------------------------------

Financial statements

Date of report Item number required to be filed

================================================================================

10/17/2001 Item 5 and 7 No

10/29/2001 Item 5 and 7 No

12/14/2001 Item 5 and 7 No

1/24/2002 Item 5 and 7 No

2/12/2002 Item 5 and 7 No

--------------------------------------------------------------------------------

(c)

EX

HIB

ITS

The

exh

ibits

list

ed in

the

acco

mpa

nyin

g in

dex

are

file

d as

par

t of

this

rep

ort.

38 M

cDon

ald'

s C

orpo

ratio

n

McD

onal

d's

Cor

pora

tion

exhi

bit i

ndex

(It

em 1

4)

Exh

ibit

Num

ber/

Des

crip

tion

(3)

(i)

Res

tate

d C

ertif

icat

e of

Inc

orpo

ratio

n, e

ffec

tive

as o

f M

arch

24,

199

8, in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

For

m 8

-K d

ated

Apr

il 17

, 199

8.

(ii)

By-

Law

s, e

ffec

tive

as o

f Ju

ne 1

, 200

0, in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

For

m 1

0-Q

for

the

quar

ter

ende

d Ju

ne 3

0, 2

000.

(4)

Inst

rum

ents

def

inin

g th

e ri

ghts

of

secu

rity

hol

ders

, inc

ludi

ng I

nden

ture

s: *

*

(a)

Seni

or D

ebt S

ecur

ities

Ind

entu

re d

ated

as

of O

ctob

er 1

9, 1

996

inco

rpor

ated

her

ein

by r

efer

ence

fro

m E

xhib

it 4(

a) o

f Fo

rm S

-3 R

egis

trat

ion

Stat

emen

t (Fi

le N

o. 3

33-1

4141

).

(i)

6 3/

8% D

eben

ture

s du

e Ja

nuar

y 8,

202

8. S

uppl

emen

tal I

nden

ture

No.

1 d

ated

as

of J

anua

ry 8

, 199

8, in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

4(a)

of

Form

8-K

dat

ed J

anua

ry 5

, 199

8.

(ii)

6%

RE

set P

ut S

ecur

ities

due

201

2. S

uppl

emen

tal I

nden

ture

No.

3 d

ated

as

of J

une

23, 1

998,

inco

rpor

ated

her

ein

by r

efer

ence

fro

m E

xhib

it 4(

a) o

f Fo

rm 8

-K d

ated

Jun

e 18

, 199

8.

(iii)

Med

ium

-Ter

m N

otes

, Ser

ies

F, d

ue f

rom

1 y

ear

to 6

0 ye

ars

from

the

Dat

e of

Iss

ue. S

uppl

emen

tal I

nden

ture

No.

4 in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

4(c)

of

Form

S-3

Reg

istr

atio

n

gp

y

Stat

emen

t (Fi

le N

o. 3

33-5

9145

) da

ted

July

15,

199

8.

(iv)

Med

ium

-Ter

m N

otes

, Ser

ies

G, d

ue f

rom

1 Y

ear

to 6

0 Y

ears

fro

m D

ate

of I

ssue

. Sup

plem

enta

l Ind

entu

re, N

o. 6

inco

rpor

ated

her

ein

by r

efer

ence

fro

m E

xhib

it 4(

c) o

f Fo

rm S

-3 R

egis

trat

ion

Stat

emen

t(F

ile N

o. 3

33-6

0170

) da

ted

May

3, 2

001.

(b)

Subo

rdin

ated

Deb

t Sec

uriti

es I

nden

ture

dat

ed a

s of

Oct

ober

18,

199

6, in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

For

m 8

-K d

ated

Oct

ober

18,

199

6.

(i)

7.31

% S

ubor

dina

ted

Def

erra

ble

Inte

rest

Deb

entu

res

due

2027

. Sup

plem

enta

l Ind

entu

re N

o. 3

dat

ed S

epte

mbe

r 24

, 199

7, in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

(4)(

b) o

f Fo

rm 8

-K d

ated

Sept

embe

r 19

, 199

7.

(c)

Deb

t Sec

uriti

es. I

nden

ture

dat

ed a

s of

Mar

ch 1

, 198

7 in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

4(a)

of

Form

S-3

Reg

istr

atio

n St

atem

ent (

File

No.

33-

1236

4).

(i)

Med

ium

-Ter

m N

otes

, Ser

ies

B, d

ue f

rom

nin

e m

onth

s to

30

year

s fr

om D

ate

of I

ssue

. Sup

plem

enta

l Ind

entu

re N

o. 1

2 in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

(4)

of F

orm

8-K

dat

ed A

ugus

t 18,

1989

and

For

ms

of M

ediu

m-T

erm

Not

es, S

erie

s B

, inc

orpo

rate

d he

rein

by

refe

renc

e fr

om E

xhib

it (4

)(b)

of

Form

8-K

dat

ed S

epte

mbe

r 14

, 198

9.

(ii)

Med

ium

-Ter

m N

otes

, Ser

ies

C, d

ue f

rom

nin

e m

onth

s to

30

year

s fr

om D

ate

of I

ssue

. For

m o

f Su

pple

men

tal I

nden

ture

No.

15

inco

rpor

ated

her

ein

by r

efer

ence

fro

m E

xhib

it 4(

b) o

f Fo

rm S

-3R

egis

trat

ion

Stat

emen

t (Fi

le N

o. 3

3-34

762)

dat

ed M

ay 1

4, 1

990.

(iii)

Med

ium

-Ter

m N

otes

, Ser

ies

C, d

ue f

rom

nin

e m

onth

s (U

.S. I

ssue

) /1

84 d

ays

(Eur

o Is

sue)

to 3

0 ye

ars

from

Dat

e of

Iss

ue. A

men

ded

and

rest

ated

Sup

plem

enta

l Ind

entu

re N

o. 1

6 in

corp

orat

ed h

erei

n by

refe

renc

e fr

om E

xhib

it (4

) of

For

m 1

0-Q

for

the

peri

od e

nded

Mar

ch 3

1, 1

991.

(iv)

8-7

/8%

Deb

entu

res

due

2011

. Sup

plem

enta

l Ind

entu

re N

o. 1

7 in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

(4)

of F

orm

8-K

dat

ed A

pril

22, 1

991.

(v)

Med

ium

-Ter

m N

otes

, Ser

ies

D, d

ue f

rom

nin

e m

onth

s (U

.S. I

ssue

) /1

84 d

ays

(Eur

o Is

sue)

to 6

0 ye

ars

from

Dat

e of

Iss

ue. S

uppl

emen

tal I

nden

ture

No.

18

inco

rpor

ated

her

ein

by r

efer

ence

fro

m E

xhib

it4(

b) o

f Fo

rm S

-3 R

egis

trat

ion

Stat

emen

t (Fi

le N

o. 3

3-42

642)

dat

ed S

epte

mbe

r 10

, 199

1.

(vi)

7-3

/8%

Deb

entu

res

due

July

15,

203

3. F

orm

of

Supp

lem

enta

l Ind

entu

re N

o. 2

1 in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

(4)(

a) o

f Fo

rm 8

-K d

ated

Jul

y 15

, 199

3.

(vii)

Med

ium

-Ter

m N

otes

, Ser

ies

E, d

ue f

rom

nin

e m

onth

s (U

.S. I

ssue

) /1

84 d

ays

(Eur

o Is

sue)

to 6

0 ye

ars

from

the

Dat

e of

Iss

ue. S

uppl

emen

tal I

nden

ture

No.

22

inco

rpor

ated

her

ein

by r

efer

ence

fro

mE

xhib

it 4(

b) o

f Fo

rm S

-3 R

egis

trat

ion

Stat

emen

t (Fi

le N

o. 3

3-60

939)

dat

ed J

uly

13, 1

995.

(viii

) 6-

5/8%

Not

es d

ue S

epte

mbe

r 1,

200

5. F

orm

of

Supp

lem

enta

l Ind

entu

re N

o. 2

3 in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

(4)(

a) o

f Fo

rm 8

-K d

ated

Sep

tem

ber

5, 1

995.

(ix)

7.0

5% D

eben

ture

s du

e 20

25. F

orm

of

Supp

lem

enta

l Ind

entu

re N

o. 2

4 in

corp

orat

ed h

erei

n by

ref

eren

ce f

rom

Exh

ibit

(4)(

a) o

f Fo

rm 8

-K d

ated

Nov

embe

r 13

, 199

5.

McD

onal

d's

Cor

pora

tion

39

Exh

ibit

Num

ber/

Des

crip

tion

(10)

Mat

eria

l Con

trac

ts

(a)

Dir

ecto

rs' S

tock

Pla

n, a

s am

ende

d an

d re

stat

ed, i

ncor

pora

ted

here

in b

y re

fere

nce

from

For

m 1

0-Q

for

the

quar

ter

ende

d Ju

ne 3

0, 2

001.

*

(b)

Prof

it Sh

arin

g Pr

ogra

m, a

s am

ende

d an

d re

stat

ed, i

ncor

pora

ted

here

in b

y re

fere

nce

from

For

m 1

0-K

for

the

year

end

ed D

ecem

ber

31, 1

999.

*

(i)

Firs

t Am

endm

ent t

o th

e M

cDon

ald'

s Pr

ofit

Shar

ing

Prog

ram

, inc

orpo

rate

d he

rein

by

refe

renc

e fr

om F

orm

10-

Q f

or th

e qu

arte

r en

ded

Sept

embe

r 30

, 200

0.*

(ii)

Sec

ond

Am

endm

ent t

o th

e M

cDon

ald'

s Pr

ofit

Shar

ing

Prog

ram

, inc

orpo

rate

d he

rein

by

refe

renc

e fr

om F

orm

10-

Q f

or th

e qu

arte

r en

ded

Mar

ch 3

1, 2

001.

*

(iii)

Thi

rd A

men

dmen

t to

the

McD

onal

d's

Prof

it Sh

arin

g Pr

ogra

m, i

ncor

pora

ted

here

in b

y re

fere

nce

from

For

m 1

0-Q

for

the

quar

ter

ende

d M

arch

31,

200

1.*

(c)

McD

onal

d's

Cor

pora

tion

Supp

lem

enta

l Pro

fit S

hari

ng a

nd S

avin

gs P

lan,

file

d he

rew

ith.*

(d)

1975

Sto

ck O

wne

rshi

p O

ptio

n Pl

an, a

s am

ende

d an

d re

stat

ed, i

ncor

pora

ted

here

in b

y re

fere

nce

from

For

m 1

0-Q

for

the

quar

ter

ende

d Se

ptem

ber

30, 2

001.

*

(e)

1992

Sto

ck O

wne

rshi

p In

cent

ive

Plan

, as

amen

ded

and

rest

ated

, inc

orpo

rate

d he

rein

by

refe

renc

e fr

om F

orm

10-

Q f

or th

e qu

arte

r en

ded

Mar

ch 3

1, 2

001.

*

gp

y

(f)

1999

Non

-Em

ploy

ee D

irec

tor

Stoc

k O

ptio

n Pl

an, a

s am

ende

d an

d re

stat

ed, i

ncor

pora

ted

here

in b

y re

fere

nce

from

For

m 1

0-Q

for

the

quar

ter

ende

d Se

ptem

ber

30, 2

000.

*

(g)

Exe

cutiv

e R

eten

tion

Plan

, as

amen

ded

and

rest

ated

Mar

ch 2

0, 2

002,

file

d he

rew

ith.*

(h)

Seni

or D

irec

tor

Let

ter

Agr

eem

ent b

etw

een

Gor

don

C. G

ray

and

the

Com

pany

, inc

orpo

rate

d he

rein

by

refe

renc

e fr

om F

orm

10-

Q f

or th

e qu

arte

r en

ded

June

30,

200

1.*

(i)

Seni

or D

irec

tor

Let

ter

Agr

eem

ent b

etw

een

Don

ald

R. K

eoug

h an

d th

e C

ompa

ny, i

ncor

pora

ted

here

in b

y re

fere

nce

from

For

m 1

0-Q

for

the

quar

ter

ende

d Ju

ne 3

0, 2

001.

*

(j)

McD

onal

d's

Cor

pora

tion

2001

Om

nibu

s St

ock

Ow

ners

hip

Plan

, inc

orpo

rate

d he

rein

by

refe

renc

e fr

om F

orm

10-

Q f

or th

e qu

arte

r en

ded

June

30,

200

1.*

(k)

Form

of

McD

onal

d's

Cor

pora

tion

Tie

r I

Cha

nge

of C

ontr

ol E

mpl

oym

ent A

gree

men

t aut

hori

zed

by th

e B

oard

of

Dir

ecto

rs a

nd e

xpec

ted

to b

e en

tere

d in

to b

etw

een

the

Com

pany

and

cer

tain

key

exec

utiv

es, a

nd f

iled

here

with

.* T

he A

gree

men

t will

be

desc

ribe

d in

the

Prox

y St

atem

ent c

ircu

late

d in

con

nect

ion

with

the

Com

pany

's 2

002

Ann

ual S

hare

hold

ers'

Mee

ting.

(l)

Wri

tten

desc

ript

ion

of o

ral a

rran

gem

ent b

etw

een

Jack

M. G

reen

berg

and

the

Com

pany

, dat

ed M

arch

21,

200

2, f

iled

here

with

.

(12)

Sta

tem

ent r

e: c

ompu

tatio

n of

rat

ios

(21)

Sub

sidi

arie

s of

the

regi

stra

nt

(23)

Con

sent

of

inde

pend

ent a

udito

rs

(99)

Pre

ss R

elea

se d

ated

Mar

ch 2

2, 2

002-

-McD

onal

d's

Firs

t Qua

rter

200

2 U

pdat

e

* D

enot

es c

ompe

nsat

ory

plan

.**

Oth

er in

stru

men

ts d

efin

ing

the

righ

ts o

f ho

lder

s of

long

-ter

m d

ebt o

f th

e re

gist

rant

and

all

of it

s su

bsid

iari

es f

or w

hich

con

solid

ated

fin

anci

al s

tate

men

ts a

re r

equi

red

to b

e fi

led

and

whi

ch a

re n

otre

quir

ed to

be

regi

ster

ed w

ith th

e Se

curi

ties

and

Exc

hang

e C

omm

issi

on, a

re n

ot in

clud

ed h

erei

n as

the

secu

ritie

s au

thor

ized

und

er th

ese

inst

rum

ents

, ind

ivid

ually

, do

not e

xcee

d 10

% o

f th

e to

tal a

sset

s of

the

regi

stra

nt a

nd it

s su

bsid

iari

es o

n a

cons

olid

ated

bas

is. A

n ag

reem

ent t

o fu

rnis

h a

copy

of

any

such

inst

rum

ents

to th

e Se

curi

ties

and

Exc

hang

e C

omm

issi

on u

pon

requ

est h

as b

een

file

d w

ith th

eC

omm

issi

on.

40 M

cDon

ald'

s C

orpo

ratio

n

Sign

atur

es

Purs

uant

to th

e re

quir

emen

ts o

f Se

ctio

n 13

or

15(d

) of

the

Secu

ritie

s E

xcha

nge

Act

of

1934

, the

reg

istr

ant h

as d

uly

caus

ed th

is r

epor

t to

be s

igne

d on

its

beha

lf b

y th

e un

ders

igne

d, th

ereu

nto

duly

auth

oriz

ed.

McD

onal

d's

Cor

pora

tion

(Reg

istr

ant)

/S/ Matthew H. Paull

-------------------------------------------------------------------------------

By Matthew H. Paull

Executive Vice President, Chief Financial Officer

Mar

ch 2

5, 2

002

Dat

e

Purs

uant

to th

e re

quir

emen

ts o

f th

e Se

curi

ties

Exc

hang

e A

ct o

f 19

34, t

his

repo

rt h

as b

een

sign

ed b

elow

by

the

follo

win

g pe

rson

s on

beh

alf

of th

e re

gist

rant

and

in th

eir

capa

citie

s in

dica

ted

belo

w o

n th

e25

th d

ay o

f M

arch

, 200

2:

Sign

atur

e, T

itle

gp

y

/S/ Hall Adams, Jr.

-------------------------------------------------------------------------------

By Hall Adams, Jr.

Director

/S/ James R. Cantalupo

-------------------------------------------------------------------------------

By James R. Cantalupo

Vice Chairman, Emeritus and President, Emeritus and Director

/S/ Jack M. Greenberg

-------------------------------------------------------------------------------

By Jack M. Greenberg

Chairman and Chief Executive Officer and Director

/S/ Enrique Hernandez, Jr.

-------------------------------------------------------------------------------

By Enrique Hernandez, Jr.

Director

/S/ Jeanne P. Jackson

-------------------------------------------------------------------------------

By Jeanne P. Jackson

Director

/S/ Donald G. Lubin

-------------------------------------------------------------------------------

By Donald G. Lubin

Director

/S/ Walter E. Massey

-------------------------------------------------------------------------------

By Walter E. Massey

Director

/S/ Andrew J. McKenna

-------------------------------------------------------------------------------

By Andrew J. McKenna

Director

/S/ Michael R. Quinlan

-------------------------------------------------------------------------------

By Michael R. Quinlan

Director

/S/ Terry L. Savage

-------------------------------------------------------------------------------

By Terry L. Savage

Director

gp

y

/S/ Roger W. Stone

-------------------------------------------------------------------------------

By Roger W. Stone

Director

/S/ Robert N. Thurston

-------------------------------------------------------------------------------

By Robert N. Thurston

Director

/S/ Fred L. Turner

-------------------------------------------------------------------------------

By Fred L. Turner

Senior Chairman and Director

/S/ Matthew H. Paull

-------------------------------------------------------------------------------

By Matthew H. Paull

Executive Vice President, Chief Financial Officer

/S/ David M. Pojman

-------------------------------------------------------------------------------

By David M. Pojman

Senior Vice President - Controller

McD

onal

d's

Cor

pora

tion

41

Exh

ibit

10(c

). M

cDon

ald'

s C

orpo

ratio

nSu

pple

men

tal P

rofi

t Sha

ring

and

Sav

ings

Pla

n

Sect

ion

1 In

trod

uctio

n

1.1

The

Pla

n; th

e Pl

an M

erge

r; H

isto

ry.

(a)

The

McD

onal

d's

Cor

pora

tion

Supp

lem

enta

l Pro

fit S

hari

ng a

nd S

avin

gs P

lan

(the

"Pl

an")

as

set f

orth

her

ein

is th

e re

sult

of th

e m

erge

r of

the

McD

onal

d's

Prof

it Sh

arin

g Pl

an E

qual

izat

ion

Plan

as

amen

ded

and

rest

ated

eff

ectiv

e Ja

nuar

y 1,

199

6 ("

McE

qual

"), t

he M

cDon

ald'

s 19

89 E

xecu

tive

Equ

aliz

atio

n Pl

an a

s am

ende

d an

d re

stat

ed e

ffec

tive

Janu

ary

1, 1

996

("M

cCA

P I"

) an

d th

e M

cDon

ald'

sSu

pple

men

tal E

mpl

oyee

Ben

efit

Equ

aliz

atio

n Pl

an a

s am

ende

d an

d re

stat

ed e

ffec

tive

Janu

ary

1, 1

996

("M

cCA

P II

") in

to th

e M

cDon

ald'

s C

orpo

ratio

n D

efer

red

Inco

me

Plan

(th

e "D

IP")

pur

suan

t to

aM

erge

r D

ocum

ent e

xecu

ted

by M

cDon

ald'

s C

orpo

ratio

n ("

McD

onal

d's"

or

the

"Com

pany

") a

s of

Sep

tem

ber

1, 2

001

(the

"M

erge

r D

ocum

ent"

), a

ttach

ed h

eret

o as

Exh

ibit

A. T

he e

ffec

tive

date

of

that

mer

ger

is J

anua

ry 1

, 200

2; p

rovi

ded,

that

this

Pla

n sh

all b

e co

nsid

ered

to b

e in

eff

ect a

s of

Sep

tem

ber

1, 2

001

for

purp

oses

of

perm

ittin

g Pa

rtic

ipan

ts (

as d

efin

ed b

elow

) to

mak

e D

efer

ral E

lect

ions

with

resp

ect t

o co

mpe

nsat

ion

that

wou

ld o

ther

wis

e be

pai

d to

them

on

or a

fter

Jan

uary

1, 2

002

and

to m

ake

inve

stm

ent e

lect

ions

, Pay

men

t Ele

ctio

ns, I

nsta

llmen

t Ele

ctio

ns a

nd b

enef

icia

ry d

esig

natio

ns to

take

effe

ct u

nder

this

Pla

n on

or

afte

r Ja

nuar

y 1,

200

2.

(b)

The

DIP

, for

mer

ly k

now

n as

the

McD

onal

d's

Cor

pora

tion

Def

erre

d In

cent

ive

Plan

, was

est

ablis

hed

Nov

embe

r 1,

199

3. T

he D

IP w

as a

men

ded

and

rest

ated

eff

ectiv

e Se

ptem

ber

1, 1

994

and

was

subs

eque

ntly

am

ende

d by

the

firs

t am

endm

ent t

here

of e

ffec

tive

as o

f Fe

brua

ry 1

, 199

6 an

d th

e se

cond

am

endm

ent t

here

of e

ffec

tive

as o

f A

ugus

t 15,

199

6. T

he D

IP w

as s

ubse

quen

tly a

men

ded

and

rest

ated

effe

ctiv

e se

vera

l tim

es, i

nclu

ding

am

endm

ents

and

res

tate

men

ts e

ffec

tive

as o

f Ja

nuar

y 1,

199

7, J

uly

15, 1

997,

Aug

ust 1

, 199

8, D

ecem

ber

1, 1

998,

Sep

tem

ber

1, 1

999

and

Sept

embe

r 1,

200

0.

gp

y

(c)

McE

qual

was

est

ablis

hed,

eff

ectiv

e Ja

nuar

y 1,

198

9, b

y th

e m

erge

r, a

men

dmen

t and

res

tate

men

t of

the

McD

onal

d's

Supp

lem

enta

l Em

ploy

ee B

enef

it E

qual

izat

ion

Plan

, est

ablis

hed

effe

ctiv

e Ja

nuar

y 1,

1983

, app

rove

d by

the

shar

ehol

ders

on

May

19,

198

3, a

nd a

men

ded

and

rest

ated

eff

ectiv

e Ja

nuar

y 1,

198

7, a

nd th

e M

cDE

SOP

Equ

aliz

atio

n Pl

an, e

stab

lishe

d ef

fect

ive

Janu

ary

1, 1

986,

app

rove

d by

the

shar

ehol

ders

on

May

23,

198

6, a

nd a

men

ded

and

rest

ated

eff

ectiv

e Ja

nuar

y 1,

198

7. M

cEqu

al w

as f

urth

er a

men

ded

and

rest

ated

eff

ectiv

e Ja

nuar

y 1,

198

9, J

anua

ry 1

, 199

0 an

d Ja

nuar

y 1,

199

6.

(d)

McC

AP

I w

as e

stab

lishe

d ef

fect

ive

Janu

ary

1, 1

989,

and

am

ende

d an

d re

stat

ed f

rom

tim

e to

tim

e th

erea

fter

, with

the

mos

t rec

ent a

men

dmen

t and

res

tate

men

t bei

ng e

ffec

tive

Janu

ary

1, 1

996.

(e)

McC

AP

II (

form

erly

, the

McD

onal

d's

1986

Tax

Ref

orm

Equ

aliz

atio

n Pl

an)

was

am

ende

d an

d re

stat

ed, e

ffec

tive

Janu

ary

1, 1

989,

Jan

uary

1, 1

990

and

amen

ded

and

rest

ated

, eff

ectiv

e Ja

nuar

y 1,

199

6,an

d pr

ovid

ed c

erta

in b

enef

its p

revi

ousl

y pr

ovid

ed b

y M

cDon

ald'

s 19

86 T

ax R

efor

m E

qual

izat

ion

Plan

with

res

pect

to y

ears

bef

ore

Janu

ary

1, 1

989

and

cert

ain

addi

tiona

l ben

efits

.

1.2

Purp

oses

and

Fea

ture

s of

Pla

n.

(a)

The

pur

pose

s of

the

Plan

are

(i)

to p

rovi

de to

cer

tain

hig

hly-

com

pens

ated

em

ploy

ees

the

oppo

rtun

ity to

ele

ct to

def

er c

ompe

nsat

ion

unde

r th

e "D

efer

red

Inco

me

Feat

ure"

of

the

Plan

, and

(ii)

to p

rovi

de,

unde

r th

e "M

cCA

P Fe

atur

e" o

f th

e Pl

an, c

erta

in p

artic

ipan

ts in

the

McD

onal

d's

Cor

pora

tion

Prof

it Sh

arin

g an

d Sa

ving

s Pl

an (

the

"Pro

fit S

hari

ng P

lan"

) w

ith b

enef

its th

at th

ey w

ould

hav

e re

ceiv

ed u

nder

the

Prof

it Sh

arin

g Pl

an, a

bsen

t the

Lim

its (

as d

efin

ed in

Sec

tion

1.2(

b) b

elow

). T

hese

two

purp

oses

are

impl

emen

ted

unde

r th

e Pl

an's

two

feat

ures

. The

Def

erre

d In

com

e Fe

atur

e re

pres

ents

a c

ontin

uatio

n of

the

DIP

. The

"Pa

rtic

ipan

ts"

in th

e D

efer

red

Inco

me

Feat

ure

shal

l be

a se

lect

gro

up o

f m

anag

emen

t or

high

ly c

ompe

nsat

ed e

mpl

oyee

s, a

s m

ore

fully

pro

vide

d in

Sec

tion

2 be

low

. The

McC

AP

Feat

ure

repr

esen

ts a

con

tinua

tion

of M

cEqu

al, M

cCA

P I

and

McC

AP

II. T

he "

Part

icip

ants

" in

the

McC

AP

Feat

ure

shal

l be

cert

ain

empl

oyee

s w

hose

em

ploy

er a

nd/o

r em

ploy

ee c

ontr

ibut

ions

und

er th

e Pr

ofit

Shar

ing

Plan

hav

e be

en o

r ar

e ex

pect

ed to

be

limite

d by

the

Lim

its, a

s m

ore

fully

pro

vide

d in

Sec

tion

3 be

low

.

(b)

The

Pro

fit S

hari

ng P

lan

has,

as

of S

epte

mbe

r 1,

200

1, th

ree

mai

n fe

atur

es, t

he P

rofi

t Sha

ring

Fea

ture

, the

401

(k)

Feat

ure

(whi

ch in

clud

es p

artic

ipan

t def

erra

ls a

nd th

e em

ploy

er m

atch

), a

nd th

e E

SOP,

and

is in

tend

ed to

mee

t the

req

uire

men

ts o

f a

qual

ifie

d pl

an u

nder

Sect

ion

401(

a) o

f th

e In

tern

al R

even

ue C

ode

of 1

986,

as

amen

ded

(the

"C

ode"

). C

ode

Sect

ion

415

plac

es li

mits

on

the

max

imum

am

ount

of

cont

ribu

tions

and

ben

efits

that

may

be

paid

und

er a

qua

lifie

dpl

an (

the

"415

Lim

its")

and

Cod

e Se

ctio

n 40

1(a)

(17)

lim

its th

e am

ount

of

com

pens

atio

n th

at m

ay b

e ta

ken

into

acc

ount

for

a P

lan

Yea

r un

der

a qu

alif

ied

plan

(th

e

42 M

cDon

ald'

s C

orpo

ratio

n

"Com

pens

atio

n L

imit"

). I

n ad

ditio

n, C

ode

Sect

ion

402(

g) g

ener

ally

lim

its th

e m

axim

um a

mou

nt o

f em

ploy

ee e

lect

ive

defe

rral

s un

der

a qu

alif

ied

plan

("E

lect

ive

Con

trib

utio

n L

imit"

); a

nd e

lect

ive

defe

rral

sto

a n

onqu

al-i

fied

pla

n ar

e no

t tak

en in

to a

ccou

nt in

det

erm

inin

g co

mpe

nsat

ion

and

bene

fits

und

er th

e qu

alif

ied

plan

s ("

Ele

ctiv

e D

efer

ral E

xclu

sion

") (

thes

e lim

its a

nd e

xclu

sion

are

col

lect

ivel

y re

ferr

ed to

here

in a

s th

e "O

ther

Lim

its"

and,

toge

ther

with

the

415

Lim

its a

nd th

e C

ompe

nsat

ion

Lim

it, a

s th

e "L

imits

").

1.3

Adm

inis

trat

ion.

The

Pla

n sh

all b

e ad

min

iste

red

by a

com

mitt

ee o

f th

ree

offi

cers

of

the

Com

pany

(th

e "C

omm

ittee

"), t

he m

embe

rs o

f w

hich

sha

ll be

app

oint

ed f

rom

tim

e to

tim

e by

the

Com

pens

atio

nC

omm

ittee

of

the

Boa

rd o

f D

irec

tors

of

the

Com

pany

(th

e "C

ompe

nsat

ion

Com

mitt

ee")

. The

Com

mitt

ee s

hall

have

the

pow

ers

set f

orth

in th

e Pl

an a

nd th

e po

wer

to in

terp

ret i

ts p

rovi

sion

s. A

ny d

ecis

ions

of th

e C

omm

ittee

sha

ll be

fin

al a

nd b

indi

ng o

n al

l per

sons

with

reg

ard

to th

e Pl

an.

1.4

Initi

al P

artic

ipan

ts, B

enef

icia

ries

and

Acc

ount

s. T

he M

erge

r D

ocum

ent s

ets

fort

h pr

ovis

ions

for

indi

vidu

als

who

are

, as

of S

epte

mbe

r 1,

200

1, p

artic

ipan

ts in

or

bene

fici

arie

s un

der

McE

qual

, McC

AP

I,M

cCA

P II

and

/or

the

DIP

to b

ecom

e Pa

rtic

ipan

ts in

, or

bene

fici

arie

s un

der,

the

Plan

, and

spe

cifi

es th

e m

anne

r in

whi

ch th

eir

Acc

ount

s in

itial

ly s

hall

be d

eem

ed in

vest

ed a

nd th

e Pa

ymen

t Ele

ctio

ns a

ndbe

nefi

ciar

y de

sign

atio

ns th

at in

itial

ly s

hall

appl

y to

thei

r A

ccou

nts.

The

pro

visi

ons

of th

e M

erge

r D

ocum

ent s

hall

appl

y no

twith

stan

ding

any

oth

er p

rovi

sion

of

this

Pla

n.

1.5

Def

ined

Ter

ms.

Cap

italiz

ed te

rms

used

in th

is P

lan

that

are

not

def

ined

her

ein

have

the

sam

e m

eani

ng a

s th

e sa

me

term

in th

e M

cDon

ald'

s Pr

ofit

Shar

ing

Plan

. An

inde

x of

term

s de

fine

d in

the

Plan

isat

tach

ed a

s E

xhib

it B

to th

e Pl

an.

Sect

ion

2 D

efer

red

Inco

me

Feat

ure:

Par

ticip

atio

n an

d D

efer

ral E

lect

ions

2.1

Elig

ibili

ty a

nd P

artic

ipat

ion.

Sub

ject

to th

e co

nditi

ons

and

limita

tions

of

the

Plan

, the

fol

low

ing

indi

vidu

als

shal

l be

elig

ible

to p

artic

ipat

e in

the

Def

erre

d In

com

e Fe

atur

e of

the

Plan

("D

efer

red

Inco

me

Elig

ible

Em

ploy

ees"

):(a

) al

l off

icer

s, r

egio

nal m

anag

ers,

dep

artm

ent d

irec

tors

and

oth

er e

mpl

oyee

s w

ho a

re in

the

Seni

or D

irec

tion

Com

pens

atio

n B

and

of th

e C

ompa

ny;

(b)

inte

rnat

iona

l cou

ntry

hea

ds w

ho a

re o

n U

nite

d St

ates

pay

roll

of th

e C

ompa

ny a

nd w

ho a

re id

entif

ied

as e

ligib

le b

y th

e C

omm

ittee

; and

(c)

em

ploy

ees

of B

rand

s m

eetin

g th

e re

quir

emen

ts s

et f

orth

on

Exh

ibit

C to

the

Plan

. Any

Def

erre

d In

com

e E

ligib

le E

mpl

oyee

who

mak

es a

Def

erre

d In

com

e D

efer

ral E

lect

ion

as d

escr

ibed

in S

ectio

n 2.

2 be

low

and

in a

ccor

danc

e w

ith th

e re

quir

emen

ts o

f Se

ctio

ns 2

.3an

d 4

belo

w s

hall

beco

me

a Pa

rtic

ipan

t, an

d sh

all r

emai

n a

Part

icip

ant u

ntil

the

entir

e ba

lanc

e of

the

Part

icip

ant's

Acc

ount

is d

istr

ibut

ed.

2.2

Def

erra

l Ele

ctio

ns. S

ubje

ct to

Sec

tions

2.3

and

4 b

elow

:

(a)

Any

Def

erre

d In

com

e E

ligib

le E

mpl

oyee

may

mak

e an

ele

ctio

n (a

"D

efer

red

Inco

me

Def

erra

l Ele

ctio

n")

to d

efer

rec

eipt

of

all o

r an

y po

rtio

n (i

n 1%

incr

emen

ts)

of h

is o

r he

r co

mpe

nsat

ion

unde

r th

eM

cDon

ald'

s T

arge

t Inc

entiv

e Pl

an, a

ny s

ucce

ssor

ann

ual b

onus

pla

n of

McD

onal

d's,

or

any

annu

al b

onus

pla

n of

a B

rand

, in

whi

ch th

e D

efer

red

Inco

me

Elig

ible

Em

ploy

ee p

artic

ipat

es (

colle

ctiv

ely,

the

"Ann

ual B

onus

Pla

n")

that

is to

be

paid

in a

sub

sequ

ent c

alen

dar

year

. Any

Def

erre

d In

com

e E

ligib

le E

mpl

oyee

als

o m

ay m

ake

a D

efer

red

Inco

me

Def

erra

l Ele

ctio

n to

def

er a

per

cent

age

(in

1%in

crem

ents

) of

his

or

her

base

sal

ary

for

the

follo

win

g ca

lend

ar y

ear

in a

ccor

danc

e w

ith th

e fo

llow

ing

sche

dule

:

gp

y

----------------------------------------------------------------------------------------------

Compensation Band

(or Category of Deferred Income Eligible Employee) Maximum Deferral Percentage

==============================================================================================

Highest paid five officers of McDonald's

(ranked by the total of base pay and the target incentive

under the Annual Bonus Plan for the current year) 90%

Executive Management Band (includes Executive Vice Presidents) 80%

Senior Leadership and Leadership Bands (includes all other

officers and regional managers) 70%

Senior Direction Band (includes Department Directors) 60%

-----------------------------------------------------------------------------------------------

prov

ided

, how

ever

, tha

t the

Com

mitt

ee m

ay, i

n its

dis

cret

ion,

gra

nt in

divi

dual

req

uest

s fo

r hi

gher

def

erra

l per

cent

ages

of

base

sal

ary;

and

pro

vide

d, f

urth

er, t

hat t

he C

omm

ittee

may

, in

its d

iscr

etio

n,au

thor

ize

Def

erre

d In

com

e E

ligib

le E

mpl

oyee

s to

mod

ify

thei

r de

ferr

al p

erce

ntag

es o

f ba

se s

alar

y as

may

be

nece

ssar

y to

ref

lect

org

aniz

atio

nal,

title

or

com

pens

atio

n ba

nd c

hang

es. S

uch

mod

ific

atio

n m

ayon

ly b

e m

ade

with

res

pect

to b

ase

sala

ry e

arne

d an

d pa

id a

fter

the

effe

ctiv

e da

te o

f th

e m

odif

icat

ion.

The

fir

st e

lect

ions

McD

onal

d's

Cor

pora

tion

43

unde

r th

is S

ectio

n 2.

2(a)

sha

ll be

per

mitt

ed w

ith r

espe

ct to

pay

men

ts u

nder

the

Ann

ual B

onus

Pla

n an

d ba

se s

alar

y th

at a

re p

ayab

le o

n or

aft

er J

anua

ry 1

, 200

2.

(b)

If a

pplic

able

, any

Def

erre

d In

com

e E

ligib

le E

mpl

oyee

may

als

o m

ake

a D

efer

red

Inco

me

Def

erra

l Ele

ctio

n to

def

er a

ll or

a p

ortio

n (i

n 1%

incr

emen

ts)

of h

is o

r he

r T

hree

-Yea

r In

cent

ive

awar

d un

der

the

McD

onal

d's

Cor

pora

tion

1992

Om

nibu

s St

ock

Ow

ners

hip

Ince

ntiv

e Pl

an o

r th

e M

cDon

ald'

s C

orpo

ratio

n 20

01 O

mni

bus

Stoc

k O

wne

rshi

p In

cent

ive

Plan

, in

eith

er c

ase

paya

ble

in 2

002

or la

ter.

(c)

No

othe

r fo

rms

of c

ompe

nsat

ion,

incl

udin

g, b

ut n

ot li

mite

d to

exi

t bon

uses

, sev

eran

ce b

onus

es o

r bo

nuse

s pa

id u

nder

the

Exe

cutiv

e R

eten

tion

Plan

dur

ing

a tr

ansi

tion

or r

eten

tion

peri

od, m

ay b

ede

ferr

ed u

nder

the

Def

erre

d In

com

e Fe

atur

e of

the

Plan

.

2.3

Rul

es f

or D

efer

red

Inco

me

Def

erra

l Ele

ctio

ns. D

efer

red

Inco

me

Def

erra

l Ele

ctio

ns s

hall

be m

ade

in a

ccor

danc

e w

ith S

ectio

n 4

belo

w. A

n in

divi

dual

sha

ll be

elig

ible

to m

ake

a D

efer

red

Inco

me

Def

erra

l Ele

ctio

n on

ly if

he

or s

he is

a D

efer

red

Inco

me

Elig

ible

Em

ploy

ee o

n th

e D

ue D

ate.

Not

with

stan

ding

the

fore

goin

g, a

n in

divi

dual

who

bec

omes

a D

efer

red

Inco

me

Elig

ible

Em

ploy

ee a

fter

the

Due

Dat

e, b

y re

ason

of

bein

g hi

red

or p

rom

oted

into

an

elig

ible

pos

ition

und

er S

ectio

n 2.

1 ab

ove

afte

r th

e D

ue D

ate,

will

be

elig

ible

to m

ake

a D

efer

red

Inco

me

Def

erra

l Ele

ctio

n, to

def

er b

ase

sala

ry o

nly,

with

in 6

0 da

ys a

fter

the

date

he

or s

he b

ecom

es a

Def

erre

d In

com

e E

ligib

le E

mpl

oyee

. Suc

h a

Def

erre

d In

com

e D

efer

ral E

lect

ion

shal

l bec

ome

effe

ctiv

e, a

nd th

e in

divi

dual

mak

ing

it sh

all b

ecom

e a

Part

icip

ant,

as s

oon

as a

dmin

istr

ativ

ely

feas

ible

aft

er th

e D

efer

red

Inco

me

Def

erra

l Ele

ctio

n is

mad

e.

Sect

ion

3 M

cCA

P Fe

atur

e of

Pla

n: P

artic

ipat

ion

and

Def

erra

l Ele

ctio

ns

3.1

Elig

ibili

ty f

or B

enef

its.

(a)

415

Lim

its. I

f an

em

ploy

ee o

f th

e C

ompa

ny o

r of

any

Ado

ptin

g Su

bsid

iary

who

is a

par

ticip

ant i

n th

e Pr

ofit

Shar

ing

Plan

has

the

amou

nt o

f em

ploy

er c

ontr

ibut

ions

(in

clud

ing

Part

icip

ant E

lect

edC

ontr

ibut

ions

) an

d fo

rfei

ture

s th

at w

ould

hav

e be

en a

lloca

ted

to h

is a

ccou

nts

unde

r th

e Pr

ofit

Shar

ing

Plan

for

200

2 or

a la

ter

cale

ndar

yea

r re

duce

d pu

rsua

nt to

the

415

Lim

its, t

he a

mou

nt o

f ea

ch s

uch

redu

ctio

n sh

all b

e cr

edite

d to

the

empl

oyee

's A

ccou

nt a

s pr

ovid

ed in

Sec

tion

5.1.

(b)

Com

pens

atio

n L

imit.

If

an e

mpl

oyee

of

the

Com

pany

or

of a

ny A

dopt

ing

Subs

idia

ry w

ho is

a p

artic

ipan

t in

the

Prof

it Sh

arin

g Pl

an h

as th

e am

ount

of

empl

oyer

con

trib

utio

ns (

incl

udin

g Pa

rtic

ipan

tE

lect

ed C

ontr

ibut

ions

) an

d fo

rfei

ture

s th

at w

ould

hav

e be

en a

lloca

ted

to h

is a

ccou

nts

unde

r th

e Pr

ofit

Shar

ing

Plan

for

200

2 or

a la

ter

cale

ndar

yea

r lim

ited

as a

res

ult o

f th

e C

ompe

nsat

ion

Lim

it, th

eam

ount

of

each

suc

h re

duct

ion

shal

l be

cred

ited

to th

e em

ploy

ee's

Acc

ount

as

prov

ided

in S

ectio

n 5.

1 be

low

.

(c)

Oth

er L

imits

.

(i)

Eac

h em

ploy

ee o

f th

e C

ompa

ny o

r of

any

Ado

ptin

g Su

bsid

iary

who

is a

par

ticip

ant i

n th

e Pr

ofit

Shar

ing

Plan

as

of th

e fi

rst d

ay o

f 20

02 o

r of

a la

ter

cale

ndar

yea

r (t

he "

Spec

ifie

d Y

ear"

) w

hose

Spe

cifi

edC

ompe

nsat

ion

exce

eds

the

dolla

r am

ount

in e

ffec

t und

er C

ode

Sect

ion

gp

y

414(

q)(1

)(B

)(i)

and

the

Tre

asur

y R

egul

atio

ns th

ereu

nder

dur

ing

Aug

ust o

f th

e ye

ar im

med

iate

ly p

rece

ding

the

Spec

ifie

d Y

ear

(the

"Pr

ior

Yea

r")

shal

l be

entit

led

to th

e cr

edits

pro

vide

d fo

r in

Sec

tion

3.1(

c)(i

i) b

elow

, so

long

as

he o

r sh

e re

mai

ns a

n em

ploy

ee o

f th

e C

ompa

ny o

r su

ch A

dopt

ing

Subs

idia

ry a

s of

the

firs

t day

of

the

Spec

ifie

d Y

ear.

For

thes

e pu

rpos

es, t

he te

rm "

Spec

ifie

d C

ompe

nsat

ion"

for

a Pa

rtic

ipan

t for

a S

peci

fied

Yea

r sh

all m

ean

the

sum

of

(A)

the

amou

nt o

f th

e Pa

rtic

ipan

t's a

nnua

l bas

e sa

lary

at t

he r

ate

in e

ffec

t for

one

of

the

payr

oll p

erio

ds d

urin

g A

ugus

t of

the

Prio

r Y

ear,

as

spec

ifie

dby

the

Com

mitt

ee, a

nd (

B)

the

amou

nt o

f th

e bo

nus,

if a

ny, p

ayab

le to

the

Part

icip

ant u

nder

the

Ann

ual B

onus

Pla

n du

ring

the

Prio

r Y

ear

(in

each

cas

e, w

ithou

t reg

ard

to a

ny e

lect

ive

defe

rral

s th

ereo

fun

der

the

Plan

, the

Pro

fit S

hari

ng P

lan

or o

ther

wis

e).

(ii)

The

re s

hall

be c

redi

ted

to th

e A

ccou

nt o

f ea

ch P

artic

ipan

t who

is e

ligib

le f

or c

redi

ts u

nder

Sec

tion

3.1(

c)(i

) ab

ove

for

a Sp

ecif

ied

Yea

r an

am

ount

equ

al to

(A

) th

e am

ount

, if

any,

the

Part

icip

ant w

ould

have

rec

eive

d un

der

the

Prof

it Sh

arin

g Pl

an f

or th

at y

ear

(inc

ludi

ng, i

f th

e Pa

rtic

ipan

t so

elec

ts p

ursu

ant t

o Se

ctio

n 3.

1(d)

bel

ow, t

he a

mou

nt o

f an

y el

ectio

ns o

f Pa

rtic

ipan

t Ele

cted

Con

trib

utio

ns m

ade

byth

e Pa

rtic

ipan

t and

any

ass

ocia

ted

Mat

chin

g C

ontr

ibut

ions

) in

the

abse

nce

of th

e O

ther

Lim

its, r

educ

ed b

y (B

) th

e su

m o

f th

e am

ount

s al

loca

ted

to th

e Pa

rtic

ipan

t's a

ccou

nts

unde

r th

e Pr

ofit

Shar

ing

Plan

and

to th

e Pa

rtic

ipan

t's A

ccou

nt u

nder

Sec

tions

3.1

(a)

and

3.1(

b) a

bove

. Not

with

stan

ding

the

fore

goin

g, a

Par

ticip

ant w

ho d

oes

not h

ave

an e

lect

ion

in e

ffec

t und

er S

ectio

n 3.

1(d)

bel

ow o

f th

e Pl

an f

or a

cale

ndar

yea

r sh

all n

ot b

e cr

edite

d w

ith a

ny P

artic

ipan

t Ele

cted

Con

trib

utio

ns o

r E

mpl

oyer

Mat

chin

g C

ontr

ibut

ions

her

eund

er f

or th

at c

alen

dar

year

.

44 M

cDon

ald'

s C

orpo

ratio

n

(d)

Def

erra

l Ele

ctio

ns. T

he f

ollo

win

g pr

ovis

ions

app

ly to

eac

h Pa

rtic

ipan

t who

is e

ligib

le f

or c

redi

ts u

nder

Sec

tion

3.1(

c)(i

) ab

ove

for

a Sp

ecif

ied

Yea

r:

(i)

Eac

h su

ch P

artic

ipan

t may

ele

ct, b

y fi

ling

a w

ritte

n el

ectio

n (a

"M

cCA

P D

efer

ral E

lect

ion"

and

, tog

ethe

r w

ith th

e D

efer

red

Inco

me

Def

erra

l Ele

ctio

ns, t

he "

Def

erra

l Ele

ctio

ns")

with

the

Com

mitt

eebe

fore

the

begi

nnin

g of

the

Spec

ifie

d Y

ear,

in a

ccor

danc

e w

ithSe

ctio

n 4

belo

w, t

o ha

ve th

e Pa

rtic

ipan

t Ele

cted

Con

trib

utio

ns a

nd E

mpl

oyer

Mat

chin

g C

ontr

ibut

ions

des

crib

ed in

Sec

tion

3.1(

c)(i

i) a

bove

, if

any,

cre

dite

d to

his

Acc

ount

.

(ii)

If

such

a P

artic

ipan

t has

a M

cCA

P D

efer

ral E

lect

ion

in e

ffec

t for

a c

alen

dar

year

, the

McC

AP

Def

erra

l Ele

ctio

n an

d th

e Pa

rtic

ipan

t's e

lect

ed d

efer

rals

und

er th

e 40

1(k)

Fea

ture

of

the

Prof

it Sh

arin

g Pl

anm

ay n

ot b

e ch

ange

d du

ring

the

year

. If

such

a P

artic

ipan

t doe

s no

t hav

e a

McC

AP

Def

erra

l Ele

ctio

n in

eff

ect f

or th

e ca

lend

ar y

ear,

any

am

ount

s of

Par

ticip

ant E

lect

ed C

ontr

ibut

ions

in e

xces

s of

the

Ele

ctiv

e C

ontr

ibut

ion

Lim

it th

at a

re e

lect

ed b

y th

e Pa

rtic

ipan

t und

er th

e 40

1(k)

Fea

ture

of

the

Prof

it Sh

arin

g Pl

an e

ither

sha

ll no

t be

cont

ribu

ted

or s

hall

be r

etur

ned

to h

im o

r he

r as

pro

vide

d th

ereu

nder

and

no b

enef

it sh

all b

e cr

edite

d to

him

or

her

here

unde

r w

ith r

espe

ct to

his

or

her

Part

icip

ant E

lect

ed C

ontr

ibut

ions

and

Em

ploy

er M

atch

ing

Con

trib

utio

ns u

nder

the

Prof

it Sh

arin

g Pl

an.

3.2

Equ

aliz

atio

n. B

ase

sala

ry a

nd c

ompe

nsat

ion

paya

ble

unde

r th

e A

nnua

l Bon

us P

lan

that

are

def

erre

d un

der

the

Def

erre

d In

com

e Fe

atur

e of

the

Plan

sha

ll be

con

side

red

com

pens

atio

n fo

r th

e M

cCA

PFe

atur

e of

the

Plan

, inc

ludi

ng, w

ithou

t lim

itatio

n, f

or p

urpo

ses

of e

lect

ions

to c

ontr

ibut

e a

perc

enta

ge o

f co

mpe

nsat

ion

as S

ectio

n 40

1(k)

con

trib

utio

ns. T

hree

-Yea

r In

cent

ive

awar

ds th

at a

re d

efer

red

unde

rth

e D

efer

red

Inco

me

Feat

ure

of th

e Pl

an s

hall

not b

e co

nsid

ered

com

pens

atio

n fo

r th

e M

cCA

P Fe

atur

e of

the

Plan

.

Sect

ion

4 R

ules

for

Def

erra

l Ele

ctio

ns

4.1

Tim

ing

for

Def

erra

l Ele

ctio

ns. A

ll D

efer

ral E

lect

ions

mus

t be

retu

rned

to th

e C

omm

ittee

no

late

r th

an th

e da

te s

peci

fied

by

the

Com

mitt

ee (

the

"Due

Dat

e").

In

no e

vent

will

the

Due

Dat

e be

late

r th

anth

e en

d of

the

year

that

pre

cede

s th

e ye

ar th

at th

e am

ount

def

erre

d w

ould

oth

erw

ise

be m

ade

avai

labl

e to

the

Part

icip

ant m

akin

g th

e D

efer

ral E

lect

ion.

4.2

Tax

With

hold

ing

and

Oth

er S

peci

al R

ules

. Not

with

stan

ding

any

oth

er p

rovi

sion

of

the

Plan

, if

the

Com

mitt

ee d

eter

min

es th

at it

is n

eces

sary

or

appr

opri

ate

for

adm

inis

trat

ive,

lega

l or

othe

r ap

prop

riat

ere

ason

s, th

e C

omm

ittee

may

dec

ide

not t

o ap

ply

any

Def

erra

l Ele

ctio

n in

who

le o

r in

par

t. W

ithou

t lim

iting

the

gene

ralit

y of

the

fore

goin

g, th

e C

omm

ittee

may

dec

ide

not t

o ap

ply

a D

efer

ral E

lect

ion

to th

eex

tent

nec

essa

ry o

r ap

prop

riat

e in

ord

er to

com

ply

with

app

licab

le la

ws

rega

rdin

g ta

x w

ithho

ldin

g, a

fter

app

licat

ion

of S

ectio

n 6.

4 be

low

.

Sect

ion

5 A

ccou

nts

5.1

Acc

ount

s.

(a)

A b

ookk

eepi

ng a

ccou

nt s

hall

be e

stab

lishe

d in

eac

h Pa

rtic

ipan

t's n

ame

(an

"Acc

ount

"). T

he A

ccou

nt o

f ea

ch in

divi

dual

who

is a

Par

ticip

ant i

n bo

th th

e D

efer

red

Inco

me

Feat

ure

and

the

McC

AP

Feat

ure

of th

e Pl

an s

hall

be d

ivid

ed in

to tw

o su

bacc

ount

s, o

ne r

epre

sent

ing

the

amou

nts

cred

ited

to th

e Pa

rtic

ipan

t's A

ccou

nt p

ursu

ant t

o Se

ctio

n 2

abov

e of

the

Plan

, and

the

othe

r re

pres

entin

g th

e am

ount

scr

edite

d to

the

Part

icip

ant's

Acc

ount

pur

suan

t to

Sect

ion

3 ab

ove,

in e

ach

case

, as

adju

sted

pur

suan

t to

Sect

ion

5.2

belo

w a

nd a

s a

resu

lt of

dis

trib

utio

ns f

rom

the

Acc

ount

.

(b)

The

Par

ticip

ants

' Acc

ount

s m

ay b

e fu

rthe

r su

bdiv

ided

as

the

Com

mitt

ee m

ay f

rom

tim

e to

tim

e de

term

ine

to b

e ne

cess

ary

or a

ppro

pria

te, i

nclu

ding

with

out l

imita

tion

to r

efle

ct d

iffe

rent

sou

rces

of

cred

its to

the

Acc

ount

s an

d di

ffer

ent d

eem

ed in

vest

men

ts th

ereo

f.

(c)

Am

ount

s de

ferr

ed p

ursu

ant t

o a

Def

erra

l Ele

ctio

n sh

all b

e cr

edite

d to

the

appl

icab

le A

ccou

nt a

s of

the

date

the

Part

icip

ant w

ould

oth

erw

ise

have

rec

eive

d th

e de

ferr

ed a

mou

nts

in th

e ab

senc

e of

aD

efer

ral E

lect

ion.

Any

Equ

aliz

atio

n A

mou

nts

shal

l be

cred

ited

to th

e ap

plic

able

Acc

ount

as

soon

as

adm

inis

trat

ivel

y fe

asib

le a

fter

the

date

whe

n th

e am

ount

of

the

corr

espo

ndin

g em

ploy

er c

ontr

ibut

ions

toth

e Pr

ofit

Shar

ing

Plan

is d

eter

min

ed. A

ny a

mou

nt c

redi

ted

unde

r th

e M

cCA

P Fe

atur

e of

the

Plan

sha

ll be

cre

dite

d to

the

appl

icab

le A

ccou

nt a

s of

the

date

the

amou

nt w

ould

hav

e be

en a

lloca

ted

unde

r th

ePr

ofit

Shar

ing

Plan

if th

e L

imits

had

not

app

lied.

Adj

ustm

ents

of

a Pa

rtic

ipan

t's v

ario

us s

ubac

coun

ts to

ref

lect

inve

stm

ent e

xper

ienc

e an

d di

stri

butio

ns s

hall

in a

ll ca

ses

be d

one

on a

pro

-rat

a ba

sis,

and

suc

h

gp

y

suba

ccou

nts

shal

l be

trea

ted

in th

e sa

me

man

ner

for

all o

ther

pur

pose

s of

the

Plan

, exc

ept a

s sp

ecif

ical

ly p

rovi

ded

in S

ectio

n 9.

2 be

low

.

McD

onal

d's

Cor

pora

tion

45

5.2

Inve

stm

ent E

lect

ions

and

Ear

ning

s C

redi

ts.

(a)

Eac

h Pa

rtic

ipan

t in

the

Plan

sha

ll be

per

mitt

ed f

rom

tim

e to

tim

e to

mak

e an

inve

stm

ent e

lect

ion

rega

rdin

g th

e m

anne

r in

whi

ch h

is o

r he

r A

ccou

nt s

hall

be d

eem

ed in

vest

ed. S

ubje

ct to

the

follo

win

g,th

e C

omm

ittee

sha

ll es

tabl

ish

and

com

mun

icat

e to

Par

ticip

ants

the

inve

stm

ent c

hoic

es th

at w

ill b

e av

aila

ble

to P

artic

ipan

ts a

nd th

e pr

oced

ures

for

mak

ing

and

chan

ging

inve

stm

ent e

lect

ions

, as

it m

ay f

rom

time

to ti

me

dete

rmin

e to

be

appr

opri

ate.

Unl

ess

othe

rwis

e de

term

ined

by

the

Com

mitt

ee, a

Par

ticip

ant's

inve

stm

ent e

lect

ion

may

be

split

am

ong

the

avai

labl

e ch

oice

s in

incr

emen

ts o

f 1%

, tot

alin

g 10

0%.

The

pro

cedu

res

as in

eff

ect a

s of

Jan

uary

1, 2

002

are

atta

ched

as

Exh

ibit

D to

the

Plan

.

(b)

As

of J

anua

ry 1

, 200

2, th

e av

aila

ble

inve

stm

ent c

hoic

es u

nder

the

Plan

are

:

(i)

a ra

te o

f re

turn

bas

ed u

pon

the

McD

onal

d's

Com

mon

Sto

ck E

quiv

alen

t und

er th

e Pr

ofit

Shar

ing

Plan

, aft

er a

djus

tmen

t for

exp

ense

s un

der

the

Plan

(th

e "S

uppl

emen

tal M

cDon

ald'

s C

omm

on S

tock

Ret

urn"

);

(ii)

a r

ate

of r

etur

n ba

sed

upon

the

Stab

le V

alue

Equ

ival

ent u

nder

the

Prof

it Sh

arin

g Pl

an, a

fter

adj

ustm

ent f

or e

xpen

ses

unde

r th

e Pl

an (

the

"Sup

plem

enta

l Sta

ble

Val

ue R

etur

n");

and

(iii)

a r

ate

of r

etur

n ba

sed

upon

the

S&P

500

Inde

x E

quiv

alen

t und

er th

e Pr

ofit

Shar

ing

Plan

, aft

er a

djus

tmen

t for

exp

ense

s un

der

the

Plan

(th

e "S

uppl

emen

tal S

&P

500

Inde

x R

etur

n").

(c)

For

any

peri

od d

urin

g w

hich

a P

artic

ipan

t has

fai

led

to m

ake

an in

vest

men

t ele

ctio

n, th

e Pa

rtic

ipan

t's A

ccou

nt s

hall

be c

redi

ted

with

the

Supp

lem

enta

l Sta

ble

Val

ue R

etur

n. A

Par

ticip

ant's

inve

stm

ent

elec

tion

will

con

tinue

in e

ffec

t unt

il th

e Pa

rtic

ipan

t file

s a

new

inve

stm

ent e

lect

ion.

5.3

Ves

ting.

A P

artic

ipan

t sha

ll be

ful

ly v

este

d at

all

times

in th

e ba

lanc

e of

his

or

her

Acc

ount

, exc

ept a

s sp

ecif

ical

ly p

rovi

ded

in S

ectio

n 6.

3 be

low

.

Sect

ion

6 Pa

ymen

t of

Ben

efits

6.1

Tim

e an

d M

etho

d of

Pay

men

t. Pa

ymen

ts o

f a

Part

icip

ant's

Acc

ount

sha

ll be

mad

e to

a P

artic

ipan

t, or

the

Part

icip

ant's

ben

efic

iary

if th

e Pa

rtic

ipan

t is

dece

ased

, in

acco

rdan

ce w

ith th

e ru

les

set f

orth

belo

w:

(a)

Tim

e of

Pay

men

t. E

ach

paym

ent u

nder

the

Plan

sha

ll be

mad

e in

a p

artic

ular

cal

enda

r m

onth

as

prov

ided

bel

ow. T

he p

aym

ents

und

er th

e Pl

an th

at a

re to

be

mad

e in

a p

artic

ular

cal

enda

r m

onth

sha

ll in

all c

ases

be

mad

e as

soo

n as

adm

inis

trat

ivel

y fe

asib

le a

fter

the

firs

t bus

ines

s da

y of

suc

h ca

lend

ar m

onth

.

(b)

Def

ault

Rul

e an

d Pa

rtic

ipan

t Ele

ctio

ns. U

nles

s th

e Pa

rtic

ipan

t has

ele

cted

oth

erw

ise

as p

rovi

ded

for

belo

w, p

aym

ent o

f th

e Pa

rtic

ipan

t's A

ccou

nt s

hall

be m

ade

in a

sin

gle

lum

p su

m in

Apr

il of

the

year

follo

win

g th

e ye

ar in

whi

ch th

e Pa

rtic

ipan

t ter

min

ates

em

ploy

men

t. Pa

rtic

ipan

ts s

hall

be p

erm

itted

to e

lect

dif

fere

nt ti

mes

to r

ecei

ve p

aym

ents

("P

aym

ent E

lect

ions

") a

nd f

orm

s of

pay

men

t oth

er th

an a

lum

p su

m (

"Ins

tallm

ent E

lect

ions

"), s

ubje

ct to

the

rule

s se

t for

th b

elow

. Any

fili

ng, c

hang

e or

rev

ocat

ion

of a

Pay

men

t Ele

ctio

n th

at o

ccur

s af

ter

the

appl

icab

le d

eadl

ine

set f

orth

bel

ow s

hall

be v

oid

and

ofno

eff

ect.

In e

ach

case

, the

mos

t rec

ent s

uch

filin

g, c

hang

e or

rev

ocat

ion

by a

Par

ticip

ant o

n or

bef

ore

the

appl

icab

le d

eadl

ine

shal

l gov

ern

the

Part

icip

ant's

ent

ire

Acc

ount

exc

ept a

s ex

pres

sly

prov

ided

belo

w.

(c)

Ter

min

atio

n D

istr

ibut

ions

. Dis

trib

utio

ns f

rom

a P

artic

ipan

t's A

ccou

nt a

fter

term

inat

ion

of e

mpl

oym

ent (

othe

r th

an d

istr

ibut

ions

mad

e pu

rsua

nt to

Sec

tion

6.1(

f) b

elow

) ar

e re

ferr

ed to

as

"Ter

min

atio

nD

istr

ibut

ions

." A

Par

ticip

ant m

ay e

lect

to h

ave

his

or h

er T

erm

inat

ion

Dis

trib

utio

ns p

aid,

or

begi

n to

be

paid

in in

stal

lmen

ts, l

ater

than

Apr

il of

the

year

fol

low

ing

the

year

in w

hich

the

Part

icip

ant

term

inat

es e

mpl

oym

ent.

Such

a P

aym

ent E

lect

ion

shal

l be

mad

e no

late

r th

an D

ecem

ber

31 o

f th

e ye

ar in

whi

ch th

e Pa

rtic

ipan

t ter

min

ates

em

ploy

men

t.

(d)

Inst

allm

ent P

aym

ents

of

Ter

min

atio

n D

istr

ibut

ions

. A P

artic

ipan

t may

mak

e an

Ins

tallm

ent E

lect

ion

sele

ctin

g on

e of

the

follo

win

g in

stal

lmen

t pay

men

t met

hods

to a

pply

to h

is o

r he

r T

erm

inat

ion

Dis

trib

utio

ns:

(i)

Mon

thly

, qua

rter

ly o

r an

nual

inst

allm

ents

ove

r a

peri

od e

ndin

g no

t lat

er th

an th

e fi

rst A

pril

that

beg

ins

afte

r th

e 25

th a

nniv

ersa

ry o

f th

e da

te o

f th

e Pa

rtic

ipan

t's te

rmin

atio

n of

em

ploy

men

t, as

spe

cifi

edin

the

Inst

allm

ent E

lect

ion.

Suc

h in

stal

lmen

t pay

men

ts s

hall

be m

ade

in s

ubst

antia

lly e

qual

inst

allm

ents

ove

r th

e in

stal

lmen

t per

iod

spec

ifie

d. E

ach

such

inst

allm

ent p

aym

ent s

hall

be c

ompu

ted

by d

ivid

ing

the

then

-bal

ance

of

the

Acc

ount

by

the

num

ber

of p

aym

ents

rem

aini

ng in

the

inst

allm

ent p

erio

d.

(ii)

Mon

thly

, qua

rter

ly o

r an

nual

inst

allm

ents

of

a do

llar

amou

nt s

peci

fied

in th

e In

stal

lmen

t Pay

men

t Ele

ctio

n; p

rovi

ded,

how

ever

, tha

t in

any

even

t, th

e la

st s

uch

inst

allm

ent m

ust b

e pa

id n

ot la

ter

than

the

firs

t Apr

il th

at b

egin

s af

ter

the

25th

ann

iver

sary

of

the

date

of

the

Part

icip

ant's

term

inat

ion

of e

mpl

oym

ent.

46 M

cDon

ald'

s C

orpo

ratio

n

(iii)

An

initi

al p

artia

l lum

p su

m p

aym

ent w

ith s

ubse

quen

t mon

thly

, qua

rter

ly o

r an

nual

inst

allm

ent p

aym

ents

, whi

ch s

hall

be e

ither

(A

) m

ade

over

a p

erio

d of

yea

rs (

as d

escr

ibed

in S

ectio

n

gp

y

6.1(

d)(i

) ab

ove)

or

(B)

of a

spe

cifi

ed d

olla

r am

ount

(as

des

crib

ed in

Sec

tion

6.1(

d)(i

i) a

bove

), a

s sp

ecif

ied

in th

e In

stal

lmen

t Pay

men

t Ele

ctio

n.

An

Inst

allm

ent E

lect

ion

shal

l be

mad

e on

or

befo

re th

e D

ecem

ber

31 o

f th

e ca

lend

ar y

ear

prec

edin

g th

e da

te w

hen

the

Part

icip

ant's

Ter

min

atio

n D

istr

ibut

ions

are

sch

edul

ed to

beg

in, a

nd, o

nce

mad

e w

ithre

spec

t to

a Pa

rtic

ipan

t's A

ccou

nt, m

ay n

ot b

e re

voke

d or

cha

nged

by

the

Part

icip

ant o

r th

e Pa

rtic

ipan

t's b

enef

icia

ry, e

xcep

t to

the

exte

nt p

erm

itted

und

er S

ectio

n 6.

3 be

low

.

(e)

In-S

ervi

ce W

ithdr

awal

s. A

Par

ticip

ant m

ay e

lect

(an

"In

-Ser

vice

With

draw

al E

lect

ion"

) to

hav

e al

l or

a sp

ecif

ied

port

ion

of h

is o

r he

r A

ccou

nt p

aid

in a

spe

cifi

ed m

onth

bef

ore

term

inat

ion

ofem

ploy

men

t (su

ch p

aym

ents

bei

ng c

alle

d "I

n-Se

rvic

e W

ithdr

awal

s"),

sub

ject

to th

e fo

llow

ing

rule

s:

(i)

such

an

elec

tion

mus

t be

mad

e be

fore

the

Part

icip

ant's

term

inat

ion

of e

mpl

oym

ent,

and

once

mad

e, s

hall

be ir

revo

cabl

e;

(ii)

the

mon

th s

o el

ecte

d fo

r an

In-

Serv

ice

With

draw

al m

ust (

A)

occu

r du

ring

a c

alen

dar

year

beg

inni

ng s

ubse

quen

t to

the

date

of

the

elec

tion

and

(B)

begi

n at

leas

t six

mon

ths

afte

r th

e da

te o

f th

e el

ectio

n;an

d

(iii)

the

amou

nt d

istr

ibut

ed in

an

In-S

ervi

ce W

ithdr

awal

may

not

incl

ude

any

amou

nts

cred

ited

to th

e Pa

rtic

ipan

t's A

ccou

nt u

nder

Sect

ion

2 or

Sec

tion

3 on

or

afte

r Ja

nuar

y 1

of th

e ye

ar p

rece

ding

the

year

in w

hich

the

In-S

ervi

ce W

ithdr

awal

occ

urs,

nor

any

ear

ning

s on

suc

h am

ount

s.

(f)

Ter

min

atio

n B

efor

e In

-Ser

vice

With

draw

al. I

f th

e Pa

rtic

ipan

t's e

mpl

oym

ent t

erm

inat

es a

t a ti

me

whe

n on

e or

mor

e In

-Ser

vice

With

draw

al E

lect

ions

are

in e

ffec

t, th

e In

-Ser

vice

With

draw

als

shal

lco

ntin

ue to

be

paid

in a

ccor

danc

e w

ith s

uch

elec

tions

, exc

ept t

hat a

ll In

-Ser

vice

With

draw

als

that

rem

ain

unpa

id a

t the

ear

lier

of (

i) th

e be

ginn

ing

of A

pril

of th

e ye

ar f

ollo

win

g th

e ye

ar in

whi

ch th

ePa

rtic

ipan

t ter

min

ates

em

ploy

men

t, an

d (i

i) th

e da

te w

hen

the

Part

icip

ant's

Ter

min

atio

n D

istr

ibut

ions

are

pai

d or

beg

in to

be

paid

, sha

ll be

trea

ted

as T

erm

inat

ion

Dis

trib

utio

ns a

nd p

aid

in a

ccor

danc

e w

ithSe

ctio

ns 6

.1(a

) th

roug

h (d

).

(g)

Smal

l Bal

ance

Rul

e. N

otw

ithst

andi

ng a

ny o

ther

pro

visi

on o

f th

e Pl

an, a

nd n

otw

ithst

andi

ng a

ny e

lect

ion

that

the

Part

icip

ant m

ay h

ave

mad

e, if

the

bala

nce

in a

Par

ticip

ant's

Acc

ount

as

of th

e en

d of

the

mon

th d

urin

g w

hich

the

Part

icip

ant's

em

ploy

men

t ter

min

ates

is le

ss th

an $

50,0

00, t

hen

such

Par

ticip

ant's

Acc

ount

sha

ll be

pai

d in

a s

ingl

e lu

mp

sum

as

soon

as

adm

inis

trat

ivel

y fe

asib

le a

fter

the

end

ofsu

ch m

onth

.

(h)

Cha

nge

in C

ontr

ol. T

he C

omm

ittee

may

(bu

t sha

ll no

t be

requ

ired

to)

esta

blis

h pr

oced

ures

und

er w

hich

Par

ticip

ants

may

be

perm

itted

to e

lect

to h

ave

all o

r a

spec

ifie

d po

rtio

n of

thei

r A

ccou

nts

paid

ina

sing

le lu

mp

sum

upo

n a

Cha

nge

in C

ontr

ol, a

s th

at te

rm is

def

ined

in th

e M

cDon

ald'

s C

orpo

ratio

n 20

01 O

mni

bus

Stoc

k O

wne

rshi

p In

cent

ive

Plan

, not

with

stan

ding

any

oth

er p

rovi

sion

of

the

Plan

, and

notw

ithst

andi

ng a

ny o

ther

ele

ctio

n th

at th

e Pa

rtic

ipan

t may

hav

e m

ade.

6.2

Form

of

Paym

ent.

All

paym

ents

sha

ll be

mad

e in

cas

h. H

owev

er, a

Par

ticip

ant w

ho h

as e

lect

ed a

McD

onal

d's

Com

mon

Sto

ck E

quiv

alen

t ret

urn

and

who

use

s am

ount

s th

at h

ave

been

dee

med

so

inve

sted

and

then

dis

trib

uted

in c

ash

to p

urch

ase

shar

es o

f M

cDon

ald'

s co

mm

on s

tock

on

the

open

mar

ket i

n on

e or

mor

e tr

ansa

ctio

ns w

ithin

sev

en m

onth

s af

ter

the

date

suc

h am

ount

s w

ere

dist

ribu

ted,

shal

l be

entit

led

to r

ecei

ve r

eim

burs

emen

t fro

m th

e C

ompa

ny f

or a

ll re

ason

able

bro

kera

ge f

ees

and

othe

r tr

ansa

ctio

n co

sts

incu

rred

by

him

or

her

in c

onne

ctio

n w

ith s

uch

purc

hase

s, u

pon

pres

enta

tion

toth

e C

omm

ittee

not

late

r th

an 6

0 da

ys a

fter

the

date

of

each

tran

sact

ion

of s

atis

fact

ory

evid

ence

ther

eof.

6.3

Har

dshi

p W

ithdr

awal

s an

d A

ccel

erat

ion

of I

nsta

llmen

t Pay

men

ts. T

he C

ompa

ny r

ecog

nize

s th

at th

ere

will

be

circ

umst

ance

s in

whi

ch a

Par

ticip

ant w

ill n

eed

to w

ithdr

aw a

mou

nts

from

his

or

her

Acc

ount

mor

e qu

ickl

y th

an is

per

mitt

ed f

or I

n-Se

rvic

e W

ithdr

awal

s un

der

Sect

ion

6.1(

e) a

bove

. The

refo

re, a

Par

ticip

ant s

hall

have

the

righ

t to

with

draw

in c

ash

any

port

ion

of th

e ba

lanc

e of

his

or

her

Acc

ount

at a

ny ti

me

befo

re h

is o

r he

r te

rmin

atio

n of

em

ploy

men

t, su

bjec

t to

the

Com

mitt

ee's

con

sent

and

a 1

0% f

orfe

iture

pen

alty

on

the

amou

nt r

eque

sted

. A P

artic

ipan

t who

is r

ecei

ving

Ter

min

atio

nD

istr

ibut

ions

in in

stal

lmen

ts m

ay a

lso

acce

lera

te p

aym

ent o

f an

y un

paid

am

ount

, sub

ject

to th

e C

omm

ittee

's c

onse

nt a

nd 1

0% f

orfe

iture

pen

alty

on

the

amou

nt a

ccel

erat

ed. A

ny w

ithdr

awal

s or

acc

eler

ated

paym

ents

pur

suan

t to

this

Sec

tion

6.3

(red

uced

by

the

10%

for

feitu

re p

enal

ty)

shal

l be

paid

as

soon

as

adm

inis

trat

ivel

y fe

asib

le a

fter

the

elec

tion

to w

ithdr

aw o

r ac

cele

rate

pay

men

ts is

app

rove

d by

the

Com

mitt

ee.

6.4

With

hold

ing

of T

axes

. The

Com

pany

sha

ll w

ithho

ld a

ny a

pplic

able

Fed

eral

, sta

te o

r lo

cal i

ncom

e ta

x fr

om p

aym

ents

due

und

er th

e Pl

an in

acc

orda

nce

with

suc

h pr

oced

ures

as

the

Com

pany

may

esta

blis

h. G

ener

ally

, any

Soc

ial S

ecur

ity ta

xes,

incl

udin

g th

e M

edic

are

port

ion

of s

uch

taxe

s, s

hall

be w

ithhe

ld f

rom

oth

er c

ompe

nsat

ion

to th

e Pa

rtic

ipan

t in

ques

tion,

or

paid

by

the

Part

icip

ant i

n qu

estio

nto

the

Com

pany

, at t

he ti

me

amou

nts

are

cred

ited

to th

e Pa

rtic

ipan

t's A

ccou

nt. T

he C

ompa

ny s

hall

also

with

hold

any

oth

er e

mpl

oym

ent t

axes

as

nece

ssar

y to

com

ply

with

app

licab

le la

ws.

McD

onal

d's

Cor

pora

tion

47

6.5

Ben

efic

iary

.

(a)

A P

artic

ipan

t sha

ll ha

ve th

e ri

ght t

o na

me

a be

nefi

ciar

y or

ben

efic

iari

es w

ho s

hall

rece

ive

the

bala

nce

of a

Par

ticip

ant's

Acc

ount

in th

e ev

ent o

f th

e Pa

rtic

ipan

t's d

eath

pri

or to

the

paym

ent o

f hi

s or

her

entir

e A

ccou

nt (

a "B

enef

icia

ry D

esig

natio

n").

A b

enef

icia

ry m

ay b

e an

indi

vidu

al, a

trus

t or

an e

ntity

that

is ta

x-ex

empt

und

er C

ode

Sect

ion

501(

c)(3

). I

f no

ben

efic

iary

is n

amed

by

a Pa

rtic

ipan

t or

if th

ePa

rtic

ipan

t sur

vive

s al

l of

the

nam

ed b

enef

icia

ries

, the

Par

ticip

ant's

Acc

ount

sha

ll be

pai

d to

the

Part

icip

ant's

est

ate.

A P

artic

ipan

t may

cha

nge

or r

evok

e an

exi

stin

g B

enef

icia

ry D

esig

natio

n by

fili

ngan

othe

r B

enef

icia

ry D

esig

natio

n w

ith th

e C

omm

ittee

. The

late

st B

enef

icia

ry D

esig

natio

n re

ceiv

ed b

y th

e C

omm

ittee

sha

ll be

con

trol

ling.

(b)

A b

enef

icia

ry d

esig

nate

d by

a P

artic

ipan

t or

anot

her

bene

fici

ary

who

has

not

yet

rec

eive

d pa

ymen

t of

the

entir

e be

nefi

t pay

able

to h

im o

r he

r un

der

the

Plan

sha

ll ha

ve th

e ri

ght t

o na

me

a be

nefi

ciar

y or

bene

fici

arie

s to

rec

eive

the

bala

nce

of s

uch

bene

fit i

n th

e ev

ent o

f th

e be

nefi

ciar

y's

deat

h pr

ior

to th

e pa

ymen

t of

the

entir

e am

ount

of

such

ben

efit,

in a

ccor

danc

e w

ith S

ectio

n 6.

5(a)

abo

ve, a

s if

the

gp

y

bene

fici

ary

wer

e a

Part

icip

ant (

rega

rdle

ss o

f w

heth

er th

e Pa

rtic

ipan

t or

such

oth

er b

enef

icia

ry is

stil

l aliv

e).

(c)

In a

dditi

on, a

fter

the

deat

h of

a P

artic

ipan

t or

a be

nefi

ciar

y th

ereo

f, a

ny b

enef

icia

ry d

esig

nate

d by

the

Part

icip

ant o

r su

ch d

ecea

sed

bene

fici

ary,

as

appl

icab

le, w

ho h

as n

ot y

et r

ecei

ved

paym

ent o

f th

een

tire

bene

fit p

ayab

le to

him

or

her

unde

r th

e Pl

an s

hall

be tr

eate

d fo

r al

l pur

pose

s of

Sec

tions

5 th

roug

h 10

of

the

Plan

in th

e sa

me

man

ner

as th

e Pa

rtic

ipan

t with

res

pect

to th

e A

ccou

nt o

r po

rtio

n th

ereo

fof

whi

ch s

uch

pers

on is

the

bene

fici

ary,

incl

udin

g, w

ithou

t lim

itatio

n, f

or p

urpo

ses

of m

akin

g in

vest

men

t ele

ctio

ns, P

aym

ent E

lect

ions

and

Ins

tallm

ent E

lect

ions

.

Sect

ion

7 M

isce

llane

ous

7.1

Fund

ing.

Ben

efits

pay

able

und

er th

e Pl

an to

any

Par

ticip

ant s

hall

be p

aid

dire

ctly

by

the

Com

pany

. The

Com

pany

sha

ll no

t be

requ

ired

to f

und,

or

othe

rwis

e se

greg

ate

asse

ts to

be

used

for

pay

men

t of

bene

fits

und

er th

e Pl

an. W

hile

the

Com

pany

may

, in

the

disc

retio

n of

the

Com

mitt

ee, m

ake

inve

stm

ents

(a)

in s

hare

s of

McD

onal

d's

Com

mon

Sto

ck th

roug

h op

en m

arke

t pur

chas

es o

r (b

) in

oth

erin

vest

men

ts in

am

ount

s eq

ual o

r un

equa

l to

amou

nts

paya

ble

here

unde

r, th

e C

ompa

ny s

hall

not b

e un

der

any

oblig

atio

n to

mak

e su

ch in

vest

men

ts a

nd a

ny s

uch

inve

stm

ent s

hall

rem

ain

an a

sset

of

the

Com

pany

sub

ject

to th

e cl

aim

s of

its

gene

ral c

redi

tors

. Not

with

stan

ding

the

fore

goin

g, th

e C

ompa

ny m

ay m

aint

ain

one

or m

ore

trus

ts (

each

, a "

Tru

st")

to h

old

asse

ts to

be

used

for

pay

men

t of

bene

fits

unde

r th

e Pl

an. A

ny p

aym

ents

by

a T

rust

of

bene

fits

pro

vide

d to

a P

artic

ipan

t und

er th

e Pl

an s

hall

be c

onsi

dere

d pa

ymen

t by

the

Com

pany

and

sha

ll di

scha

rge

the

Com

pany

of

any

furt

her

liabi

lity

unde

rth

e Pl

an f

or s

uch

paym

ents

.

7.2

Acc

ount

Sta

tem

ents

. The

Com

pany

sha

ll pr

ovid

e Pa

rtic

ipan

ts w

ith s

tate

men

ts o

f th

e ba

lanc

es o

f th

eir

Acc

ount

s un

der

the

Plan

at l

east

ann

ually

.

7.3

Em

ploy

men

t Rig

hts.

Est

ablis

hmen

t of

the

Plan

sha

ll no

t be

cons

true

d to

giv

e an

y em

ploy

ee o

r Pa

rtic

ipan

t the

rig

ht to

be

reta

ined

in th

e C

ompa

ny's

ser

vice

or

that

of

its s

ubsi

diar

ies

and

affi

liate

s, o

r to

any

bene

fits

not

spe

cifi

cally

pro

vide

d by

the

Plan

.

7.4

Inte

rest

s N

ot T

rans

fera

ble.

Exc

ept a

s to

with

hold

ing

of a

ny ta

x un

der

the

law

s of

the

Uni

ted

Stat

es o

r an

y st

ate

or lo

calit

y an

d th

e pr

ovis

ions

of

Sect

ion

6.5

abov

e, n

o be

nefi

t pay

able

at a

ny ti

me

unde

r th

e Pl

an s

hall

be s

ubje

ct in

any

man

ner

to a

liena

tion,

sal

e, tr

ansf

er, a

ssig

nmen

t, pl

edge

, atta

chm

ent,

or o

ther

lega

l pro

cess

, or

encu

mbr

ance

of

any

kind

. Any

atte

mpt

to a

liena

te, s

ell,

tran

sfer

, ass

ign,

ple

dge

or o

ther

wis

e en

cum

ber

any

such

ben

efits

, whe

ther

cur

rent

ly o

r th

erea

fter

pay

able

, sha

ll be

voi

d. N

o pe

rson

sha

ll, in

any

man

ner,

be

liabl

e fo

r or

subj

ect t

o th

e de

bts

or li

abili

ties

of a

ny p

erso

n en

title

d to

suc

h be

nefi

ts. I

f an

y pe

rson

sha

ll at

tem

pt to

, or

shal

l alie

nate

, sel

l, tr

ansf

er, a

ssig

n, p

ledg

e or

oth

erw

ise

encu

mbe

r be

nefi

ts u

nder

the

Plan

, or

if b

yan

y re

ason

of

the

Part

icip

ant's

ban

krup

tcy

or o

ther

eve

nt h

appe

ning

at a

ny ti

me,

suc

h be

nefi

ts w

ould

dev

olve

upo

n an

y ot

her

pers

on o

r w

ould

not

be

enjo

yed

by th

e pe

rson

ent

itled

ther

eto

unde

r th

e Pl

an,

then

the

Com

pany

, in

its d

iscr

etio

n, m

ay te

rmin

ate

the

inte

rest

in a

ny s

uch

bene

fits

of

the

pers

on e

ntitl

ed th

eret

o un

der

the

Plan

and

hol

d or

app

ly th

em to

or

for

the

bene

fit o

f su

ch p

erso

n en

title

d th

eret

oun

der

the

Plan

or

such

indi

vidu

al's

spo

use,

chi

ldre

n or

oth

er d

epen

dent

s, o

r an

y of

them

, in

such

man

ner

as th

e C

ompa

ny m

ay d

eem

pro

per.

7.5

Forf

eitu

res

and

Unc

laim

ed A

mou

nts.

Unc

laim

ed a

mou

nts

shal

l con

sist

of

the

amou

nt o

f th

e A

ccou

nt o

f a

Part

icip

ant t

hat c

anno

t be

dist

ribu

ted

beca

use

of th

e C

omm

ittee

's in

abili

ty, a

fter

a r

easo

nabl

ese

arch

, to

loca

te a

Par

ticip

ant o

r th

e Pa

rtic

ipan

t's b

enef

icia

ry, a

s ap

plic

able

, with

in a

per

iod

of tw

o ye

ars

afte

r th

e Pa

ymen

t Dat

e up

on w

hich

the

paym

ent o

f be

nefi

ts b

ecom

e du

e. U

ncla

imed

am

ount

s sh

all

be f

orfe

ited

at th

e en

d of

suc

h tw

o-

48 M

cDon

ald'

s C

orpo

ratio

n

year

per

iod.

Pen

altie

s ch

arge

d fo

r w

ithdr

awal

s un

der

Sect

ion

6.3

shal

l als

o be

for

feite

d in

the

year

in w

hich

the

pena

lty is

cha

rged

. The

se f

orfe

iture

s w

ill r

educ

e th

e ob

ligat

ions

of

the

Com

pany

und

er th

ePl

an. A

fter

an

uncl

aim

ed a

mou

nt h

as b

een

forf

eite

d, th

e Pa

rtic

ipan

t or

bene

fici

ary,

as

appl

icab

le, s

hall

have

no

furt

her

righ

t to

the

Part

icip

ant's

Acc

ount

.

7.6

Con

trol

ling

Law

. The

law

of

Illin

ois,

exc

ept i

ts la

w w

ith r

espe

ct to

cho

ice

of la

w, s

hall

be c

ontr

ollin

g in

all

mat

ters

rel

atin

g to

the

Plan

to th

e ex

tent

not

pre

empt

ed b

y th

e E

mpl

oyee

Ret

irem

ent I

ncom

eSe

curi

ty A

ct o

f 19

74, a

s am

ende

d ("

ER

ISA

").

7.7

Act

ion

by th

e C

ompa

ny. E

xcep

t as

othe

rwis

e sp

ecif

ical

ly p

rovi

ded

in th

e Pl

an, a

ny a

ctio

n re

quir

ed o

f or

per

mitt

ed b

y th

e C

ompa

ny u

nder

the

Plan

sha

ll be

by

reso

lutio

n of

the

Boa

rd o

f D

irec

tors

of

the

Com

pany

or

by a

ctio

n of

any

mem

ber

of th

e C

omm

ittee

or

pers

on(s

) au

thor

ized

by

reso

lutio

n of

the

Boa

rd o

f D

irec

tors

of

the

Com

pany

.

7.8

Sect

ion

16. N

otw

ithst

andi

ng a

ny o

ther

pro

visi

on o

f th

e Pl

an, t

he C

ompe

nsat

ion

Com

mitt

ee m

ay im

pose

suc

h re

stri

ctio

ns, r

ules

and

reg

ulat

ions

on

the

term

s an

d co

nditi

ons

of p

artic

ipat

ion

in th

e Pl

anby

any

Par

ticip

ant w

ho h

as b

een

deem

ed b

y th

e B

oard

of

Dir

ecto

rs o

f th

e C

ompa

ny to

be

subj

ect t

o Se

ctio

n 16

of

the

Secu

ritie

s E

xcha

nge

Act

of

1934

, as

amen

ded,

as

the

Com

pens

atio

n C

omm

ittee

may

dete

rmin

e to

be

nece

ssar

y or

app

ropr

iate

. Any

tran

sact

ion

that

wou

ld r

esul

t in

liabi

lity

or p

oten

tial l

iabi

lity

unde

r sa

id S

ectio

n 16

sha

ll be

voi

d ab

initi

o.

Sect

ion

8 Su

bsid

iary

Par

ticip

atio

n

8.1

Ado

ptio

n of

Pla

n. A

ny e

ntity

in w

hich

the

Com

pany

dir

ectly

or

thro

ugh

inte

rven

ing

subs

idia

ries

ow

ns 2

5% o

r m

ore

of th

e to

tal c

ombi

ned

votin

g po

wer

or

valu

e of

all

clas

ses

of s

tock

, or,

in th

e ca

se o

fan

uni

ncor

pora

ted

entit

y, a

25%

or

mor

e in

tere

st in

the

capi

tal a

nd p

rofi

ts (

a "S

ubsi

diar

y")

may

, with

the

appr

oval

of

the

Com

pens

atio

n C

omm

ittee

and

und

er s

uch

term

s an

d co

nditi

ons

as th

eC

ompe

nsat

ion

Com

mitt

ee m

ay p

resc

ribe

, ado

pt th

e co

rres

pond

ing

port

ions

of

the

Plan

by

reso

lutio

n of

its

boar

d of

dir

ecto

rs a

nd th

ereb

y be

com

e an

"A

dopt

ing

Subs

idia

ry,"

exc

ept t

hat t

he B

rand

s sh

all

auto

mat

ical

ly b

e co

nsid

ered

Ado

ptin

g Su

bsid

iari

es. T

he C

ompe

nsat

ion

Com

mitt

ee m

ay a

men

d th

e Pl

an a

s ne

cess

ary

or d

esir

able

to r

efle

ct th

e ad

optio

n of

the

Plan

by

an A

dopt

ing

Subs

idia

ry, p

rovi

ded,

how

ever

, tha

t an

Ado

ptin

g Su

bsid

iary

sha

ll no

t hav

e th

e au

thor

ity to

am

end

or te

rmin

ate

the

Plan

und

er S

ectio

n 9

belo

w.

gp

y

8.2

With

draw

al f

rom

the

Plan

by

Subs

idia

ry. A

ny A

dopt

ing

Subs

idia

ry s

hall

have

the

righ

t, at

any

tim

e, u

pon

the

appr

oval

of

and

unde

r su

ch c

ondi

tions

as

may

be

prov

ided

by

the

Com

pens

atio

nC

omm

ittee

, to

with

draw

fro

m th

e Pl

an b

y de

liver

ing

to th

e C

ompe

nsat

ion

Com

mitt

ee w

ritte

n no

tice

of it

s el

ectio

n so

to w

ithdr

aw, u

pon

whi

ch it

sha

ll be

con

side

red

a "W

ithdr

awin

g Su

bsid

iary

." U

pon

rece

ipt o

f su

ch n

otic

e, th

e C

ompe

nsat

ion

Com

mitt

ee m

ay (

but n

eed

not)

det

erm

ine

that

not

with

stan

ding

any

oth

er p

rovi

sion

of

this

Pla

n an

d w

ithou

t reg

ard

to a

ny P

aym

ent E

lect

ions

mad

e by

the

affe

cted

Part

icip

ants

, the

Com

pany

sha

ll pa

y ou

t the

por

tion

of th

e A

ccou

nts

of P

artic

ipan

ts a

nd b

enef

icia

ries

attr

ibut

able

to c

redi

ts m

ade

whi

le th

e Pa

rtic

ipan

ts w

ere

empl

oyee

s of

suc

h W

ithdr

awin

g Su

bsid

iary

,pl

us a

ny n

et e

arni

ngs,

gai

ns a

nd lo

sses

on

such

cre

dits

.

8.3

Spec

ial R

ule

for

Sale

s or

Oth

er D

ispo

sitio

ns o

f Su

bsid

iari

es. N

otw

ithst

andi

ng a

ny o

ther

pro

visi

on o

f th

e Pl

an, i

f an

Ado

ptin

g Su

bsid

iary

cea

ses

to b

e a

Subs

idia

ry (

ther

eby

beco

min

g a

"Dis

affi

liate

dSu

bsid

iary

") a

s a

resu

lt of

(a)

a s

ale,

spi

noff

, pub

lic o

ffer

ing

or o

ther

tran

sact

ion

invo

lvin

g th

e D

isaf

filia

ted

Subs

idia

ry, o

r if

one

or

mor

e bu

sine

sses

con

duct

ed b

y an

Ado

ptin

g Su

bsid

iary

are

sol

d to

anot

her

entit

y (a

"B

uyer

"), a

ny P

artic

ipan

t who

as

a re

sult

of s

uch

tran

sact

ion

ceas

es to

be

empl

oyed

by

the

Com

pany

or

one

of it

s re

mai

ning

Sub

sidi

arie

s sh

all b

e co

nsid

ered

to h

ave

expe

rien

ced

ate

rmin

atio

n of

em

ploy

men

t for

pur

pose

s of

the

Plan

, unl

ess

the

next

sen

tenc

e ap

plie

s. I

f in

con

nect

ion

with

suc

h a

tran

sact

ion,

a P

artic

ipan

t rem

ains

an

empl

oyee

of

the

Dis

affi

liate

d Su

bsid

iary

or

beco

mes

an e

mpl

oyee

of

the

Buy

er o

r on

e of

its

subs

idia

ries

or

affi

liate

s, a

s ap

plic

able

, and

the

Dis

affi

liate

d Su

bsid

iary

or

the

Buy

er, a

s ap

plic

able

, ass

umes

all

liabi

litie

s to

the

Part

icip

ant u

nder

this

Pla

n, th

en th

ePa

rtic

ipan

t sha

ll no

t be

cons

ider

ed to

hav

e ex

peri

ence

d a

term

inat

ion

of e

mpl

oym

ent f

or p

urpo

ses

of th

e Pl

an, b

ut th

e C

ompa

ny a

nd it

s re

mai

ning

Sub

sidi

arie

s an

d af

filia

tes

shal

l hav

e no

fur

ther

oblig

atio

ns to

the

Part

icip

ant o

r an

y of

his

or

her

bene

fici

arie

s un

der

the

Plan

.

McD

onal

d's

Cor

pora

tion

49

Sect

ion

9 A

men

dmen

t and

Ter

min

atio

n; E

RIS

A I

ssue

s

9.1

Am

endm

ent a

nd T

erm

inat

ion.

The

Com

pany

inte

nds

the

Plan

to b

e pe

rman

ent,

but r

eser

ves

the

righ

t at a

ny ti

me

by a

ctio

n of

its

Boa

rd o

f D

irec

tors

of

the

Com

pany

or

the

Com

pens

atio

n C

omm

ittee

tom

odif

y, a

men

d or

term

inat

e th

e Pl

an; p

rovi

ded,

how

ever

, tha

t any

am

endm

ent o

r te

rmin

atio

n of

the

Plan

sha

ll no

t red

uce

or e

limin

ate

any

Acc

ount

acc

rued

thro

ugh

the

date

of

such

am

endm

ent o

rte

rmin

atio

n; a

nd p

rovi

ded,

fur

ther

, tha

t no

such

am

endm

ent m

ade

afte

r a

Cha

nge

in C

ontr

ol o

r in

con

tem

plat

ion

of a

Cha

nge

in C

ontr

ol m

ay e

limin

ate

any

of th

e Pa

rtic

ipan

ts' c

hoic

es a

s to

the

timin

g an

dm

etho

d of

pay

men

ts o

f A

ccou

nts

unde

r Se

ctio

n 6

with

res

pect

to a

mou

nts

cred

ited

to A

ccou

nts

befo

re th

e da

te o

f th

e C

hang

e in

Con

trol

. The

Com

pens

atio

n C

omm

ittee

sha

ll pr

ovid

e no

tice

of a

men

dmen

tsad

opte

d by

the

Com

pens

atio

n C

omm

ittee

to th

e B

oard

of

Dir

ecto

rs o

f th

e C

ompa

ny o

n a

timel

y ba

sis.

9.2

ER

ISA

Iss

ues.

It i

s th

e in

tent

ion

of th

e C

ompa

ny th

at th

e Pl

an b

e vi

ewed

, for

pur

pose

s of

ER

ISA

, as

com

pris

ing

thre

e di

stin

ct p

lans

(ea

ch, a

"Su

bpla

n"),

eac

h of

whi

ch is

unf

unde

d w

ithin

the

mea

ning

of E

RIS

A a

nd th

eref

ore

exem

pt f

rom

the

repo

rtin

g, d

iscl

osur

e an

d fi

duci

ary

rule

s of

ER

ISA

: (a)

an

"exc

ess

bene

fit p

lan"

as

defi

ned

in S

ectio

n 3(

36)

of E

RIS

A, c

over

ing

Part

icip

ants

who

se A

ccou

nts

cont

ain

only

am

ount

s cr

edite

d pu

rsua

nt to

Sec

tion

3.1(

a) o

f th

e Pl

an; (

b) a

pla

n de

scri

bed

in S

ectio

ns 2

01(2

),30

1(a)

(3)

and

401(

a)(1

) of

ER

ISA

(a

"Top

Hat

Pla

n")

cove

ring

Par

ticip

ants

not

des

crib

ed in

the

prec

edin

g cl

ause

(a)

but

who

se A

ccou

nts

cont

ain

only

am

ount

s cr

edite

d un

der

the

McC

AP

Feat

ure

of th

ePl

an; a

nd (

c) a

Top

Hat

Pla

n co

veri

ng P

artic

ipan

ts w

hose

Acc

ount

s co

ntai

n am

ount

s cr

edite

d un

der

the

Def

erre

d In

com

e Fe

atur

e of

the

Plan

. With

out l

imiti

ng th

e ge

nera

lity

of th

e fo

rego

ing

prov

isio

ns o

fth

is S

ectio

n 9,

the

Com

pany

res

erve

s th

e ri

ght t

o te

rmin

ate

any

Subp

lan,

and

to p

ay o

ut th

e A

ccou

nts

of P

artic

ipan

ts u

nder

the

Subp

lan

in c

onne

ctio

n w

ith s

uch

term

inat

ion,

with

out r

egar

d to

any

Pay

men

tE

lect

ions

mad

e by

suc

h Pa

rtic

ipan

ts, i

f it

is d

eter

min

ed b

y an

y co

mpe

tent

aut

hori

ty, o

r by

the

Com

pany

with

the

advi

ce o

f co

unse

l, th

at s

uch

Subp

lan

does

not

qua

lify

as a

n ex

cess

ben

efit

plan

or

Top

Hat

Plan

.

Sect

ion

10 C

omm

ittee

Act

ions

and

Ele

ctro

nic

Ele

ctio

ns

10.1

Act

ions

of

Com

mitt

ees.

Any

act

ions

by

the

Com

mitt

ee o

r th

e C

ompe

nsat

ion

Com

mitt

ee s

hall

be ta

ken

upon

the

appr

oval

of

a m

ajor

ity o

f th

e m

embe

rs th

ereo

f at

any

in-p

erso

n or

tele

phon

ic m

eetin

gor

in w

ritin

g.

10.2

Ele

ctro

nic

Ele

ctio

ns. A

nyth

ing

in th

e Pl

an to

the

cont

rary

not

with

stan

ding

, the

Com

mitt

ee m

ay in

its

disc

retio

n m

ay m

ake

disc

losu

re o

r gi

ve in

form

atio

n to

Par

ticip

ants

and

ben

efic

iari

es a

nd p

erm

itPa

rtic

ipan

ts o

r th

eir

bene

fici

arie

s to

mak

e el

ectr

onic

ele

ctio

ns in

lieu

of

wri

tten

disc

losu

re, i

nfor

mat

ion

or e

lect

ions

pro

vide

d in

the

Plan

. In

mak

ing

such

a d

eter

min

atio

n, th

e C

omm

ittee

sha

ll co

nsid

er th

eav

aila

bilit

y of

ele

ctro

nic

disc

losu

re o

f in

form

atio

n an

d el

ectio

ns to

Par

ticip

ants

and

ben

efic

iari

es, t

he p

rote

ctio

n of

the

righ

ts o

f Pa

rtic

ipan

ts a

nd th

eir

bene

fici

arie

s, th

e ap

prop

riat

enes

s of

the

stan

dard

s fo

rau

then

ticat

ion

of id

entit

y an

d ot

her

secu

rity

con

side

ratio

ns in

volv

ed in

the

elec

tron

ic e

lect

ion

syst

em a

nd a

ny g

uida

nce

issu

ed b

y an

y re

leva

nt g

over

nmen

tal a

utho

ritie

s.

Exe

cute

d in

mul

tiple

ori

gina

ls th

is 1

st d

ay o

f O

ctob

er, 2

001.

McD

ON

AL

D'S

CO

RP

OR

AT

ION

gp

y

By: /s/ Stanley R. Stein

---------------------------------------

Name: Stanley R. Stein

Title: Executive Vice President

50 M

cDon

ald'

s C

orpo

ratio

n

EXHIBIT A Index of Defined Terms

-------------------------------------------------------------------------------

Defined Term Section

Account 5.1(a)

Adopting Subsidiary 8.1

Annual Bonus Plan 2.2(a)

Beneficiary Designation 6.5(a)

Brands Exhibit C

Buyer 8.3

Change in Control 6.1(h)

Code 1.2(b)

Company 1.1(a)

Committee 1.3

Compensation Committee 1.3

Compensation Limit 1.2(b)

Deferral Elections 3.1(d)(i)

Deferred Income Deferred Election 2.2(a)

Deferred Income Eligible Employees 2.1

Deferred Income Feature 1.2(a)

DIP 1.1(a)

Disaffiliated Subsidiary 8.3

Due Date 4.1

Elective Contribution Limit 1.2(a)

ERISA 7.6

415 Limits 1.2(b)

In-Service Withdrawal Election 6.1(e)

In-Service Withdrawals 6.1(e)

Installment Elections 6.1(b)

Limits 1.2(b)

Merger Document 1.1(a)

McDonald's 1.1(a)

McCap I 1.1(a)

McCap II 1.1(a)

McCap Deferral Election 3.1(d)(i)

McCap Feature 1.2(a)

McEqual 1.1(a)

Other Limits 1.2(b)

Participants 1.2(a)

Payment Elections 6.1(b)

Plan 1.1(a)

gp

y

Prior Year 3.1(c)(i)

Profit Sharing Plan 1.2(a)

Specified Compensation 3.1(c)(i)

Specified Year 3.1(c)(i)

Subplan 9.2

Subsidiary 8.1

Supplemental McDonald's Common Stock Return 5.2(b)(i)

Supplemental S&P 500 Index Return 5.2(b)(iii)

Supplemental Stable Value Return 5.2(b)(ii)

Termination Distributions 6.1(c)

Top Hat Plan 9.2(b)

Trust 7.1

Withdrawing Subsidiary 8.2


EX

HIB

IT B

Mer

ger

Doc

umen

t

(a)

WH

ER

EA

S, M

cDon

ald'

s C

orpo

ratio

n (t

he "

Com

pany

") h

as e

stab

lishe

d an

d m

aint

aine

d th

e fo

llow

ing

four

non

-qua

lifie

d de

ferr

ed c

ompe

nsat

ion

plan

s (c

olle

ctiv

ely,

the

"Pla

ns")

: the

McD

onal

d's

Prof

itSh

arin

g Pr

ogra

m E

qual

izat

ion

Plan

as

amen

ded

and

rest

ated

eff

ectiv

e Ja

nuar

y 1,

199

6 ("

McE

qual

"); t

he M

cDon

ald'

s 19

89 E

xecu

tive

Equ

aliz

atio

n Pl

an a

s am

ende

d an

d re

stat

ed e

ffec

tive

Janu

ary

1, 1

996

("M

cCA

P I"

); th

e M

cDon

ald'

s Su

pple

men

tal E

mpl

oyee

Ben

efit

Equ

aliz

atio

n Pl

an a

s am

ende

d an

d re

stat

ed e

ffec

tive

Janu

ary

1, 1

996

("M

cCA

P II

"); a

nd th

e M

cDon

ald'

s C

orpo

ratio

n D

efer

red

Inco

me

Plan

(the

"D

IP")

; and

(b)

WH

ER

EA

S, th

e B

oard

of

Dir

ecto

rs o

f th

e C

ompa

ny h

as a

ppro

ved

the

mer

ger

of M

cEqu

al, M

cCA

P I

and

McC

AP

II in

to th

e D

IP, a

nd th

e am

endm

ent a

nd r

esta

tem

ent o

f th

e D

IP u

nder

the

new

nam

e of

the

McD

onal

d's

Cor

pora

tion

Supp

lem

enta

l Pro

fit S

hari

ng a

nd S

avin

gs P

lan

(the

"C

ombi

ned

Plan

"), a

ll as

mor

e fu

lly s

et f

orth

bel

ow;

(c)

NO

W, T

HE

RE

FOR

E, t

he f

ollo

win

g ac

tions

are

her

eby

appr

oved

, eff

ectiv

e as

of

Sept

embe

r 1,

200

1:

1. T

he C

ombi

ned

Plan

is h

ereb

y ad

opte

d su

bsta

ntia

lly in

the

form

pre

sent

ed to

the

Boa

rd. C

apita

lized

term

s us

ed a

nd n

ot d

efin

ed h

erei

n sh

all h

ave

the

mea

ning

s gi

ven

them

in th

e Pl

ans

or in

the

Com

bine

dPl

an, a

s ap

plic

able

.

2. E

ach

Part

icip

ant i

n an

y of

the

Plan

s w

hose

com

bine

d ac

coun

t bal

ance

s un

der

the

Plan

s eq

uals

$5,

000

or le

ss a

s of

Sep

tem

ber

1, 2

001

and

eith

er (

i) h

as te

rmin

ated

em

ploy

men

t bef

ore

Sept

embe

r 1,

200

1or

(ii)

has

200

1 C

ompe

nsat

ion

(as

defi

ned

belo

w)

of n

ot m

ore

than

$85

,000

, and

eac

h be

nefi

ciar

y of

suc

h a

Part

icip

ant,

shal

l be

paid

the

entir

e ba

lanc

e in

all

of h

is o

r he

r ac

coun

ts u

nder

the

Plan

s in

asi

ngle

lum

p su

m p

aym

ent n

ot la

ter

than

Dec

embe

r 31

, 200

1, a

nd s

hall

have

no

furt

her

righ

ts u

nder

the

Plan

s. F

or th

ese

purp

oses

the

term

"20

01 C

ompe

nsat

ion"

sha

ll m

ean

the

sum

of

(A)

the

amou

nt o

f th

ePa

rtic

ipan

t's a

nnua

l bas

e sa

lary

at t

he r

ate

in e

ffec

t for

one

of

the

payr

oll p

erio

ds d

urin

g A

ugus

t of

the

Prio

r Y

ear,

as

spec

ifie

d by

the

Com

mitt

ee, a

nd (

B)

the

amou

nt o

f th

e bo

nus,

if a

ny, p

ayab

le to

the

Part

icip

ant u

nder

the

McD

onal

d's

Tar

get I

ncen

tive

Plan

dur

ing

2001

(in

eac

h ca

se w

ithou

t reg

ard

to a

ny e

lect

ive

defe

rral

s th

ereo

f un

der

the

Plan

s, th

e Pr

ofit

Shar

ing

Plan

or

othe

rwis

e).

3. E

ach

Part

icip

ant i

n an

d ea

ch b

enef

icia

ry u

nder

McE

qual

, McC

AP

I or

McC

AP

II w

hose

acc

ount

bal

ance

s un

der

thos

e Pl

ans

are

not p

aid

out p

ursu

ant t

oSe

ctio

n 2

abov

e sh

all a

utom

atic

ally

bec

ome

a Pa

rtic

ipan

t in

or a

ben

efic

iary

und

er th

e M

cCA

P Fe

atur

e of

the

Com

bine

d Pl

an, a

s ap

plic

able

, and

his

or

her

McE

qual

Acc

ount

, McC

AP

I A

ccou

nt a

nd/o

rM

cCA

P II

Acc

ount

, as

appl

icab

le, s

hall

be in

clud

ed in

his

or

her

Acc

ount

und

er th

e C

ombi

ned

Plan

.

4. E

ach

Part

icip

ant i

n an

d ea

ch b

enef

icia

ry u

nder

the

DIP

who

se D

efer

ral A

ccou

nt u

nder

the

DIP

is n

ot p

aid

out p

ursu

ant t

o Se

ctio

n 2

abov

e sh

all a

utom

atic

ally

bec

ome

a Pa

rtic

ipan

t in

or a

ben

efic

iary

unde

r th

e D

efer

red

Inco

me

Feat

ure

of th

e C

ombi

ned

Plan

, as

appl

icab

le, a

nd h

is o

r he

r D

efer

ral A

ccou

nt s

hall

be in

clud

ed in

his

or

her

Acc

ount

und

er th

e C

ombi

ned

Plan

.

5. E

ach

Part

icip

ant i

n an

y of

the

Plan

s w

hose

em

ploy

men

t has

term

inat

ed o

n or

bef

ore

Dec

embe

r 31

, 200

1, b

ut w

hose

acc

ount

bal

ance

s un

der

the

Plan

s ar

e no

t pai

d ou

t pur

suan

t to

Sect

ion

2 ab

ove,

and

each

ben

efic

iary

of

such

a P

artic

ipan

t, sh

all b

e pa

id th

e en

tire

bala

nce

in h

is o

r he

r A

ccou

nts

unde

r th

e C

ombi

ned

Plan

in a

sin

gle

lum

p su

m p

aym

ent i

n M

arch

of

2002

, unl

ess

he o

r sh

e ha

s pr

evio

usly

elec

ted

a la

ter

paym

ent d

ate

unde

r Se

ctio

n 6.

1(c)

of

the

Com

bine

d Pl

an o

r m

ade

an I

nsta

llmen

t Ele

ctio

n un

der

Sect

ion

6.1(

d) o

f th

e C

ombi

ned

Plan

, in

acco

rdan

ce w

ith th

e ru

les

set f

orth

in th

e C

ombi

ned

Plan

; pro

vide

d, th

at th

e du

e da

te f

or e

ither

suc

h el

ectio

n sh

all b

e D

ecem

ber

15, 2

001.

gp

y

6. E

ffec

tive

as o

f Ja

nuar

y 1,

200

2, e

xcep

t as

spec

ific

ally

pro

vide

d in

Sec

tion

5 ab

ove,

the

prov

isio

ns o

f Se

ctio

n 6

of th

e C

ombi

ned

Plan

rel

atin

g to

the

time

and

met

hod

of p

aym

ents

of

Acc

ount

s sh

all a

pply

to th

e in

itial

bal

ance

s of

Par

ticip

ants

' Acc

ount

s un

der

the

Com

bine

d Pl

an th

at a

re c

arri

ed o

ver

from

acc

ount

s un

der

the

Plan

s (t

he "

Prio

r A

ccou

nts"

) as

pro

vide

d in

Sec

tions

4 a

nd 5

abo

ve (

such

initi

alba

lanc

es, t

he "

Initi

al C

ombi

ned

Acc

ount

s"),

sup

erse

ding

all

prio

r el

ectio

ns m

ade

unde

r th

e Pl

ans

(inc

ludi

ng w

ithou

t lim

itatio

n D

elin

king

Ele

ctio

ns u

nder

the

Prio

r Pl

ans)

and

all

rule

s re

gard

ing

the

time

and

met

hod

of p

aym

ents

und

er th

e Pl

ans

as p

revi

ousl

y in

eff

ect.

52 M

cDon

ald'

s C

orpo

ratio

n

7. T

he I

nitia

l Com

bine

d A

ccou

nts

shal

l be

deem

ed in

vest

ed, a

s of

Jan

uary

1, 2

002,

bas

ed u

pon

how

the

corr

espo

ndin

g ac

coun

t or

acco

unts

in th

e Pl

ans

wer

e in

vest

ed im

med

iate

ly a

s of

Dec

embe

r 31

, 200

1,as

fol

low

s: (

a) th

e po

rtio

n of

the

Initi

al C

ombi

ned

Acc

ount

s th

at w

ere

inve

sted

in th

e St

able

Val

ue o

r M

oney

Mar

ket E

quiv

alen

ts s

hall

be d

eem

ed in

vest

ed in

the

Supp

lem

enta

l Sta

ble

Val

ue R

etur

n un

der

the

Com

bine

d Pl

an; (

b) th

e po

rtio

n of

the

Initi

al C

ombi

ned

Acc

ount

s th

at w

ere

inve

sted

in th

e In

tern

atio

nal S

tock

, Div

ersi

fied

Sto

ck, S

&P

500

or B

lend

ed S

tock

and

Bon

d E

quiv

alen

ts s

hall

be d

eem

edin

vest

ed in

the

Supp

lem

enta

l S&

P 50

0 R

etur

n un

der

the

Com

bine

d Pl

an; a

nd (

c) th

e po

rtio

n of

the

Initi

al C

ombi

ned

Acc

ount

s th

at w

ere

inve

sted

in th

e M

cDon

ald'

s C

omm

on S

tock

Equ

ival

ent s

hall

bede

emed

inve

sted

in th

e Su

pple

men

tal M

cDon

ald'

s C

omm

on S

tock

Ret

urn

unde

r th

e C

ombi

ned

Plan

.

8. A

ny b

enef

icia

ry d

esig

natio

n th

at is

in e

ffec

t with

res

pect

to a

Pri

or A

ccou

nt a

s of

Dec

embe

r 31

, 200

1 (a

"Pr

ior

Des

igna

tion"

) sh

all a

pply

as

of J

anua

ry 1

, 200

2 to

the

corr

espo

ndin

g po

rtio

n of

the

corr

espo

ndin

g In

itial

Com

bine

d A

ccou

nt in

whi

ch s

uch

Prio

r A

ccou

nt is

incl

uded

, sub

ject

to a

ny s

ubse

quen

t ben

efic

iary

des

igna

tions

that

may

be

mad

e af

ter

Janu

ary

1, 2

002

by th

e ap

plic

able

Par

ticip

ant

or b

enef

icia

ry u

nder

the

term

s of

the

Com

bine

d Pl

an; p

rovi

ded,

that

the

Com

mitt

ee m

ay d

eter

min

e th

at in

any

eve

nt, a

ll Pr

ior

Des

igna

tions

sha

ll ce

ase

to b

e ef

fect

ive

as to

Acc

ount

s un

der

the

Com

bine

dPl

an, u

pon

reas

onab

le a

dvan

ce n

otic

e to

the

indi

vidu

als

who

mad

e su

ch P

rior

Des

igna

tions

.

9. A

s so

on a

s pr

actic

able

aft

er th

e da

te h

ereo

f, T

he M

cDon

ald'

s Pr

ofit

Shar

ing

Prog

ram

Equ

aliz

atio

n T

rust

, The

McD

onal

d's

1989

Exe

cutiv

e E

qual

izat

ion

Tru

st, a

nd T

he M

cDon

ald'

s Su

pple

men

tal

Em

ploy

ee B

enef

it E

qual

izat

ion

Tru

st s

hall

be m

erge

d in

to a

sin

gle

trus

t, su

bjec

t to

the

agre

emen

t of

the

trus

tee

of e

ach

such

trus

t and

the

exec

utio

n of

a n

ew tr

ust a

gree

men

t. Su

ch n

ew tr

ust a

gree

men

tsh

all r

equi

re f

ull f

undi

ng o

f th

e tr

ust i

n co

nnec

tion

with

a C

hang

e in

Con

trol

as

defi

ned

in th

e C

ombi

ned

Plan

.

10. A

ll ac

tions

and

det

erm

inat

ions

that

are

nec

essa

ry o

r ap

prop

riat

e to

impl

emen

t the

for

egoi

ng s

hall

be ta

ken

by th

e C

omm

ittee

, as

defi

ned

in th

e C

ombi

ned

Plan

, or

its d

eleg

ee.

Exe

cute

d in

mul

tiple

ori

gina

ls th

is 1

st d

ay o

f O

ctob

er, 2

001.

McD

ON

AL

D'S

CO

RP

OR

AT

ION

/s/ Stanley R. Stein

------------------------------------

By: Stanley R. Stein

Title: Executive Vice President

McD

onal

d's

Cor

pora

tion

53

EX

HIB

IT C

Bra

nd E

mpl

oyee

s W

ho A

re D

efer

red

Inco

me

Elig

ible

Em

ploy

ees

The

"B

rand

s" m

eans

Chi

potle

, Bos

ton

Mar

ket,

Don

atos

and

thei

r re

spec

tive

subs

idia

ries

.

The

Def

erre

d In

com

e E

ligib

le E

mpl

oyee

s of

the

Bra

nds

and

McD

onal

d's

Cor

pora

tion

are

as f

ollo

ws:

gp

y

----------------------------------------------------------------------------------------------------------------

Maximum Salary Deferral % McDonald's Boston Market Donatos Chipotle

================================================================================================================

60% Senior Direction Band Officers Vice President Band C -

Executives

70% Leadership & Sr. Leadership Team Sr. Vice President, Band B -

Officers/

Leadership Bands CFO, CEO, COO Vice Presidents

80% Executive Management N/A N/A Band A - CEO

Band

90% 5 Highest Paid Officers N/A N/A N/A

of McDonald's

----------------------------------------------------------------------------------------------------------------

EX

HIB

IT D

Pro

cedu

res

for

Inve

stm

ent

Ele

ctio

ns

[Atta

ched

]

Exh

ibit

10g

EX

EC

UT

IVE

RE

TE

NT

ION

PL

AN

(as

amen

ded

and

rest

ated

Mar

ch 2

0, 2

002)

McD

onal

d's

Cor

pora

tion,

a D

elaw

are

corp

orat

ion

(the

"C

ompa

ny")

, her

eby

esta

blis

hes

the

Exe

cutiv

e R

eten

tion

Plan

(th

e "P

lan"

) ef

fect

ive

as o

f O

ctob

er 1

, 199

8 (t

he "

Eff

ectiv

e D

ate"

). T

he P

lan

was

amen

ded

and

rest

ated

on

Mar

ch 2

0, 2

001

and

Mar

ch 2

0, 2

002.

Art

icle

1

Pur

pose

It is

in th

e be

st in

tere

sts

of th

e C

ompa

ny a

nd it

s sh

areh

olde

rs to

ass

ure

that

the

Com

pany

has

the

cont

inue

d de

dica

tion

of it

s ke

y ex

ecut

ives

in a

hig

hly

com

petit

ive

glob

al m

arke

tpla

ce. T

his

Plan

ises

tabl

ishe

d to

pro

mot

e th

e re

tent

ion

of th

ese

key

exec

utiv

es a

nd p

rovi

de th

e C

ompa

ny w

ith a

sm

ooth

suc

cess

ion

proc

ess.

Thi

s Pl

an is

als

o in

tend

ed to

pro

vide

thes

e ke

y ex

ecut

ives

with

ince

ntiv

es th

at a

rede

sign

ed to

foc

us th

eir

ener

gy o

n co

ntri

butin

g to

the

ultim

ate

succ

ess

of th

e C

ompa

ny.

Art

icle

2

Pla

n A

dmin

istr

atio

n

2.01

The

Com

mitt

ee. T

he C

ompe

nsat

ion

Com

mitt

ee o

f th

e B

oard

of

Dir

ecto

rs o

f th

e C

ompa

ny, a

s co

nstit

uted

fro

m ti

me

to ti

me

(the

"C

omm

ittee

"), s

hall

have

ove

rall

resp

onsi

bilit

y fo

r th

e es

tabl

ishm

ent,

amen

dmen

t, ad

min

istr

atio

n an

d op

erat

ion

of th

e Pl

an. T

he C

omm

ittee

may

ele

ct to

del

egat

e ce

rtai

n of

suc

h re

spon

sibi

litie

s to

one

or

mor

e of

its

mem

bers

and

, in

such

cas

e, a

ll re

fere

nces

in th

is P

lan

to th

e"C

omm

ittee

" sh

all i

nclu

de a

ref

eren

ce to

one

or

mor

e of

the

Com

mitt

ee m

embe

rs to

who

m a

ny s

uch

resp

onsi

bilit

ies

have

bee

n de

lega

ted.

Thi

s Pl

an s

hall

be a

dmin

iste

red

in a

uni

form

and

nond

iscr

imin

ator

y m

anne

r by

the

Com

mitt

ee, w

hich

sha

ll ha

ve th

e re

spon

sibi

litie

s an

d du

ties

and

pow

ers

unde

r th

is P

lan

whi

ch a

re n

ot s

peci

fica

lly d

eleg

ated

to a

nyon

e el

se, i

nclu

ding

the

follo

win

gpo

wer

s:gp

y

(i)

subj

ect t

o an

y lim

itatio

ns u

nder

this

Pla

n or

app

licab

le la

w, t

o m

ake

and

enfo

rce

such

rul

es a

nd r

egul

atio

ns o

f th

is P

lan

and

pres

crib

e th

e us

e of

suc

h fo

rms

as it

sha

ll de

em n

eces

sary

for

the

effi

cien

tad

min

istr

atio

n of

this

Pla

n;

(ii)

to r

equi

re a

ny p

erso

n to

fur

nish

suc

h in

form

atio

n as

it m

ay r

easo

nabl

y re

ques

t as

a co

nditi

on to

rec

eivi

ng a

ny b

enef

it un

der

this

Pla

n;

(iii)

to d

ecid

e on

que

stio

ns c

once

rnin

g th

is P

lan

and

the

elig

ibili

ty o

f th

e pe

rson

s id

entif

ied

as "

Tie

r I

Exe

cutiv

es"

and

"Tie

r II

Exe

cutiv

es"

(col

lect

ivel

y, th

e "E

xecu

tives

") o

n A

ppen

dix

A to

par

ticip

ate

inth

is P

lan,

in a

ccor

danc

e w

ith th

e pr

ovis

ions

of

this

Pla

n;

1

(iv)

to c

ompu

te o

r ca

use

to b

e co

mpu

ted

the

amou

nt o

f be

nefi

ts w

hich

sha

ll be

pay

able

to a

ny p

erso

n in

acc

orda

nce

with

the

prov

isio

ns o

f th

is P

lan;

and

(v)

to a

ppoi

nt a

nd r

emov

e, a

s it

deem

s ad

visa

ble,

the

Plan

Adm

inis

trat

or.

2.02

The

Pla

n A

dmin

istr

ator

. The

Com

mitt

ee m

ay a

ppoi

nt a

Pla

n A

dmin

istr

ator

who

may

(bu

t nee

d no

t) b

e a

mem

ber

of th

e C

omm

ittee

, and

in th

e ab

senc

e of

suc

h ap

poin

tmen

t, th

e C

omm

ittee

sha

ll be

the

Plan

Adm

inis

trat

or. T

he P

lan

Adm

inis

trat

or s

hall

perf

orm

the

adm

inis

trat

ive

resp

onsi

bilit

ies

dele

gate

d to

the

Plan

Adm

inis

trat

or f

rom

tim

e to

tim

e by

the

Com

mitt

ee.

2.03

Dis

cret

iona

ry P

ower

of

the

Com

mitt

ee. T

he C

omm

ittee

fro

m ti

me

to ti

me

may

est

ablis

h ru

les

for

the

adm

inis

trat

ion

of th

is P

lan.

The

Com

mitt

ee s

hall

have

the

sole

dis

cret

ion

to m

ake

deci

sion

s an

dta

ke a

ny a

ctio

n w

ith r

espe

ct to

que

stio

ns a

risi

ng in

con

nect

ion

with

this

Pla

n, in

clud

ing

the

cons

truc

tion

and

inte

rpre

tatio

n of

this

Pla

n an

d th

e de

term

inat

ion

of e

ligib

ility

for

and

the

amou

nt o

f be

nefi

tsun

der

this

Pla

n. T

he d

ecis

ions

or

actio

ns o

f th

e C

omm

ittee

as

to a

ny q

uest

ions

ari

sing

in c

onne

ctio

n w

ith th

is P

lan,

incl

udin

g th

e co

nstr

uctio

n an

d in

terp

reta

tion

of th

is P

lan,

sha

ll be

fin

al a

nd b

indi

ng u

pon

all E

xecu

tives

and

thei

r re

spec

tive

bene

fici

arie

s.

2.04

Act

ion

of th

e C

omm

ittee

. The

Com

mitt

ee m

ay a

ct a

t a m

eetin

g, in

clud

ing

a te

leph

onic

mee

ting,

by

the

cons

ent o

f a

maj

ority

of

the

mem

bers

of

the

Com

mitt

ee a

t the

tim

e in

off

ice,

or

with

out a

mee

ting,

by

the

unan

imou

s w

ritte

n co

nsen

t of

the

indi

vidu

al m

embe

rs o

f th

e C

omm

ittee

. An

exec

uted

doc

umen

t sig

ned

by a

n in

divi

dual

mem

ber

of th

e C

omm

ittee

and

tran

smitt

ed b

y fa

csim

ile s

hall

beva

lid a

s th

e or

igin

al s

igne

d do

cum

ent f

or a

ll pu

rpos

es. A

ny p

erso

n de

alin

g w

ith th

e C

omm

ittee

sha

ll be

ent

itled

to r

ely

upon

a c

ertif

icat

e of

any

mem

ber

of th

e C

omm

ittee

, or

the

Secr

etar

y or

any

Ass

ista

ntSe

cret

ary

of th

e C

ompa

ny, a

s to

any

act

or

dete

rmin

atio

n of

the

Com

mitt

ee.

2.05

Adv

isor

s an

d A

gent

s of

the

Com

mitt

ee. T

he C

omm

ittee

may

, sub

ject

to p

erio

dic

revi

ew, (

a) a

utho

rize

one

or

mor

e of

its

mem

bers

or

an a

gent

to e

xecu

te o

r de

liver

any

inst

rum

ent,

and

mak

e an

ypa

ymen

t on

its b

ehal

f an

d (b

) ut

ilize

the

serv

ices

of

asso

ciat

es a

nd e

ngag

e ac

coun

tant

s, a

gent

s, le

gal c

ouns

el, r

ecor

d ke

eper

s, p

rofe

ssio

nal c

onsu

ltant

s (a

ny o

f w

hom

may

als

o be

ser

ving

the

Com

pany

) or

auth

oriz

ed C

ompa

ny p

erso

nnel

to a

ssis

t in

the

adm

inis

trat

ion

of th

is P

lan

or to

ren

der

advi

ce w

ith r

egar

d to

any

res

pons

ibili

ty o

r is

sue

aris

ing

unde

r th

is P

lan.

2.06

Rec

ords

and

Rep

orts

of

the

Com

mitt

ee. T

he C

omm

ittee

sha

ll m

aint

ain

reco

rds

and

acco

unts

rel

atin

g to

the

adm

inis

trat

ion

of th

is P

lan.

An

Exe

cutiv

e sh

all b

e en

title

d to

rev

iew

any

rec

ords

rel

atin

g to

his

or h

er in

divi

dual

par

ticip

atio

n in

the

Plan

and

to m

ake

copi

es o

f su

ch r

ecor

ds u

pon

wri

tten

requ

est t

o th

e C

omm

ittee

.

2.07

Lia

bilit

y of

the

Com

mitt

ee; I

ndem

nifi

catio

n. T

he m

embe

rs o

f th

e C

omm

ittee

and

the

Plan

Adm

inis

trat

or s

hall

have

no

liabi

lity

with

res

pect

to a

ny a

ctio

n or

2

omis

sion

mad

e by

them

in g

ood

faith

nor

fro

m a

ny a

ctio

n or

om

issi

on m

ade

in r

elia

nce

upon

(a)

the

advi

ce o

r op

inio

n of

any

acc

ount

ant,

lega

l cou

nsel

, med

ical

adv

iser

or

othe

r pr

ofes

sion

al c

onsu

ltant

or

(b)

any

reso

lutio

ns o

f th

e B

oard

(or

the

Com

mitt

ee)

cert

ifie

d by

the

Secr

etar

y or

Ass

ista

nt S

ecre

tary

of

the

Com

pany

. Eac

h m

embe

r of

the

Com

mitt

ee a

nd th

e Pl

an A

dmin

istr

ator

sha

ll be

inde

mni

fied

,de

fend

ed a

nd h

eld

harm

less

by

the

Com

pany

and

its

resp

ectiv

e su

cces

sors

aga

inst

all

clai

ms,

liab

ilitie

s, f

ines

and

pen

altie

s an

d al

l exp

ense

s (i

nclu

ding

rea

sona

ble

atto

rney

s' f

ees

and

disb

urse

men

ts a

ndot

her

prof

essi

onal

cos

ts in

curr

ed in

enf

orci

ng th

is p

rovi

sion

) re

ason

ably

incu

rred

by

or im

pose

d up

on s

uch

indi

vidu

al w

hich

ari

se a

s a

resu

lt of

his

or

her

actio

ns o

r fa

ilure

to a

ct in

con

nect

ion

with

the

oper

atio

n an

d ad

min

istr

atio

n of

this

Pla

n, to

the

exte

nt la

wfu

lly a

llow

able

and

to th

e ex

tent

that

suc

h cl

aim

, lia

bilit

y, f

ine,

pen

alty

or

expe

nse

is n

ot p

aid

for

by li

abili

ty in

sura

nce

purc

hase

d by

or

paid

for

by th

e C

ompa

ny o

r an

aff

iliat

e th

ereo

f. N

otw

ithst

andi

ng th

e fo

rego

ing,

the

Com

pany

sha

ll no

t ind

emni

fy a

ny p

erso

n fo

r an

y su

ch a

mou

nt in

curr

ed th

roug

h an

y se

ttlem

ent o

r co

mpr

omis

e of

any

act

ion

unle

ss th

e C

ompa

ny c

onse

nts

in w

ritin

g to

suc

h se

ttlem

ent o

r co

mpr

omis

e, w

hich

con

sent

sha

ll no

t be

unre

ason

ably

with

held

.

2.08

Pla

n E

xpen

ses.

Exp

ense

s re

latin

g to

this

Pla

n pr

ior

to it

s te

rmin

atio

n sh

all b

e pa

id f

rom

the

gene

ral a

sset

s of

the

Com

pany

. To

the

exte

nt r

equi

red

by a

pplic

able

law

, the

Com

pany

may

req

uire

any

mem

ber

of th

e C

omm

ittee

to f

urni

sh a

fid

elity

bon

d sa

tisfa

ctor

y to

the

Com

pany

.

2.09

Ser

vice

in M

ore

than

One

Cap

acity

. Any

per

son

or g

roup

of

pers

ons

may

ser

ve th

is P

lan

in m

ore

than

one

cap

acity

.

2.10

Nam

ed F

iduc

iary

. The

nam

ed f

iduc

iary

of

this

Pla

n sh

all b

e th

e C

omm

itte

e.

2.11

Del

egat

ion

of R

espo

nsib

ility

. The

Com

mitt

ee s

hall

have

the

auth

ority

to d

eleg

ate

from

tim

e to

tim

e, in

wri

ting,

all

or a

ny p

art o

f its

res

pons

ibili

ties

unde

r th

is P

lan

to a

mem

ber

of th

e C

omm

ittee

. The

Com

mitt

ee m

ay a

lso

dele

gate

adm

inis

trat

ive

func

tions

to th

e Pl

an A

dmin

istr

ator

pur

suan

t to

Sect

ion

2.02

. The

Com

mitt

ee m

ay in

the

sam

e m

anne

r re

vise

or

revo

ke a

ny s

uch

dele

gatio

n of

res

pons

ibili

ty. A

ny a

ctio

n of

the

dele

gate

in th

e ex

erci

se o

f su

ch d

eleg

ated

res

pons

ibili

ties

shal

l hav

e th

esa

me

forc

e an

d ef

fect

for

all

purp

oses

her

eund

er a

s if

suc

h ac

tion

had

been

take

n by

the

Com

mitt

ee. T

he C

omm

ittee

sha

ll no

t be

liabl

e fo

r an

y ac

ts o

r om

issi

ons

of a

ny s

uch

dele

gate

. The

del

egat

e sh

all

gp

y

peri

odic

ally

rep

ort t

o th

e C

omm

ittee

con

cern

ing

the

disc

harg

e of

the

dele

gate

d re

spon

sibi

litie

s.

2.12

Allo

catio

ns o

f R

espo

nsib

ility

. The

Com

mitt

ee s

hall

have

the

auth

ority

to a

lloca

te f

rom

tim

e to

tim

e, in

wri

ting,

all

or a

ny p

art o

f its

res

pons

ibili

ties

unde

r th

is P

lan

to o

ne o

r m

ore

of it

s m

embe

rs a

s it

may

dee

m a

dvis

able

, and

in th

e sa

me

man

ner

to r

evok

e su

ch a

lloca

tion

of r

espo

nsib

ilitie

s. A

ny a

ctio

n of

the

mem

ber

to w

hom

res

pons

ibili

ties

are

allo

cate

d in

the

exer

cise

of

such

allo

cate

d re

spon

sibi

litie

ssh

all h

ave

the

sam

e fo

rce

and

effe

ct f

or a

ll pu

rpos

es h

ereu

nder

as

if s

uch

actio

n ha

d be

en ta

ken

by th

e al

loca

ting

auth

ority

. The

Com

mitt

ee s

hall

not b

e lia

ble

for

any

acts

or

omis

sion

s of

suc

h m

embe

r. T

hem

embe

r to

who

m r

espo

nsib

ilitie

s ha

ve b

een

allo

cate

d sh

all p

erio

dica

lly r

epor

t to

the

Com

mitt

ee c

once

rnin

g th

e di

scha

rge

of th

e al

loca

ted

resp

onsi

bilit

ies.

3

2.13

Fili

ng a

Cla

im. E

ach

indi

vidu

al e

ligib

le f

or b

enef

its u

nder

this

Pla

n ("

Cla

iman

t")

may

sub

mit

a cl

aim

for

ben

efits

("C

laim

") to

the

Plan

Adm

inis

trat

or in

wri

ting

on a

for

m p

rovi

ded

or a

ppro

ved

by th

ePl

an A

dmin

istr

ator

or,

if n

o su

ch f

orm

has

bee

n so

pro

vide

d or

app

rove

d, o

n an

y fo

rm th

at s

peci

fies

, in

reas

onab

le d

etai

l, fa

cts

and

circ

umst

ance

s an

d th

e ap

plic

able

Pla

n pr

ovis

ions

whi

ch th

e C

laim

ant

belie

ves

entit

le h

im o

r he

r to

com

pens

atio

n or

ben

efits

und

er th

is P

lan.

A C

laim

ant s

hall

have

no

righ

t to

seek

rev

iew

of

a de

nial

of

bene

fits

, or

to b

ring

any

act

ion

in a

ny c

ourt

to e

nfor

ce a

Cla

im, p

rior

tohi

s fi

ling

a C

laim

and

exh

aust

ing

his

or h

er r

ight

s to

rev

iew

und

er th

is A

rtic

le 2

.

Whe

n a

Cla

im h

as b

een

file

d pr

oper

ly, i

t sha

ll be

eva

luat

ed a

nd th

e C

laim

ant s

hall

be n

otif

ied

of th

e ap

prov

al o

r th

e de

nial

of

the

Cla

im w

ithin

45

days

aft

er th

e re

ceip

t of

such

Cla

im u

nles

s sp

ecia

lci

rcum

stan

ces

requ

ire

an e

xten

sion

of

time

for

proc

essi

ng th

e C

laim

. If

such

an

exte

nsio

n is

req

uire

d, w

ritte

n no

tice

of th

e ex

tens

ion

shal

l be

furn

ishe

d to

the

Cla

iman

t pri

or to

the

end

of th

e in

itial

45-

day

peri

od, w

hich

not

ice

shal

l spe

cify

the

spec

ial c

ircu

mst

ance

s re

quir

ing

an e

xten

sion

and

the

date

by

whi

ch a

fin

al d

ecis

ion

will

be

reac

hed

(whi

ch d

ate

shal

l not

be

late

r th

an 9

0 da

ys a

fter

the

date

on

whi

chth

e C

laim

was

file

d). A

Cla

iman

t sha

ll be

giv

en a

wri

tten

notic

e in

whi

ch th

e C

laim

ant s

hall

be a

dvis

ed a

s to

whe

ther

the

Cla

im is

gra

nted

or

deni

ed, i

n w

hole

or

in p

art.

If a

Cla

im is

den

ied,

in w

hole

or

inpa

rt, t

he n

otic

e sh

all c

onta

in(a

) th

e sp

ecif

ic r

easo

ns f

or th

e de

nial

, (b)

ref

eren

ces

to p

ertin

ent P

lan

prov

isio

ns u

pon

whi

ch th

e de

nial

is b

ased

, (c)

a d

escr

iptio

n of

any

add

ition

al m

ater

ial o

r in

form

atio

n ne

cess

ary

to p

erfe

ct th

e C

laim

and

an e

xpla

natio

n of

why

suc

h m

ater

ial o

r in

form

atio

n is

nec

essa

ry, a

nd (

d) th

e C

laim

ant's

rig

ht to

see

k re

view

of

the

deni

al.

2.14

Rev

iew

of

Cla

im D

enia

l. If

a C

laim

is d

enie

d, in

who

le o

r in

par

t, th

e C

laim

ant s

hall

have

the

righ

t to

(a)

requ

est a

rev

iew

of

the

deni

al b

y th

e C

omm

ittee

or

its d

eleg

ate,

(b)

rev

iew

per

tinen

tdo

cum

ents

(c)

sub

mit

issu

es a

nd c

omm

ents

in w

ritin

g to

the

Com

mitt

ee a

nd (

d) a

ppea

r be

fore

the

Com

mitt

ee in

per

son

to p

rese

nt s

uch

issu

es a

nd c

omm

ents

; pro

vide

d th

at th

e C

laim

ant f

iles

a w

ritte

nre

ques

t for

rev

iew

with

the

Com

mitt

ee w

ithin

60

days

aft

er th

e C

laim

ant's

rec

eipt

of

wri

tten

notic

e of

the

deni

al. W

ithin

60

days

aft

er th

e C

omm

ittee

rec

eive

s a

requ

est f

or r

evie

w, t

he r

evie

w s

hall

be m

ade

and

the

Cla

iman

t sha

ll be

adv

ised

in w

ritin

g of

the

deci

sion

on

revi

ew, u

nles

s sp

ecia

l cir

cum

stan

ces

requ

ire

an e

xten

sion

of

time

for

such

rev

iew

, in

whi

ch c

ase

the

Cla

iman

t sha

ll be

giv

en a

wri

tten

notic

ew

ithin

suc

h in

itial

60-

day

peri

od s

peci

fyin

g th

e re

ason

s fo

r th

e ex

tens

ion

and

whe

n su

ch r

evie

w s

hall

be c

ompl

eted

; pro

vide

d th

at s

uch

revi

ew s

hall

be c

ompl

eted

with

in 1

20 d

ays

afte

r th

e fi

ling

of th

ere

ques

t for

rev

iew

. The

Com

mitt

ee's

dec

isio

n on

rev

iew

sha

ll be

sen

t to

the

Cla

iman

t in

wri

ting

and

shal

l inc

lude

(a)

spe

cifi

c re

ason

s fo

r th

e de

cisi

on a

nd (

b) r

efer

ence

s to

Pla

n pr

ovis

ions

upo

n w

hich

the

deci

sion

is b

ased

. A d

ecis

ion

on r

evie

w s

hall

be b

indi

ng o

n al

l per

sons

for

all

purp

oses

.

If a

Cla

iman

t sha

ll fa

il to

file

a r

eque

st f

or r

evie

w in

acc

orda

nce

with

the

proc

edur

es h

erei

n ou

tline

d, s

uch

Cla

iman

t sha

ll ha

ve n

o ri

ght t

o ob

tain

suc

h a

revi

ew o

r to

bri

ng a

n ac

tion

in a

ny c

ourt

, and

the

deni

al o

f th

e C

laim

sha

ll be

com

e fi

nal a

nd b

indi

ng o

n al

l per

sons

for

all

purp

oses

exc

ept u

pon

a sh

owin

g of

goo

d ca

use

for

such

fai

lure

.

4

Art

icle

3

Ret

enti

on P

erio

d

As

a co

nditi

on o

f re

ceiv

ing

the

Tra

nsiti

on B

enef

its (

as d

efin

ed in

Sect

ion

4.02

) an

d th

e C

ontin

ued

Em

ploy

men

t Ben

efits

(as

def

ined

in S

ectio

n5.

02),

an

Exe

cutiv

e m

ust p

rovi

de s

ervi

ces

to th

e C

ompa

ny a

s an

Exe

cutiv

e O

ffic

er (

as d

efin

ed b

elow

) th

roug

hout

the

Ret

entio

n Pe

riod

. Dur

ing

the

Ret

entio

n Pe

riod

,(i

) an

Exe

cutiv

e's

empl

oym

ent s

hall

be o

n an

at-

will

bas

is a

nd (

ii) th

e E

xecu

tive

shal

l be

entit

led

to p

artic

ipat

e in

the

Com

pany

's b

enef

its a

nd c

ompe

nsat

ion

plan

s, p

ract

ices

, pol

icie

s an

d pr

ogra

ms

as in

effe

ct f

rom

tim

e to

tim

e.

For

purp

oses

of

this

Pla

n:

(a)

an E

xecu

tive'

s "R

eten

tion

Peri

od"

shal

l mea

n th

e pe

riod

com

men

cing

on

the

Exe

cutiv

e's

Star

t Dat

e (a

s sp

ecif

ied

on A

ppen

dix

A)

and

endi

ng f

ive

year

s th

erea

fter

(in

the

case

of

Jack

Gre

enbe

rg)

or th

ree

year

s th

erea

fter

(in

the

case

of

all o

ther

Exe

cutiv

es);

and

(b)

"Exe

cutiv

e O

ffic

er"

mea

ns a

n ex

ecut

ive

offi

cer

(as

defi

ned

by R

ule

3b-7

(or

any

suc

cess

or r

ule)

und

er th

e Se

curi

ties

Exc

hang

e A

ct o

f 19

34 a

s in

eff

ect f

rom

tim

e to

tim

e) o

f th

e C

ompa

ny.

Art

icle

4

Tra

nsit

ion

Per

iod

gp

y

4.01

Ele

ctio

n to

Bec

ome

a T

rans

ition

Off

icer

. Upo

n an

Exe

cutiv

e's

com

plet

ion

of h

is o

r he

r R

eten

tion

Peri

od, s

uch

Exe

cutiv

e m

ay e

lect

by

wri

tten

notic

e (a

ccom

pani

ed b

y a

fully

exe

cute

d R

elea

se (

asde

scri

bed

in S

ectio

n8.

01(i

)) a

nd N

onco

mpe

titio

n A

gree

men

t (as

def

ined

in S

ectio

n 9.

01)

(suc

h no

tice,

Rel

ease

and

Non

com

petit

ion

Agr

eem

ent c

olle

ctiv

ely

refe

rred

to h

erei

n as

the

"Tra

nsiti

on D

ocum

ents

") to

the

Com

mitt

eeto

bec

ome

an o

ffic

er o

f th

e C

ompa

ny w

ho is

not

an

Exe

cutiv

e O

ffic

er (

such

non

-Exe

cutiv

e O

ffic

er, a

"T

rans

ition

Off

icer

), p

rovi

ded

that

, in

the

case

of

a T

ier

II E

xecu

tive

(i)

a su

cces

sor

has

been

sel

ecte

dby

the

Com

pany

and

has

bee

n ap

prov

ed b

y th

e C

hief

Exe

cutiv

e O

ffic

er o

f th

e C

ompa

ny (

the

"CE

O")

in s

uch

CE

O's

sol

e di

scre

tion,

or

(ii)

suc

h T

ier

II E

xecu

tive

has

atta

ined

age

62.

Suc

h el

ectio

n sh

all

beco

me

effe

ctiv

e up

on th

e C

hang

e-in

-Sta

tus

Dat

e (a

s de

fine

d be

low

) an

d th

e E

xecu

tive

shal

l the

reaf

ter

serv

e as

a T

rans

ition

Off

icer

dur

ing

a nu

mbe

r of

mon

ths

(the

"T

rans

ition

Per

iod"

) eq

ual t

o th

e le

sser

of (

i) th

e nu

mbe

r of

the

Exe

cutiv

e's

Yea

rs o

f Se

rvic

e (a

s de

fine

d be

low

), o

r (i

i) 1

8 m

onth

s. D

urin

g th

e T

rans

ition

Per

iod,

an

Exe

cutiv

e's

empl

oym

ent s

hall

be o

n an

at-

will

bas

is a

nd s

ubje

ct to

the

term

inat

ion

prov

isio

ns s

et f

orth

in A

rtic

les

6 an

d 7.

For

purp

oses

of

this

Pla

n:

5

(a)

an E

xecu

tive'

s "C

hang

e-in

-Sta

tus

Dat

e" s

hall

mea

n th

e da

te s

peci

fied

in th

e E

xecu

tive'

s T

rans

ition

Doc

umen

ts, p

rovi

ded

that

the

Com

mitt

ee m

ay a

ccel

erat

e su

ch d

ate

in it

s so

le d

iscr

etio

n; a

nd

(b)

an E

xecu

tive'

s "Y

ears

of

Serv

ice"

sha

ll eq

ual t

he n

umbe

r of

con

secu

tive

com

plet

e 12

-mon

th in

terv

als

duri

ng th

e pe

riod

beg

inni

ng o

n th

e ea

rlie

r of

the

Exe

cutiv

e's

hist

oric

al s

ervi

ce d

ate

or c

ompa

nyse

rvic

e da

te a

nd e

ndin

g on

the

Cha

nge-

in-S

tatu

s D

ate

roun

ded

dow

n to

the

near

est c

ompl

ete

12-m

onth

inte

rval

(e.

g., a

per

iod

of 1

0 ye

ars,

8 m

onth

s an

d 3

days

sha

ll eq

ual 1

0 "y

ears

of

serv

ice"

).

4.02

Tra

nsiti

on B

enef

its. (

a) B

ase

Sala

ry. D

urin

g th

e T

rans

ition

Per

iod,

the

Com

pany

sha

ll pa

y an

Exe

cutiv

e a

base

sal

ary

at th

e an

nual

ized

rat

e in

eff

ect o

n th

e da

y im

med

iate

ly p

rece

ding

the

Cha

nge-

in-S

tatu

s D

ate

but i

n no

eve

nt lo

wer

than

the

high

est b

ase

sala

ry in

eff

ect a

t any

tim

e be

twee

n th

e E

ffec

tive

Dat

e an

d th

e C

hang

e-in

-Sta

tus

Dat

e, p

rovi

ded

that

the

base

sal

ary

paya

ble

unde

r th

isSe

ctio

n sh

all b

e re

duce

d to

ref

lect

any

acr

oss-

the-

boar

d re

duct

ions

impl

emen

ted

by th

e C

omm

ittee

pri

or to

the

Cha

nge-

in-S

tatu

s D

ate

whi

ch r

educ

tions

aff

ect C

ompa

ny o

ffic

ers

gene

rally

(th

e "A

nnua

lB

ase

Sala

ry")

. The

Ann

ual B

ase

Sala

ry s

hall

also

be

redu

ced

to th

e ex

tent

that

the

Exe

cutiv

e el

ects

to d

efer

or

redu

ce s

uch

sala

ry u

nder

the

term

s of

any

def

erre

d co

mpe

nsat

ion

plan

or

othe

r em

ploy

eebe

nefi

t pla

n or

arr

ange

men

t mai

ntai

ned

or e

stab

lishe

d by

the

Com

pany

.

(b)

Ann

ual B

onus

. In

resp

ect o

f ea

ch c

alen

dar

year

whi

ch e

nds

duri

ng th

e T

rans

ition

Per

iod,

the

Com

pany

sha

ll pa

y to

the

Exe

cutiv

e an

Ann

ual B

onus

(as

def

ined

bel

ow),

whi

ch b

onus

sha

ll be

pay

able

in a

lum

p su

m o

n A

pril

1st o

f th

e ye

ar f

ollo

win

g th

e ye

ar in

whi

ch it

was

ear

ned

(or

such

oth

er d

ate,

as

dete

rmin

ed b

y th

e C

omm

ittee

in a

ccor

danc

e w

ith th

e C

ompa

ny's

Tar

get I

ncen

tive

Prog

ram

or

any

succ

esso

r pl

an (

"TIP

")).

In

resp

ect o

f an

y ca

lend

ar y

ear

in w

hich

the

Tra

nsiti

on P

erio

d en

ds, t

he C

ompa

ny s

hall

pay

to th

e E

xecu

tive

(in

lieu

of a

n A

nnua

l Bon

us)

a Pr

orat

ed A

nnua

l Bon

us (

as d

efin

edbe

low

), w

hich

Pro

rate

d B

onus

sha

ll be

pay

able

in a

lum

p su

m w

ithin

60

days

aft

er th

e en

d of

the

Tra

nsiti

on P

erio

d.

Not

with

stan

ding

the

fore

goin

g, th

e A

nnua

l Bon

us s

hall

be r

educ

ed to

the

exte

nt th

at th

e E

xecu

tive

prev

ious

ly e

lect

ed to

def

er o

r re

duce

suc

h bo

nus

unde

r th

e te

rms

of a

ny d

efer

red

com

pens

atio

n pl

an o

rot

her

empl

oyee

ben

efit

plan

or

arra

ngem

ent m

aint

aine

d or

est

ablis

hed

by th

e C

ompa

ny. T

he E

xecu

tive

shal

l not

be

entit

led

to d

efer

any

por

tion

of th

e Pr

orat

ed B

onus

.

For

purp

oses

of

this

Pla

n,

(i)

"Ann

ual B

onus

" sh

all m

ean

an a

nnua

l bon

us p

ursu

ant t

o T

IP w

hich

is e

qual

to th

e pr

oduc

t of

the

Ann

ual B

ase

Sala

ry a

nd th

e Fu

ll T

arge

t Per

cent

age

(as

defi

ned

belo

w);

(ii)

"Fu

ll T

arge

t Per

cent

age"

sha

ll m

ean

the

targ

et p

erce

ntag

e w

hich

the

Exe

cutiv

e w

as e

ligib

le to

rec

eive

und

er T

IP o

n th

e da

y im

med

iate

ly

6

prec

edin

g th

e C

hang

e-in

-Sta

tus

Dat

e w

ithou

t any

adj

ustm

ent,

but i

n no

eve

nt lo

wer

than

the

Exe

cutiv

e's

high

est t

arge

t per

cent

age

in e

ffec

t at a

ny ti

me

betw

een

the

Eff

ectiv

e D

ate

and

the

Cha

nge-

in-S

tatu

sD

ate,

pro

vide

d th

at th

e ta

rget

per

cent

age

shal

l be

redu

ced

to r

efle

ct a

ny a

cros

s-th

e-bo

ard

redu

ctio

ns im

plem

ente

d by

the

Com

mitt

ee p

rior

to th

e C

hang

e-in

-Sta

tus

Dat

e w

hich

red

uctio

ns a

ffec

t Com

pany

offi

cers

gen

eral

ly, a

nd

(iii)

"Pr

orat

ed A

nnua

l Bon

us"

shal

l mea

n a

bonu

s in

an

amou

nt e

qual

to th

e A

nnua

l Bon

us m

ultip

lied

by a

fra

ctio

n, th

e nu

mer

ator

of

whi

ch is

the

num

ber

of d

ays

whi

ch h

ave

elap

sed

duri

ng s

uch

cale

ndar

year

thro

ugh

the

last

day

of

the

Tra

nsiti

on P

erio

d, a

nd th

e de

nom

inat

or o

f w

hich

is 3

65.

(c)

Thr

ee-Y

ear

Ince

ntiv

e Pl

an A

war

ds. D

urin

g th

e T

rans

ition

Per

iod,

any

out

stan

ding

aw

ards

und

er th

e C

ompa

ny's

Thr

ee-Y

ear

Ince

ntiv

e Pl

an o

r an

y su

cces

sor

plan

("L

TIP

") w

ill c

ontin

ue to

ves

t and

beco

me

paya

ble

in a

ccor

danc

e w

ith th

e C

ompa

ny's

pol

icie

s as

in e

ffec

t fro

m ti

me

to ti

me.

Suc

h L

TIP

aw

ards

("L

TIP

Aw

ards

") s

hall

be c

ompu

ted

by r

efer

ence

to 1

00%

of

the

targ

et p

erce

ntag

e th

eE

xecu

tive

wou

ld h

ave

rece

ived

pur

suan

t to

the

term

s of

the

orig

inal

LT

IP g

rant

with

out a

ny a

djus

tmen

t. D

urin

g th

e T

rans

ition

Per

iod,

the

Exe

cutiv

e sh

all n

ot b

e el

igib

le to

par

ticip

ate

in a

ny n

ew c

ycle

sun

der

LT

IP o

r ot

her

long

-ter

m in

cent

ive

plan

.

(d)

Con

tinue

d V

estin

g an

d E

xerc

isab

ility

of

Stoc

k O

ptio

ns. D

urin

g th

e T

rans

ition

Per

iod,

sto

ck o

ptio

ns w

ill c

ontin

ue to

ves

t, ex

pire

and

oth

erw

ise

be s

ubje

ct to

the

expr

ess

term

s of

the

rela

ted

stoc

k op

tion

plan

and

the

appl

icab

le G

olde

n M

Cer

tific

ate

(or

othe

r ap

plic

able

aw

ard

agre

emen

t). D

urin

g th

e T

rans

ition

Per

iod,

an

Exe

cutiv

e sh

all r

etai

n th

e ri

ght t

o ex

erci

se a

ny u

nexe

rcis

ed s

tock

opt

ion

to th

e ex

tent

vest

ed o

n th

e da

te o

f ex

erci

se, p

rovi

ded,

how

ever

, tha

t an

Exe

cutiv

e sh

all n

ot b

e en

title

d to

rec

eive

any

add

ition

al s

tock

opt

ion

gran

ts a

nd in

no

even

t sha

ll th

e te

rm o

f an

y st

ock

optio

n ex

tend

bey

ond

itsor

igin

al te

rm.

gp

y

(e)

Ben

efit

Prog

ram

s an

d Po

licie

s. D

urin

g th

e T

rans

ition

Per

iod,

all

bene

fit p

lans

, pol

icie

s, f

ring

e be

nefi

ts a

nd p

ract

ices

in e

ffec

t fro

m ti

me

to ti

me

shal

l con

tinue

to a

pply

to th

e E

xecu

tive

in a

ccor

danc

ew

ith th

e te

rms

of th

e be

nefi

t pla

ns s

pons

ored

by

the

Com

pany

and

the

Com

pany

's p

olic

ies

and

proc

edur

es e

stab

lishe

d fo

r of

fice

rs o

f th

e C

ompa

ny w

ho a

re n

ot E

xecu

tive

Off

icer

s, e

xcep

t tha

t: (i

) th

eE

xecu

tive

will

not

be

elig

ible

for

any

pay

incr

ease

, (ii)

the

Exe

cutiv

e w

ill n

ot b

e el

igib

le to

par

ticip

ate

in T

IP d

urin

g an

y ye

ar if

the

Tra

nsiti

on P

erio

d en

ds p

rior

to th

e en

d of

a c

alen

dar

year

,(i

ii) n

o ne

w s

tock

opt

ion

gran

ts w

ill b

e gi

ven

to th

e E

xecu

tive,

and

(iv

) no

new

aw

ards

will

be

gran

ted

unde

r L

TIP

. Am

ount

s pa

id d

urin

g th

e T

rans

ition

Per

iod

shal

l be

trea

ted

as "

com

pens

atio

n" f

orpu

rpos

es o

f de

term

inin

g an

y be

nefi

ts p

rovi

ded

unde

r M

cDon

ald'

s C

orpo

ratio

n Pr

ofit

Shar

ing

Prog

ram

and

the

rela

ted

non-

qual

ifie

d be

nefi

t pla

ns k

now

n as

McC

AP

I, M

cCA

P II

or

McE

QU

AL

, and

McD

onal

d's

Cor

pora

tion

Def

erre

d In

com

e Pl

an a

nd li

fe in

sura

nce

bene

fit p

lans

spo

nsor

ed b

y M

cDon

ald'

s C

orpo

ratio

n (c

olle

ctiv

ely,

the

"Ben

efit

Plan

s")

to th

e ex

tent

per

mitt

ed b

y th

e te

rms

of s

uch

Ben

efit

Plan

s as

in e

ffec

t fro

m ti

me

to ti

me.

Not

hing

in th

is P

lan

shal

l be

cons

true

d to

lim

it th

e ab

ility

of

the

Com

pany

to a

men

d or

term

inat

e an

y of

the

plan

s, p

rogr

ams

or a

rran

gem

ents

und

er w

hich

ben

efits

are

prov

ided

to o

ffic

ers

and

empl

oyee

s of

the

Com

pany

, and

any

suc

h te

rmin

atio

ns o

r am

endm

ents

sha

ll be

eff

ectiv

e as

to th

e E

xecu

tives

.

7

4.03

Tim

e D

evot

ed to

Dut

ies

Dur

ing

Tra

nsiti

on P

erio

d. D

urin

g th

e T

rans

ition

Per

iod,

an

Exe

cutiv

e sh

all d

evot

e su

bsta

ntia

lly a

ll of

his

or

her

norm

al b

usin

ess

time

and

effo

rts

to th

e bu

sine

ss o

f th

eC

ompa

ny, i

ts s

ubsi

diar

ies

and

its a

ffili

ates

, the

am

ount

of

such

tim

e to

be

suff

icie

nt to

per

mit

him

or

her

to d

ilige

ntly

and

fai

thfu

lly s

erve

and

end

eavo

r to

fur

ther

its

inte

rest

s to

the

best

of

his

or h

er a

bilit

y.Su

bjec

t to

the

fore

goin

g, a

n E

xecu

tive

may

par

ticip

ate

in v

ario

us c

ivic

and

phi

lant

hrop

ic a

ctiv

ities

, may

ser

ve o

n bo

ards

of

dire

ctor

s an

d co

mm

ittee

s of

not

-for

-pro

fit o

rgan

izat

ions

of

the

Exe

cutiv

e's

choi

ce, a

nd, c

onsi

sten

t with

the

polic

ies

of th

e C

ompa

ny, m

ay s

erve

as

a no

n-em

ploy

ee d

irec

tor

of o

ne o

r m

ore

corp

orat

ions

(un

less

the

Com

mitt

ee c

oncl

udes

that

suc

h se

rvic

e w

ould

be

inap

prop

riat

e or

not i

n th

e be

st in

tere

sts

of th

e C

ompa

ny).

Art

icle

5

Con

tinu

ed E

mpl

oym

ent

Per

iod

5.01

Em

ploy

ee S

tatu

s. F

ollo

win

g th

e T

rans

ition

Per

iod,

the

Exe

cutiv

e w

ill b

ecom

e a

staf

f em

ploy

ee o

f th

e C

ompa

ny f

or a

fiv

e ye

ar "

Con

tinue

d E

mpl

oym

ent P

erio

d", p

rovi

ded

that

the

Exe

cutiv

e co

mpl

ies

with

the

Non

com

petit

ion

Agr

eem

ent a

t all

times

dur

ing

the

term

of

the

Con

tinue

d E

mpl

oym

ent P

erio

d. A

s a

cond

ition

to r

ecei

ving

the

Con

tinue

d E

mpl

oym

ent B

enef

its (

defi

ned

in S

ectio

n5.

02),

the

Exe

cutiv

e sh

all h

ave

exec

uted

and

del

iver

ed to

the

Com

mitt

ee th

e R

elea

se d

escr

ibed

in S

ectio

n 8.

01(i

i). D

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

an

Exe

cutiv

e's

empl

oym

ent s

hall

be o

n an

at-w

ill b

asis

and

sub

ject

to th

e te

rmin

atio

n pr

ovis

ions

set

for

th in

Art

icle

s 6

and

7.

5.02

Con

tinue

d E

mpl

oym

ent B

enef

its. (

a) B

ase

Sala

ry. D

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

the

Com

pany

sha

ll pa

y th

e E

xecu

tive

a ba

se s

alar

y fo

r ea

ch y

ear

equa

l to

twen

ty-f

ive

perc

ent (

25%

) of

his

or h

er A

nnua

l Bas

e Sa

lary

(fi

fty

perc

ent (

50%

) in

the

case

of

Jack

M. G

reen

berg

, and

thir

ty-f

ive

perc

ent (

35%

) in

the

case

of

Jam

es R

. Can

talu

po)

(the

"C

ontin

ued

Em

ploy

men

t Per

iod

Sala

ry")

,pr

ovid

ed, h

owev

er, t

hat t

he C

ontin

ued

Em

ploy

men

t Per

iod

Sala

ry s

hall

be r

educ

ed to

the

exte

nt th

at th

e E

xecu

tive

elec

ts to

def

er o

r re

duce

suc

h sa

lary

und

er th

e te

rms

of a

ny e

mpl

oyee

ben

efit

plan

or

arra

ngem

ent m

aint

aine

d or

est

ablis

hed

by th

e C

ompa

ny.

(b)

Tar

get I

ncen

tive

Aw

ards

. Dur

ing

the

Con

tinue

d E

mpl

oym

ent P

erio

d, a

n E

xecu

tive

shal

l not

be

elig

ible

to p

artic

ipat

e in

TIP

or

any

othe

r an

nual

ince

ntiv

e pl

an o

f th

e C

ompa

ny.

(c)

LT

IP A

war

ds. D

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

any

out

stan

ding

aw

ards

und

er L

TIP

will

con

tinue

to v

est a

nd b

ecom

e pa

yabl

e in

acc

orda

nce

with

the

Com

pany

's th

en c

urre

nt p

olic

ies

notw

ithst

andi

ng th

e E

xecu

tive'

s st

aff

empl

oyee

sta

tus

duri

ng th

is p

erio

d. S

uch

LT

IP A

war

ds s

hall

be c

ompu

ted

by r

efer

ence

to 1

00%

of

the

targ

et p

erce

ntag

e th

e E

xecu

tive

wou

ld h

ave

rece

ived

pur

suan

t to

the

term

s of

the

orig

inal

LT

IP g

rant

with

out a

ny a

djus

tmen

t. D

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

the

Exe

cutiv

e sh

all n

ot b

e el

igib

le to

par

ticip

ate

in a

ny n

ew c

ycle

s un

der

LT

IP o

r ot

her

long

-ter

min

cent

ive

plan

.

8

(d)

Con

tinue

d V

estin

g an

d E

xerc

isab

ility

of

Stoc

k O

ptio

ns. D

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

sto

ck o

ptio

ns w

ill c

ontin

ue to

ves

t, ex

pire

and

oth

erw

ise

be g

over

ned

by th

e ex

pres

s te

rms

of th

ere

late

d st

ock

optio

n pl

an a

nd th

e ap

plic

able

Gol

den

M C

ertif

icat

e (o

r ot

her

appl

icab

le a

war

d ag

reem

ent)

. Dur

ing

the

Con

tinue

d E

mpl

oym

ent P

erio

d, a

n E

xecu

tive

shal

l ret

ain

the

righ

t to

exer

cise

any

unex

erci

sed

stoc

k op

tion

to th

e ex

tent

ves

ted

on th

e da

te o

f ex

erci

se, p

rovi

ded,

how

ever

, tha

t an

Exe

cutiv

e sh

all n

ot b

e en

title

d to

rec

eive

any

add

ition

al s

tock

opt

ion

gran

ts a

nd, i

n no

eve

nt, s

hall

the

term

of a

ny s

tock

opt

ion

exte

nd b

eyon

d its

ori

gina

l ter

m.

(e)

Ben

efit

Prog

ram

s an

d Po

licie

s. D

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

all

bene

fit p

lans

, pol

icie

s, f

ring

e be

nefi

ts a

nd p

ract

ices

in e

ffec

t fro

m ti

me

to ti

me

shal

l con

tinue

to a

pply

to th

e E

xecu

tive

inac

cord

ance

with

the

term

s of

the

bene

fit p

lans

spo

nsor

ed b

y M

cDon

ald'

s an

d M

cDon

ald'

s po

licie

s an

d pr

oced

ures

est

ablis

hed

for

staf

f em

ploy

ees

of th

e C

ompa

ny, e

xcep

t tha

t: (i

) th

e E

xecu

tive

will

not

be

elig

ible

for

any

pay

incr

ease

, (ii)

the

Exe

cutiv

e w

ill n

ot b

e el

igib

le to

par

ticip

ate

in th

e T

IP, (

iii)

no n

ew s

tock

opt

ion

gran

ts w

ill b

e gi

ven

to th

e E

xecu

tive,

and

(iv

) no

new

aw

ards

will

be

gran

ted

unde

rL

TIP

. Am

ount

s pa

id d

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod

shal

l be

trea

ted

as "

com

pens

atio

n" f

or p

urpo

ses

of d

eter

min

ing

any

bene

fits

pro

vide

d un

der

the

Ben

efit

Plan

s to

the

exte

nt p

erm

itted

by

the

term

s of

suc

h B

enef

it Pl

ans

as in

eff

ect f

rom

tim

e to

tim

e. N

othi

ng in

this

Pla

n sh

all b

e co

nstr

ued

to li

mit

the

abili

ty o

f th

e C

ompa

ny to

am

end

or te

rmin

ate

any

of th

e pl

ans,

pro

gram

s or

arr

ange

men

tsun

der

whi

ch b

enef

its a

re p

rovi

ded

to o

ffic

ers

or e

mpl

oyee

s of

the

Com

pany

, and

any

suc

h te

rmin

atio

ns o

r am

endm

ents

sha

ll be

eff

ectiv

e as

to th

e E

xecu

tives

.

5.03

Tim

e D

evot

ed to

Dut

ies

Dur

ing

Con

tinue

d E

mpl

oym

ent P

erio

d. D

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

an

Exe

cutiv

e sh

all d

evot

e su

ch ti

me

to th

e bu

sine

ss o

f th

e C

ompa

ny a

s m

ay b

e re

ason

ably

requ

este

d by

the

Com

pany

fro

m ti

me

to ti

me,

whi

ch r

eque

sts

shal

l be

com

men

sura

te w

ith th

e co

mpe

nsat

ion

the

Exe

cutiv

e is

rec

eivi

ng h

ereu

nder

. Not

with

stan

ding

the

fore

goin

g, a

n E

xecu

tive

may

part

icip

ate

in v

ario

us c

ivic

and

phi

lant

hrop

ic a

ctiv

ities

, may

ser

ve o

n bo

ards

of

dire

ctor

s an

d co

mm

ittee

s of

not

-for

-pro

fit o

rgan

izat

ions

of

the

Exe

cutiv

e's

choi

ce, m

ay s

erve

as

a m

embe

r of

one

or

mor

e

gp

y

corp

orat

e bo

ards

of

dire

ctor

s an

d m

ay e

ngag

e in

a f

ull-

time

empl

oym

ent a

rran

gem

ent w

ith a

noth

er o

rgan

izat

ion

of th

e E

xecu

tive'

s ch

oice

, pro

vide

d th

at s

uch

activ

ities

do

not v

iola

te th

e E

xecu

tive'

sob

ligat

ions

set

for

th in

Art

icle

9. T

he C

ompa

ny s

hall

have

the

righ

t to

requ

est t

hat t

he E

xecu

tive

prov

ide

serv

ices

to th

e C

ompa

ny d

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod

in a

man

ner

that

rea

sona

bly

acco

mm

odat

es s

uch

outs

ide

activ

ities

, ser

vice

s an

d ar

rang

emen

ts.

5.04

Miti

gatio

n. I

n th

e ev

ent t

hat a

n E

xecu

tive

shal

l eng

age

in a

ny e

mpl

oym

ent a

rran

gem

ent p

erm

itted

by

Sect

ion

5.03

(in

clud

ing

self

-em

ploy

men

t) d

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

no

amou

ntpa

id to

or

earn

ed b

y su

ch E

xecu

tive

ther

efro

m s

hall

redu

ce a

ny p

aym

ents

or

othe

r be

nefi

ts d

ue s

uch

Exe

cutiv

e pu

rsua

nt to

the

Plan

.

9

Art

icle

6

Ter

min

atio

n of

Em

ploy

men

t

6.01

Dea

th o

r D

isab

ility

. An

Exe

cutiv

e's

empl

oym

ent s

hall

term

inat

e au

tom

atic

ally

upo

n hi

s or

her

dea

th. I

n th

e ev

ent t

hat (

a) th

e C

omm

ittee

det

erm

ines

in g

ood

faith

that

the

Exe

cutiv

e is

suf

feri

ng f

rom

a"D

isab

ility

" (t

oget

her

with

its

vari

ous

cogn

ates

, as

defi

ned

belo

w)

and

(b)

the

appr

opri

ate

deci

sion

mak

er u

nder

any

app

licab

le C

ompa

ny p

lan

or p

rogr

am p

rovi

ding

dis

abili

ty b

enef

its to

the

Exe

cutiv

e (a

"Dis

abili

ty P

lan"

) si

mila

rly

dete

rmin

es th

at th

e E

xecu

tive

is e

ligib

le f

or s

uch

bene

fits

by

virt

ue o

f th

e E

xecu

tive'

s di

sabi

lity

(as

defi

ned

for

purp

oses

of

such

pla

n or

pro

gram

), th

e C

ompa

ny m

ay d

eliv

er to

the

Exe

cutiv

e w

ritte

n no

tice

(a "

Dis

abili

ty T

erm

inat

ion

Not

ice"

) in

acc

orda

nce

with

Sec

tion

6.05

of

this

Pla

n of

the

Com

pany

's in

tent

ion

to te

rmin

ate

the

Exe

cutiv

e's

empl

oym

ent.

In s

uch

even

t, th

eE

xecu

tive'

s em

ploy

men

t sha

ll te

rmin

ate

effe

ctiv

e on

the

late

r of

(y)

the

30th

day

aft

er r

ecei

pt o

f su

ch D

isab

ility

Ter

min

atio

n N

otic

e by

the

Exe

cutiv

e an

d (z

) th

e fi

rst d

ate

on w

hich

the

Exe

cutiv

e be

com

esel

igib

le f

or lo

ng-t

erm

dis

abili

ty b

enef

its u

nder

the

prin

cipa

l Dis

abili

ty P

lan

appl

icab

le to

the

Exe

cutiv

e (t

he "

Dis

abili

ty E

ffec

tive

Dat

e"),

pro

vide

d, h

owev

er, t

hat (

1) in

the

inte

rim

the

Exe

cutiv

e sh

all n

otha

ve r

etur

ned

to f

ull-

time

perf

orm

ance

of

the

Exe

cutiv

e's

dutie

s an

d/or

(2)

the

Exe

cutiv

e sh

all n

ot h

ave

deliv

ered

to th

e C

omm

ittee

with

in 3

0 da

ys o

f re

ceip

t of

a D

isab

ility

Ter

min

atio

n N

otic

e a

wri

tten

obje

ctio

n th

eret

o (a

n "O

bjec

tion"

). I

n th

e ev

ent o

f a

timel

y O

bjec

tion,

any

term

inat

ion

of th

e E

xecu

tive

shal

l be

susp

ende

d an

d th

e E

xecu

tive

shal

l be

prom

ptly

exa

min

ed b

y tw

o ph

ysic

ians

or

othe

rpr

ofes

sion

als

skill

ed in

the

rele

vant

fie

ld, o

ne s

elec

ted

by th

e E

xecu

tive

and

one

by th

e C

omm

ittee

. Eac

h of

the

two

prof

essi

onal

s sh

all i

ssue

a w

ritte

n op

inio

n w

ithin

15

days

fol

low

ing

the

com

plet

ion

ofhi

s or

her

exa

min

atio

n as

to w

heth

er th

e E

xecu

tive

is D

isab

led

in a

ccor

danc

e w

ith th

e de

fini

tion

prov

ided

in th

is P

lan.

If

the

two

prof

essi

onal

s ag

ree,

eac

h of

the

Exe

cutiv

e an

d th

e C

ompa

ny s

hall

be b

ound

by th

eir

join

t con

clus

ion.

If

the

two

prof

essi

onal

s di

sagr

ee, t

hey

shal

l joi

ntly

agr

ee o

n a

thir

d pr

ofes

sion

al to

con

duct

a s

imila

r ex

amin

atio

n. E

ach

of th

e E

xecu

tive

and

the

Com

pany

sha

ll be

bou

nd b

y th

eco

nclu

sion

of

such

thir

d pr

ofes

sion

al. T

he E

xecu

tive

agre

es to

eac

h su

ch e

xam

inat

ion

and

to w

aive

any

con

fide

ntia

lity

righ

ts n

eces

sary

to a

llow

eac

h of

the

prof

essi

onal

s co

nduc

ting

such

exa

min

atio

ns to

do s

o. T

he C

ompa

ny s

hall

pay

all f

ees

and

cost

s of

all

such

exa

min

atio

ns. I

n th

e ev

ent o

f a

disa

gree

men

t as

to th

e de

term

inat

ion

of th

e E

xecu

tive'

s di

sabi

lity

for

purp

oses

of

a D

isab

ility

Pla

n, s

uch

disa

gree

men

t sha

ll be

res

olve

d as

pro

vide

d fo

r in

suc

h D

isab

ility

Pla

n. F

or p

urpo

ses

of th

is P

lan,

the

term

"D

isab

ility

" sh

all m

ean

the

mat

eria

l ina

bilit

y of

the

Exe

cutiv

e, d

ue to

inju

ry, i

llnes

s, d

isea

se o

rbo

dily

, men

tal o

r em

otio

nal i

nfir

mity

, to

carr

y ou

t the

job

resp

onsi

bilit

ies

whi

ch s

uch

Exe

cutiv

e he

ld o

r th

e ta

sks

to w

hich

suc

h E

xecu

tive

was

ass

igne

d at

the

time

of th

e in

curr

ence

of

such

Dis

abili

ty,

whi

ch in

abili

ty is

rea

sona

bly

expe

cted

to b

e pe

rman

ent o

r of

inde

fini

te d

urat

ion

exce

edin

g on

e ye

ar.

6.02

Cau

se. T

he C

ompa

ny m

ay te

rmin

ate

an E

xecu

tive'

s em

ploy

men

t at a

ny ti

me

for

Cau

se. F

or p

urpo

ses

of th

is P

lan,

"C

ause

" m

eans

: (i)

the

will

ful f

ailu

re o

f an

Exe

cutiv

e to

per

form

sub

stan

tially

all

ofth

e E

xecu

tive'

s du

ties

with

the

Com

pany

(ot

her

than

any

fai

lure

res

ultin

g fr

om in

capa

city

due

to p

hysi

cal o

r m

enta

l illn

ess)

, aft

er w

ritte

n de

man

d fo

r su

bsta

ntia

l per

form

ance

is d

eliv

ered

to th

e E

xecu

tive

by th

e C

omm

ittee

or

the

CE

O; (

ii) a

will

ful v

iola

tion

10

of M

cDon

ald'

s ru

les

and

polic

ies

as in

eff

ect f

rom

tim

e to

tim

e; o

r (i

ii) th

e co

mm

issi

on o

f an

y ac

t or

acts

invo

lvin

g di

shon

esty

, fra

ud, i

llega

lity

or m

oral

turp

itude

. For

pur

pose

s of

this

pro

visi

on, n

o ac

t or

failu

re to

act

, on

the

part

of

the

Exe

cutiv

e, s

hall

be c

onsi

dere

d "w

illfu

l", u

nles

s it

is d

one,

or

omitt

ed to

be

done

, by

the

Exe

cutiv

e in

bad

fai

th o

r w

ithou

t rea

sona

ble

belie

f th

at th

e E

xecu

tive'

s ac

tion

orom

issi

on w

as in

the

best

inte

rest

s of

the

Com

pany

. Any

act

, or

failu

re to

act

, bas

ed u

pon

auth

ority

giv

en p

ursu

ant t

o a

reso

lutio

n du

ly a

dopt

ed b

y th

e B

oard

or

upon

the

inst

ruct

ions

of

the

CE

O o

r an

off

icer

of th

e C

ompa

ny s

enio

r in

ran

k to

the

Exe

cutiv

e to

who

m th

e E

xecu

tive

repo

rts

or b

ased

upo

n th

e ad

vice

of

coun

sel f

or th

e C

ompa

ny s

hall

be c

oncl

usiv

ely

pres

umed

to b

e do

ne, o

r om

itted

to b

e do

ne, b

yth

e E

xecu

tive

in g

ood

faith

and

in th

e be

st in

tere

sts

of th

e C

ompa

ny. T

he c

essa

tion

of e

mpl

oym

ent o

f th

e E

xecu

tive

shal

l not

be

deem

ed to

be

for

Cau

se u

nles

s an

d un

til th

ere

shal

l hav

e be

en d

eliv

ered

toth

e E

xecu

tive

a co

py o

f a

reso

lutio

n du

ly a

dopt

ed b

y th

e af

firm

ativ

e vo

te o

f a

maj

ority

of

the

Boa

rd a

t a m

eetin

g of

the

Boa

rd c

alle

d an

d he

ld u

pon

appr

opri

ate

notic

e (a

fter

rea

sona

ble

notic

e is

pro

vide

d to

the

Exe

cutiv

e an

d th

e E

xecu

tive

is g

iven

an

oppo

rtun

ity, t

oget

her

with

cou

nsel

, to

be h

eard

bef

ore

the

Boa

rd),

fin

ding

that

, in

the

good

fai

th o

pini

on o

f th

e B

oard

, the

Exe

cutiv

e is

gui

lty o

f th

e co

nduc

tde

scri

bed

in th

is p

arag

raph

, and

spe

cify

ing

the

part

icul

ars

ther

eof

in d

etai

l.

6.03

Goo

d R

easo

n. D

urin

g th

e R

eten

tion

Peri

od a

nd th

e T

rans

ition

Per

iod,

a T

ier

I E

xecu

tive

may

term

inat

e hi

s em

ploy

men

t at a

ny ti

me

for

Goo

d R

easo

n. F

or p

urpo

ses

of th

is P

lan,

"G

ood

Rea

son"

sha

llm

ean:

(i)

the

assi

gnm

ent t

o th

e E

xecu

tive

of a

ny d

utie

s in

cons

iste

nt in

any

res

pect

with

the

Exe

cutiv

e's

posi

tion

(inc

ludi

ng s

tatu

s, o

ffic

es, t

itles

and

rep

ortin

g re

quir

emen

ts),

aut

hori

ty, d

utie

s or

res

pons

ibili

ties

asof

the

Eff

ectiv

e D

ate,

or

any

othe

r ac

tion

by th

e C

ompa

ny w

hich

res

ults

in a

dim

inut

ion

in s

uch

posi

tion,

aut

hori

ty, d

utie

s or

res

pons

ibili

ties,

exc

ludi

ng f

or th

is p

urpo

se a

n is

olat

ed, i

nsub

stan

tial a

ndin

adve

rten

t act

ion,

pro

vide

d th

at a

ny c

hang

e in

sta

tus,

dut

ies

and

resp

onsi

bilit

ies

resu

lting

fro

m a

cha

nge

in s

tatu

s fr

om E

xecu

tive

Off

icer

to T

rans

ition

Off

icer

pur

suan

t to

the

prov

isio

ns o

f th

is P

lan

shal

lno

t con

stitu

te G

ood

Rea

son;

or

(ii)

the

relo

catio

n of

the

Exe

cutiv

e's

prin

cipa

l pla

ce o

f em

ploy

men

t to

a lo

catio

n ou

tsid

e th

e gr

eate

r C

hica

go m

etro

polit

an a

rea.

gp

y

Not

with

stan

ding

the

fore

goin

g, a

Tie

r I

Exe

cutiv

e ca

nnot

term

inat

e em

ploy

men

t for

Goo

d R

easo

n (i

) if

the

Exe

cutiv

e co

nsen

ted

in w

ritin

g to

the

occu

rren

ce o

f th

e ev

ent g

ivin

g ri

se to

the

clai

m o

f G

ood

Rea

son

or (

ii) u

nles

s th

e E

xecu

tive

shal

l hav

e de

liver

ed a

wri

tten

notic

e to

the

Com

mitt

ee w

ithin

30

days

of

his

havi

ng a

ctua

l kno

wle

dge

of th

e oc

curr

ence

of

such

eve

nt s

tatin

g th

at h

e in

tend

s to

term

inat

ehi

s em

ploy

men

t for

Goo

d R

easo

n an

d sp

ecif

ying

the

fact

ual b

asis

for

suc

h te

rmin

atio

n, a

nd s

uch

even

t is

not c

ured

with

in 3

0 da

ys o

f th

e re

ceip

t of

such

not

ice.

6.04

Ter

min

atio

n of

Em

ploy

men

t For

Any

Oth

er R

easo

n. T

he C

ompa

ny m

ay te

rmin

ate

an E

xecu

tive'

s em

ploy

men

t at a

ny ti

me

by w

ritte

n no

tice

to th

e E

xecu

tive

in a

ccor

danc

e w

ith S

ectio

n 6.

05 o

f th

isA

gree

men

t of

its in

tent

ion

to te

rmin

ate

the

Exe

cutiv

e's

empl

oym

ent f

or a

ny r

easo

n ot

her

than

dea

th, D

isab

ility

or

Cau

se.

11

6.05

Not

ice

of T

erm

inat

ion.

Any

term

inat

ion

by th

e C

ompa

ny o

ther

than

for

dea

th, o

r by

a T

ier

I E

xecu

tive

for

Goo

d R

easo

n, s

hall

be c

omm

unic

ated

by

Not

ice

of T

erm

inat

ion

to th

e ot

her

part

y he

reto

give

n in

acc

orda

nce

with

this

Sect

ion

6.05

. For

pur

pose

s of

this

Pla

n, a

"N

otic

e of

Ter

min

atio

n" m

eans

a w

ritte

n no

tice

whi

ch (

i) in

dica

tes

the

spec

ific

term

inat

ion

prov

isio

n in

this

Pla

n re

lied

upon

, (ii)

to th

e ex

tent

app

licab

le, s

ets

fort

h in

rea

sona

ble

deta

il th

e fa

cts

and

circ

umst

ance

s cl

aim

ed to

pro

vide

a b

asis

for

term

inat

ion

of th

e E

xecu

tive'

s em

ploy

men

t und

er th

e pr

ovis

ion

so in

dica

ted,

and

(iii

) if

the

Dat

e of

Ter

min

atio

n (a

sde

fine

d in

Sec

tion

6.06

) is

oth

er th

an th

e da

te o

f re

ceip

t of

such

not

ice,

spe

cifi

es th

e te

rmin

atio

n da

te (

whi

ch d

ate

shal

l be

not m

ore

than

30

days

aft

er th

e gi

ving

of

such

not

ice)

. The

fai

lure

by

the

Exe

cutiv

e or

the

Com

pany

to s

et f

orth

in th

e N

otic

e of

Ter

min

atio

n an

y fa

ct o

r ci

rcum

stan

ce w

hich

con

trib

utes

to a

sho

win

g of

Goo

d R

easo

n or

Cau

se s

hall

not w

aive

any

rig

ht o

f th

e E

xecu

tive

or th

eC

ompa

ny, r

espe

ctiv

ely,

her

eund

er o

r pr

eclu

de th

e E

xecu

tive

or th

e C

ompa

ny, r

espe

ctiv

ely,

fro

m a

sser

ting

such

fac

t or

circ

umst

ance

in e

nfor

cing

the

Exe

cutiv

e's

or th

e C

ompa

ny's

rig

hts

here

unde

r.

6.06

Dat

e of

Ter

min

atio

n. "

Dat

e of

Ter

min

atio

n" m

eans

(i)

if th

e E

xecu

tive'

s em

ploy

men

t is

term

inat

ed b

y th

e C

ompa

ny o

ther

than

for

dea

th o

r D

isab

ility

, or

by th

e T

ier

I E

xecu

tive

for

Goo

d R

easo

n, th

eda

te o

f re

ceip

t of

the

Not

ice

of T

erm

inat

ion

or a

ny la

ter

date

spe

cifi

ed th

erei

n, a

s th

e ca

se m

ay b

e, (

ii) if

the

Exe

cutiv

e's

empl

oym

ent i

s te

rmin

ated

by

deat

h, th

e da

te o

f de

ath,

and

(iii

) if

the

Exe

cutiv

e's

empl

oym

ent i

s te

rmin

ated

by

reas

on o

f D

isab

ility

, the

Dis

abili

ty E

ffec

tive

Dat

e.

Art

icle

7

Obl

igat

ions

of

the

Com

pany

upo

n T

erm

inat

ion

7.01

By

an E

xecu

tive

for

Goo

d R

easo

n; B

y th

e C

ompa

ny O

ther

Tha

n fo

rC

ause

, Dea

th o

r D

isab

ility

. If

the

Com

pany

term

inat

es a

n E

xecu

tive'

s em

ploy

men

t oth

er th

an f

or C

ause

, dea

th o

r D

isab

ility

or

if a

Tie

r I

Exe

cutiv

e te

rmin

ates

his

em

ploy

men

t for

Goo

d R

easo

n,

(i)

the

Com

pany

sha

ll pa

y th

e fo

llow

ing

amou

nts

(col

lect

ivel

y, th

e "T

erm

inat

ion

Paym

ent"

) to

the

Exe

cutiv

e in

a lu

mp

sum

in c

ash

with

in 6

0 da

ys a

fter

the

Dat

e of

Ter

min

atio

n:

A. t

he A

ccru

ed O

blig

atio

ns (

as d

efin

ed b

elow

), a

nd

B. t

he S

ever

ance

Ben

efit

(as

def

ined

bel

ow),

and

C. t

he W

elfa

re B

enef

it (

as d

efin

ed b

elow

); a

nd

(ii)

the

Exe

cutiv

e sh

all h

ave

the

righ

t to

exer

cise

the

follo

win

g ca

tego

ries

of

stoc

k op

tions

as

of h

is o

r he

r D

ate

of T

erm

inat

ion

and

for

five

yea

rs th

erea

fter

: (i)

all

optio

ns e

xerc

isab

le a

s of

the

Exe

cutiv

e's

Dat

e of

Ter

min

atio

n, a

nd (

ii) a

ll op

tions

that

will

bec

ome

exer

cisa

ble

with

in

12

five

yea

rs f

ollo

win

g th

e E

xecu

tive'

s D

ate

of T

erm

inat

ion

(col

lect

ivel

y, th

e "E

xerc

isab

le O

ptio

ns")

, pro

vide

d th

at in

no

even

t sha

ll an

y op

tion

be e

xerc

ised

mor

e th

an te

n ye

ars

afte

r th

e da

te o

f gr

ant.

For

purp

oses

of

this

Pla

n:

(a)

"Acc

rued

Obl

igat

ions

" sh

all m

ean

the

sum

of

(1)

any

unpa

id b

ase

sala

ry a

ccru

ed th

roug

h th

e D

ate

of T

erm

inat

ion

unle

ss p

revi

ousl

y de

ferr

ed b

y th

e E

xecu

tive

purs

uant

to th

e te

rms

of a

n em

ploy

eebe

nefi

t pla

n or

arr

ange

men

t mai

ntai

ned

by th

e C

ompa

ny (

"Acc

rued

Sal

ary"

), (

2) a

ny u

npai

d an

nual

bon

us a

mou

nts

in r

espe

ct o

f an

y ca

lend

ar y

ear

ende

d be

fore

the

Dat

e of

Ter

min

atio

n (c

ompu

ted

byre

fere

nce

to th

e T

arge

t Per

cent

age

(as

defi

ned

belo

w))

("E

arne

d B

onus

"), u

nles

s pr

evio

usly

def

erre

d by

the

Exe

cutiv

e pu

rsua

nt to

the

term

s of

an

empl

oyee

ben

efit

plan

or

arra

ngem

ent m

aint

aine

d by

the

Com

pany

, (3)

the

prod

uct o

f (x

) an

y an

nual

bon

us in

res

pect

of

any

inco

mpl

ete

cale

ndar

yea

r (c

ompu

ted

by r

efer

ence

to th

e T

arge

t Per

cent

age

and

(y)

a fr

actio

n, th

e nu

mer

ator

of

whi

ch is

the

num

ber

ofda

ys in

the

curr

ent f

isca

l yea

r th

roug

h th

e D

ate

of T

erm

inat

ion,

and

the

deno

min

ator

of

whi

ch is

365

("P

rora

ted

Bon

us")

, and

(4)

any

acc

rued

vac

atio

n pa

y, in

eac

h ca

se to

the

exte

nt n

ot p

revi

ousl

y pa

id;

(b)

"Dis

coun

t Rat

e" s

hall

mea

n th

e in

tere

st r

ate

equa

l to

the

Prim

e R

ate

as r

epor

ted

in T

he W

all S

tree

t Jou

rnal

, Mid

wes

t Edi

tion,

as

in e

ffec

t on

the

Dat

e of

Ter

min

atio

n;

(c)

"Sev

eran

ce B

enef

it" m

eans

(x)

in th

e ca

se o

f a

term

inat

ion

of e

mpl

oym

ent w

hich

occ

urs

prio

r to

the

com

men

cem

ent o

f th

e T

rans

ition

Per

iod,

a lu

mp

sum

pay

men

t equ

al to

the

aggr

egat

e of

the

amou

nts

of th

e A

nnua

l Bas

e Sa

lary

, the

Ann

ual B

onus

and

Con

tinue

d E

mpl

oym

ent P

erio

d Sa

lary

whi

ch w

ould

hav

e be

en r

ecei

vabl

e by

the

Exe

cutiv

e if

his

or

her

Tra

nsiti

on P

erio

d co

mm

ence

d on

the

Dat

e of

Ter

min

atio

n an

d he

or

she

had

rem

aine

d em

ploy

ed d

urin

g th

e T

rans

ition

Per

iod

and

the

Con

tinue

d E

mpl

oym

ent P

erio

d, a

nd (

y) in

the

case

of

a te

rmin

atio

n of

em

ploy

men

t whi

ch o

ccur

s du

ring

the

Tra

nsiti

on P

erio

d or

the

Con

tinue

d E

mpl

oym

ent P

erio

d, a

lum

p su

m p

aym

ent e

qual

to th

e ag

greg

ate

of th

e am

ount

s of

the

Ann

ual B

ase

Sala

ry, t

he A

nnua

l Bon

us a

nd C

ontin

ued

Em

ploy

men

t Per

iod

Sala

ry

gp

y

whi

ch o

ther

wis

e w

ould

hav

e be

en r

ecei

vabl

e by

the

Exe

cutiv

e if

he

or s

he h

ad r

emai

ned

empl

oyed

dur

ing

the

Tra

nsiti

on P

erio

d an

d th

e C

ontin

ued

Em

ploy

men

t Per

iod;

with

the

appl

icab

le a

mou

nt b

eing

disc

ount

ed f

rom

its

sche

dule

d pa

ymen

t dat

e to

the

Dat

e of

Ter

min

atio

n by

ref

eren

ce to

the

Dis

coun

t Rat

e,

(d)

"Tar

get P

erce

ntag

e" s

hall

mea

n th

e ta

rget

per

cent

age

whi

ch th

e E

xecu

tive

was

elig

ible

to r

ecei

ve u

nder

TIP

on

the

day

imm

edia

tely

pre

cedi

ng th

e C

hang

e-in

-Sta

tus

Dat

e (o

r in

the

abse

nce

of a

Cha

nge-

In

13

Stat

us D

ate,

the

day

imm

edia

tely

pre

cedi

ng th

e D

ate

of T

erm

inat

ion)

with

out a

ny a

djus

tmen

t, bu

t in

no e

vent

low

er th

an th

e E

xecu

tive'

s hi

ghes

t tar

get p

erce

ntag

e in

eff

ect a

t any

tim

e be

twee

n th

e E

ffec

tive

Dat

e an

d th

e C

hang

e-in

-Sta

tus

Dat

e (o

r in

the

abse

nce

of a

Cha

nge-

In-S

tatu

s D

ate,

the

Dat

e of

Ter

min

atio

n), p

rovi

ded

that

the

targ

et p

erce

ntag

e sh

all b

e re

duce

d to

ref

lect

any

acr

oss-

the-

boar

d re

duct

ions

impl

emen

ted

by th

e C

omm

ittee

pri

or to

the

Cha

nge-

in-S

tatu

s D

ate

(or

in th

e ab

senc

e of

a C

hang

e-In

-Sta

tus

Dat

e, th

e D

ate

of T

erm

inat

ion)

whi

ch r

educ

tions

aff

ect C

ompa

ny o

ffic

ers

gene

rally

; and

(e)

"Wel

fare

Ben

efit"

sha

ll m

ean

a lu

mp

sum

pay

men

t (in

lieu

of

cont

inue

d pa

rtic

ipat

ion

in th

e B

enef

it Pl

ans)

equ

al to

an

amou

nt e

qual

to th

e C

ompa

ny's

est

imat

ed c

ost o

f pr

ovid

ing

the

Ben

efit

Plan

s to

the

Exe

cutiv

e th

roug

hout

the

Tra

nsiti

on P

erio

d an

d th

e C

ontin

ued

Em

ploy

men

t Per

iod

(as

reas

onab

ly d

eter

min

able

by

the

Com

mitt

ee in

its

sole

dis

cret

ion

on th

e D

ate

of T

erm

inat

ion)

.

7.02

Dea

th. I

f th

e E

xecu

tive

dies

dur

ing

the

Ret

entio

n Pe

riod

, the

Tra

nsiti

on P

erio

d or

the

Con

tinue

d E

mpl

oym

ent P

erio

d (c

olle

ctiv

ely,

the

"Per

iods

"), t

he C

ompa

ny s

hall

have

no

furt

her

oblig

atio

ns to

the

Exe

cutiv

e's

lega

l rep

rese

ntat

ives

und

er th

is P

lan,

oth

er th

an f

or p

aym

ent o

f A

ccru

ed S

alar

y, a

ny E

arne

d B

onus

and

any

pay

men

t or

prov

isio

n of

Oth

er B

enef

its (

as d

efin

ed in

this

Sec

tion

7.02

). S

uch

amou

nts

shal

l be

paid

to th

e E

xecu

tive'

s le

gal r

epre

sent

ativ

es in

a lu

mp

sum

in c

ash

with

in 6

0 da

ys o

f de

ath

unle

ss d

efer

red

in a

ccor

danc

e w

ith th

e te

rms

of a

n em

ploy

ee b

enef

it pl

an o

r ar

rang

emen

tm

aint

aine

d by

the

Com

pany

. Upo

n de

ath,

the

Exe

cutiv

e's

unex

erci

sed

stoc

k op

tions

sha

ll re

mai

n su

bjec

t to

the

appl

icab

le p

rovi

sion

s of

the

rela

ted

stoc

k op

tion

plan

s an

d ap

plic

able

Gol

den

M C

ertif

icat

es(o

r ot

her

appl

icab

le a

war

d ag

reem

ents

).

The

term

"O

ther

Ben

efits

" as

util

ized

in th

is S

ectio

n sh

all m

ean

bene

fits

equ

al to

the

bene

fits

pro

vide

d by

the

Com

pany

to th

e es

tate

s an

d be

nefi

ciar

ies

of:

(i)

othe

r E

xecu

tive

Off

icer

s of

the

Com

pany

if th

e E

xecu

tive

dies

dur

ing

the

Ret

entio

n Pe

riod

,

(ii)

oth

er o

ffic

ers

of th

e C

ompa

ny w

ho a

re n

on-E

xecu

tive

Off

icer

s if

the

Exe

cutiv

e di

es d

urin

g th

e T

rans

ition

Per

iod,

or

(iii)

oth

er s

taff

em

ploy

ees

of th

e C

ompa

ny if

the

Exe

cutiv

e di

es d

urin

g th

e C

ontin

ued

Em

ploy

men

t Per

iod,

unde

r su

ch p

lans

, pro

gram

s, p

ract

ices

and

pol

icie

s re

latin

g to

dea

th b

enef

its, i

f an

y, a

s in

eff

ect o

n th

e da

te o

f th

e E

xecu

tive'

s de

ath.

7.03

Dis

abili

ty. I

f th

e E

xecu

tive'

s em

ploy

men

t is

term

inat

ed b

y re

ason

of

Dis

abili

ty d

urin

g an

y of

the

Peri

ods,

the

Com

pany

sha

ll no

t hav

e an

y fu

rthe

r ob

ligat

ions

to th

e

14

Exe

cutiv

e, o

ther

than

for

pay

men

t of

Acc

rued

Sal

ary,

any

Ear

ned

Bon

us a

nd p

aym

ent o

r pr

ovis

ion

of O

ther

Ben

efits

(as

def

ined

in th

is S

ectio

n 7.

03).

Suc

h am

ount

s sh

all b

e pa

id to

the

Exe

cutiv

e in

a lu

mp

sum

in c

ash

with

in 6

0 da

ys o

f th

e D

isab

ility

Eff

ectiv

e D

ate

unle

ss d

efer

red

in a

ccor

danc

e w

ith th

e te

rms

of a

n em

ploy

ee b

enef

it pl

an o

r ar

rang

emen

t mai

ntai

ned

by th

e C

ompa

ny. I

n th

e ev

ent o

f D

isab

ility

,th

e E

xecu

tive'

s un

exer

cise

d st

ock

optio

ns s

hall

rem

ain

subj

ect t

o th

e ap

plic

able

pro

visi

ons

of th

e re

late

d st

ock

optio

n pl

ans

and

appl

icab

le G

olde

n M

Cer

tific

ates

(or

oth

er a

pplic

able

aw

ard

agre

emen

ts).

The

term

"O

ther

Ben

efits

" as

util

ized

in th

is S

ectio

n sh

all m

ean

disa

bilit

y an

d ot

her

bene

fits

equ

al to

thos

e ge

nera

lly p

rovi

ded

by th

e C

ompa

ny to

:

(i)

disa

bled

Exe

cutiv

e O

ffic

ers

and/

or th

eir

fam

ilies

if th

e E

xecu

tive

beco

mes

dis

able

d du

ring

the

Ret

entio

n Pe

riod

,

(ii)

dis

able

d of

fice

rs w

ho a

re n

ot E

xecu

tive

Off

icer

s an

d/or

thei

r fa

mili

es if

the

Exe

cutiv

e be

com

es d

isab

led

duri

ng th

e T

rans

ition

Per

iod,

or

(iii)

dis

able

d st

aff

empl

oyee

s an

d/or

thei

r fa

mili

es if

the

Exe

cutiv

e be

com

es d

isab

led

duri

ng th

e C

ontin

ued

Em

ploy

men

t Per

iod,

in a

ccor

danc

e w

ith s

uch

plan

s, p

rogr

ams,

pra

ctic

es a

nd p

olic

ies

rela

ting

to d

isab

ility

, if

any,

as

in e

ffec

t on

the

Dis

abili

ty E

ffec

tive

Dat

e.

7.04

By

the

Com

pany

for

Cau

se. I

f an

Exe

cutiv

e's

empl

oym

ent i

s te

rmin

ated

dur

ing

any

of th

e Pe

riod

s by

the

Com

pany

for

Cau

se, t

he C

ompa

ny s

hall

have

no

oblig

atio

n to

the

Exe

cutiv

e pu

rsua

nt to

this

Plan

oth

er th

an to

pay

the

Exe

cutiv

e hi

s or

her

Acc

rued

Sal

ary

thro

ugh

the

Dat

e of

Ter

min

atio

n an

d an

y E

arne

d B

onus

. In

any

such

cas

e, a

ll A

ccru

ed S

alar

y an

d E

arne

d B

onus

sha

ll be

pai

d to

the

Exe

cutiv

e in

a lu

mp

sum

in c

ash

with

in 6

0 da

ys o

f th

e D

ate

of T

erm

inat

ion

unle

ss o

ther

wis

e de

ferr

ed b

y th

e E

xecu

tive

purs

uant

to th

e te

rms

of a

n em

ploy

ee b

enef

it pl

an o

r ar

rang

emen

t mai

ntai

ned

by th

eC

ompa

ny. U

pon

such

term

inat

ion,

the

Exe

cutiv

e's

stoc

k op

tions

sha

ll be

gov

erne

d by

the

expr

ess

prov

isio

ns o

f th

e re

late

d st

ock

optio

n pl

ans

and

appl

icab

le G

olde

n M

Cer

tific

ates

(or

oth

er a

pplic

able

awar

d ag

reem

ents

).

7.05

By

a T

ier

I E

xecu

tive

With

out G

ood

Rea

son.

If

a T

ier

I E

xecu

tive

term

inat

es h

is e

mpl

oym

ent d

urin

g th

e R

eten

tion

Peri

od o

r th

e T

rans

ition

Per

iod

with

out G

ood

Rea

son,

or

duri

ng th

e C

ontin

ued

Em

ploy

men

t Per

iod

for

any

reas

on, t

he C

ompa

ny s

hall

have

no

oblig

atio

n to

the

Exe

cutiv

e pu

rsua

nt to

this

Pla

n ot

her

than

to p

ay th

e E

xecu

tive

his

or h

er A

ccru

ed S

alar

y th

roug

h th

e D

ate

of T

erm

inat

ion

and

any

Ear

ned

Bon

us. I

n an

y su

ch c

ase,

all

Acc

rued

Sal

ary

and

Ear

ned

Bon

us s

hall

be p

aid

to th

e E

xecu

tive

in a

lum

p su

m in

cas

h w

ithin

60

days

of

the

Dat

e of

Ter

min

atio

n un

less

oth

erw

ise

defe

rred

by

gp

y

the

Exe

cutiv

e pu

rsua

nt to

the

term

s of

an

empl

oyee

ben

efit

plan

or

arra

ngem

ent m

aint

aine

d by

the

Com

pany

. Upo

n su

ch te

rmin

atio

n, th

e E

xecu

tive'

s st

ock

optio

ns s

hall

be g

over

ned

by th

e ex

pres

spr

ovis

ions

of

the

rela

ted

stoc

k op

tion

plan

s an

d ap

plic

able

Gol

den

M C

ertif

icat

es (

or o

ther

app

licab

le a

war

d ag

reem

ents

).

15

7.06

By

a T

ier

II E

xecu

tive

for

any

Rea

son.

If

a T

ier

II E

xecu

tive

term

inat

es h

is e

mpl

oym

ent d

urin

g an

y of

the

Peri

ods

for

any

reas

on o

r no

rea

son,

the

Com

pany

sha

ll ha

ve n

o ob

ligat

ion

to th

e E

xecu

tive

purs

uant

to th

is P

lan

othe

r th

an to

pay

the

Exe

cutiv

e hi

s or

her

Acc

rued

Sal

ary

thro

ugh

the

Dat

e of

Ter

min

atio

n an

d an

y E

arne

d B

onus

. In

any

such

cas

e, a

ll A

ccru

ed S

alar

y an

d E

arne

d B

onus

sha

ll be

pai

dto

the

Exe

cutiv

e in

a lu

mp

sum

in c

ash

with

in 6

0 da

ys o

f th

e D

ate

of T

erm

inat

ion

unle

ss o

ther

wis

e de

ferr

ed b

y th

e E

xecu

tive

purs

uant

to th

e te

rms

of a

n em

ploy

ee b

enef

it pl

an o

r ar

rang

emen

t mai

ntai

ned

by th

e C

ompa

ny. U

pon

such

term

inat

ion,

the

Exe

cutiv

e's

stoc

k op

tions

sha

ll be

gov

erne

d by

the

expr

ess

prov

isio

ns o

f th

e re

late

d st

ock

optio

n pl

ans

and

appl

icab

le G

olde

n M

Cer

tific

ates

(or

oth

erap

plic

able

aw

ard

agre

emen

ts).

Art

icle

8

Req

uire

men

t of

Eff

ectiv

e R

elea

ses;

Inte

grat

ion

with

Oth

er S

epar

atio

n B

enef

its

8.01

Rel

ease

s as

a C

ondi

tion

to P

lan

Ben

efits

. It s

hall

be a

con

ditio

n to

an

Exe

cutiv

e's

righ

t to

rece

ive

any

bene

fits

pur

suan

t to

this

Pla

n th

at th

e E

xecu

tive

shal

l exe

cute

and

del

iver

to th

e C

ompa

ny th

efo

llow

ing

rele

ases

in th

e fo

rm p

rovi

ded

by th

e C

ompa

ny (

each

, a "

Rel

ease

"):

(i)

in th

e ca

se o

f T

rans

ition

Ben

efits

, a R

elea

se w

ith r

espe

ct to

the

peri

od e

nded

on

the

Cha

nge-

in-S

tatu

s D

ate,

(ii)

in th

e ca

se o

f C

ontin

ued

Em

ploy

men

t Ben

efits

, a R

elea

se w

ith r

espe

ct to

all

peri

ods

ende

d on

or

befo

re th

e la

st d

ay o

f th

e T

rans

ition

Per

iod,

and

(iii)

in th

e ca

se o

f th

e T

erm

inat

ion

Paym

ent,

a R

elea

se w

ith r

espe

ct to

all

peri

ods

ende

d on

the

Dat

e of

Ter

min

atio

n.

8.02

For

m o

f R

elea

se. E

ach

Rel

ease

sha

ll pr

ovid

e am

ong

othe

r th

ings

that

the

Exe

cutiv

e un

ders

tand

s, in

tend

s an

d ag

rees

that

the

agre

emen

t he

or s

he is

sig

ning

con

stitu

tes

full,

com

plet

e an

d fi

nal

satis

fact

ion

of a

ll cl

aim

s, d

eman

ds, l

awsu

its o

r ac

tions

of

any

kind

, whe

ther

kno

wn

or u

nkno

wn,

aga

inst

the

Com

pany

or

its s

ubsi

diar

ies,

div

isio

ns, a

ffili

ates

and

rel

ated

com

pani

es (

colle

ctiv

ely

"McD

onal

d's"

) or

thei

r re

spec

tive

dire

ctor

s, o

ffic

ers

or e

mpl

oyee

s (w

ith M

cDon

ald'

s co

llect

ivel

y th

e "R

elea

sed

Pers

ons"

) an

d th

at th

e E

xecu

tive

fore

ver

rele

ases

eac

h R

elea

sed

Pers

on f

rom

all

such

mat

ters

. Thi

s in

clud

es, b

ut is

not

lim

ited

to, a

rel

ease

of

clai

ms,

dem

ands

, law

suits

and

act

ions

of

any

kind

rel

atin

g to

any

em

ploy

men

t or

appl

icat

ion

for

empl

oym

ent o

r fr

anch

ise,

cla

ims

rela

ting

tore

sign

atio

n an

d/or

ces

satio

n of

em

ploy

men

t, cl

aim

s al

legi

ng b

reac

h of

con

trac

t of

any

tort

, cla

ims

for

wro

ngfu

l ter

min

atio

n, d

efam

atio

n, in

tent

iona

l inf

lictio

n of

em

otio

nal d

istr

ess,

per

sona

l inj

ury,

viol

atio

n of

pub

lic p

olic

y an

d/or

neg

ligen

ce r

elat

ed to

em

ploy

men

t or

resi

gnat

ion,

cla

ims

unde

r T

itle

VII

of

the

Civ

il R

ight

s A

ct o

f 19

64, a

s am

ende

d, S

ectio

n 19

81 o

f th

e C

ivil

Rig

hts

Act

of

1866

, as

amen

ded,

the

Age

Dis

crim

inat

ion

in E

mpl

oym

ent A

ct o

f 19

67, a

s am

ende

d, th

e R

ehab

ilita

tion

Act

of

1973

, the

Am

eric

ans

with

Dis

abili

ties

Act

of

1990

, the

Em

ploy

ee R

etir

emen

t Inc

ome

Secu

rity

Act

of

1974

, as

amen

ded,

the

16

Wor

ker

Adj

ustm

ent a

nd R

etra

inin

g N

otif

icat

ion

Act

, the

Fam

ily a

nd M

edic

al L

eave

Act

of

1993

, the

Illi

nois

Hum

an R

ight

s A

ct, o

r an

y ot

her

stat

e, F

eder

al o

r lo

cal l

aw p

rohi

bitin

g di

scri

min

atio

n, a

ndcl

aim

s ba

sed

on a

ny o

ther

law

, reg

ulat

ion,

or

com

mon

law

, whe

ther

bef

ore

any

Fede

ral,

stat

e or

loca

l age

ncy,

in a

ny c

ourt

of

law

or

befo

re a

ny o

ther

for

um.

8.03

Oth

er S

epar

atio

n B

enef

its. T

he R

elea

ses

will

als

o pr

ovid

e th

at(i

) th

e pa

ymen

ts o

r be

nefi

ts p

rovi

ded

for

here

unde

r sh

all b

e in

lieu

of

any

paym

ents

, ben

efits

or

arra

ngem

ents

to w

hich

the

Exe

cutiv

e m

ight

oth

erw

ise

be e

ntitl

ed to

und

er a

ny p

lan

or a

rran

gem

ent w

hich

prov

ides

for

sev

eran

ce o

r se

para

tion

("O

ther

Sep

arat

ion

Ben

efits

") a

nd, t

hat (

ii) th

e E

xecu

tive

wai

ves

any

and

all r

ight

s an

d cl

aim

s th

at h

e or

she

may

then

or

ther

eaft

er h

ave

to (

A)

any

Oth

er S

epar

atio

nB

enef

its a

nd (

B)

retir

ee s

tatu

s un

der

any

of th

e C

ompa

ny's

sto

ck o

ptio

n pl

ans.

8.04

Eff

ect o

f C

laim

. If

an E

xecu

tive

(i)

file

s a

law

suit,

cha

rge,

com

plai

nt o

r ot

her

clai

m a

sser

ting

any

clai

m o

r de

man

d w

ithin

the

scop

e of

his

or

her

Rel

ease

s, (

ii) f

ails

to e

xecu

te a

nd d

eliv

er a

Rel

ease

requ

ired

pur

suan

t to

Sect

ion

8.01

, or

(iii)

pur

port

s to

rev

oke

any

of th

e R

elea

ses,

the

Com

pany

sha

ll re

tain

all

righ

ts a

nd b

enef

its o

f th

e R

elea

ses,

and

in a

dditi

on, s

hall

be e

ntitl

ed to

can

cel a

ny a

nd a

llfu

ture

obl

igat

ions

und

er th

is P

lan

and

reco

up th

e va

lue

of a

ll pa

ymen

ts a

nd b

enef

its u

nder

this

Pla

n, to

geth

er w

ith th

e C

ompa

ny's

cos

ts a

nd r

easo

nabl

e at

torn

ey's

fee

s. I

n ad

ditio

n, th

e C

ompa

ny s

hall

been

title

d to

pur

sue

any

othe

r re

med

y av

aila

ble

to e

nfor

ce th

e te

rms

of th

e R

elea

ses

and

Non

com

petit

ion

Agr

eem

ent d

escr

ibed

in A

rtic

le 9

.

Art

icle

9

Req

uire

men

t of

Non

com

peti

tion

Agr

eem

ent

9.01

Non

com

petit

ion

Agr

eem

ent a

s a

Con

ditio

n to

Pla

n B

enef

its. I

t sha

ll be

a c

ondi

tion

to r

ecei

ve T

rans

ition

Ben

efits

, Con

tinue

d E

mpl

oym

ent B

enef

its a

nd th

e Se

vera

nce

Ben

efit

unde

r th

is P

lan

that

the

Exe

cutiv

e sh

all h

ave

sign

ed a

con

fide

ntia

lity

and

nonc

ompe

titio

n ag

reem

ent i

n th

e fo

rm p

rovi

ded

by th

e C

ompa

ny a

s su

bsta

ntia

lly d

escr

ibed

in th

is A

rtic

le 9

(th

e "N

onco

mpe

titio

n A

gree

men

t").

The

failu

re o

r re

fusa

l of

an E

xecu

tive

to s

ign

such

a N

onco

mpe

titio

n A

gree

men

t sha

ll di

squa

lify

the

Exe

cutiv

e fr

om r

ecei

ving

any

ben

efits

und

er th

is P

lan.

gp

y

9.02

For

m o

f N

onco

mpe

titio

n A

gree

men

t.

(a)

Con

fide

ntia

lity.

Eac

h E

xecu

tive'

s N

onco

mpe

titio

n A

gree

men

t sha

ll pr

ovid

e th

at:

(i)

the

Exe

cutiv

e ac

know

ledg

es th

at it

is th

e po

licy

of M

cDon

ald'

s to

mai

ntai

n as

sec

ret a

nd c

onfi

dent

ial a

ll va

luab

le a

nd u

niqu

e ta

ngib

le a

nd in

tang

ible

info

rmat

ion

and

tech

niqu

es a

cqui

red,

dev

elop

ed o

rus

ed b

y M

cDon

ald'

s re

latin

g to

its

busi

ness

, ope

ratio

ns, e

mpl

oyee

s an

d cu

stom

ers,

whi

ch g

ives

McD

onal

d's

a co

mpe

titiv

e ad

vant

age

in th

e bu

sine

sses

in w

hich

McD

onal

d's

is e

ngag

ed (

"Con

fide

ntia

lIn

form

atio

n").

17

(ii)

the

Exe

cutiv

e re

cogn

izes

that

all

such

Con

fide

ntia

l Inf

orm

atio

n is

the

sole

and

exc

lusi

ve p

rope

rty

of M

cDon

ald'

s, a

nd th

at d

iscl

osur

e of

Con

fide

ntia

l Inf

orm

atio

n w

ould

cau

se s

igni

fica

nt d

amag

e to

McD

onal

d's;

and

(iii)

the

Exe

cutiv

e sh

all n

ot, w

ithou

t the

pri

or w

ritte

n co

nsen

t of

the

Com

pany

, use

, dis

clos

e, f

urni

sh o

r m

ake

acce

ssib

le to

any

per

son,

fir

m, c

orpo

ratio

n, p

artn

ersh

ip o

r ot

her

entit

y of

any

kin

d(c

olle

ctiv

ely,

"Pe

rson

") a

ny C

onfi

dent

ial I

nfor

mat

ion

obta

ined

dur

ing

the

Exe

cutiv

e's

empl

oym

ent w

ith M

cDon

ald'

s at

any

tim

e (i

nclu

ding

, with

out l

imita

tion,

dur

ing

or a

fter

the

Ret

entio

n Pe

riod

, the

Tra

nsiti

on P

erio

d or

the

Con

tinue

d E

mpl

oym

ent P

erio

d) f

or s

o lo

ng a

s su

ch in

form

atio

n is

val

uabl

e an

d un

ique

exc

ept (

A)

with

the

prio

r w

ritte

n co

nsen

t of

McD

onal

d's

in r

espe

ct o

f su

ch d

iscl

osur

e, (

B)

asre

quir

ed b

y th

e du

ties

of th

e E

xecu

tive'

s em

ploy

men

t with

McD

onal

d's,

(C

) in

con

nect

ion

with

the

Exe

cutiv

e's

good

-fai

th e

nfor

cem

ent o

f hi

s or

her

rig

hts

unde

r th

is P

lan,

or

(D)

if th

e E

xecu

tive

reas

onab

lyan

d in

goo

d fa

ith b

elie

ves

that

he

or s

he is

com

pelle

d by

law

or

by a

cou

rt o

r go

vern

men

tal a

genc

y by

a p

rope

r pr

ocee

ding

; pro

vide

d th

at th

e E

xecu

tive,

to th

e ex

tent

not

pro

hibi

ted

from

doi

ng s

o by

appl

icab

le la

w o

r co

urt o

rder

, sha

ll gi

ve th

e C

ompa

ny w

ritte

n no

tice

of th

e C

onfi

dent

ial I

nfor

mat

ion

to b

e so

dis

clos

ed p

ursu

ant t

o cl

ause

(C

) or

(D

) of

this

sen

tenc

e as

far

in a

dvan

ce o

f its

dis

clos

ure

as is

law

ful a

nd p

ract

icab

le, s

hall

coop

erat

e (a

t the

Com

pany

's s

ole

expe

nse)

with

the

Com

pany

in it

s ef

fort

s to

pro

tect

the

info

rmat

ion

from

dis

clos

ure,

and

sha

ll lim

it hi

s or

her

dis

clos

ure

of s

uch

Con

fide

ntia

lIn

form

atio

n to

the

min

imum

dis

clos

ure

requ

ired

by

law

or

cour

t ord

er u

nles

s th

e C

ompa

ny a

gree

s in

wri

ting

to a

gre

ater

leve

l of

disc

losu

re.

(b)

Non

com

petit

ion.

Eac

h E

xecu

tive'

s N

onco

mpe

titio

n A

gree

men

t will

als

o pr

ovid

e th

at th

e E

xecu

tive

will

not

, at a

ny ti

me

duri

ng th

e pe

riod

spe

cifi

ed in

Sec

tion

9.02

(c),

dir

ectly

or

indi

rect

ly:

(i)

in a

ny c

apac

ity, e

ngag

e or

par

ticip

ate

in, o

r be

com

e em

ploy

ed b

y or

ren

der

advi

sory

or

cons

ultin

g or

oth

er s

ervi

ces

in c

onne

ctio

n w

ith a

ny P

rohi

bite

d B

usin

ess

(as

defi

ned

in S

ectio

n9.

03),

pro

vide

d th

at n

othi

ng in

this

Sec

tion

9.02

(b)

shal

l pre

clud

e an

Exe

cutiv

e fr

om p

erfo

rmin

g se

rvic

es o

n be

half

of

an in

vest

men

t ban

king

or

com

mer

cial

ban

king

, aud

iting

or

cons

ultin

g fi

rm s

o lo

ng a

she

or

she

is n

ot e

ngag

ed in

ren

deri

ng s

ervi

ces

to o

r so

liciti

ng b

usin

ess

of a

Pro

hibi

ted

Bus

ines

s;

(ii)

mak

e an

y fi

nanc

ial i

nves

tmen

t, w

heth

er in

the

form

of

equi

ty o

r de

bt, o

r ow

n an

y in

tere

st, d

irec

tly o

r in

dire

ctly

, in

any

Proh

ibite

d B

usin

ess,

pro

vide

d th

at n

othi

ng in

this

Sec

tion

9.02

(b)

shal

l res

tric

t the

Exe

cutiv

e fr

om o

wni

ng, o

f re

cord

or

bene

fici

ally

, up

to o

ne p

erce

nt o

f th

e ou

tsta

ndin

g vo

ting

secu

ritie

s of

any

pub

licly

trad

ed c

orpo

ratio

n; p

rovi

ded

18

that

suc

h in

vest

men

t doe

s no

t cre

ate

a co

nflic

t of

inte

rest

bet

wee

n th

e E

xecu

tive'

s du

ties

here

unde

r an

d th

e E

xecu

tive'

s in

tere

st in

suc

h in

vest

men

t;

(iii)

em

ploy

any

em

ploy

ee o

f M

cDon

ald'

s (w

ith th

e ex

cept

ion

of th

e E

xecu

tive'

s ad

min

istr

ativ

e as

sist

ant)

or

any

Pers

on w

ho w

as e

mpl

oyed

by

the

Com

pany

with

in 1

80 d

ays

of s

uch

hiri

ng; o

r

(iv)

inte

rfer

e w

ith M

cDon

ald'

s re

latio

nshi

p w

ith, o

r en

deav

or to

ent

ice

away

fro

m M

cDon

ald'

s an

y em

ploy

ees

(oth

er th

an th

e E

xecu

tive'

s ad

min

istr

ativ

e as

sist

ant)

, cus

tom

ers,

ven

dors

or

supp

liers

,fr

anch

isee

s or

bus

ines

s pa

rtne

rs o

f th

e C

ompa

ny.

(c)

Res

tric

tive

Peri

od. T

he N

onco

mpe

titio

n A

gree

men

t sha

ll pr

ovid

e th

at th

e co

vena

nts

desc

ribe

d in

Sec

tion

9.02

(b)

shal

l rem

ain

in e

ffec

t (i)

at a

ll tim

es d

urin

g an

Exe

cutiv

e's

Tra

nsiti

on P

erio

d an

dC

ontin

ued

Em

ploy

men

t Per

iod

and

(ii)

if th

e E

xecu

tive'

s em

ploy

men

t is

term

inat

ed b

y th

e C

ompa

ny o

r by

the

Exe

cutiv

e fo

r an

y re

ason

or

for

no r

easo

n du

ring

the

Tra

nsiti

on P

erio

d or

the

Con

tinue

dE

mpl

oym

ent P

erio

d, f

or tw

o ye

ars

afte

r th

e D

ate

of T

erm

inat

ion

(but

in n

o ev

ent a

fter

the

end

of th

e C

ontin

ued

Em

ploy

men

t Per

iod)

.

9.03

Pro

hibi

ted

Bus

ines

s. F

or p

urpo

ses

of th

is P

lan,

"Pr

ohib

ited

Bus

ines

s" m

eans

any

Per

son

(and

any

bra

nche

s, o

ffic

es o

r op

erat

ions

ther

eof)

that

is a

mat

eria

l and

dir

ect c

ompe

titor

of

McD

onal

d's

in a

nyco

untr

y in

the

wor

ld o

r in

any

sta

te o

f th

e U

nite

d St

ates

, but

sha

ll no

t inc

lude

any

Per

son

whi

ch is

not

one

of

the

15 o

r fe

wer

Per

sons

des

igna

ted

as a

Pro

hibi

ted

Bus

ines

s on

Ann

ex A

atta

ched

to th

eE

xecu

tive'

s N

onco

mpe

titio

n A

gree

men

t.

9.04

Rem

edy.

(a)

Inj

unct

ive

Rel

ief.

The

Non

com

petit

ion

Agr

eem

ent s

hall

also

pro

vide

that

:

(i)

in r

ecog

nitio

n of

the

conf

iden

tial n

atur

e of

the

Con

fide

ntia

l Inf

orm

atio

n, a

nd in

rec

ogni

tion

of th

e ne

cess

ity o

f th

e lim

ited

rest

rict

ions

impo

sed

by th

e N

onco

mpe

titio

n A

gree

men

t, it

wou

ld b

e im

poss

ible

to m

easu

re s

olel

y in

mon

ey th

e da

mag

es w

hich

the

Com

pany

wou

ld s

uffe

r if

the

Exe

cutiv

e w

ere

to b

reac

h an

y of

his

obl

igat

ions

und

er s

uch

Agr

eem

ent;

(ii)

any

bre

ach

of a

ny s

uch

prov

isio

ns o

f th

e N

onco

mpe

titio

n A

gree

men

t wou

ld ir

repa

rabl

y in

jure

the

Com

pany

;

(iii)

if th

e E

xecu

tive

brea

ches

any

of

the

prov

isio

ns o

f th

e N

onco

mpe

titio

n A

gree

men

t, th

e C

ompa

ny s

hall

be e

ntitl

ed, i

n ad

ditio

n to

any

oth

er r

emed

ies

to w

hich

the

Com

pany

may

be

entit

led

unde

r th

eN

onco

mpe

titio

n A

gree

men

t or

othe

rwis

e, to

an

inju

nctio

n is

sued

by

a co

urt o

f co

mpe

tent

juri

sdic

tion,

to r

estr

ain

any

brea

ch o

r th

reat

ened

bre

ach,

of

such

pro

visi

ons,

and

the

Exe

cutiv

e w

aive

s an

y ri

ght t

o

gp

y

asse

rt

19

any

clai

m o

r de

fens

e th

at th

e C

ompa

ny h

as a

n ad

equa

te r

emed

y at

law

for

any

suc

h br

each

.

(b)

Eff

ect o

n O

ther

Ben

efits

. Eac

h E

xecu

tive'

s N

onco

mpe

titio

n A

gree

men

t sha

ll al

so p

rovi

de th

at, i

n th

e ev

ent o

f a

brea

ch b

y su

ch E

xecu

tive

of th

e pr

ovis

ions

of

his

or h

er N

onco

mpe

titio

n A

gree

men

tex

clud

ing

for

this

pur

pose

an

isol

ated

, ins

ubst

antia

l and

inad

vert

ent a

ctio

n, th

e C

ompa

ny s

hall

be e

ntitl

ed to

(i)

dis

cont

inue

any

and

all

paym

ents

and

oth

er b

enef

its to

whi

ch th

e E

xecu

tive

or h

is o

r he

rbe

nefi

ciar

ies

wou

ld o

ther

wis

e be

ent

itled

pur

suan

t to

this

Pla

n, (

ii) te

rmin

ate

any

and

all u

nexe

rcis

ed s

tock

opt

ions

then

hel

d by

the

Exe

cutiv

e or

by

any

tran

sfer

ee o

f th

e E

xecu

tive,

(iii

) re

quir

e th

eE

xecu

tive

to r

epay

to th

e C

ompa

ny th

e ag

greg

ate

amou

nt o

f ca

sh p

aym

ents

rec

eive

d by

the

Exe

cutiv

e fr

om th

e C

ompa

ny p

ursu

ant t

o th

is P

lan

duri

ng th

e pe

riod

com

men

cing

on

the

Exe

cutiv

e's

Cha

nge-

in-S

tatu

s D

ate

and

endi

ng o

n th

e da

te o

n w

hich

the

Com

pany

req

uest

s su

ch r

epay

men

t (th

e "R

ecov

ery

Peri

od")

and

(iv

) re

quir

e th

e E

xecu

tive

to p

ay to

the

Com

pany

(A

) w

ith r

espe

ct to

sto

ckop

tions

that

wer

e no

t ves

ted

as o

f th

e E

xecu

tive'

s C

hang

e-in

-Sta

tus

Dat

e, th

e ag

greg

ate

amou

nt o

f ga

in r

ecog

nize

d by

the

Exe

cutiv

e du

ring

the

Rec

over

y Pe

riod

as

the

resu

lt of

the

exer

cise

by

the

Exe

cutiv

e or

by

any

tran

sfer

ee o

f th

e E

xecu

tive

of s

uch

stoc

k op

tions

, and

(B

) w

ith r

espe

ct to

sto

ck o

ptio

ns th

at w

ere

vest

ed a

s of

the

Exe

cutiv

e's

Cha

nge-

in-S

tatu

s D

ate,

an

amou

nt e

qual

to th

e po

sitiv

edi

ffer

ence

, if

any,

of

(I)

the

aggr

egat

e am

ount

of

gain

rec

ogni

zed

by th

e E

xecu

tive

duri

ng th

e R

ecov

ery

Peri

od a

s th

e re

sult

of th

e ex

erci

se b

y th

e E

xecu

tive

or b

y an

y tr

ansf

eree

of

the

Exe

cutiv

e of

suc

hst

ock

optio

ns (

"Exe

rcis

ed O

ptio

ns")

, min

us(I

I) th

e am

ount

of

gain

that

wou

ld h

ave

been

rec

ogni

zed

by th

e E

xecu

tive

had

the

Exe

rcis

ed O

ptio

ns b

een

exer

cise

d as

of

the

Exe

cutiv

e's

Cha

nge-

in-S

tatu

s D

ate.

Art

icle

10

Leg

al F

ees

and

Oth

er E

xpen

ses

If a

n E

xecu

tive

incu

rs le

gal a

nd o

ther

fee

s or

oth

er e

xpen

ses

in a

goo

d fa

ith e

ffor

t to

obta

in b

enef

its u

nder

this

Pla

n, r

egar

dles

s of

whe

ther

the

Exe

cutiv

e ul

timat

ely

prev

ails

, the

Com

pany

sha

ll re

imbu

rse

the

Exe

cutiv

e on

a m

onth

ly b

asis

upo

n th

e w

ritte

n re

ques

t for

suc

h fe

es a

nd e

xpen

ses

to th

e ex

tent

not

rei

mbu

rsed

und

er th

e C

ompa

ny's

off

icer

s an

d di

rect

ors

liabi

lity

insu

ranc

e po

licy,

if a

ny. T

he e

xist

ence

of a

ny c

ontr

ollin

g ca

se o

r re

gula

tory

law

whi

ch is

dir

ectly

inco

nsis

tent

with

the

posi

tion

take

n by

the

Exe

cutiv

e sh

all b

e ev

iden

ce th

at th

e E

xecu

tive

did

not a

ct in

goo

d fa

ith.

Rei

mbu

rsem

ent o

f le

gal f

ees

and

expe

nses

sha

ll be

mad

e m

onth

ly u

pon

the

wri

tten

subm

issi

on o

f a

requ

est f

or r

eim

burs

emen

t tog

ethe

r w

ith e

vide

nce

that

suc

h fe

es a

nd e

xpen

ses

are

due

and

paya

ble

orw

ere

paid

by

the

Exe

cutiv

e. I

f th

e C

ompa

ny s

hall

have

rei

mbu

rsed

the

Exe

cutiv

e fo

r le

gal f

ees

and

expe

nses

and

it is

late

r de

term

ined

that

the

Exe

cutiv

e w

as n

ot a

ctin

g in

goo

d fa

ith, a

ll am

ount

s pa

id o

nbe

half

of,

or

reim

burs

ed to

, the

Exe

cutiv

e sh

all b

e pr

ompt

ly r

efun

ded

to th

e C

ompa

ny.

20

Art

icle

11

Am

endm

ent

and

Ter

min

atio

n of

thi

s P

lan

Thi

s Pl

an s

hall

be e

ffec

tive

on th

e E

ffec

tive

Dat

e an

d sh

all r

emai

n in

eff

ect u

ntil

the

late

r of

(i)

Oct

ober

1, 2

004,

or

(ii)

a d

ate

that

is tw

o ye

ars

afte

r th

e da

te o

n w

hich

the

Com

pany

giv

es w

ritte

n no

tice

toal

l Exe

cutiv

es o

f its

inte

ntio

n to

term

inat

e th

e Pl

an. T

he C

ompa

ny h

as th

e ri

ght t

o am

end

this

Pla

n in

who

le o

r in

par

t at a

ny ti

me;

pro

vide

d th

at n

o am

endm

ent o

f th

is P

lan

shal

l be

effe

ctiv

e as

to a

nyE

xecu

tive

who

is o

r m

ay r

easo

nabl

y be

exp

ecte

d to

be

mat

eria

lly a

dver

sely

aff

ecte

d th

ereb

y (a

n "A

ffec

ted

Exe

cutiv

e")

until

the

late

r of

(i)

Oct

ober

1, 2

004,

or

(ii)

a d

ate

that

is tw

o ye

ars

afte

r th

e da

te o

nw

hich

the

Com

pany

giv

es w

ritte

n no

tice

to a

ll A

ffec

ted

Exe

cutiv

es o

f its

inte

ntio

n to

ado

pt s

uch

amen

dmen

t. N

otw

ithst

andi

ng th

e fo

rego

ing,

no

Plan

term

inat

ion

or a

men

dmen

t sha

ll be

com

e ef

fect

ive

duri

ng th

e T

rans

ition

Per

iod

or C

ontin

ued

Em

ploy

men

t Per

iod

as to

any

Aff

ecte

d E

xecu

tive.

Any

pur

port

ed P

lan

term

inat

ion

or a

men

dmen

t in

viol

atio

n of

this

Sec

tion

11 s

hall

be v

oid

and

of n

o ef

fect

.N

otw

ithst

andi

ng th

e fo

rego

ing,

any

Exe

cutiv

e m

ay c

onse

nt in

wri

ting

to a

ny a

men

dmen

t or

term

inat

ion

of th

is P

lan.

Art

icle

12

Mis

cella

neou

s P

rovi

sion

s

12.0

1 Su

cces

sors

. Thi

s Pl

an s

hall

be b

indi

ng u

pon

the

Com

pany

and

its

succ

esso

rs a

nd a

ssig

ns. S

ubje

ct to

sat

isfa

ctio

n of

the

cond

ition

s se

t for

th in

Sec

tions

3, 4

, 5 a

nd 8

, the

Pla

n sh

all i

nure

to th

e be

nefi

tof

the

Exe

cutiv

es a

nd th

eir

resp

ectiv

e su

cces

sors

, hei

rs a

nd p

erm

itted

ass

igns

.

12.0

2 E

xecu

tive

Info

rmat

ion.

Eac

h E

xecu

tive

shal

l not

ify

the

Com

mitt

ee o

f hi

s or

her

mai

ling

addr

ess

and

each

cha

nge

of m

ailin

g ad

dres

s to

the

exte

nt th

at h

e or

she

has

not

pre

viou

sly

info

rmed

the

Com

pany

ther

eof.

In

addi

tion,

eac

h E

xecu

tive

shal

l fur

nish

the

Com

mitt

ee w

ith a

ny o

ther

info

rmat

ion

and

data

that

the

Com

mitt

ee r

easo

nabl

y co

nsid

ers

nece

ssar

y fo

r th

e pr

oper

adm

inis

trat

ion

of th

is P

lan.

The

info

rmat

ion

prov

ided

by

the

Exe

cutiv

e un

der

this

Sec

tion

shal

l be

bind

ing

upon

the

Exe

cutiv

e, h

is o

r he

r de

pend

ents

and

any

ben

efic

iari

es f

or a

ll pu

rpos

es o

f th

is P

lan.

The

Com

mitt

ee s

hall

be e

ntitl

edto

rel

y on

any

rep

rese

ntat

ions

reg

ardi

ng p

erso

nal f

acts

mad

e by

an

Exe

cutiv

e, h

is o

r he

r de

pend

ents

or

bene

fici

arie

s, u

nles

s it

has

know

ledg

e th

at s

uch

repr

esen

tatio

ns a

re f

alse

.

12.0

3 Pa

ymen

ts to

Ben

efic

iary

. If

an E

xecu

tive

dies

bef

ore

rece

ivin

g am

ount

s to

whi

ch h

e is

ent

itled

und

er th

is P

lan,

suc

h am

ount

s sh

all b

e pa

id to

the

Ben

efic

iary

(as

def

ined

bel

ow)

or if

non

e, to

the

Exe

cutiv

e's

esta

te. I

f a

Ben

efic

iary

die

s be

fore

com

plet

e pa

ymen

t of

any

bene

fits

attr

ibut

able

to a

dec

ease

d E

xecu

tive,

the

rem

aini

ng b

enef

its s

hall

be p

aid

the

Ben

efic

iary

's e

stat

e. F

or p

urpo

ses

of th

is P

lan,

gp

y

a B

enef

icia

ry s

hall

mea

n an

y Pe

rson

or

Pers

ons,

incl

udin

g an

y en

tity

whi

ch is

tax-

exem

pt u

nder

Sec

tion

501(

c)(3

) of

the

Inte

rnal

Rev

enue

Cod

e, d

esig

nate

d in

wri

ting

by a

n E

xecu

tive.

21

12.0

4 N

otic

es. A

ny n

otic

e, r

eque

st, e

lect

ion,

or

othe

r of

fici

al c

omm

unic

atio

n un

der

this

Pla

n sh

all b

e in

wri

ting

and

shal

l be

deliv

ered

per

sona

lly, b

y co

urie

r se

rvic

e, b

y re

gist

ered

or

cert

ifie

d m

ail,

retu

rnre

ceip

t req

uest

ed o

r by

tele

copy

and

sha

ll be

eff

ectiv

e up

on a

ctua

l rec

eipt

by

the

part

y to

whi

ch s

uch

notic

e sh

all b

e di

rect

ed, a

nd s

hall

be a

ddre

ssed

as

follo

ws:

(i)

if to

the

Com

pany

, McD

onal

d's

Cor

pora

tion,

One

McD

onal

d's

Plaz

a, O

ak B

rook

IL

605

23, A

ttent

ion:

Cor

pora

te S

ecre

tary

, and

(ii)

if to

an

Exe

cutiv

e, th

e la

st m

ailin

g ad

dres

s as

spe

cifi

ed b

y th

e E

xecu

tive

in a

ccor

danc

e w

ith S

ectio

n12

.02.

12.0

5 N

o E

mpl

oym

ent C

ontr

act.

The

exi

sten

ce o

f th

is P

lan

shal

l not

con

fer

any

lega

l or

othe

r ri

ghts

upo

n an

y E

xecu

tive

to a

con

tinua

tion

of e

mpl

oym

ent.

The

Com

pany

and

eac

h su

cces

sor

ther

eof

rese

rves

the

righ

t to

term

inat

e th

e em

ploy

men

t of

any

Exe

cutiv

e, w

ith o

r w

ithou

t cau

se, a

t any

tim

e, n

otw

ithst

andi

ng th

e ex

iste

nce

of th

is P

lan.

12.0

6 N

on-A

liena

tion.

Exc

ept t

o th

e ex

tent

exp

ress

ly p

erm

itted

by

law

, no

Exe

cutiv

e sh

all h

ave

the

righ

t to

assi

gn, t

rans

fer

or a

ntic

ipat

e an

inte

rest

in a

ny b

enef

it un

der

this

Pla

n.

12.0

7 Se

vera

bilit

y. I

f an

y on

e or

mor

e ar

ticle

s, s

ectio

ns o

r ot

her

port

ions

of

this

Pla

n ar

e de

clar

ed b

y an

y co

urt o

r go

vern

men

tal a

utho

rity

to b

e un

law

ful o

r in

valid

, suc

h un

law

fuln

ess

or in

valid

ity s

hall

not

serv

e to

inva

lidat

e an

y ar

ticle

, sec

tion

or o

ther

por

tion

not s

o de

clar

ed to

be

unla

wfu

l or

inva

lid. A

ny a

rtic

le, s

ectio

n or

oth

er p

ortio

n so

dec

lare

d to

be

unla

wfu

l or

inva

lid s

hall

be c

onst

rued

so

as to

effe

ctua

te th

e te

rms

of s

uch

artic

le, s

ectio

n or

oth

er p

ortio

n to

the

fulle

st e

xten

t pos

sibl

e w

hile

rem

aini

ng la

wfu

l and

val

id.

12.0

8 N

o W

aive

r. A

n E

xecu

tive'

s fa

ilure

to in

sist

upo

n st

rict

com

plia

nce

with

any

pro

visi

on o

f th

is P

lan

shal

l not

be

deem

ed a

wai

ver

of s

uch

prov

isio

n or

any

oth

er p

rovi

sion

of

this

Pla

n. A

n E

xecu

tive

may

wai

ve a

ny o

r al

l of

the

prov

isio

ns o

f th

is P

lan

only

by

sign

ing

a do

cum

ent t

o th

at e

ffec

t. A

wai

ver

of a

ny p

rovi

sion

of

this

Pla

n sh

all n

ot b

e de

emed

a w

aive

r of

any

oth

er p

rovi

sion

, and

any

wai

ver

ofan

y de

faul

t in

any

such

pro

visi

on s

hall

not b

e de

emed

a w

aive

r of

any

late

r de

faul

t the

reof

or

of a

ny o

ther

pro

visi

on.

12.0

9 G

over

ning

Law

. To

the

exte

nt n

ot p

reem

pted

by

fede

ral l

aw, t

his

Plan

sha

ll be

inte

rpre

ted

and

cons

true

d in

acc

orda

nce

with

the

law

s of

the

Stat

e of

Illi

nois

, with

out r

egar

d to

any

oth

erw

ise

appl

icab

le c

onfl

icts

of

law

or

choi

ce o

f la

w p

rinc

iple

s.

12.1

0 C

onst

ruct

ion.

Any

mas

culin

e pe

rson

al p

rono

un s

hall

be c

onsi

dere

d to

mea

n al

so th

e co

rres

pond

ing

fem

inin

e or

neu

ter

pers

onal

pro

noun

, as

the

cont

ext r

equi

res.

The

sin

gula

r an

d pl

ural

for

ms

of a

nyte

rm u

sed

in th

is P

lan

shal

l be

inte

rcha

ngea

ble,

as

the

cont

ext r

equi

res.

12.1

1 C

aptio

ns. T

he c

aptio

ns o

f th

e Se

ctio

ns a

nd A

rtic

les

of th

is P

lan

are

not a

par

t of

the

prov

isio

ns h

ereo

f an

d sh

all h

ave

no f

orce

or

effe

ct.

22

App

endi

x A

Tie

r I

Exe

cuti

ves

Jack

Gre

enbe

rgJi

m C

anta

lupo

Tie

r II

Exe

cuti

ves

Cla

ire

Bab

row

ski

Mik

e C

onle

yA

lan

Feld

man

Jeff

Kin

dler

Jim

Ski

nner

Stan

Ste

in

Star

t D

ates

Tie

r I

Exe

cutiv

es: A

pril

29, 1

998

Tie

r II

Exe

cutiv

es: O

ctob

er 1

, 199

8

23

gp

y

Exh

ibit

10(

k)

For

m o

f

McD

onal

d's

Cor

pora

tion

Tie

r I

Cha

nge

of C

ontr

ol E

mpl

oym

ent A

gree

men

t

(Aut

hori

zed

by th

e B

oard

of

Dir

ecto

rs a

nd e

xpec

ted

to b

e en

tere

d in

to b

etw

een

the

Com

pany

and

cer

tain

key

exe

cutiv

es)

McD

onal

d's

Cor

pora

tion

Tie

r I

Cha

nge

of C

ontr

ol E

mpl

oym

ent

Agr

eem

ent

TH

IS A

GR

EE

ME

NT

dat

ed a

s of

___

____

, 200

2 (t

he "

Agr

eem

ent D

ate"

) is

mad

e by

and

am

ong

McD

onal

d's

Cor

pora

tion,

a D

elaw

are

corp

orat

ion

(the

"C

ompa

ny")

, and

___

____

____

("E

xecu

tive"

).

RE

CIT

AL

S

The

Com

pany

has

det

erm

ined

that

it is

in th

e be

st in

tere

sts

of th

e C

ompa

ny a

nd it

s st

ockh

olde

rs to

ass

ure

that

the

Com

pany

will

hav

e th

e co

ntin

ued

serv

ice

of E

xecu

tive.

The

Com

pany

als

o be

lieve

s it

isim

pera

tive

to r

educ

e th

e di

stra

ctio

n of

Exe

cutiv

e th

at w

ould

res

ult f

rom

the

pers

onal

unc

erta

intie

s ca

used

by

a pe

ndin

g or

thre

aten

ed c

hang

e of

con

trol

of

the

Com

pany

, to

enco

urag

e E

xecu

tive'

s fu

llat

tent

ion

and

dedi

catio

n to

the

Com

pany

, and

to p

rovi

de E

xecu

tive

with

com

pens

atio

n an

d be

nefi

ts a

rran

gem

ents

upo

n a

chan

ge o

f co

ntro

l whi

ch e

nsur

e th

at th

e ex

pect

atio

ns o

f E

xecu

tive

will

be

satis

fied

and

are

com

petit

ive

with

thos

e of

sim

ilarl

y-si

tuat

ed c

orpo

ratio

ns. T

his

Agr

eem

ent i

s in

tend

ed to

acc

ompl

ish

thes

e ob

ject

ives

.

AR

TIC

LE

I.

CE

RT

AIN

DE

FIN

ITIO

NS

As

used

in th

is A

gree

men

t, th

e te

rms

spec

ifie

d be

low

sha

ll ha

ve th

e fo

llow

ing

mea

ning

s:

1.1

"Acc

rued

Ann

ual B

onus

" m

eans

the

amou

nt o

f an

y A

nnua

l Bon

us e

arne

d bu

t not

yet

pai

d w

ith r

espe

ct to

the

Com

pany

's la

test

fis

cal y

ear

ende

d pr

ior

to th

e T

erm

inat

ion

Dat

e.

1.2

"Acc

rued

Bas

e Sa

lary

" m

eans

the

amou

nt o

f E

xecu

tive'

s B

ase

Sala

ry th

at is

ear

ned

but n

ot y

et p

aid

as o

f th

e T

erm

inat

ion

Dat

e.

1.3

"Acc

rued

Obl

igat

ions

" m

eans

, as

of a

ny d

ate,

the

sum

of

Exe

cutiv

e's

Acc

rued

Bas

e Sa

lary

, Acc

rued

Ann

ual B

onus

, any

acc

rued

but

unp

aid

vaca

tion

pay,

and

any

oth

er a

mou

nts

and

bene

fits

whi

ch a

reth

en d

ue to

be

paid

or

prov

ided

to E

xecu

tive

by th

e C

ompa

ny, b

ut h

ave

not y

et b

een

paid

or

prov

ided

(as

app

licab

le).

1.4

"Agr

eem

ent D

ate"

--

see

the

intr

oduc

tory

par

agra

ph o

f th

is A

gree

men

t.

1.5

"Agr

eem

ent T

erm

" m

eans

the

peri

od c

omm

enci

ng o

n th

e A

gree

men

t Dat

e an

d en

ding

on

the

thir

d an

nive

rsar

y of

the

Agr

eem

ent D

ate

or, i

f la

ter,

the

date

to w

hich

the

Agr

eem

ent T

erm

is e

xten

ded

unde

r th

e fo

llow

ing

sent

ence

, or,

if e

arlie

r, a

s te

rmin

ated

und

er S

ectio

n 9.

4. C

omm

enci

ng o

n th

e fi

rst a

nniv

ersa

ry o

f th

e A

gree

men

t Dat

e, th

e A

gree

men

t Ter

m s

hall

auto

mat

ical

ly b

e ex

tend

ed o

n su

ch d

ate

and

on e

ach

day

ther

eaft

er b

y on

e da

y un

til, a

t any

time

afte

r th

e fi

rst a

nniv

ersa

ry o

f th

e A

gree

men

t Dat

e, th

e C

ompa

ny d

eliv

ers

wri

tten

notic

e (a

n "E

xpir

atio

n N

otic

e")

to E

xecu

tive

that

the

Agr

eem

ent s

hall

expi

re o

n a

date

spe

cifi

ed in

the

Exp

irat

ion

Not

ice

(the

"E

xpir

atio

n D

ate"

); p

rovi

ded

that

suc

h da

te is

not

pri

or to

the

last

day

of

the

Agr

eem

ent T

erm

(as

ext

ende

d); p

rovi

ded

furt

her,

how

ever

, tha

t if

an E

ffec

tive

Dat

e or

an

Imm

inen

t Cha

nge

Dat

eoc

curs

bef

ore

the

Exp

irat

ion

Dat

e sp

ecif

ied

in th

e E

xpir

atio

n N

otic

e, th

en s

uch

Exp

irat

ion

Not

ice

shal

l be

void

and

of

no f

urth

er e

ffec

t.

1.6

"Ann

ual B

onus

" --

see

Sec

tion

2.2(

b).

1.7

"Ann

ual P

erfo

rman

ce P

erio

d" -

- se

e Se

ctio

n 2.

2(b)

.

1.8

"Art

icle

" m

eans

an

artic

le o

f th

is A

gree

men

t.

gp

y

1.9

"Bas

e Sa

lary

" --

see

Sec

tion

2.2(

a).

1.10

"B

enef

icia

l Ow

ners

hip"

has

the

mea

ning

spe

cifi

ed in

Rul

e 13

d-3

of th

e SE

C u

nder

Exc

hang

e A

ct f

or a

"B

enef

icia

l Ow

ner.

"

1.11

"B

enef

icia

ry"

-- s

ee S

ectio

n 10

.3.

1.12

"B

oard

" m

eans

the

Com

pany

's B

oard

of

Dir

ecto

rs.

1.13

"B

onus

Pla

n" -

- se

e Se

ctio

n 2.

2(b)

.

1.14

"B

usin

ess

Com

bina

tion"

mea

ns a

reo

rgan

izat

ion,

mer

ger,

sta

tuto

ry s

hare

exc

hang

e or

con

solid

atio

n or

sim

ilar

corp

orat

e tr

ansa

ctio

n in

volv

ing

the

Com

pany

and

/or

any

entit

y co

ntro

lled

by th

eC

ompa

ny, o

r a

sale

or

othe

r di

spos

ition

of

all o

r su

bsta

ntia

lly a

ll of

the

asse

ts o

f th

e C

ompa

ny, o

r th

e ac

quis

ition

of

asse

ts o

r st

ock

of a

noth

er e

ntity

by

the

Com

pany

or

any

entit

y co

ntro

lled

by th

eC

ompa

ny.

1.15

"C

ause

" m

eans

any

one

or

mor

e of

the

follo

win

g:

(a)

Exe

cutiv

e's

conv

ictio

n of

a f

elon

y or

oth

er c

rim

e in

volv

ing

frau

d, d

isho

nest

y or

mor

al tu

rpitu

de, e

xclu

ding

Lim

ited

Vic

ario

us L

iabi

lity;

(b)

Exe

cutiv

e's

will

ful o

r re

ckle

ss m

ater

ial m

isco

nduc

t in

the

perf

orm

ance

of

Exe

cutiv

e's

dutie

s;

(c)

Exe

cutiv

e's

will

ful h

abitu

al n

egle

ct o

f m

ater

ial d

utie

s; o

r

(d)

Exe

cutiv

e's

will

ful o

r in

tent

iona

l mat

eria

l bre

ach

of th

is A

gree

men

t;

prov

ided

, how

ever

, tha

t for

pur

pose

s of

cla

uses

(b)

, (c)

, and

(d)

, Cau

se s

hall

not i

nclu

de a

ny o

ne o

r m

ore

of th

e fo

llow

ing:

(i)

bad

judg

men

t or

negl

igen

ce;

(ii)

any

act

or

omis

sion

bel

ieve

d by

Exe

cutiv

e in

goo

d fa

ith to

hav

e be

en in

or

not o

ppos

ed to

the

inte

rest

of

the

Com

pany

(w

ithou

t int

ent o

f E

xecu

tive

-2-

to g

ain,

dir

ectly

or

indi

rect

ly, a

pro

fit t

o w

hich

Exe

cutiv

e w

as n

ot le

gally

ent

itled

);

(iii)

any

act

or

omis

sion

with

res

pect

to w

hich

a d

eter

min

atio

n co

uld

prop

erly

hav

e be

en m

ade

by th

e B

oard

that

Exe

cutiv

e m

et th

e ap

plic

able

sta

ndar

d of

con

duct

for

inde

mni

fica

tion

or r

eim

burs

emen

tun

der

the

Com

pany

's b

y-la

ws,

any

app

licab

le in

dem

nifi

catio

n ag

reem

ent,

or a

pplic

able

law

, in

each

cas

e in

eff

ect a

t the

tim

e of

suc

h ac

t or

omis

sion

; or

(iv)

any

act

or

omis

sion

with

res

pect

to w

hich

the

Com

pany

giv

es E

xecu

tive

a N

otic

e of

Con

side

ratio

n m

ore

than

six

(6)

mon

ths

afte

r th

e ea

rlie

st d

ate

on w

hich

any

mem

ber

of th

e B

oard

, not

a p

arty

to th

eac

t or

omis

sion

, kne

w o

r sh

ould

hav

e kn

own

of s

uch

act o

r om

issi

on; a

nd

furt

her

prov

ided

that

, if

a br

each

of

this

Agr

eem

ent i

nvol

ved

an a

ct, o

r a

failu

re to

act

, whi

ch w

as d

one,

or

omitt

ed to

be

done

, by

Exe

cutiv

e in

goo

d fa

ith a

nd w

ith a

rea

sona

ble

belie

f th

at E

xecu

tive'

s ac

t, or

failu

re to

act

, was

in th

e be

st in

tere

sts

of th

e C

ompa

ny o

r w

as r

equi

red

by a

pplic

able

law

or

adm

inis

trat

ive

regu

latio

n, s

uch

brea

ch s

hall

not c

onst

itute

Cau

se if

, with

in th

irty

(30

) da

ys a

fter

Exe

cutiv

e is

give

n w

ritte

n no

tice

of s

uch

brea

ch th

at s

peci

fica

lly r

efer

s to

this

Sec

tion,

Exe

cutiv

e cu

res

such

bre

ach

to th

e fu

llest

ext

ent t

hat i

t is

cura

ble.

1.16

"C

hang

e of

Con

trol

" m

eans

the

happ

enin

g of

any

of

the

follo

win

g ev

ents

:

(a)

the

acqu

isiti

on b

y an

y Pe

rson

of

"ben

efic

ial o

wne

rshi

p" (

with

in th

e m

eani

ng o

f R

ule

13d-

3 pr

omul

gate

d un

der

the

1934

Act

) of

20%

or

mor

e of

eith

er (

A)

the

then

-out

stan

ding

sha

res

of S

tock

("O

utst

andi

ng C

ompa

ny C

omm

on S

tock

") o

r (B

) th

e co

mbi

ned

votin

g po

wer

of

the

then

-out

stan

ding

vot

ing

secu

ritie

s of

the

Com

pany

ent

itled

to v

ote

gene

rally

in th

e el

ectio

n of

dir

ecto

rs (

the

"Out

stan

ding

Com

pany

Vot

ing

Secu

ritie

s");

pro

vide

d, h

owev

er, t

hat,

for

purp

oses

of

this

Sect

ion

1.16

(a),

the

follo

win

g ac

quis

ition

s sh

all n

ot c

onst

itute

a C

hang

e of

Con

trol

: (1)

any

acq

uisi

tion

dire

ctly

fro

m th

e C

ompa

ny, (

2) a

ny a

cqui

sitio

n by

the

Com

pany

, (3)

any

acq

uisi

tion

by a

nyem

ploy

ee b

enef

it pl

an (

or r

elat

ed tr

ust)

spo

nsor

ed o

r m

aint

aine

d by

the

Com

pany

or

any

entit

y co

ntro

lled

by th

e C

ompa

ny, o

r (4

) an

y ac

quis

ition

by

any

entit

y pu

rsua

nt to

a tr

ansa

ctio

n th

at c

ompl

ies

with

Sect

ions

1.16

(c)(

i), (

ii) a

nd (

iii);

or

(b)

indi

vidu

als

who

, as

of th

e da

te h

ereo

f, c

onst

itute

the

Boa

rd (

the

"Inc

umbe

nt B

oard

") c

ease

for

any

rea

son

to c

onst

itute

at l

east

a m

ajor

ity o

f th

e B

oard

; pro

vide

d, h

owev

er, t

hat a

ny in

divi

dual

bec

omin

ga

dire

ctor

sub

sequ

ent t

o th

e da

te h

ereo

f w

hose

ele

ctio

n, o

r no

min

atio

n fo

r el

ectio

n by

the

Com

pany

's s

hare

hold

ers,

was

app

rove

d by

a v

ote

of a

t lea

st a

maj

ority

of

the

dire

ctor

s th

en c

ompr

isin

g th

eIn

cum

bent

Boa

rd s

hall

be c

onsi

dere

d as

thou

gh s

uch

indi

vidu

al w

ere

a m

embe

r of

the

Incu

mbe

nt B

oard

, but

exc

ludi

ng, f

or th

is p

urpo

se, a

ny s

uch

indi

vidu

al w

hose

initi

al a

ssum

ptio

n of

off

ice

occu

rs a

s a

resu

lt of

an

actu

al o

r th

reat

ened

ele

ctio

n co

ntes

t with

res

pect

to th

e el

ectio

n or

rem

oval

of

dire

ctor

s or

oth

er a

ctua

l or

thre

aten

ed s

olic

itatio

n of

pro

xies

or

cons

ents

by

or o

n be

half

of

a Pe

rson

oth

er th

an th

e

gp

y

Boa

rd; o

r

-3-

(c)

cons

umm

atio

n of

a r

eorg

aniz

atio

n, m

erge

r, s

tatu

tory

sha

re e

xcha

nge

of c

onso

lidat

ion

or s

imila

r co

rpor

ate

tran

sact

ion

invo

lvin

g th

e C

ompa

ny a

nd/o

r an

y en

tity

cont

rolle

d by

the

Com

pany

, or

a sa

le o

rot

her

disp

ositi

on o

f al

l or

subs

tant

ially

all

of th

e as

sets

of

the

Com

pany

, or

the

acqu

isiti

on o

f as

sets

or

stoc

k of

ano

ther

ent

ity b

y th

e C

ompa

ny o

r an

y en

tity

cont

rolle

d by

the

Com

pany

(ea

ch, a

"B

usin

ess

Com

bina

tion"

), in

eac

h ca

se, u

nles

s, f

ollo

win

g su

ch B

usin

ess

Com

bina

tion,

(i)

all

or s

ubst

antia

lly a

ll of

the

indi

vidu

als

and

entit

ies

that

wer

e th

e be

nefi

cial

ow

ners

of

the

Out

stan

ding

Com

pany

Com

mon

Stoc

k an

d O

utst

andi

ng C

ompa

ny V

otin

g Se

curi

ties

imm

edia

tely

pri

or to

suc

h B

usin

ess

Com

bina

tion

bene

fici

ally

ow

n, d

irec

tly o

r in

dire

ctly

, mor

e th

an 6

0% o

f th

e th

en-o

utst

andi

ng s

hare

s of

com

mon

sto

ckan

d th

e co

mbi

ned

votin

g po

wer

of

the

then

-out

stan

ding

vot

ing

secu

ritie

s en

title

d to

vot

e ge

nera

lly in

the

elec

tion

of d

irec

tors

, as

the

case

may

be,

of

the

corp

orat

ion

resu

lting

fro

m s

uch

Bus

ines

sC

ombi

natio

n (i

nclu

ding

, with

out l

imita

tion,

an

entit

y th

at, a

s a

resu

lt of

suc

h tr

ansa

ctio

n, o

wns

the

Com

pany

or

all o

r su

bsta

ntia

lly a

ll of

the

Com

pany

's a

sset

s ei

ther

dir

ectly

or

thro

ugh

one

or m

ore

subs

idia

ries

) in

sub

stan

tially

the

sam

e pr

opor

tions

as

thei

r ow

ners

hip,

imm

edia

tely

pri

or to

suc

h B

usin

ess

Com

bina

tion

of th

e O

utst

andi

ng C

ompa

ny C

omm

on S

tock

and

Out

stan

ding

Com

pany

Vot

ing

Secu

ritie

s, a

s th

e ca

se m

ay b

e, (

ii) n

o Pe

rson

(ex

clud

ing

any

entit

y re

sulti

ng f

rom

suc

h B

usin

ess

Com

bina

tion

or a

ny e

mpl

oyee

ben

efit

plan

(or

rel

ated

trus

t) o

f th

e C

ompa

ny o

r su

ch e

ntity

res

ultin

g fr

omsu

ch B

usin

ess

Com

bina

tion)

ben

efic

ially

ow

ns, d

irec

tly o

r in

dire

ctly

, 20%

or

mor

e of

, res

pect

fully

, the

then

-out

stan

ding

sha

res

of c

omm

on s

tock

of

the

corp

orat

ion

resu

lting

fro

m s

uch

Bus

ines

sC

ombi

natio

n or

the

com

bine

d vo

ting

pow

er o

f th

e th

en-o

utst

andi

ng v

otin

g se

curi

ties

of s

uch

corp

orat

ion,

exc

ept t

o th

e ex

tent

that

suc

h ow

ners

hip

exis

ted

prio

r to

the

Bus

ines

s C

ombi

natio

n, a

nd (

iii)

atle

ast a

maj

ority

of

the

mem

bers

of

the

boar

d of

dir

ecto

rs o

f th

e en

tity

resu

lting

fro

m s

uch

Bus

ines

s C

ombi

natio

n w

ere

mem

bers

of

the

Incu

mbe

nt B

oard

at t

he ti

me

of th

e ex

ecut

ion

of th

e in

itial

agr

eem

ent,

or o

f th

e ac

tion

of th

e B

oard

, pro

vidi

ng f

or s

uch

Bus

ines

s C

ombi

natio

n; o

r

(d)

appr

oval

by

the

shar

ehol

ders

of

the

Com

pany

of

a co

mpl

ete

liqui

datio

n or

dis

solu

tion

of th

e C

ompa

ny.

1.17

"C

ode"

mea

ns th

e In

tern

al R

even

ue C

ode

of 1

986,

as

amen

ded.

1.18

"C

ompa

ny"

mea

ns M

cDon

ald'

s C

orpo

ratio

n.

1.19

"C

ompa

ny C

ertif

icat

e" -

- se

e Se

ctio

n 5.

1(a)

.

1.20

"C

ompa

ny C

ouns

el O

pini

on"

-- s

ee S

ectio

n 5.

5.

1.21

"C

onfi

dent

ial I

nfor

mat

ion"

mea

ns a

ny in

form

atio

n no

t gen

eral

ly k

now

n in

the

rele

vant

trad

e or

indu

stry

of

the

Com

pany

, whi

ch w

as o

btai

ned

from

the

Com

pany

, or

whi

ch w

as le

arne

d, d

isco

vere

d,de

velo

ped,

con

ceiv

ed, o

rigi

nate

d or

pre

pare

d du

ring

or

as a

res

ult o

f th

e pe

rfor

man

ce o

f an

y se

rvic

es b

y E

xecu

tive

on b

ehal

f of

the

Com

pany

and

whi

ch:

(a)

rela

tes

to o

ne o

r m

ore

of th

e fo

llow

ing:

(i)

trad

e se

cret

s of

the

Com

pany

or

any

cust

omer

or

supp

lier

of th

e C

ompa

ny;

-4-

(ii)

exi

stin

g or

con

tem

plat

ed p

rodu

cts,

ser

vice

s, te

chno

logy

, des

igns

, pro

cess

es, f

orm

ulae

, alg

orith

ms,

res

earc

h or

pro

duct

dev

elop

men

ts o

f th

e C

ompa

ny o

r an

y cu

stom

er o

r su

pplie

r of

the

Com

pany

;

(iii)

bus

ines

s pl

ans,

sal

es o

r m

arke

ting

met

hods

, met

hods

of

doin

g bu

sine

ss, c

usto

mer

list

s, c

usto

mer

usa

ges

and/

or r

equi

rem

ents

, sup

plie

r in

form

atio

n of

the

Com

pany

or

any

cust

omer

or

supp

lier

of th

eC

ompa

ny; o

r

(iv)

info

rmat

ion

obta

ined

by

the

Com

pany

fro

m a

thir

d pa

rty

and

whi

ch th

e C

ompa

ny is

req

uire

d to

pre

serv

e as

con

fide

ntia

l pur

suan

t to

a co

nfid

entia

lity

agre

emen

t, ap

plic

able

law

or

cour

t or

adm

inis

trat

ive

orde

r;

(b)

the

Com

pany

or

any

cust

omer

or

supp

lier

of th

e C

ompa

ny m

ay r

easo

nabl

y ha

ve th

e ri

ght t

o pr

otec

t by

pate

nt, c

opyr

ight

or

by k

eepi

ng it

sec

ret a

nd c

onfi

dent

ial;

or

(c)

othe

rwis

e of

fers

the

Com

pany

a c

ompe

titiv

e ad

vant

age

in th

e re

leva

nt in

dust

ry o

r in

any

oth

er b

usin

ess

in w

hich

the

Com

pany

is e

ngag

ed.

Con

fide

ntia

l Inf

orm

atio

n do

es n

ot in

clud

e an

y in

form

atio

n th

at is

or

may

bec

ome

publ

icly

kno

wn

othe

r th

an th

roug

h th

e im

prop

er a

ctio

ns o

f E

xecu

tive.

1.22

"C

onsu

mm

atio

n D

ate"

mea

ns th

e da

te u

pon

whi

ch a

Bus

ines

s C

ombi

natio

n is

con

sum

mat

ed.

1.23

"D

isab

ility

" m

eans

any

med

ical

ly d

eter

min

able

phy

sica

l or

men

tal i

mpa

irm

ent t

hat h

as la

sted

for

a c

ontin

uous

per

iod

of n

ot le

ss th

an s

ix (

6) m

onth

s an

d ca

n be

exp

ecte

d to

be

perm

anen

t or

ofin

defi

nite

dur

atio

n, a

nd th

at r

ende

rs E

xecu

tive

unab

le to

per

form

the

dutie

s re

quir

ed u

nder

this

Agr

eem

ent.

1.24

"D

isab

ility

Eff

ectiv

e D

ate"

--

see

Sect

ion

3.1.

1.25

"E

ffec

tive

Dat

e" m

eans

eac

h da

te o

n w

hich

a C

hang

e of

Con

trol

fir

st o

ccur

s du

ring

the

Agr

eem

ent T

erm

.

gp

y

1.26

"E

mpl

oyer

Def

ined

Con

trib

utio

n Pl

an C

ontr

ibut

ion"

mea

ns th

e pr

oduc

t of

(i)

the

aver

age

annu

al p

erce

ntag

e of

Exe

cutiv

e's

annu

al b

ase

sala

ry p

aid

with

in th

e th

ree-

year

per

iod

imm

edia

tely

pre

cedi

ngth

e E

ffec

tive

Dat

e by

the

Com

pany

to o

r fo

r th

e be

nefi

t of

Exe

cutiv

e as

an

empl

oyer

con

trib

utio

n un

der

the

Com

pany

's N

on-Q

ualif

ied

Plan

s an

d Q

ualif

ied

Plan

s w

hich

are

def

ined

con

trib

utio

n pl

ans

onbe

half

of

Exe

cutiv

e, m

ultip

lied

by (

ii) E

xecu

tive'

s B

ase

Sala

ry a

s of

the

Ter

min

atio

n D

ate

or, i

f gr

eate

r, d

urin

g th

e 12

-mon

th p

erio

d im

med

iate

ly p

rece

ding

the

Eff

ectiv

e D

ate.

1.27

"E

xcha

nge

Act

" m

eans

the

Secu

ritie

s E

xcha

nge

Act

of

1934

.

1.28

"E

xcis

e T

axes

" -

- se

e Se

ctio

n 5.

1(a)

.

1.29

"E

xecu

tive

Cou

nsel

Opi

nion

" -

- se

e Se

ctio

n 5.

5.

-5-

1.30

"E

xecu

tive

Ret

entio

n Pl

an"

mea

ns th

e C

ompa

ny's

Exe

cutiv

e R

eten

tion

Plan

, as

amen

ded

and

rest

ated

Mar

ch 2

0, 2

001,

and

as

furt

her

amen

ded

from

tim

e to

tim

e.

1.31

"E

xecu

tive

Ret

entio

n Pl

an B

enef

its"

mea

ns th

e su

m o

f th

e ca

sh s

ever

ance

ben

efits

, if

any,

pai

d or

pay

able

to E

xecu

tive

purs

uant

to S

ectio

n7.

01 o

f th

e C

ompa

ny's

Exe

cutiv

e R

eten

tion

Plan

.

1.32

"E

xecu

tive'

s G

ross

-Up

Det

erm

inat

ion"

- -

see

Sec

tion

5.2(

a).

1.33

"G

ood

Rea

son"

mea

ns th

e oc

curr

ence

of

any

one

or m

ore

of th

e fo

llow

ing

actio

ns o

r om

issi

ons

that

, unl

ess

othe

rwis

e sp

ecif

ied,

occ

urs

duri

ng a

Pos

t-C

hang

e E

mpl

oym

ent P

erio

d:

(a)

any

failu

re to

pay

Exe

cutiv

e's

Bas

e Sa

lary

or

Ann

ual B

onus

in v

iola

tion

of S

ectio

n 2.

2 or

any

fai

lure

to in

crea

se E

xecu

tive'

s B

ase

Sala

ry to

the

exte

nt, i

f an

y, r

equi

red

by s

uch

Sect

ion;

(b)

any

failu

re b

y th

e C

ompa

ny to

com

ply

with

any

pro

visi

on o

f A

rtic

le I

I;

(c)

any

mat

eria

l adv

erse

cha

nge

in E

xecu

tive'

s po

sitio

n (i

nclu

ding

off

ices

, titl

es, r

epor

ting

requ

irem

ents

or

resp

onsi

bilit

ies)

, aut

hori

ty, d

utie

s or

oth

er te

rms

and

cond

ition

s of

Exe

cutiv

e's

empl

oym

ent;

(d)

requ

irin

g E

xecu

tive

to b

e ba

sed

at a

ny o

ffic

e or

loca

tion

othe

r th

an th

e lo

catio

n sp

ecif

ied

in S

ectio

n 2.

1(a)

;

(e)

any

mat

eria

l bre

ach

of th

is A

gree

men

t by

the

Com

pany

;

(f)

any

Ter

min

atio

n of

Em

ploy

men

t by

the

Com

pany

that

pur

port

s to

be

for

Cau

se, b

ut is

not

in f

ull c

ompl

ianc

e w

ith a

ll of

the

subs

tant

ive

and

proc

edur

al r

equi

rem

ents

of

this

Agr

eem

ent (

any

such

purp

orte

d te

rmin

atio

n sh

all b

e tr

eate

d as

a T

erm

inat

ion

of E

mpl

oym

ent w

ithou

t Cau

se f

or a

ll pu

rpos

es o

f th

is A

gree

men

t);

(g)

the

failu

re a

t any

tim

e of

a s

ucce

ssor

to th

e C

ompa

ny o

r a

Pare

nt C

orpo

ratio

n of

a s

ucce

ssor

to th

e C

ompa

ny e

xplic

itly

to a

ssum

e an

d ag

ree

to b

e bo

und

by th

is A

gree

men

t; or

(h)

a T

erm

inat

ion

of E

mpl

oym

ent b

y E

xecu

tive

for

any

reas

on o

r no

rea

son

at a

ny ti

me

duri

ng th

e 30

-day

per

iod

com

men

cing

on

the

firs

t ann

iver

sary

of

the

Eff

ectiv

e D

ate.

Not

with

stan

ding

the

fore

goin

g, in

the

case

of

the

even

ts o

r ci

rcum

stan

ces

cons

titut

ing

Goo

d R

easo

n de

scri

bed

in (

a) th

roug

h (e

), a

bove

, Exe

cutiv

e m

ay te

rmin

ate

for

Goo

d R

easo

n on

ly if

the

Com

pany

fails

to c

ure

such

eve

nts

or c

ircu

mst

ance

s w

ithin

thir

ty (

30)

days

aft

er r

ecei

ving

wri

tten

notic

e fr

om E

xecu

tive

of E

xecu

tive'

s in

tent

to te

rmin

ate

for

Goo

d R

easo

n. N

o su

ch w

ritte

n no

tice

or o

ppor

tuni

ty to

cure

mus

t be

prov

ided

by

Exe

cutiv

e if

Exe

cutiv

e te

rmin

ates

for

Goo

d R

easo

n as

pro

vide

d in

(f)

thro

ugh

(h),

abo

ve, o

r in

the

even

t tha

t the

Com

pany

has

cau

sed

repe

ated

eve

nts

or c

ircu

mst

ance

s de

scri

bed

in (a)

thro

ugh

(e),

abo

ve, o

r if

the

Com

pany

's

-6-

actio

n(s)

and

/or

omis

sion

(s)

entit

ling

Exe

cutiv

e to

term

inat

e fo

r G

ood

Rea

son

wer

e ei

ther

inte

ntio

nal o

r w

illfu

l.

1.34

"G

ross

-up

Mul

tiple

" --

see

Sec

tion

5.4.

1.35

"G

ross

-up

Paym

ent"

--

see

Sect

ion

5.1(

a).

1.36

"Im

min

ent C

hang

e D

ate"

mea

ns a

ny d

ate

on w

hich

one

or

mor

e of

the

follo

win

g oc

curs

(i)

a p

rese

ntat

ion

to th

e C

ompa

ny's

sto

ckho

lder

s ge

nera

lly o

r an

y of

the

Com

pany

's d

irec

tors

or

exec

utiv

eof

fice

rs o

f a

prop

osal

or

offe

r w

hich

, if

cons

umm

ated

, wou

ld b

e a

Cha

nge

of C

ontr

ol, (

ii) th

e pu

blic

ann

ounc

emen

t (w

heth

er b

y ad

vert

isem

ent,

pres

s re

leas

e, p

ress

inte

rvie

w, p

ublic

sta

tem

ent,

SEC

fili

ng o

rot

herw

ise)

of

a pr

opos

al o

r of

fer

whi

ch if

con

sum

mat

ed w

ould

be

a C

hang

e of

Con

trol

, or

(iii)

suc

h pr

opos

al o

r of

fer

rem

ains

eff

ectiv

e an

d un

revo

ked.

1.37

"Im

min

ent C

hang

e Pe

riod

" m

eans

the

peri

od c

omm

enci

ng o

n th

e Im

min

ent C

hang

e D

ate

and

endi

ng o

n th

e ea

rlie

r to

occ

ur o

f (a

) a

Cha

nge

of C

ontr

ol o

r (b

) th

e da

te th

e of

fer

or p

ropo

sal f

or a

Cha

nge

of C

ontr

ol is

no

long

er e

ffec

tive

or h

as b

een

revo

ked.

gp

y

1.38

"In

clud

ing"

mea

ns in

clud

ing

with

out l

imita

tion.

1.39

"In

cum

bent

Boa

rd"

mea

ns, a

s of

any

spe

cifi

ed b

asel

ine

date

, ind

ivid

uals

then

ser

ving

as

mem

bers

of

the

Boa

rd w

ho w

ere

mem

bers

of

the

Boa

rd a

s of

the

date

imm

edia

tely

pre

cedi

ng s

uch

base

line

date

; pro

vide

d th

at a

ny s

ubse

quen

tly-a

ppoi

nted

or

elec

ted

mem

ber

of th

e B

oard

who

se e

lect

ion,

or

nom

inat

ion

for

elec

tion

by s

tock

hold

ers

of th

e C

ompa

ny o

r th

e Su

rviv

ing

Cor

pora

tion,

as

appl

icab

le, w

asap

prov

ed b

y a

vote

or

wri

tten

cons

ent o

f at

leas

t tw

o-th

irds

of

the

dire

ctor

s th

en c

ompr

isin

g th

e In

cum

bent

Boa

rd s

hall

also

ther

eaft

er b

e co

nsid

ered

to b

e on

the

Incu

mbe

nt B

oard

, unl

ess

the

initi

alas

sum

ptio

n of

off

ice

of s

uch

subs

eque

ntly

-ele

cted

or

appo

inte

d di

rect

or w

as in

con

nect

ion

with

(i)

an

actu

al o

r th

reat

ened

ele

ctio

n co

ntes

t, in

clud

ing

a co

nsen

t sol

icita

tion,

rel

atin

g to

the

elec

tion

orre

mov

al o

f on

e or

mor

e m

embe

rs o

f th

e B

oard

, (ii)

a "

tend

er o

ffer

" (a

s su

ch te

rm is

use

d in

Sec

tion

14(d

) of

the

Exc

hang

e A

ct),

or

(iii)

a p

ropo

sed

Bus

ines

s C

ombi

natio

n.

1.40

"IR

S" m

eans

the

Inte

rnal

Rev

enue

Ser

vice

.

1.41

"L

imite

d V

icar

ious

Lia

bilit

y" m

eans

any

liab

ility

whi

ch is

(i)

bas

ed o

n ac

ts o

f th

e C

ompa

ny f

or w

hich

Exe

cutiv

e is

res

pons

ible

sol

ely

as a

res

ult o

f hi

s of

fice

(s)

with

the

Com

pany

and

(ii)

pro

vide

dth

at (

x) h

e w

as n

ot d

irec

tly in

volv

ed in

suc

h ac

ts a

nd e

ither

had

no

prio

r kn

owle

dge

of s

uch

inte

nded

act

ions

or

prom

ptly

act

ed r

easo

nabl

y an

d in

goo

d fa

ith to

atte

mpt

to p

reve

nt th

e ac

ts c

ausi

ng s

uch

liabi

lity

or (

y) h

e di

d no

t hav

e a

reas

onab

le b

asis

to b

elie

ve th

at a

law

was

bei

ng v

iola

ted

by s

uch

acts

.

1.42

"M

axim

um A

nnua

l Bon

us"

mea

ns th

e m

axim

um b

onus

am

ount

ach

ieva

ble

by E

xecu

tive

unde

r a

Bon

us P

lan

for

a gi

ven

Ann

ual P

erfo

rman

ce P

erio

d; p

rovi

ded,

that

in n

o ev

ent s

hall

such

am

ount

be

less

than

the

amou

nt r

equi

red

to b

e pa

id p

ursu

ant t

o Se

ctio

n 2.

2(b)

.

-7-

1.43

"N

on-C

ompe

titio

n an

d R

elea

se A

gree

men

t" is

an

agre

emen

t, in

sub

stan

tially

the

form

atta

ched

her

eto

in A

nnex

A, e

xecu

ted

by a

nd b

etw

een

Exe

cutiv

e an

d th

e C

ompa

ny a

s a

cond

ition

to E

xecu

tive'

sre

ceip

t of

the

bene

fits

des

crib

ed in

Sec

tion

4.1.

1.44

"N

on-Q

ualif

ied

Plan

" m

eans

any

def

erre

d co

mpe

nsat

ion

Plan

that

is n

ot q

ualif

ied

unde

r Se

ctio

n 40

1(a)

of

the

Cod

e.

1.45

"N

otic

e of

Con

side

ratio

n" -

- s

ee S

ectio

n 3.

3(b)

(ii)

.

1.46

"N

otic

e of

Ter

min

atio

n" m

eans

a w

ritte

n no

tice

give

n in

acc

orda

nce

with

Sec

tion

10.8

whi

ch s

ets

fort

h (a

) th

e sp

ecif

ic te

rmin

atio

n pr

ovis

ion

in th

is A

gree

men

t rel

ied

upon

by

the

part

y gi

ving

suc

hno

tice,

(b)

in r

easo

nabl

e de

tail

the

spec

ific

fac

ts a

nd c

ircu

mst

ance

s cl

aim

ed to

pro

vide

a b

asis

for

suc

h T

erm

inat

ion

of E

mpl

oym

ent,

and

(c)

if th

e T

erm

inat

ion

Dat

e is

oth

er th

an th

e da

te o

f re

ceip

t of

such

Not

ice

of T

erm

inat

ion,

the

Ter

min

atio

n D

ate.

1.47

"O

utst

andi

ng C

ompa

ny C

omm

on S

tock

" m

eans

Sha

res

of S

tock

of

the

Com

pany

that

are

out

stan

ding

as

of th

e E

ffec

tive

Dat

e.

1.48

"O

utst

andi

ng C

ompa

ny V

otin

g Se

curi

ties"

mea

ns V

otin

g Se

curi

ties

of th

e C

ompa

ny th

at a

re o

utst

andi

ng a

s of

the

Eff

ectiv

e D

ate.

1.49

"Pa

rent

Cor

pora

tion"

mea

ns a

cor

pora

tion

whi

ch o

wns

50%

or

mor

e of

the

com

mon

sto

ck o

r V

otin

g Se

curi

ties

of a

ny c

orpo

ratio

n an

d an

y ot

her

corp

orat

ion

whi

ch o

wns

any

cor

pora

tion

whi

ch is

in a

nun

brok

en c

hain

of

corp

orat

ions

eac

h of

whi

ch o

wns

suc

cess

ivel

y in

an

unbr

oken

cha

in o

f co

rpor

atio

ns w

hich

incl

udes

the

subj

ect c

orpo

ratio

n.

1.50

"Pe

rson

" m

eans

any

indi

vidu

al, s

ole

prop

riet

orsh

ip, p

artn

ersh

ip, j

oint

ven

ture

, lim

ited

liabi

lity

com

pany

, tru

st, u

ninc

orpo

rate

d or

gani

zatio

n, a

ssoc

iatio

n, c

orpo

ratio

n, in

stitu

tion,

pub

lic b

enef

itco

rpor

atio

n, e

ntity

or

gove

rnm

ent i

nstr

umen

talit

y, d

ivis

ion,

age

ncy,

bod

y or

dep

artm

ent.

1.51

"Pl

ans"

mea

ns p

lans

, pro

gram

s, o

r Po

licie

s of

the

Com

pany

.

1.52

"Po

licie

s" m

eans

pol

icie

s, p

ract

ices

or

proc

edur

es o

f th

e C

ompa

ny.

1.53

"Po

st-C

hang

e E

mpl

oym

ent P

erio

d" m

eans

the

peri

od c

omm

enci

ng o

n th

e E

ffec

tive

Dat

e, o

r, if

ear

lier,

und

er S

ectio

n 9.

4, a

nd e

ndin

g on

the

thir

d an

nive

rsar

y of

the

Eff

ectiv

e D

ate.

1.54

"Po

st-R

etir

emen

t Med

ical

Pla

n" m

eans

the

McD

onal

d's

Cor

pora

tion

Post

-Ret

irem

ent M

edic

al P

lan

or a

ny o

ther

sim

ilar

plan

or

prog

ram

her

eina

fter

spo

nsor

ed b

y th

e C

ompa

ny o

r a

subs

idia

ry th

ereo

f.

1.55

"Po

tent

ial P

arac

hute

Pay

men

ts"

- -

see

Sect

ion

5.1.

1.56

"Pr

o-R

ata

Ann

ual B

onus

" m

eans

, in

resp

ect o

f th

e C

ompa

ny's

fis

cal y

ear

duri

ng w

hich

the

Eff

ectiv

e D

ate

(in

the

case

of

a Pr

o-R

ata

Ann

ual B

onus

pay

able

pur

suan

t to

Sect

ion

2.3

here

of)

or th

eT

erm

inat

ion

Dat

e (i

n th

e ca

se o

f a

Pro-

Rat

a A

nnua

l Bon

us p

ayab

le p

ursu

ant t

o

-8-

Art

icle

IV

her

eof)

, as

appl

icab

le, o

ccur

s, a

n am

ount

equ

al to

the

prod

uct o

f E

xecu

tive'

s T

arge

t Ann

ual B

onus

(de

term

ined

as

of th

e E

ffec

tive

Dat

e or

Ter

min

atio

n D

ate,

as

appl

icab

le)

mul

tiplie

d by

afr

actio

n, th

e nu

mer

ator

of

whi

ch e

qual

s th

e nu

mbe

r of

day

s fr

om a

nd in

clud

ing

the

firs

t day

of

such

fis

cal y

ear

thro

ugh

and

incl

udin

g th

e E

ffec

tive

Dat

e or

the

Ter

min

atio

n D

ate,

as

appl

icab

le, a

nd th

ede

nom

inat

or o

f w

hich

equ

als

365.

gp

y

1.57

"Pr

o-R

ata

LT

IP A

war

ds"

mea

ns, w

ith r

espe

ct to

eac

h aw

ard

unde

r an

y lo

ng te

rm in

cent

ive

plan

mai

ntai

ned

by th

e C

ompa

ny th

at is

out

stan

ding

on

the

Eff

ectiv

e D

ate

(an

"LT

IP A

war

d"),

an

amou

nteq

ual t

o th

e pr

oduc

t of

(a)

100%

of

the

amou

nt to

whi

ch E

xecu

tive

wou

ld b

e en

title

d un

der

such

LT

IP A

war

d if

the

perf

orm

ance

goa

ls e

stab

lishe

d w

ith r

espe

ct to

suc

h L

TIP

Aw

ard

wer

e ac

hiev

ed a

t the

100%

leve

l as

of th

e en

d of

the

appl

icab

le p

erfo

rman

ce p

erio

d, m

ultip

lied

by(b

) a

frac

tion,

the

num

erat

or o

f w

hich

equ

als

the

num

ber

of f

ull a

nd f

ract

iona

l mon

ths

from

and

incl

udin

g th

e fi

rst d

ay o

f th

e pe

rfor

man

ce p

erio

d w

ith r

espe

ct to

suc

h L

TIP

Aw

ard

thro

ugh

and

incl

udin

gth

e E

ffec

tive

Dat

e, a

nd th

e de

nom

inat

or o

f w

hich

equ

als

the

tota

l num

ber

of m

onth

s in

suc

h pe

rfor

man

ce p

erio

d.

1.58

"Q

ualif

ied

Plan

" m

eans

any

pla

n, w

hich

mee

ts th

e qu

alif

icat

ion

requ

irem

ents

of

Inte

rnal

Rev

enue

Ser

vice

Cod

e Se

ctio

n 40

1(a)

or

403(

a).

1.59

"SE

C"

mea

ns th

e Se

curi

ties

and

Exc

hang

e C

omm

issi

on.

1.60

"Se

vera

nce

Peri

od"

mea

ns a

per

iod

equa

l to

thre

e ye

ars.

1.61

"Su

rviv

ing

Cor

pora

tion"

mea

ns th

e co

rpor

atio

n re

sulti

ng f

rom

a B

usin

ess

Com

bina

tion

and

any

Pare

nt C

orpo

ratio

n of

suc

h co

rpor

atio

n.

1.62

"T

arge

t Ann

ual B

onus

" as

of

a ce

rtai

n da

te m

eans

the

amou

nt e

qual

to th

e pr

oduc

t of

Bas

e Sa

lary

det

erm

ined

as

of s

uch

date

mul

tiplie

d by

the

perc

enta

ge o

f su

ch B

ase

Sala

ry to

whi

ch E

xecu

tive

wou

ld h

ave

been

ent

itled

imm

edia

tely

pri

or to

suc

h da

te u

nder

any

Bon

us P

lan

for

the

Ann

ual P

erfo

rman

ce P

erio

d fo

r w

hich

the

Ann

ual B

onus

is a

war

ded

if th

e pe

rfor

man

ce g

oals

est

ablis

hed

purs

uant

tosu

ch B

onus

Pla

n w

ere

achi

eved

at t

he 1

00%

leve

l as

of th

e en

d of

the

Ann

ual P

erfo

rman

ce P

erio

d.

1.63

"T

axes

" m

eans

fed

eral

, sta

te, l

ocal

or

othe

r in

com

e or

oth

er ta

xes.

1.64

"T

erm

inat

ion

Dat

e" m

eans

the

date

of

the

rece

ipt o

f th

e N

otic

e of

Ter

min

atio

n by

Exe

cutiv

e (i

f su

ch N

otic

e is

giv

en b

y th

e C

ompa

ny)

or b

y th

e C

ompa

ny (

if s

uch

Not

ice

is g

iven

by

Exe

cutiv

e), o

r an

yla

ter

date

, not

mor

e th

an f

ifte

en (

15)

days

aft

er th

e gi

ving

of

such

Not

ice,

spe

cifi

ed in

suc

h N

otic

e; p

rovi

ded,

how

ever

, tha

t:

(a)

if E

xecu

tive'

s em

ploy

men

t is

term

inat

ed b

y re

ason

of

deat

h or

Dis

abili

ty, t

he T

erm

inat

ion

Dat

e sh

all b

e th

e da

te o

f E

xecu

tive'

s de

ath

or th

e D

isab

ility

Eff

ectiv

e D

ate

(as

defi

ned

in S

ectio

n 3.

1), a

sap

plic

able

; and

(b)

if n

o N

otic

e of

Ter

min

atio

n is

giv

en, t

he T

erm

inat

ion

Dat

e sh

all b

e th

e la

st d

ate

on w

hich

Exe

cutiv

e is

em

ploy

ed b

y th

e C

ompa

ny.

-9-

1.65

"T

erm

inat

ion

of E

mpl

oym

ent"

mea

ns a

ny te

rmin

atio

n of

Exe

cutiv

e's

empl

oym

ent w

ith th

e C

ompa

ny, w

heth

er s

uch

term

inat

ion

is in

itiat

ed b

y th

e C

ompa

ny o

r by

Exe

cutiv

e.

1.66

"V

otin

g Se

curi

ties"

of

a co

rpor

atio

n m

eans

sec

uriti

es o

f su

ch c

orpo

ratio

n th

at a

re e

ntitl

ed to

vot

e ge

nera

lly in

the

elec

tion

of d

irec

tors

of

such

cor

pora

tion,

but

not

incl

udin

g an

y ot

her

clas

s of

secu

ritie

s of

suc

h co

rpor

atio

n th

at m

ay h

ave

votin

g po

wer

by

reas

on o

f th

e oc

curr

ence

of

a co

ntin

genc

y w

hich

con

tinge

ncy

has

not o

ccur

red.

AR

TIC

LE

II.

PO

ST-C

HA

NG

E E

MP

LO

YM

EN

T P

ER

IOD

2.1

Posi

tion

and

Dut

ies.

(a)

Dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod,

Exe

cutiv

e's

posi

tion

(inc

ludi

ng o

ffic

es, t

itles

, rep

ortin

g re

quir

emen

ts a

nd r

espo

nsib

ilitie

s), a

utho

rity

and

dut

ies

shal

l be

at le

ast c

omm

ensu

rate

in a

llm

ater

ial r

espe

cts

with

the

mos

t sig

nifi

cant

of

thos

e he

ld, e

xerc

ised

and

ass

igne

d at

any

tim

e du

ring

the

90-d

ay p

erio

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e an

d E

xecu

tive'

s se

rvic

es s

hall

be p

erfo

rmed

at

the

loca

tion

whe

re E

xecu

tive

was

em

ploy

ed im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e or

any

oth

er lo

catio

n no

mor

e th

an 3

0 m

iles

from

suc

h fo

rmer

loca

tion.

(b)

Dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod

(oth

er th

an a

ny p

erio

ds o

f va

catio

n, s

ick

leav

e or

dis

abili

ty to

whi

ch E

xecu

tive

is e

ntitl

ed),

Exe

cutiv

e ag

rees

to d

evot

e E

xecu

tive'

s fu

ll at

tent

ion

and

time

toth

e bu

sine

ss a

nd a

ffai

rs o

f th

e C

ompa

ny a

nd, t

o th

e ex

tent

nec

essa

ry to

dis

char

ge th

e du

ties

assi

gned

to E

xecu

tive

in a

ccor

danc

e w

ith th

is A

gree

men

t, to

use

Exe

cutiv

e's

best

eff

orts

to p

erfo

rm s

uch

dutie

s.D

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d, E

xecu

tive

may

(i)

ser

ve o

n co

rpor

ate,

civ

ic o

r ch

arita

ble

boar

ds o

r co

mm

ittee

s, (

ii) d

eliv

er le

ctur

es, f

ulfi

ll sp

eaki

ng e

ngag

emen

ts o

r te

ach

at e

duca

tiona

lin

stitu

tions

, and

(iii

) m

anag

e pe

rson

al in

vest

men

ts, s

o lo

ng a

s su

ch a

ctiv

ities

are

con

sist

ent w

ith th

e Po

licie

s of

the

Com

pany

at t

he E

ffec

tive

Dat

e an

d do

not

sig

nifi

cant

ly in

terf

ere

with

the

perf

orm

ance

of

Exe

cutiv

e's

dutie

s un

der

this

Agr

eem

ent.

To

the

exte

nt th

at a

ny s

uch

activ

ities

hav

e be

en c

ondu

cted

by

Exe

cutiv

e im

med

iate

ly p

rior

to th

e E

ffec

tive

Dat

e an

d w

ere

cons

iste

nt w

ith th

e Po

licie

s of

the

Com

pany

at t

he E

ffec

tive

Dat

e, th

e co

ntin

ued

cond

uct o

f su

ch a

ctiv

ities

(or

act

iviti

es s

imila

r in

nat

ure

and

scop

e) a

fter

the

Eff

ectiv

e D

ate

shal

l not

be

deem

ed to

inte

rfer

e w

ith th

e pe

rfor

man

ce o

fE

xecu

tive'

s du

ties

unde

r th

is A

gree

men

t.

2.2

Com

pens

atio

n.

(a)

Bas

e Sa

lary

. Dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod,

the

Com

pany

sha

ll pa

y or

cau

se to

be

paid

to E

xecu

tive

an a

nnua

l bas

e sa

lary

in c

ash,

whi

ch s

hall

be p

aid

in a

man

ner

cons

iste

nt w

ith th

eC

ompa

ny's

pay

roll

prac

tices

in e

ffec

t im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e, a

t an

annu

al r

ate

not l

ess

than

12

times

the

high

est m

onth

ly b

ase

sala

ry p

aid

or p

ayab

le to

Exe

cutiv

e by

the

Com

pany

in r

espe

ct

gp

y

of th

e 12

-mon

th p

erio

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e (s

uch

annu

al r

ate

sala

ry, t

he "

Bas

e Sa

lary

"). D

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d, th

e B

ase

Sala

ry s

hall

be r

evie

wed

at l

east

-10-

annu

ally

and

sha

ll be

incr

ease

d at

any

tim

e an

d fr

om ti

me

to ti

me

as s

hall

be s

ubst

antia

lly c

onsi

sten

t with

incr

ease

s in

bas

e sa

lary

aw

arde

d to

oth

er p

eer

exec

utiv

es o

f th

e C

ompa

ny. A

ny in

crea

se in

Bas

eSa

lary

sha

ll no

t lim

it or

red

uce

any

othe

r ob

ligat

ion

of th

e C

ompa

ny to

Exe

cutiv

e un

der

this

Agr

eem

ent.

Aft

er a

ny s

uch

incr

ease

, the

Bas

e Sa

lary

sha

ll no

t be

redu

ced

and

the

term

"B

ase

Sala

ry"

shal

lth

erea

fter

ref

er to

the

incr

ease

d am

ount

.

(b)

Ann

ual B

onus

. In

addi

tion

to B

ase

Sala

ry, t

he C

ompa

ny s

hall

pay

or c

ause

to b

e pa

id to

Exe

cutiv

e a

bonu

s (t

he "

Ann

ual B

onus

") f

or e

ach

Ann

ual P

erfo

rman

ce P

erio

d w

hich

end

s du

ring

the

Post

-Cha

nge

Em

ploy

men

t Per

iod.

"A

nnua

l Per

form

ance

Per

iod"

mea

ns e

ach

peri

od o

f tim

e de

sign

ated

in a

ccor

danc

e w

ith a

ny a

nnua

l bon

us a

rran

gem

ent (

a "B

onus

Pla

n")

whi

ch is

bas

ed u

pon

perf

orm

ance

and

app

rove

d by

the

Boa

rd o

r an

y co

mm

ittee

of

the

Boa

rd, o

r in

the

abse

nce

of a

ny B

onus

Pla

n or

any

suc

h de

sign

ated

per

iod

of ti

me,

eac

h ca

lend

ar y

ear;

pro

vide

d, h

owev

er, t

hat t

he A

nnua

lB

onus

pai

d to

the

Exe

cutiv

e w

ith r

espe

ct to

the

Com

pany

's f

isca

l yea

r in

whi

ch th

e E

ffec

tive

Dat

e oc

curs

sha

ll be

red

uced

(bu

t not

bel

ow z

ero)

by

the

amou

nt o

f th

e Pr

o-R

ata

Ann

ual B

onus

pai

d to

Exe

cutiv

e pu

rsua

nt to

Sec

tion

2.3.

The

Ann

ual B

onus

sha

ll be

not

less

than

the

Tar

get A

nnua

l Bon

us d

eter

min

ed a

s of

the

Eff

ectiv

e D

ate.

In

addi

tion,

the

perf

orm

ance

goa

ls u

nder

the

Bon

us P

lan

shal

l not

be m

ater

ially

mor

e di

ffic

ult t

o ac

hiev

e th

an th

e pe

rfor

man

ce g

oals

in th

e B

onus

Pla

n (o

r de

sign

ated

by

the

Boa

rd)

in e

ffec

t dur

ing

the

Ann

ual P

erfo

rman

ce P

erio

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

ean

d th

e M

axim

um A

nnua

l Bon

us s

hall

not b

e le

ss th

an th

e m

axim

um b

onus

ach

ieva

ble

unde

r th

e B

onus

Pla

n (o

r de

sign

ated

by

the

Boa

rd)

duri

ng th

e A

nnua

l Per

form

ance

Per

iod

ende

d im

med

iate

ly b

efor

eth

e E

ffec

tive

Dat

e (o

r if

hig

her,

the

Max

imum

Ann

ual B

onus

for

the

Ann

ual P

erfo

rman

ce P

erio

d th

at c

omm

ence

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e).

(c)

Ince

ntiv

e, S

avin

gs a

nd R

etir

emen

t Pla

ns. I

n ad

ditio

n to

Bas

e Sa

lary

and

Ann

ual B

onus

, Exe

cutiv

e sh

all b

e en

title

d to

par

ticip

ate

duri

ng th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d in

all

ince

ntiv

e (i

nclu

ding

long

-ter

m in

cent

ives

), p

rofi

t sha

ring

, ESO

P, 4

01(k

), s

avin

gs a

nd r

etir

emen

t Pla

ns a

pplic

able

to o

ther

pee

r ex

ecut

ives

of

the

Com

pany

, but

in n

o ev

ent s

hall

such

Pla

ns p

rovi

de E

xecu

tive

with

ince

ntiv

e(i

nclu

ding

long

-ter

m in

cent

ives

), p

rofi

t sha

ring

, ESO

P, 4

01(k

), s

avin

gs a

nd r

etir

emen

t ben

efits

dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod

whi

ch, i

n an

y ca

se, a

re m

ater

ially

less

fav

orab

le, i

n th

eag

greg

ate,

than

the

mos

t fav

orab

le o

f th

ose

prov

ided

by

the

Com

pany

for

Exe

cutiv

e un

der

such

Pla

ns a

s in

eff

ect a

t any

tim

e du

ring

the

12-m

onth

per

iod

imm

edia

tely

bef

ore

the

Eff

ectiv

e D

ate.

(d)

Wel

fare

Ben

efit

Plan

s. D

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d, E

xecu

tive

and

Exe

cutiv

e's

fam

ily s

hall

be e

ligib

le to

par

ticip

ate

in, a

nd r

ecei

ve a

ll be

nefi

ts u

nder

, wel

fare

ben

efit

Plan

s pr

ovid

ed b

yth

e C

ompa

ny (

incl

udin

g m

edic

al, p

resc

ript

ion,

den

tal,

disa

bilit

y, s

alar

y co

ntin

uanc

e, in

divi

dual

life

, gro

up li

fe, d

epen

dent

life

, acc

iden

tal d

eath

and

trav

el a

ccid

ent i

nsur

ance

Pla

ns)

and

appl

icab

le to

oth

erpe

er e

xecu

tives

of

the

Com

pany

and

thei

r fa

mili

es, b

ut in

no

even

t sha

ll su

ch P

lans

pro

vide

ben

efits

dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod

whi

ch a

re m

ater

ially

less

fav

orab

le, i

n th

e ag

greg

ate,

than

the

mos

t fav

orab

le o

f th

ose

prov

ided

to E

xecu

tive

unde

r su

ch P

lans

as

in e

ffec

t at a

ny ti

me

duri

ng th

e 12

-mon

th p

erio

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e.

-11-

(e)

Frin

ge B

enef

its. D

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d, E

xecu

tive

shal

l be

entit

led

to f

ring

e be

nefi

ts in

acc

orda

nce

with

the

mos

t fav

orab

le P

lans

app

licab

le to

pee

r ex

ecut

ives

of

the

Com

pany

,bu

t in

no e

vent

sha

ll su

ch P

lans

pro

vide

fri

nge

bene

fits

whi

ch in

any

cas

e ar

e m

ater

ially

less

fav

orab

le, i

n th

e ag

greg

ate,

than

the

mos

t fav

orab

le o

f th

ose

prov

ided

by

the

Com

pany

to E

xecu

tive

unde

r su

chPl

ans

in e

ffec

t at a

ny ti

me

duri

ng th

e 12

-mon

th p

erio

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e.

(f)

Exp

ense

s. D

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d, E

xecu

tive

shal

l be

entit

led

to p

rom

pt r

eim

burs

emen

t of

all r

easo

nabl

e em

ploy

men

t-re

late

d ex

pens

es in

curr

ed b

y E

xecu

tive

upon

the

Com

pany

'sre

ceip

t of

acco

untin

gs in

acc

orda

nce

with

the

mos

t fav

orab

le P

olic

ies

appl

icab

le to

pee

r ex

ecut

ives

of

the

Com

pany

, but

in n

o ev

ent s

hall

such

Pol

icie

s be

mat

eria

lly le

ss f

avor

able

, in

the

aggr

egat

e, th

anth

e m

ost f

avor

able

of

thos

e pr

ovid

ed b

y th

e C

ompa

ny f

or E

xecu

tive

unde

r su

ch P

olic

ies

in e

ffec

t at a

ny ti

me

duri

ng th

e 12

-mon

th p

erio

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e.

(g)

Off

ice

and

Supp

ort S

taff

. Dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod,

Exe

cutiv

e sh

all b

e en

title

d to

an

offi

ce o

r of

fice

s of

a s

ize

and

with

fur

nish

ings

and

oth

er a

ppoi

ntm

ents

, and

to s

ecre

tari

al a

ndot

her

assi

stan

ce in

acc

orda

nce

with

the

mos

t fav

orab

le P

olic

ies

appl

icab

le to

pee

r ex

ecut

ives

of

the

Com

pany

, but

in n

o ev

ent s

hall

such

Pol

icie

s be

mat

eria

lly le

ss f

avor

able

, in

the

aggr

egat

e, th

an th

e m

ost

favo

rabl

e of

thos

e pr

ovid

ed b

y th

e C

ompa

ny f

or E

xecu

tive

unde

r su

ch P

olic

ies

in e

ffec

t at a

ny ti

me

duri

ng th

e 12

-mon

th p

erio

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e.

(h)

Vac

atio

n. D

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d, E

xecu

tive

shal

l be

entit

led

to p

aid

vaca

tion

in a

ccor

danc

e w

ith th

e m

ost f

avor

able

Pol

icie

s ap

plic

able

to p

eer

exec

utiv

es o

f th

e C

ompa

ny, b

ut in

no e

vent

sha

ll su

ch P

olic

ies

be m

ater

ially

less

fav

orab

le, i

n th

e ag

greg

ate,

than

the

mos

t fav

orab

le o

f th

ose

prov

ided

by

the

Com

pany

for

Exe

cutiv

e un

der

such

Pol

icie

s in

eff

ect a

t any

tim

e du

ring

the

12-m

onth

per

iod

imm

edia

tely

bef

ore

the

Eff

ectiv

e D

ate.

2.3

Pro-

Rat

a A

nnua

l Bon

us. W

ithin

thir

ty (

30)

days

aft

er th

e E

ffec

tive

Dat

e, th

e C

ompa

ny s

hall

pay

Exe

cutiv

e a

lum

p-su

m c

ash

paym

ent e

qual

to th

e Pr

o-R

ata

Ann

ual B

onus

det

erm

ined

as

of th

e E

ffec

tive

Dat

e.

2.4

Pro-

Rat

a A

nnua

l LT

IP A

war

ds. W

ithin

thir

ty (

30)

days

aft

er th

e E

ffec

tive

Dat

e, th

e C

ompa

ny s

hall

pay

Exe

cutiv

e, w

ith r

espe

ct to

eac

h L

TIP

Aw

ard

that

is o

utst

andi

ng o

n th

e E

ffec

tive

Dat

e, a

lum

p-su

m c

ash

paym

ent e

qual

to th

e Pr

o-R

ata

LT

IP A

war

d de

term

ined

as

of th

e E

ffec

tive

Dat

e an

d ea

ch s

uch

LT

IP A

war

d sh

all b

e ca

ncel

led.

AR

TIC

LE

III

.

TE

RM

INA

TIO

N O

F E

MP

LO

YM

EN

T

3.1

Dis

abili

ty. D

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d, th

e C

ompa

ny m

ay te

rmin

ate

Exe

cutiv

e's

empl

oym

ent b

ecau

se o

f E

xecu

tive'

s D

isab

ility

by

givi

ng E

xecu

tive

or h

is le

gal r

epre

sent

ativ

e, a

s

gp

y

appl

icab

le, (

i) w

ritte

n no

tice

in a

ccor

danc

e w

ith S

ectio

n 10

.8 o

f th

e C

ompa

ny's

inte

ntio

n to

term

inat

e E

xecu

tive'

s em

ploy

men

t pur

suan

t to

this

Sec

tion,

and

(ii)

a

-12-

cert

ific

atio

n of

Exe

cutiv

e's

Dis

abili

ty b

y a

phys

icia

n jo

intly

sel

ecte

d by

the

Com

pany

and

the

Exe

cutiv

e; p

rovi

ded

that

if th

e C

ompa

ny a

nd E

xecu

tive

cann

ot r

each

agr

eem

ent o

n th

e ph

ysic

ian,

the

cert

ific

atio

n sh

all b

e by

a p

anel

of

phys

icia

ns c

onsi

stin

g of

one

phy

sici

an s

elec

ted

by th

e C

ompa

ny, o

ne p

hysi

cian

sel

ecte

d by

the

Exe

cutiv

e an

d a

thir

d ph

ysic

ian

join

tly s

elec

ted

by th

ose

two

phys

icia

ns.

Exe

cutiv

e's

empl

oym

ent s

hall

term

inat

e ef

fect

ive

on th

e 30

th d

ay (

the

"Dis

abili

ty E

ffec

tive

Dat

e")

afte

r E

xecu

tive'

s re

ceip

t of

such

not

ice

unle

ss, b

efor

e th

e D

isab

ility

Eff

ectiv

e D

ate,

Exe

cutiv

e sh

all h

ave

resu

med

the

full-

time

perf

orm

ance

of

Exe

cutiv

e's

dutie

s.

3.2

Dea

th. E

xecu

tive'

s em

ploy

men

t sha

ll te

rmin

ate

auto

mat

ical

ly u

pon

Exe

cutiv

e's

deat

h du

ring

the

Post

-Cha

nge

Em

ploy

men

t Per

iod.

3.3

Cau

se.

(a)

Dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod,

the

Com

pany

may

term

inat

e E

xecu

tive'

s em

ploy

men

t for

Cau

se s

olel

y in

acc

orda

nce

with

all

of th

e su

bsta

ntiv

e an

d pr

oced

ural

pro

visi

ons

of th

is S

ectio

n.

(b)

The

Com

pany

sha

ll st

rict

ly o

bser

ve e

ach

of th

e fo

llow

ing

proc

edur

es in

con

nect

ion

with

any

Ter

min

atio

n of

Em

ploy

men

t for

Cau

se:

(i)

The

issu

e of

det

erm

inin

g w

heth

er E

xecu

tive'

s ac

ts o

r om

issi

ons

satis

fy th

e de

fini

tion

of "

Cau

se"

as s

et f

orth

inSe

ctio

n 1.

15 a

nd, i

f so

, whe

ther

to te

rmin

ate

Exe

cutiv

e's

empl

oym

ent f

or C

ause

sha

ll be

rai

sed

and

disc

usse

d at

a m

eetin

g of

the

Boa

rd.

(ii)

Not

less

than

thir

ty (

30)

days

pri

or to

the

date

of

such

mee

ting

the

Com

pany

sha

ll pr

ovid

e E

xecu

tive

and

each

mem

ber

of th

e B

oard

wri

tten

notic

e (a

"N

otic

e of

Con

side

ratio

n")

of (

x) a

det

aile

dde

scri

ptio

n of

the

acts

or

omis

sion

s al

lege

d to

con

stitu

te C

ause

, (y)

the

date

, tim

e an

d lo

catio

n of

suc

h m

eetin

g of

the

Boa

rd, a

nd (

z) E

xecu

tive'

s ri

ghts

und

er c

laus

e (i

ii) b

elow

.

(iii)

Exe

cutiv

e sh

all h

ave

the

oppo

rtun

ity to

app

ear

befo

re th

e B

oard

at s

uch

mee

ting

in p

erso

n an

d, a

t Exe

cutiv

e's

optio

n, w

ith le

gal c

ouns

el, a

nd to

pre

sent

to th

e B

oard

a w

ritte

n an

d/or

ora

l res

pons

e to

the

Not

ice

of C

onsi

dera

tion.

(iv)

Exe

cutiv

e's

empl

oym

ent m

ay b

e te

rmin

ated

for

Cau

se o

nly

if (

x) th

e ac

ts o

r om

issi

ons

spec

ifie

d in

the

Not

ice

of C

onsi

dera

tion

did

in f

act o

ccur

and

do

cons

titut

e C

ause

, (y)

the

Boa

rd m

akes

a s

peci

fic

dete

rmin

atio

n to

suc

h ef

fect

and

to th

e ef

fect

that

Exe

cutiv

e's

empl

oym

ent s

houl

d be

term

inat

ed f

or C

ause

, and

(z)

the

Com

pany

ther

eaft

er p

rovi

des

Exe

cutiv

e w

ith a

Not

ice

of T

erm

inat

ion

whi

ch s

peci

fies

in s

peci

fic

deta

il th

e ba

sis

of s

uch

Ter

min

atio

n of

Em

ploy

men

t for

Cau

se a

nd w

hich

Not

ice

shal

l be

base

d up

on o

ne o

r m

ore

of th

e ac

ts o

r om

issi

ons

set f

orth

in th

e N

otic

e of

Con

side

ratio

n. T

he B

oard

'sde

term

inat

ion

spec

ifie

d in

cla

use

(y)

of th

e pr

eced

ing

sent

ence

sha

ll re

quir

e th

e af

firm

ativ

e vo

te o

f at

leas

t 75%

of

the

mem

bers

of

the

Boa

rd.

(v)

In th

e ev

ent t

hat t

he is

sue

of w

heth

er E

xecu

tive

was

pro

perl

y te

rmin

ated

for

Cau

se b

ecom

es a

dis

pute

d is

sue

in a

ny a

ctio

n or

pro

ceed

ing

betw

een

-13-

the

Com

pany

and

Exe

cutiv

e, th

e C

ompa

ny s

hall,

not

with

stan

ding

the

dete

rmin

atio

n re

fere

nced

in c

laus

e (i

v) o

f th

is S

ectio

n 3.

3(b)

, hav

e th

e bu

rden

of

esta

blis

hing

by

clea

r an

d co

nvin

cing

evi

denc

e th

at th

eac

tions

or

omis

sion

s sp

ecif

ied

in th

e N

otic

e of

Ter

min

atio

n di

d in

fac

t occ

ur, d

o co

nstit

ute

Cau

se, w

ere

the

basi

s fo

r E

xecu

tive'

s te

rmin

atio

n an

d th

at th

e C

ompa

ny h

as, i

n ea

ch a

nd e

very

res

pect

, sat

isfi

edth

e pr

oced

ural

req

uire

men

ts o

f th

is S

ectio

n 3.

3(b)

.

3.4

Goo

d R

easo

n.

(a)

Dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod,

Exe

cutiv

e m

ay te

rmin

ate

his

or h

er e

mpl

oym

ent f

or G

ood

Rea

son

in a

ccor

danc

e w

ith th

e su

bsta

ntiv

e an

d pr

oced

ural

pro

visi

ons

of th

is S

ectio

n.

(b)

In th

e ev

ent E

xecu

tive

dete

rmin

es th

ere

is G

ood

Rea

son

to te

rmin

ate,

Exe

cutiv

e sh

all n

otif

y th

e C

ompa

ny o

f th

e ev

ents

con

stitu

ting

such

Goo

d R

easo

n by

a N

otic

e of

Ter

min

atio

n. A

del

ay in

the

deliv

ery

of s

uch

Not

ice

of T

erm

inat

ion

or a

fai

lure

by

Exe

cutiv

e to

incl

ude

in th

e N

otic

e of

Ter

min

atio

n an

y fa

ct o

r ci

rcum

stan

ce w

hich

con

trib

utes

to a

sho

win

g of

Goo

d R

easo

n sh

all n

ot w

aive

any

rig

htof

Exe

cutiv

e un

der

this

Agr

eem

ent o

r pr

eclu

de E

xecu

tive

from

ass

ertin

g su

ch f

act o

r ci

rcum

stan

ce in

enf

orci

ng r

ight

s un

der

this

Agr

eem

ent;

prov

ided

, tha

t no

act o

r om

issi

on b

y th

e C

ompa

ny s

hall

qual

ify

as G

ood

Rea

son

if E

xecu

tive'

s T

erm

inat

ion

of E

mpl

oym

ent o

ccur

s m

ore

than

12

mon

ths

afte

r E

xecu

tive

firs

t obt

ains

act

ual k

now

ledg

e of

suc

h ac

t or

omis

sion

.

(c)

If th

e T

erm

inat

ion

Dat

e oc

curs

dur

ing

any

port

ion

of a

Pos

t-C

hang

e E

mpl

oym

ent P

erio

d, a

ny r

easo

nabl

e de

term

inat

ion

by E

xecu

tive

that

any

of

the

even

ts s

peci

fied

in th

e de

fini

tion

of G

ood

Rea

son

inSe

ctio

n 1.

33 a

bove

, has

occ

urre

d an

d co

nstit

utes

Goo

d R

easo

n sh

all b

e co

nclu

sive

and

bin

ding

for

all

purp

oses

, unl

ess

the

Com

pany

est

ablis

hes

by c

lear

and

con

vinc

ing

evid

ence

that

Exe

cutiv

e di

d no

tha

ve a

ny r

easo

nabl

e ba

sis

for

such

det

erm

inat

ion.

(d)

In th

e ev

ent t

hat t

he C

ompa

ny c

once

als

any

act o

r om

issi

on b

y th

e C

ompa

ny th

at o

ccur

s du

ring

the

Post

-Cha

nge

Em

ploy

men

t Per

iod

and

qual

ifie

s as

Goo

d R

easo

n, a

ny s

ubse

quen

t Ter

min

atio

n of

Em

ploy

men

t (w

heth

er b

y th

e C

ompa

ny o

r by

Exe

cutiv

e an

d re

gard

less

of

the

circ

umst

ance

s of

suc

h te

rmin

atio

n) th

at o

ccur

s at

any

tim

e af

ter

such

act

or

omis

sion

sha

ll co

nclu

sive

ly b

e de

emed

to b

e a

Ter

min

atio

n of

Em

ploy

men

t by

Exe

cutiv

e fo

r G

ood

Rea

son,

not

with

stan

ding

any

pro

visi

on o

f th

is A

gree

men

t to

the

cont

rary

.

3.5

Del

iver

y of

Non

-Com

petit

ion

and

Rel

ease

Agr

eem

ent.

In th

e ev

ent t

he C

ompa

ny te

rmin

ates

Exe

cutiv

e's

empl

oym

ent f

or a

ny r

easo

n ot

her

than

for

Cau

se o

r D

isab

ility

, the

Com

pany

sha

ll, n

ot la

ter

than

the

date

it d

eliv

ers

the

Not

ice

of T

erm

inat

ion

to E

xecu

tive,

pre

sent

Exe

cutiv

e w

ith a

Non

-Com

petit

ion

and

Rel

ease

Agr

eem

ent f

or e

xecu

tion

by E

xecu

tive.

In

the

even

t Exe

cutiv

e te

rmin

ates

his

gp

y

empl

oym

ent f

or G

ood

Rea

son,

the

Com

pany

sha

ll, n

ot la

ter

than

ten

(10)

bus

ines

s da

ys a

fter

the

Com

pany

rec

eive

s th

e N

otic

e of

Ter

min

atio

n, p

rese

nt E

xecu

tive

with

a N

on-C

ompe

titio

n an

d R

elea

seA

gree

men

t for

exe

cutio

n by

Exe

cutiv

e.

-14-

AR

TIC

LE

IV

.

CO

MP

AN

Y'S

OB

LIG

AT

ION

S U

PO

N A

TE

RM

INA

TIO

N O

F E

MP

LO

YM

EN

T

4.1

If b

y E

xecu

tive

for

Goo

d R

easo

n or

by

the

Com

pany

Oth

er T

han

for

Cau

se o

r D

isab

ility

. If,

dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod,

(i)

the

Com

pany

term

inat

es E

xecu

tive'

s em

ploy

men

t oth

er th

an f

or C

ause

or

Dis

abili

ty, o

r if

Exe

cutiv

e te

rmin

ates

em

ploy

men

t for

Goo

d R

easo

n, a

nd (

ii) E

xecu

tive

deliv

ers

an e

xecu

ted

Non

-Com

petit

ion

and

Rel

ease

Agr

eem

ent t

o th

e C

ompa

ny (

and

does

not

res

cind

suc

h ag

reem

ent w

ithin

the

resc

issi

on p

erio

d se

t for

th in

suc

hag

reem

ent)

, the

Com

pany

's s

ole

oblig

atio

ns to

Exe

cutiv

e un

der

Art

icle

s II

and

IV

sha

ll be

as

follo

ws:

(a)

The

Com

pany

sha

ll pa

y E

xecu

tive,

in a

dditi

on to

all

vest

ed r

ight

s ar

isin

g fr

om E

xecu

tive'

s em

ploy

men

t as

spec

ifie

d in

Art

icle

II,

a lu

mp-

sum

cas

h am

ount

equ

al to

the

sum

of

the

follo

win

g:

(i)

all A

ccru

ed O

blig

atio

ns;

(ii)

Exe

cutiv

e's

Pro-

Rat

a A

nnua

l Bon

us r

educ

ed (

but n

ot b

elow

zer

o) b

y th

e am

ount

of

any

Ann

ual B

onus

pai

d to

Exe

cutiv

e, w

ith r

espe

ct to

the

Com

pany

's f

isca

l yea

r in

whi

ch th

e T

erm

inat

ion

Dat

eoc

curs

;

(iii)

an

amou

nt e

qual

to:

(A)

the

num

ber

of y

ears

in th

e Se

vera

nce

Peri

od ti

mes

the

sum

of:

(I)

Bas

e Sa

lary

,

(II)

the

Tar

get A

nnua

l Bon

us, a

nd

(III

) E

mpl

oyer

Def

ined

Con

trib

utio

n Pl

an C

ontr

ibut

ion;

each

det

erm

ined

as

of th

e T

erm

inat

ion

Dat

e, p

rovi

ded,

how

ever

, tha

t any

red

uctio

n in

Exe

cutiv

e's

Bas

e Sa

lary

or

Tar

get A

nnua

l Bon

us th

at w

ould

qua

lify

as G

ood

Rea

son

shal

l be

disr

egar

ded

for

purp

oses

of th

is c

laus

e.

Such

lum

p-su

m a

mou

nt s

hall

be p

aid

no m

ore

than

thir

ty (

30)

days

aft

er th

e la

ter

of th

e T

erm

inat

ion

Dat

e or

the

date

on

whi

ch E

xecu

tive

deliv

ers

an e

xecu

ted

Non

-Com

petit

ion

and

Rel

ease

Agr

eem

ent t

oth

e C

ompa

ny.

(b)

Unt

il a

num

ber

of y

ears

sub

sequ

ent t

o th

e T

erm

inat

ion

Dat

e eq

ual t

o th

e le

ngth

of

the

Seve

ranc

e Pe

riod

or

such

late

r da

te a

s an

y Pl

an m

ay s

peci

fy, t

he C

ompa

ny s

hall

cont

inue

to p

rovi

de to

Exe

cutiv

ean

d E

xecu

tive'

s fa

mily

with

med

ical

and

life

insu

ranc

e be

nefi

ts w

hich

are

at l

east

as

favo

rabl

e as

the

mos

t fav

orab

le P

lans

of

the

Com

pany

app

licab

le to

oth

er p

eer

exec

utiv

es a

nd th

eir

fam

ilies

as

of th

eT

erm

inat

ion

Dat

e, b

ut w

hich

are

in n

o ev

ent l

ess

favo

rabl

e th

an th

e m

ost f

avor

able

Pla

ns o

f th

e C

ompa

ny a

pplic

able

to o

ther

pee

r ex

ecut

ives

and

thei

r fa

mili

es d

urin

g th

e 12

-mon

th p

erio

d im

me-

-15-

diat

ely

befo

re th

e E

ffec

tive

Dat

e. T

he c

ost o

f su

ch m

edic

al a

nd li

fe in

sura

nce

bene

fits

to E

xecu

tive

shal

l not

exc

eed

the

cost

of

such

ben

efits

to E

xecu

tive

imm

edia

tely

bef

ore

the

Ter

min

atio

n D

ate

or, i

fle

ss, t

he E

ffec

tive

Dat

e. E

xecu

tive'

s ri

ghts

und

er th

is S

ectio

n sh

all b

e in

add

ition

to, a

nd n

ot in

lieu

of,

any

pos

t-te

rmin

atio

n co

ntin

uatio

n co

vera

ge o

r co

nver

sion

rig

hts

Exe

cutiv

e m

ay h

ave

purs

uant

toap

plic

able

law

, inc

ludi

ng c

ontin

uatio

n co

vera

ge r

equi

red

by S

ectio

n 49

80 o

f th

e C

ode.

Not

with

stan

ding

any

of

the

abov

e, s

uch

med

ical

ben

efits

sha

ll be

sec

onda

ry to

any

sim

ilar

med

ical

ben

efits

pro

vide

dby

Exe

cutiv

e's

subs

eque

nt e

mpl

oyer

.

(c)

Unt

il a

num

ber

of y

ears

sub

sequ

ent t

o th

e T

erm

inat

ion

Dat

e eq

ual t

o th

e le

ngth

of

the

Seve

ranc

e Pe

riod

or

such

late

r da

te a

s an

y Pl

an m

ay s

peci

fy, t

he C

ompa

ny s

hall

cont

inue

to p

rovi

de E

xecu

tive

with

fri

nge

and

othe

r be

nefi

ts w

hich

are

at l

east

as

favo

rabl

e as

the

mos

t fav

orab

le P

lans

of

the

Com

pany

app

licab

le to

oth

er p

eer

exec

utiv

es a

s of

the

Ter

min

atio

n D

ate,

but

whi

ch a

re in

no

even

t les

sfa

vora

ble

than

the

mos

t fav

orab

le P

lans

of

the

Com

pany

app

licab

le to

oth

er p

eer

exec

utiv

es d

urin

g th

e 12

-mon

th p

erio

d im

med

iate

ly b

efor

e th

e E

ffec

tive

Dat

e. N

otw

ithst

andi

ng th

e fo

rego

ing,

in th

e ca

seof

an

Exe

cutiv

e w

ho is

rec

eivi

ng b

enef

its u

nder

the

Com

pany

's s

hort

-ter

m d

isab

ility

pla

n as

of

the

Ter

min

atio

n D

ate,

the

Com

pany

mus

t pro

vide

act

ual l

ong

term

dis

abili

ty b

enef

its o

r a

cash

am

ount

equ

alto

the

amou

nt o

f be

nefi

ts th

at E

xecu

tive

wou

ld h

ave

rece

ived

und

er s

uch

bene

fit p

lans

.

(d)

For

purp

oses

of

dete

rmin

ing

Exe

cutiv

e's

elig

ibili

ty u

nder

the

Com

pany

's P

ost-

Ret

irem

ent M

edic

al P

lan

or a

ny o

ther

pla

n or

arr

ange

men

t pro

vidi

ng r

etir

ee m

edic

al b

enef

its, E

xecu

tive

shal

l be

cred

ited

with

a le

ngth

of

serv

ice

that

incl

udes

bot

h th

e pe

riod

of

Exe

cutiv

e's

actu

al s

ervi

ce a

nd E

xecu

tive'

s Se

vera

nce

Peri

od. E

xecu

tive

shal

l als

o be

trea

ted

for

purp

oses

of

the

Com

pany

's P

ost-

Ret

irem

ent M

edic

alPl

an a

s ha

ving

alr

eady

atta

ined

the

age

that

Exe

cutiv

e w

ill a

ttain

upo

n th

e co

nclu

sion

of

Exe

cutiv

e's

Seve

ranc

e Pe

riod

.

gp

y

(e)

If E

xecu

tive

has

a T

erm

inat

ion

of E

mpl

oym

ent a

nd h

as c

ompl

eted

at l

east

eig

ht (

8) y

ears

of

serv

ice

tow

ards

his

ent

itlem

ent t

o pa

id s

abba

tical

leav

e un

der

the

Com

pany

's p

olic

ies

conc

erni

ng s

abba

tical

leav

e (a

nd h

as n

ot y

et ta

ken

such

sab

batic

al le

ave)

, Exe

cutiv

e sh

all r

ecei

ve a

n ad

ditio

nal a

mou

nt, i

n a

lum

p su

m p

aym

ent,

equa

l to

eigh

t (8)

wee

ks o

f E

xecu

tive'

s B

ase

Sala

ry.

(f)

If E

xecu

tive

is a

par

ticip

ant i

n th

e E

xecu

tive

Ret

entio

n Pl

an th

e E

xecu

tive

will

hav

e th

e ri

ght t

o re

ceiv

e se

vera

nce

bene

fits

und

er e

ither

the

Exe

cutiv

e R

eten

tion

Plan

or

this

Agr

eem

ent.

Exe

cutiv

e's

elec

tion

to r

ecei

ve b

enef

its u

nder

one

arr

ange

men

t will

be

a w

aive

r of

ent

itlem

ent t

o be

nefi

ts u

nder

the

othe

r.

If E

xecu

tive

has

a T

erm

inat

ion

of E

mpl

oym

ent t

hat w

ould

ent

itle

Exe

cutiv

e to

ben

efits

und

er th

is S

ectio

n 4.

1 bu

t Exe

cutiv

e fa

ils to

del

iver

an

exec

uted

Non

-Com

petit

ion

and

Rel

ease

Agr

eem

ent t

o th

eC

ompa

ny (

or h

avin

g de

liver

ed a

n ex

ecut

ed N

on-C

ompe

titio

n an

d R

elea

se A

gree

men

t res

cind

s su

ch a

gree

men

t dur

ing

the

resc

issi

on p

erio

d se

t for

th in

the

Non

-Com

petit

ion

and

Rel

ease

Agr

eem

ent)

, the

Com

pany

's s

ole

oblig

atio

n to

Exe

cutiv

e un

der

Art

icle

s II

and

IV

sha

ll be

to p

ay E

xecu

tive

a lu

mp-

sum

cas

h am

ount

equ

al to

all

Acc

rued

Obl

igat

ions

det

erm

ined

as

of th

e T

erm

inat

ion

Dat

e.

-16-

4.2

If b

y th

e C

ompa

ny f

or C

ause

. If

the

Com

pany

term

inat

es E

xecu

tive'

s em

ploy

men

t for

Cau

se d

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d, th

e C

ompa

ny's

sol

e ob

ligat

ion

to E

xecu

tive

unde

r A

rtic

les

IIan

d IV

sha

ll be

to p

ay E

xecu

tive

a lu

mp-

sum

cas

h am

ount

equ

al to

all

Acc

rued

Obl

igat

ions

det

erm

ined

as

of th

e T

erm

inat

ion

Dat

e.

4.3

If b

y E

xecu

tive

Oth

er T

han

for

Goo

d R

easo

n. I

f E

xecu

tive

term

inat

es e

mpl

oym

ent d

urin

g th

e Po

st-C

hang

e E

mpl

oym

ent P

erio

d ot

her

than

for

Goo

d R

easo

n, D

isab

ility

or

deat

h, th

e C

ompa

ny's

sol

eob

ligat

ion

to E

xecu

tive

unde

r A

rtic

les

II a

nd I

V s

hall

be to

pay

Exe

cutiv

e a

lum

p-su

m c

ash

amou

nt e

qual

to a

ll A

ccru

ed O

blig

atio

ns d

eter

min

ed a

s of

the

Ter

min

atio

n D

ate.

4.4

If b

y th

e C

ompa

ny f

or D

isab

ility

. If

the

Com

pany

term

inat

es E

xecu

tive'

s em

ploy

men

t by

reas

on o

f E

xecu

tive'

s D

isab

ility

dur

ing

the

Post

-Cha

nge

Em

ploy

men

t Per

iod,

the

Com

pany

's s

ole

oblig

atio

n to

Exe

cutiv

e un

der

Art

icle

s II

and

IV

sha

ll be

as

follo

ws:

(a)

to p

ay E

xecu

tive

a lu

mp-

sum

cas

h am

ount

equ

al to

all

Acc

rued

Obl

igat

ions

det

erm

ined

as

of th

e T

erm

inat

ion

Dat

e; a

nd

(b)

to p

rovi

de E

xecu

tive

disa

bilit

y an

d ot

her

bene

fits

aft

er th

e T

erm

inat

ion

Dat

e th

at a

re n

ot le

ss th

an th

e m

ost f

avor

able

of

such

ben

efits

then

ava

ilabl

e un

der

Plan

s of

the

Com

pany

to d

isab

led

peer

exec

utiv

es o

f th

e C

ompa

ny o

r, if

mor

e fa

vora

ble,

thos

e su

ch b

enef

its p

rovi

ded

by th

e C

ompa

ny a

t any

tim

e du

ring

the

12-m

onth

per

iod

imm

edia

tely

pre

cedi

ng th

e E

ffec

tive

Dat

e.

4.5

If u

pon

Dea

th. I

f E

xecu

tive'

s em

ploy

men

t is

term

inat

ed b

y re

ason

of

Exe

cutiv

e's

deat

h du

ring

the

Post

-Cha

nge

Em

ploy

men

t Per

iod,

the

Com

pany

's s

ole

oblig

atio

ns to

Exe

cutiv

e un

der

Art

icle

s II

and

IV s

hall

be a

s fo

llow

s:

(a)

to p

ay E

xecu

tive'

s es

tate

or

Ben

efic

iary

a lu

mp-

sum

cas

h am

ount

equ

al to

all

Acc

rued

Obl

igat

ions

; and

(b)

to p

rovi

de E

xecu

tive'

s es

tate

or

Ben

efic

iary

sur

vivo

r an

d ot

her

bene

fits

that

are

not

less

than

the

mos

t fav

orab

le s

urvi

vor

and

othe

r be

nefi

ts th

en a

vaila

ble

unde

r Pl

ans

of th

e C

ompa

ny to

the

esta

tes

orth

e su

rviv

ing

fam

ilies

of

peer

exe

cutiv

es o

f th

e C

ompa

ny o

r, if

mor

e fa

vora

ble,

thos

e su

ch b

enef

its p

rovi

ded

by th

e C

ompa

ny a

t any

tim

e du

ring

the

12-m

onth

per

iod

imm

edia

tely

pre

cedi

ng th

e E

ffec

tive

Dat

e.

AR

TIC

LE

V.

CE

RT

AIN

AD

DIT

ION

AL

PA

YM

EN

TS

BY

TH

E C

OM

PA

NY

5.1

Gro

ss-u

p fo

r C

erta

in T

axes

.

(a)

If it

is d

eter

min

ed (

by th

e re

ason

able

com

puta

tion

of th

e C

ompa

ny's

inde

pend

ent a

udito

rs, w

hich

det

erm

inat

ions

sha

ll be

cer

tifie

d to

by

such

aud

itors

and

set

for

th in

a w

ritte

n ce

rtif

icat

e ("

Com

pany

Cer

tific

ate"

) de

liver

ed to

the

Exe

cutiv

e) th

at a

ny b

enef

it re

ceiv

ed o

r de

emed

rec

eive

d by

the

Exe

cutiv

e fr

om th

e C

ompa

ny p

ursu

ant t

o th

is A

gree

men

t or

othe

rwis

e (c

olle

ctiv

ely,

the

"Pot

entia

l Par

achu

tePa

ymen

ts")

is o

r w

ill b

e-

-17-

com

e su

bjec

t to

any

exci

se ta

x un

der

Sect

ion

4999

of

the

Cod

e or

any

sim

ilar

tax

paya

ble

unde

r an

y U

nite

d St

ates

fed

eral

, sta

te, l

ocal

or

othe

r la

w (

such

exc

ise

tax

and

all s

uch

sim

ilar

taxe

s co

llect

ivel

y,"E

xcis

e T

axes

"), t

hen

the

Com

pany

sha

ll, im

med

iate

ly a

fter

suc

h de

term

inat

ion,

pay

the

Exe

cutiv

e an

am

ount

(th

e "G

ross

-up

Paym

ent"

) eq

ual t

o th

e pr

oduc

t of:

(i)

the

amou

nt o

f su

ch E

xcis

e T

axes

mul

tiplie

d by

(ii)

the

Gro

ss-u

p M

ultip

le (

as d

efin

ed in

Sec

tion

5.4)

.

The

Gro

ss-u

p Pa

ymen

t is

inte

nded

to c

ompe

nsat

e th

e E

xecu

tive

for

the

Exc

ise

Tax

es a

nd a

ny f

eder

al, s

tate

, loc

al o

r ot

her

inco

me

or e

xcis

e ta

xes

or o

ther

taxe

s pa

yabl

e by

the

Exe

cutiv

e w

ith r

espe

ct to

the

Gro

ss-u

p Pa

ymen

t. Fo

r al

l pur

pose

s of

this

Art

icle

V, E

xecu

tive

shal

l be

deem

ed to

be

subj

ect t

o th

e hi

ghes

t eff

ectiv

e m

argi

nal r

ate

of T

axes

.

gp

y

The

Exe

cutiv

e or

the

Com

pany

may

at a

ny ti

me

requ

est t

he p

repa

ratio

n an

d de

liver

y to

the

Exe

cutiv

e of

a C

ertif

icat

e. T

he C

ompa

ny s

hall,

in a

dditi

on to

com

plyi

ng w

ith S

ectio

n 5.

2, c

ause

all

dete

rmin

atio

ns a

nd c

ertif

icat

ions

und

er th

e A

rtic

le to

be

mad

e as

soo

n as

rea

sona

bly

poss

ible

and

in a

dequ

ate

time

to p

erm

it th

e E

xecu

tive

to p

repa

re a

nd f

ile th

e E

xecu

tive'

s in

divi

dual

tax

retu

rns

on a

timel

y ba

sis.

(b)

Lim

itatio

n on

Gro

ss-U

p Pa

ymen

t. N

otw

ithst

andi

ng a

ny o

ther

pro

visi

on o

f th

is A

rtic

le V

, if

the

aggr

egat

e A

fter

-Tax

Am

ount

(de

fine

d be

low

) of

the

Pote

ntia

l Par

achu

te P

aym

ents

and

Gro

ss-u

p Pa

ymen

tth

at, b

ut f

or th

is S

ectio

n (b

), w

ould

be

paya

ble

to E

xecu

tive,

doe

s no

t exc

eed

110%

of

the

Aft

er-T

ax F

loor

Am

ount

(de

fine

d be

low

), th

en n

o G

ross

-up

Paym

ent s

hall

be m

ade

to E

xecu

tive

and

the

aggr

egat

e am

ount

of

Pote

ntia

l Par

achu

te P

aym

ents

pay

able

to E

xecu

tive

shal

l be

redu

ced

(but

not

bel

ow th

e Fl

oor

Am

ount

, def

ined

bel

ow)

to th

e la

rges

t am

ount

whi

ch w

ould

bot

h (i

) no

t cau

se a

ny E

xcis

eT

ax to

be

paya

ble

by E

xecu

tive

and

(ii)

not

cau

se a

ny P

oten

tial P

arac

hute

Pay

men

ts to

bec

ome

nond

educ

tible

by

the

Com

pany

by

reas

on o

fSe

ctio

n 28

0G o

f th

e C

ode

(or

any

succ

esso

r pr

ovis

ion)

.

(c)

For

purp

oses

of

this

Agr

eem

ent:

(i)

"Aft

er-T

ax A

mou

nt"

mea

ns th

e po

rtio

n of

a s

peci

fied

am

ount

that

wou

ld r

emai

n af

ter

paym

ent o

f al

l Tax

es p

aid

or p

ayab

le b

y E

xecu

tive

in r

espe

ct o

f su

ch s

peci

fied

am

ount

;

(ii)

"Fl

oor

Am

ount

" m

eans

the

grea

test

pre

-tax

am

ount

of

Pote

ntia

l Par

achu

te P

aym

ents

that

cou

ld b

e pa

id to

Exe

cutiv

e w

ithou

t cau

sing

Exe

cutiv

e to

bec

ome

liabl

e fo

r an

y E

xcis

e T

axes

in c

onne

ctio

nth

erew

ith; a

nd

(iii)

"A

fter

-Tax

Flo

or A

mou

nt"

mea

ns th

e A

fter

-Tax

Am

ount

of

the

Flo

or A

mou

nt.

-18-

5.2

Det

erm

inat

ion

by th

e E

xecu

tive.

(a)

If th

e C

ompa

ny s

hall

fail

to d

eliv

er a

Cer

tific

ate

to th

e E

xecu

tive

(and

to p

ay to

the

Exe

cutiv

e th

e am

ount

of

the

Gro

ss-u

p Pa

ymen

t, if

any

) w

ithin

fou

rtee

n (1

4) d

ays

afte

r re

ceip

t fro

m th

e E

xecu

tive

of a

wri

tten

requ

est f

or a

Cer

tific

ate,

or

if a

t any

tim

e fo

llow

ing

rece

ipt o

f a

Cer

tific

ate

the

Exe

cutiv

e di

sput

es th

e am

ount

of

the

Gro

ss-u

p Pa

ymen

t set

for

th th

erei

n, th

e E

xecu

tive

may

ele

ct to

dem

and

the

paym

ent o

f th

e am

ount

whi

ch th

e E

xecu

tive,

in a

ccor

danc

e w

ith a

n op

inio

n of

cou

nsel

to th

e E

xecu

tive

("E

xecu

tive

Cou

nsel

Opi

nion

")(a

s de

fine

d in

Sec

tion

5.5,

bel

ow),

det

erm

ines

to b

e th

e G

ross

-up

Paym

ent.

Any

suc

h de

man

d by

the

Exe

cutiv

e sh

all b

e m

ade

by d

eliv

ery

to th

e C

ompa

ny o

f a

wri

tten

notic

e w

hich

spe

cifi

es th

e G

ross

-up

Paym

ent d

eter

min

ed b

y th

e E

xecu

tive

and

an E

xecu

tive

Cou

nsel

Opi

nion

reg

ardi

ng s

uch

Gro

ss-u

p Pa

ymen

t (su

ch w

ritte

n no

tice

and

opin

ion

colle

ctiv

ely,

the

"Exe

cutiv

e's

Gro

ss-U

p D

eter

min

atio

n").

With

in f

ourt

een

(14)

day

s af

ter

deliv

ery

of th

e E

xecu

tive'

s G

ross

-Up

Det

erm

inat

ion

to th

e C

ompa

ny, t

he C

ompa

ny s

hall

eith

er (

1) p

ay th

e E

xecu

tive

the

Gro

ss-u

p Pa

ymen

t set

for

th in

the

Exe

cutiv

e's

Gro

ss-U

p D

eter

min

atio

n (l

ess

the

port

ion

of s

uch

amou

nt, i

f an

y,pr

evio

usly

pai

d to

the

Exe

cutiv

e by

the

Com

pany

) or

(2)

del

iver

to th

e E

xecu

tive

a C

ertif

icat

e sp

ecif

ying

the

Gro

ss-u

p Pa

ymen

t det

erm

ined

by

the

Com

pany

's in

depe

nden

t aud

itors

, tog

ethe

r w

ith a

nop

inio

n of

the

Com

pany

's c

ouns

el (

"Com

pany

Cou

nsel

Opi

nion

" (a

s de

fine

d in

Sec

tion

5.5,

bel

ow))

, and

pay

the

Exe

cutiv

e th

e G

ross

-up

Paym

ent s

peci

fied

in s

uch

Cer

tific

ate.

If

for

any

reas

on th

eC

ompa

ny f

ails

to c

ompl

y w

ith c

laus

e (2

) of

the

prec

edin

g se

nten

ce, t

he G

ross

-up

Paym

ent s

peci

fied

in th

e E

xecu

tive'

s G

ross

-Up

Det

erm

inat

ion

shal

l be

fina

l, bi

ndin

g an

d co

ntro

lling

for

all

purp

oses

.

(b)

If th

e E

xecu

tive

does

not

mak

e a

requ

est f

or, a

nd th

e C

ompa

ny d

oes

not d

eliv

er to

the

Exe

cutiv

e, a

Cer

tific

ate,

the

Com

pany

sha

ll be

dee

med

to h

ave

dete

rmin

ed th

at n

o G

ross

-up

Paym

ent i

s du

e;pr

ovid

ed th

at th

e ab

senc

e of

suc

h re

ques

t by

Exe

cutiv

e or

the

Cer

tific

ate

by th

e C

ompa

ny s

hall

not p

recl

ude

Exe

cutiv

e fr

om m

akin

g su

ch r

eque

st a

t any

fut

ure

date

.

5.3

Add

ition

al G

ross

-up

Am

ount

s. I

f, d

espi

te th

e in

itial

con

clus

ion

of th

e C

ompa

ny a

nd/o

r th

e E

xecu

tive

that

cer

tain

pay

men

ts a

re e

ither

not

sub

ject

to E

xcis

e T

axes

or

not t

o be

cou

nted

in d

eter

min

ing

whe

ther

oth

er p

aym

ents

are

sub

ject

to E

xcis

e T

axes

(an

y su

ch it

em, a

"N

on-P

arac

hute

Ite

m")

, it i

s la

ter

dete

rmin

ed (

purs

uant

to th

e su

bseq

uent

ly-e

nact

ed p

rovi

sion

s of

the

Cod

e, f

inal

reg

ulat

ions

or

publ

ishe

d ru

lings

of

the

IRS,

fin

al ju

dgm

ent o

f a

cour

t of

com

pete

nt ju

risd

ictio

n or

the

Com

pany

's in

depe

nden

t aud

itors

that

any

of

the

Non

-Par

achu

te I

tem

s ar

e su

bjec

t to

Exc

ise

Tax

es, o

r ar

e to

be

coun

ted

in d

eter

min

ing

whe

ther

any

pay

men

ts a

re s

ubje

ct to

Exc

ise

Tax

es, w

ith th

e re

sult

that

the

amou

nt o

f E

xcis

e T

axes

pay

able

by

the

Exe

cutiv

e is

gre

ater

or

the

amou

nt o

f th

e E

xcis

e T

axes

due

are

grea

ter

for

any

othe

r re

ason

than

the

amou

nt d

eter

min

ed b

y th

e C

ompa

ny o

r th

e E

xecu

tive

purs

uant

to S

ectio

n 5.

1 or

5.2

, as

appl

icab

le, t

hen

the

Com

pany

sha

ll pa

y th

e E

xecu

tive

an a

mou

nt (

whi

ch s

hall

also

be

deem

ed a

Gro

ss-u

p Pa

ymen

t) e

qual

to th

e pr

oduc

t of:

(a)

the

sum

of

(1)

such

add

ition

al E

xcis

e T

axes

, and

(2)

any

inte

rest

, fin

es, p

enal

ties,

exp

ense

s or

oth

er c

osts

incu

rred

by

the

Exe

cutiv

e as

a r

esul

t of

havi

ng ta

ken

a po

sitio

n in

acc

orda

nce

with

ade

term

inat

ion

mad

e pu

rsua

nt to

Sec

tion

5.1

-19-

mul

tiplie

d by

(b)

the

Gro

ss-u

p M

ultip

le.

5.4

Gro

ss-u

p M

ultip

le. T

he G

ross

-up

Mul

tiple

sha

ll eq

ual a

fra

ctio

n, th

e nu

mer

ator

of

whi

ch is

one

(1.

0), a

nd th

e de

nom

inat

or o

f w

hich

is o

ne (

1.0)

min

us th

e su

m, e

xpre

ssed

as

a de

cim

al f

ract

ion,

of

the

effe

ctiv

e m

argi

nal r

ates

of

all f

eder

al, s

tate

, loc

al a

nd o

ther

inco

me

and

othe

r ta

xes

and

any

Exc

ise

Tax

es a

pplic

able

to th

e G

ross

-up

Paym

ent;

prov

ided

that

, if

such

sum

exc

eeds

0.8

, it s

hall

be d

eem

ed

gp

y

equa

l to

0.8

for

purp

oses

of

this

com

puta

tion.

(If

dif

fere

nt e

ffec

tive

mar

gina

l rat

es o

f ta

x ar

e ap

plic

able

to v

ario

us p

ortio

ns o

f a

Gro

ss-u

p Pa

ymen

t, th

e w

eigh

ted

aver

age

of s

uch

rate

s sh

all b

e us

ed.)

5.5

Opi

nion

of

Cou

nsel

. "E

xecu

tive

Cou

nsel

Opi

nion

" m

eans

a le

gal o

pini

on o

f na

tiona

lly r

ecog

nize

d ex

ecut

ive

com

pens

atio

n co

unse

l tha

t the

re is

a r

easo

nabl

e ba

sis

to s

uppo

rt a

con

clus

ion

that

the

Gro

ss-u

p Pa

ymen

t det

erm

ined

by

the

Exe

cutiv

e ha

s be

en c

alcu

late

d in

acc

ord

with

this

Art

icle

and

app

licab

le la

w. "

Com

pany

Cou

nsel

Opi

nion

" m

eans

a le

gal o

pini

on o

f na

tiona

lly r

ecog

nize

d ex

ecut

ive

com

pens

atio

n co

unse

l tha

t (a)

ther

e is

a r

easo

nabl

e ba

sis

to s

uppo

rt a

con

clus

ion

that

the

Gro

ss-u

p Pa

ymen

t set

for

th o

f th

e C

ertif

icat

e of

Com

pany

's in

depe

nden

t aud

itors

has

bee

n ca

lcul

ated

in a

ccor

d w

ithth

is A

rtic

le a

nd a

pplic

able

law

, and

(b)

ther

e is

no

reas

onab

le b

asis

for

the

calc

ulat

ion

of th

e G

ross

-up

Paym

ent d

eter

min

ed b

y th

e E

xecu

tive.

5.6

Am

ount

Inc

reas

ed o

r C

onte

sted

. The

Exe

cutiv

e sh

all n

otif

y th

e C

ompa

ny in

wri

ting

of a

ny c

laim

by

the

IRS

or o

ther

taxi

ng a

utho

rity

that

, if

succ

essf

ul, w

ould

req

uire

the

paym

ent b

y th

e C

ompa

ny o

f a

Gro

ss-u

p Pa

ymen

t. Su

ch n

otic

e sh

all i

nclu

de th

e na

ture

of

such

cla

im a

nd th

e da

te o

n w

hich

suc

h cl

aim

is d

ue to

be

paid

. The

Exe

cutiv

e sh

all g

ive

such

not

ice

as s

oon

as p

ract

icab

le, b

ut n

o la

ter

than

ten

(10)

bus

ines

s da

ys, a

fter

the

Exe

cutiv

e fi

rst o

btai

ns a

ctua

l kno

wle

dge

of s

uch

clai

m; p

rovi

ded,

how

ever

, tha

t any

fai

lure

to g

ive

or d

elay

in g

ivin

g su

ch n

otic

e sh

all a

ffec

t the

Com

pany

's o

blig

atio

ns u

nder

this

Art

icle

onl

y if

and

to th

e ex

tent

that

suc

h fa

ilure

res

ults

in a

ctua

l pre

judi

ce to

the

Com

pany

. The

Exe

cutiv

e sh

all n

ot p

ay s

uch

clai

m le

ss th

an th

irty

(30

) da

ys a

fter

the

Exe

cutiv

e gi

ves

such

not

ice

to th

eC

ompa

ny (

or, i

f so

oner

, the

dat

e on

whi

ch p

aym

ent o

f su

ch c

laim

is d

ue).

If

the

Com

pany

not

ifie

s th

e E

xecu

tive

in w

ritin

g be

fore

the

expi

ratio

n of

suc

h pe

riod

that

it d

esir

es to

con

test

suc

h cl

aim

, the

Exe

cutiv

e sh

all:

(a)

give

the

Com

pany

any

info

rmat

ion

that

it r

easo

nabl

y re

ques

ts r

elat

ing

to s

uch

clai

m;

(b)

take

suc

h ac

tion

in c

onne

ctio

n w

ith c

onte

stin

g su

ch c

laim

as

the

Com

pany

rea

sona

bly

requ

ests

in w

ritin

g fr

om ti

me

to ti

me,

incl

udin

g, w

ithou

t lim

itatio

n, a

ccep

ting

lega

l rep

rese

ntat

ion

with

res

pect

tosu

ch c

laim

by

an a

ttorn

ey r

easo

nabl

y se

lect

ed b

y th

e C

ompa

ny;

(c)

coop

erat

e w

ith th

e C

ompa

ny in

goo

d fa

ith to

con

test

suc

h cl

aim

; and

(d)

perm

it th

e C

ompa

ny to

par

ticip

ate

in a

ny p

roce

edin

gs r

elat

ing

to s

uch

clai

m;

-20-

prov

ided

, how

ever

, tha

t the

Com

pany

sha

ll be

ar a

nd p

ay d

irec

tly a

ll co

sts

and

expe

nses

(in

clud

ing

addi

tiona

l int

eres

t and

pen

altie

s) in

curr

ed in

con

nect

ion

with

suc

h co

ntes

t and

sha

ll in

dem

nify

and

hol

dth

e E

xecu

tive

harm

less

, on

an a

fter

-tax

bas

is, f

or a

ny E

xcis

e T

ax o

r in

com

e ta

x, in

clud

ing

rela

ted

inte

rest

and

pen

altie

s, im

pose

d as

a r

esul

t of

such

rep

rese

ntat

ion

and

paym

ent o

f co

sts

and

expe

nses

.W

ithou

t lim

iting

the

fore

goin

g, th

e C

ompa

ny s

hall

cont

rol a

ll pr

ocee

ding

s in

con

nect

ion

with

suc

h co

ntes

t and

, at i

ts s

ole

optio

n, m

ay p

ursu

e or

for

ego

any

and

all a

dmin

istr

ativ

e ap

peal

s, p

roce

edin

gs,

hear

ings

and

con

fere

nces

with

the

taxi

ng a

utho

rity

in r

espe

ct o

f su

ch c

laim

and

may

, at i

ts s

ole

optio

n, e

ither

dir

ect t

he E

xecu

tive

to p

ay th

e ta

x cl

aim

ed a

nd s

ue f

or a

ref

und

or c

onte

st th

e cl

aim

in a

nype

rmis

sibl

e m

anne

r. T

he E

xecu

tive

agre

es to

pro

secu

te s

uch

cont

est t

o a

dete

rmin

atio

n be

fore

any

adm

inis

trat

ive

trib

unal

, in

a co

urt o

f in

itial

juri

sdic

tion

and

in o

ne o

r m

ore

appe

llate

cou

rts,

as

the

Com

pany

sha

ll de

term

ine;

pro

vide

d, h

owev

er, t

hat i

f th

e C

ompa

ny d

irec

ts th

e E

xecu

tive

to p

ay s

uch

clai

m a

nd s

ue f

or a

ref

und,

the

Com

pany

sha

ll ad

vanc

e th

e am

ount

of

such

pay

men

t to

the

Exe

cutiv

e,on

an

inte

rest

-fre

e ba

sis

and

shal

l ind

emni

fy th

e E

xecu

tive,

on

an a

fter

-tax

bas

is, f

or a

ny E

xcis

e T

ax o

r T

axes

, inc

ludi

ng r

elat

ed in

tere

st o

r pe

nalti

es, i

mpo

sed

with

res

pect

to s

uch

adva

nce;

and

fur

ther

prov

ided

that

any

ext

ensi

on o

f th

e st

atut

e of

lim

itatio

ns r

elat

ing

to p

aym

ent o

f T

axes

for

the

taxa

ble

year

of

the

Exe

cutiv

e w

ith r

espe

ct to

whi

ch s

uch

cont

este

d am

ount

is c

laim

ed to

be

due

is li

mite

d so

lely

to s

uch

cont

este

d am

ount

. The

Com

pany

's c

ontr

ol o

f th

e co

ntes

t sha

ll be

lim

ited

to is

sues

with

res

pect

to w

hich

a G

ross

-up

Paym

ent w

ould

be

paya

ble.

The

Exe

cutiv

e sh

all i

n E

xecu

tive'

s di

scre

tion

been

title

d to

set

tle o

r co

ntes

t, as

the

case

may

be,

any

oth

er is

sue

rais

ed b

y th

e IR

S or

oth

er ta

xing

aut

hori

ty.

5.7

Ref

unds

. If,

aft

er th

e re

ceip

t by

the

Exe

cutiv

e of

an

amou

nt p

aid

or a

dvan

ced

by th

e C

ompa

ny p

ursu

ant t

o Se

ctio

n 5.

1, 5

.3 a

nd/o

r 5.

6, th

e E

xecu

tive

beco

mes

ent

itled

to r

ecei

ve a

ny r

efun

d w

ith r

espe

ctto

suc

h cl

aim

or

amou

nt, t

he E

xecu

tive

shal

l (su

bjec

t to

the

Com

pany

's c

ompl

ying

with

the

requ

irem

ents

of

Sect

ion

5.6)

pro

mpt

ly p

ay th

e C

ompa

ny th

e am

ount

of

such

ref

und

(tog

ethe

r w

ith a

ny in

tere

st p

aid

or c

redi

ted

ther

eon

afte

r ta

xes

appl

icab

le th

eret

o). I

f, a

fter

the

rece

ipt b

y th

e E

xecu

tive

of a

n am

ount

pai

dor

adv

ance

d by

the

Com

pany

pur

suan

t to

Sect

ion

5.1,

5.3

and

/or

5.6,

a d

eter

min

atio

n is

mad

e th

at th

e E

xecu

tive

shal

l not

be

entit

led

to a

ny r

efun

d w

ith r

espe

ct to

suc

h cl

aim

and

the

Com

pany

doe

s no

tno

tify

the

Exe

cutiv

e in

wri

ting

of it

s in

tent

to c

onte

st s

uch

dete

rmin

atio

n be

fore

the

earl

ier

of (

a) th

e ex

pira

tion

of th

irty

(30

) da

ys a

fter

suc

h de

term

inat

ion;

or

(b)

the

date

suc

h de

term

inat

ion

beco

mes

fin

alan

d no

n-ap

peal

able

, the

n su

ch a

dvan

ce s

hall

be f

orgi

ven

and

shal

l not

be

requ

ired

to b

e re

paid

and

the

Com

pany

sha

ll pa

y E

xecu

tive

an a

mou

nt s

uffi

cien

t to

prov

ide

Exe

cutiv

e w

ith a

n A

fter

-Tax

Am

ount

equa

l to

any

amou

nt o

f T

axes

and

Exc

ise

Tax

es w

hich

Exe

cutiv

e sh

all i

ncur

with

res

pect

to s

uch

amou

nt b

eing

for

give

n. A

ny c

onte

st o

f a

deni

al o

f re

fund

sha

ll be

con

trol

led

by S

ectio

n 5.

6.

AR

TIC

LE

VI.

EX

PE

NSE

S A

ND

IN

TE

RE

ST

6.1

Leg

al F

ees

and

Oth

er E

xpen

ses.

(a)

If E

xecu

tive

incu

rs le

gal f

ees

or o

ther

exp

ense

s (i

nclu

ding

exp

ert w

itnes

s an

d ac

coun

ting

fees

) on

or

afte

r th

e E

ffec

tive

Dat

e, in

an

effo

rt to

enf

orce

this

Agr

eem

ent,

or to

sec

ure,

pre

serv

e, e

stab

lish

entit

lem

ent t

o, o

r ob

tain

ben

efits

und

er th

is A

gree

men

t (in

clud

ing

the

fees

and

oth

er e

xpen

ses

of E

xecu

tive'

s le

gal c

ouns

el in

con

nec-

-21-

tion

with

the

deliv

ery

of a

n E

xecu

tive

Cou

nsel

Opi

nion

), th

e C

ompa

ny s

hall,

reg

ardl

ess

of th

e ou

tcom

e of

suc

h ef

fort

, rei

mbu

rse

Exe

cutiv

e on

a c

urre

nt b

asis

(in

acc

orda

nce

with

Sec

tion

6.1(

b))

for

such

gp

y

reas

onab

le f

ees

and

expe

nses

, and

sha

ll al

so p

ay E

xecu

tive

an a

dditi

onal

pay

men

t suc

h th

at, a

fter

pay

men

t of

all T

axes

and

Exc

ise

Tax

es o

n su

ch a

mou

nt, t

here

rem

ains

a b

alan

ce s

uffi

cien

t to

pay

all s

uch

fees

and

oth

er e

xpen

ses.

(b)

Rei

mbu

rsem

ent o

f le

gal f

ees

and

expe

nses

and

Gro

ss-u

p Pa

ymen

ts s

hall

be m

ade

mon

thly

with

in te

n (1

0) d

ays

afte

r E

xecu

tive'

s w

ritte

n su

bmis

sion

of

a re

ques

t for

rei

mbu

rsem

ent t

oget

her

with

evid

ence

that

suc

h fe

es a

nd e

xpen

ses

wer

e in

curr

ed.

(c)

If E

xecu

tive

does

not

pre

vail

(aft

er e

xhau

stio

n of

all

avai

labl

e ju

dici

al r

emed

ies)

in r

espe

ct o

f a

clai

m b

y E

xecu

tive

or b

y th

e C

ompa

ny h

ereu

nder

, and

the

Com

pany

est

ablis

hes

befo

re a

cou

rt o

fco

mpe

tent

juri

sdic

tion,

by

clea

r an

d co

nvin

cing

evi

denc

e, th

at E

xecu

tive

had

no r

easo

nabl

e ba

sis

for

his

clai

m h

ereu

nder

, or

for

his

resp

onse

to th

e C

ompa

ny's

cla

im h

ereu

nder

, or

acte

d in

bad

fai

th, n

ofu

rthe

r re

imbu

rsem

ent f

or le

gal f

ees

and

expe

nses

sha

ll be

due

to E

xecu

tive

in r

espe

ct o

f su

ch c

laim

and

Exe

cutiv

e sh

all r

efun

d an

y am

ount

s pr

evio

usly

rei

mbu

rsed

her

eund

er w

ith r

espe

ct to

suc

h cl

aim

.

(d)

If th

ere

is a

dis

pute

bet

wee

n th

e E

xecu

tive

and

the

Com

pany

as

to E

xecu

tive'

s ri

ghts

to r

eim

burs

emen

t of

lega

l or

othe

r fe

es a

nd e

xpen

ses

unde

r th

is A

gree

men

t or

the

amou

nt o

f su

ch r

eim

burs

emen

t,an

y am

ount

of

reim

burs

emen

t req

uest

ed b

y E

xecu

tive

and

acco

mpa

nied

by

lega

l opi

nion

of

natio

nally

rec

ogni

zed

exec

utiv

e co

mpe

nsat

ion

coun

sel t

hat s

uch

amou

nt s

houl

d be

pai

d un

der

the

Agr

eem

ent

shal

l be

fina

l, bi

ndin

g an

d co

ntro

lling

on

the

Com

pany

unl

ess

and

to th

e ex

tent

the

Com

pany

est

ablis

hes

othe

rwis

e by

cle

ar a

nd c

onvi

ncin

g ev

iden

ce.

6.2

Inte

rest

. If

the

Com

pany

doe

s no

t pay

any

am

ount

due

to E

xecu

tive

unde

r th

is A

gree

men

t with

in f

ive

(5)

busi

ness

day

s af

ter

such

am

ount

fir

st b

ecam

e du

e an

d ow

ing,

inte

rest

sha

ll ac

crue

on

such

amou

nt f

rom

the

date

it b

ecam

e du

e an

d ow

ing

until

the

date

of

paym

ent a

t an

annu

al r

ate

equa

l to

200

basi

s po

ints

abo

ve th

e ba

se c

omm

erci

al le

ndin

g ra

te p

ublis

hed

in T

he W

all S

tree

t Jou

rnal

in e

ffec

tfr

om ti

me

to ti

me

duri

ng th

e pe

riod

of

such

non

paym

ent.

AR

TIC

LE

VII

.

NO

SE

T-O

FF

OR

MIT

IGA

TIO

N

7.1

No

Set-

off

by C

ompa

ny. E

xecu

tive'

s ri

ght t

o re

ceiv

e w

hen

due

the

paym

ents

and

oth

er b

enef

its p

rovi

ded

for

unde

r th

is A

gree

men

t is

abso

lute

, unc

ondi

tiona

l and

not

sub

ject

to s

et-o

ff, c

ount

ercl

aim

or

lega

l or

equi

tabl

e de

fens

e. T

ime

is o

f th

e es

senc

e in

the

perf

orm

ance

by

the

Com

pany

of

its o

blig

atio

ns u

nder

this

Agr

eem

ent.

Any

cla

im w

hich

the

Com

pany

may

hav

e ag

ains

t Exe

cutiv

e, w

heth

er f

or a

brea

ch o

f th

is A

gree

men

t or

othe

rwis

e, s

hall

be b

roug

ht in

a s

epar

ate

actio

n or

pro

ceed

ing

and

not a

s pa

rt o

f an

y ac

tion

or p

roce

edin

g br

ough

t by

Exe

cutiv

e to

enf

orce

any

rig

hts

agai

nst t

he C

ompa

ny u

nder

this

Agr

eem

ent.

7.2

No

Miti

gatio

n. E

xecu

tive

shal

l not

hav

e an

y du

ty to

miti

gate

the

amou

nts

paya

ble

by th

e C

ompa

ny u

nder

this

Agr

eem

ent b

y se

ekin

g ne

w e

mpl

oym

ent o

r se

lf-e

mpl

oym

ent

-22-

follo

win

g te

rmin

atio

n. E

xcep

t as

spec

ific

ally

oth

erw

ise

prov

ided

in th

is A

gree

men

t, al

l am

ount

s pa

yabl

e pu

rsua

nt to

this

Agr

eem

ent s

hall

be p

aid

with

out r

educ

tion

rega

rdle

ss o

f an

y am

ount

s of

sal

ary,

com

pens

atio

n or

oth

er a

mou

nts

whi

ch m

ay b

e pa

id o

r pa

yabl

e to

Exe

cutiv

e as

the

resu

lt of

Exe

cutiv

e's

empl

oym

ent b

y an

othe

r em

ploy

er o

r se

lf-e

mpl

oym

ent.

AR

TIC

LE

VII

I.

CO

NF

IDE

NT

IAL

ITY

8.1

Con

fide

ntia

l Inf

orm

atio

n.

(a)

Exe

cutiv

e ac

know

ledg

es th

at it

is th

e po

licy

of th

e C

ompa

ny to

mai

ntai

n as

sec

ret a

nd c

onfi

dent

ial a

ll C

onfi

dent

ial I

nfor

mat

ion,

and

that

Con

fide

ntia

l Inf

orm

atio

n ha

s be

en a

nd w

ill b

e de

velo

ped

atsu

bsta

ntia

l cos

t and

eff

ort t

o th

e C

ompa

ny. E

xecu

tive

ackn

owle

dges

that

he

will

hav

e ac

cess

to C

onfi

dent

ial I

nfor

mat

ion

with

res

pect

to th

e C

ompa

ny w

hich

info

rmat

ion

is a

val

uabl

e an

d un

ique

ass

et o

fth

e C

ompa

ny a

nd th

at d

iscl

osur

e of

suc

h C

onfi

dent

ial I

nfor

mat

ion

wou

ld c

ause

irre

para

ble

dam

age

to th

e C

ompa

ny's

bus

ines

s an

d op

erat

ions

.

(b)

Exe

cutiv

e ac

know

ledg

es th

at (

i) C

onfi

dent

ial I

nfor

mat

ion

is, a

s be

twee

n th

e C

ompa

ny a

nd E

xecu

tive,

the

excl

usiv

e pr

oper

ty o

f th

e C

ompa

ny,

(ii)

wha

teve

r E

xecu

tive

crea

tes

in th

e pe

rfor

man

ce o

f du

ties

in th

e co

urse

of

Exe

cutiv

e's

empl

oym

ent,

incl

udin

g id

eas,

dev

elop

men

ts, w

ritin

gs, i

mpr

ovem

ents

, des

igns

, gra

phic

and

mus

ical

wor

ks (

the

"Wor

k Pr

oduc

t")

is th

e pr

oper

ty o

f th

e C

ompa

ny, a

nd (

iii)

to th

e ex

tent

that

any

of

the

Wor

k Pr

oduc

t is

capa

ble

of p

rote

ctio

n by

cop

yrig

ht, i

t is

crea

ted

with

in th

e sc

ope

of E

xecu

tive'

s em

ploy

men

t and

isw

ork

mad

e fo

r hi

re. T

o th

e ex

tent

that

any

suc

h W

ork

Prod

uct m

ay n

ot b

e a

wor

k m

ade

for

hire

, Exe

cutiv

e he

reby

ass

igns

to th

e C

ompa

ny a

ll ri

ghts

in s

uch

Wor

k Pr

oduc

t. T

o th

e ex

tent

that

any

of

the

Wor

k Pr

oduc

t is

an in

vent

ion,

Exe

cutiv

e he

reby

ass

igns

to th

e C

ompa

ny a

ll ri

ght,

title

, and

inte

rest

in a

nd to

inve

ntio

ns, i

mpr

ovem

ents

, dis

cove

ries

, or

idea

s co

ncei

ved

or in

vent

ed b

y E

xecu

tive

duri

ng th

ete

rm o

f E

xecu

tive'

s em

ploy

men

t (th

e "I

nven

tions

"). T

he C

ompa

ny a

ckno

wle

dges

that

this

Agr

eem

ent d

oes

not a

pply

to a

n in

vent

ion

for

whi

ch n

o eq

uipm

ent,

supp

lies,

fac

ility

, or

trad

e se

cret

info

rmat

ion

of th

e C

ompa

ny w

as u

sed

and

whi

ch w

as d

evel

oped

ent

irel

y on

Exe

cutiv

e's

own

time,

unl

ess

the

Inve

ntio

n (x

) re

late

s to

the

busi

ness

of

the

Com

pany

or

to th

e C

ompa

ny's

act

ual o

r de

mon

stra

bly

antic

ipat

ed r

esea

rch

or d

evel

opm

ent,

or(y

) re

sults

fro

m a

ny w

ork

perf

orm

ed b

y E

xecu

tive

for

the

Com

pany

. Exe

cutiv

e ag

rees

to e

xecu

te a

ny d

ocum

ents

at a

ny ti

me

reas

onab

ly r

equi

red

by th

e C

ompa

ny in

con

nect

ion

with

the

regi

stra

tion

ofco

pyri

ght,

the

assi

gnm

ent o

r se

curi

ng o

f pa

tent

pro

tect

ion

for

any

Inve

ntio

n, o

r ot

her

perf

ectio

n of

the

Com

pany

's o

wne

rshi

p of

the

Wor

k Pr

oduc

t.

(c)

Bot

h du

ring

Exe

cutiv

e's

empl

oym

ent b

y th

e C

ompa

ny a

nd a

t any

tim

e af

ter

the

Ter

min

atio

n D

ate,

Exe

cutiv

e:

gp

y

(i)

shal

l not

, dir

ectly

or

indi

rect

ly, d

ivul

ge, f

urni

sh o

r m

ake

acce

ssib

le to

any

Per

son,

exc

ept:

-23-

(A)

to th

e ex

tent

Exe

cutiv

e re

ason

ably

and

in g

ood

faith

bel

ieve

s th

at s

uch

actio

ns a

re r

elat

ed to

, and

req

uire

d by

, Exe

cutiv

e's

perf

orm

ance

of

his

dutie

s un

der

this

Agr

eem

ent;

or

(B)

as m

ay b

e co

mpe

lled

by a

pplic

able

law

or

adm

inis

trat

ive

regu

latio

n; p

rovi

ded

that

Exe

cutiv

e, to

the

exte

nt n

ot p

rohi

bite

d fr

om d

oing

so

by a

pplic

able

law

or

adm

inis

trat

ive

regu

latio

n, s

hall

give

the

Com

pany

wri

tten

notic

e of

the

info

rmat

ion

to b

e so

dis

clos

ed p

ursu

ant t

o cl

ause

(B

) of

this

sen

tenc

e as

far

in a

dvan

ce o

f its

dis

clos

ure

as is

pra

ctic

able

, sha

ll co

oper

ate

with

the

Com

pany

in it

s ef

fort

s to

prot

ect t

he in

form

atio

n fr

om d

iscl

osur

e, a

nd s

hall

limit

Exe

cutiv

e's

disc

losu

re o

f su

ch in

form

atio

n to

the

min

imum

dis

clos

ure

requ

ired

by

law

or

adm

inis

trat

ive

regu

latio

n (u

nles

s th

e C

ompa

ny a

gree

s in

wri

ting

to a

gre

ater

leve

l of

disc

losu

re);

(ii)

sha

ll no

t use

for

his

ow

n be

nefi

t in

any

man

ner,

any

Con

fide

ntia

l Inf

orm

atio

n;

(iii)

sha

ll no

t cau

se a

ny s

uch

Con

fide

ntia

l Inf

orm

atio

n to

bec

ome

publ

icly

kno

wn;

and

(iv)

sha

ll ta

ke a

ll re

ason

able

ste

ps to

saf

egua

rd s

uch

Con

fide

ntia

l Inf

orm

atio

n an

d to

pro

tect

it a

gain

st d

iscl

osur

e, m

isus

e, lo

ss a

nd th

eft.

(d)

For

purp

oses

of

this

Agr

eem

ent,

Con

fide

ntia

l Inf

orm

atio

n re

pres

ents

trad

e se

cret

s su

bjec

t to

prot

ectio

n un

der

the

Uni

form

Tra

de S

ecre

ts A

ct, o

r to

any

com

para

ble

prot

ectio

n af

ford

ed b

y ot

her

appl

icab

le la

ws.

8.2

Rea

sona

blen

ess

of R

estr

ictiv

e C

oven

ants

.

(a)

Exe

cutiv

e ac

know

ledg

es th

at th

e co

vena

nts

cont

aine

d in

Sec

tion

8.1

are

reas

onab

le in

the

scop

e of

the

activ

ities

res

tric

ted,

and

that

suc

h co

vena

nts

are

reas

onab

ly n

eces

sary

to p

rote

ct th

e C

ompa

ny's

legi

timat

e in

tere

sts

in it

s C

onfi

dent

ial I

nfor

mat

ion.

Exe

cutiv

e fu

rthe

r ac

know

ledg

es s

uch

cove

nant

s ar

e es

sent

ial e

lem

ents

of

this

Agr

eem

ent a

nd th

at, b

ut f

or s

uch

cove

nant

s, th

e C

ompa

ny w

ould

not

hav

een

tere

d in

to th

is A

gree

men

t.

(b)

The

Com

pany

and

Exe

cutiv

e ha

ve e

ach

cons

ulte

d w

ith th

eir

resp

ectiv

e le

gal c

ouns

el a

nd h

ave

been

adv

ised

con

cern

ing

the

reas

onab

lene

ss a

nd p

ropr

iety

of

such

cov

enan

ts.

8.3

Rig

ht to

Inj

unct

ion,

Sur

viva

l of

Und

erta

king

s.

(a)

In r

ecog

nitio

n of

the

conf

iden

tial n

atur

e of

the

Con

fide

ntia

l Inf

orm

atio

n, a

nd in

rec

ogni

tion

of th

e ne

cess

ity o

f th

e lim

ited

rest

rict

ions

impo

sed

by S

ectio

n 8.

1, th

e pa

rtie

s ag

ree

that

it w

ould

be

impo

ssib

le to

mea

sure

sol

ely

in m

oney

the

dam

ages

whi

ch th

e C

ompa

ny w

ould

suf

fer

if E

xecu

tive

wer

e to

bre

ach

any

of h

is o

blig

atio

ns u

nder

suc

h Se

ctio

ns. E

xecu

tive

ackn

owle

dges

that

any

bre

ach

ofan

y pr

ovis

ion

of s

uch

Sect

ion

-24-

wou

ld ir

repa

rabl

y in

jure

the

Com

pany

. Acc

ordi

ngly

, Exe

cutiv

e ag

rees

that

if h

e br

each

es a

ny o

f th

e pr

ovis

ions

of

such

Sec

tion,

the

Com

pany

sha

ll be

ent

itled

, in

addi

tion

to a

ny o

ther

rem

edie

s to

whi

chth

e C

ompa

ny m

ay b

e en

title

d un

der

this

Agr

eem

ent o

r ot

herw

ise,

to a

n in

junc

tion

to b

e is

sued

by

a co

urt o

f co

mpe

tent

juri

sdic

tion,

to r

estr

ain

any

brea

ch, o

r th

reat

ened

bre

ach,

of

such

pro

visi

ons,

and

Exe

cutiv

e he

reby

wai

ves

any

righ

t to

asse

rt a

ny c

laim

or

defe

nse

that

the

Com

pany

has

an

adeq

uate

rem

edy

at la

w f

or a

ny s

uch

brea

ch.

(b)

If a

cou

rt d

eter

min

es th

at a

ny o

f th

e co

vena

nts

incl

uded

in th

is A

rtic

le V

III

is u

nenf

orce

able

in w

hole

or

in p

art,

such

cou

rt s

hall

have

the

pow

er to

mod

ify

the

prov

isio

n, a

s ne

cess

ary,

so

as to

cau

sesu

ch c

oven

ant a

s so

mod

ifie

d to

be

enfo

rcea

ble.

(c)

All

of th

e pr

ovis

ions

of

this

Art

icle

VII

I sh

all s

urvi

ve a

ny T

erm

inat

ion

of E

mpl

oym

ent w

ithou

t reg

ard

to (

i) th

e re

ason

s fo

r su

ch te

rmin

atio

n, o

r (i

i) th

e ex

pira

tion

of th

e A

gree

men

t Ter

m.

8.4

If E

xecu

tive

brea

ches

the

rest

rict

ive

cove

nant

s co

ntai

ned

in th

is A

rtic

le V

III,

suc

h vi

olat

ion

shal

l be

rem

edie

d as

pro

vide

d he

rein

, but

sha

ll no

t aff

ect t

he C

ompa

ny's

obl

igat

ion

to p

ay b

enef

its o

rot

herw

ise

fulf

ill it

s ob

ligat

ions

und

er th

is A

gree

men

t exc

ept a

nd to

the

exte

nt th

at s

uch

viol

atio

n is

the

basi

s fo

r E

xecu

tive'

s T

erm

inat

ion

with

Cau

se.

AR

TIC

LE

IX

.

NO

N-E

XC

LU

SIV

ITY

OF

RIG

HT

S

9.1

Wai

ver

of C

erta

in O

ther

Rig

hts.

To

the

exte

nt th

at p

aym

ents

are

mad

e to

Exe

cutiv

e pu

rsua

nt to

Sec

tion

4.1(

a) o

r 4.

1(b)

, Exe

cutiv

e he

reby

wai

ves

the

righ

t to

rece

ive

seve

ranc

e pa

ymen

ts o

r se

vera

nce

bene

fits

und

er a

ny o

ther

sev

eran

ce P

lan,

agr

eem

ent o

r Po

licy

of th

e C

ompa

ny, i

nclu

ding

but

not

lim

ited

to, a

ny b

enef

its to

whi

ch E

xecu

tive

shal

l bec

ome

entit

led

unde

r an

Exe

cutiv

e R

eten

tion

Agr

eem

ent.

9.2

Oth

er R

ight

s. E

xcep

t as

expr

essl

y pr

ovid

ed in

Sec

tion

9.1,

this

Agr

eem

ent s

hall

not p

reve

nt o

r lim

it E

xecu

tive'

s co

ntin

uing

or

futu

re p

artic

ipat

ion

in a

ny b

enef

it, b

onus

, inc

entiv

e or

oth

er P

lans

prov

ided

by

the

Com

pany

and

for

whi

ch E

xecu

tive

may

qua

lify,

nor

sha

ll th

is A

gree

men

t lim

it or

oth

erw

ise

affe

ct s

uch

righ

ts a

s E

xecu

tive

may

hav

e un

der

any

othe

r ag

reem

ents

with

the

Com

pany

.A

mou

nts

whi

ch a

re v

este

d be

nefi

ts o

r w

hich

Exe

cutiv

e is

oth

erw

ise

entit

led

to r

ecei

ve u

nder

any

Pla

n an

d an

y ot

her

paym

ent o

r be

nefi

t req

uire

d by

law

at o

r af

ter

the

Ter

min

atio

n D

ate

shal

l be

paya

ble

in

gp

y

acco

rdan

ce w

ith s

uch

Plan

or

appl

icab

le la

w e

xcep

t as

expr

essl

y m

odif

ied

by th

is A

gree

men

t.

9.3

Exe

cutiv

e E

mpl

oym

ent C

ontr

act.

It is

not

the

inte

nt o

f th

is A

gree

men

t to

supe

rced

e th

e C

ompa

ny's

Exe

cutiv

e R

eten

tion

Plan

. Upo

n a

Cha

nge

of C

ontr

ol th

at c

ause

s E

xecu

tive

to b

e en

title

d to

seve

ranc

e be

nefi

ts u

nder

this

Agr

eem

ent a

nd u

nder

the

Exe

cutiv

e R

eten

tion

Plan

, Exe

cutiv

e m

ay e

lect

to r

ecei

ve s

ever

ance

ben

efits

und

er e

ither

the

Exe

cutiv

e R

eten

tion

Plan

or

unde

r th

is A

gree

men

t.E

xecu

tive'

s el

ectio

n to

rec

eive

ben

efits

und

er o

ne o

f th

ese

arra

ngem

ents

sha

ll co

nstit

ute

a w

aive

r of

Exe

cutiv

e's

righ

t to

rece

ive

bene

fits

und

er th

e ot

her

arra

ngem

ent.

In th

e ev

ent t

hat E

xecu

tive

term

inat

esfo

r G

ood

Rea

son

as d

efin

ed in

this

-25-

Agr

eem

ent,

such

term

inat

ion

shal

l als

o be

trea

ted

as a

term

inat

ion

with

out c

ause

for

pur

pose

s of

the

Exe

cutiv

e R

eten

tion

Plan

, thu

s pe

rmitt

ing

Exe

cutiv

e to

ele

ct to

rec

eive

sev

eran

ce b

enef

its u

nder

eith

erth

e E

xecu

tive

Ret

entio

n Pl

an f

or a

term

inat

ion

with

out c

ause

or

unde

r th

is A

gree

men

t for

a te

rmin

atio

n fo

r G

ood

Rea

son.

If

Exe

cutiv

e el

ects

to r

ecei

ve s

uch

seve

ranc

e be

nefi

ts u

nder

the

Exe

cutiv

eR

eten

tion

Plan

, the

gol

den

para

chut

e E

xcis

e T

ax g

ross

-up

prov

isio

ns in

Art

icle

V o

f th

is A

gree

men

t sha

ll ap

ply

to p

rovi

de g

ross

-up

prot

ectio

n to

Exe

cutiv

e un

der

the

Exe

cutiv

e R

eten

tion

Plan

.

9.4

Exe

cutiv

e R

eten

tion

Plan

. The

pro

visi

ons

of th

is A

gree

men

t sha

ll co

ntin

ue to

app

ly d

urin

g pe

riod

s w

hen

Exe

cutiv

e is

in th

e "T

rans

ition

Per

iod"

und

er A

rtic

le 4

of

the

Exe

cutiv

e R

eten

tion

Plan

.C

omm

enci

ng o

n th

e da

te th

at E

xecu

tive

begi

ns th

e "C

ontin

ued

Em

ploy

men

t Per

iod"

for

pur

pose

s of

Art

icle

5 o

f th

e E

xecu

tive

Ret

entio

n Pl

an, a

ll of

Exe

cutiv

e's

righ

ts to

fut

ure

seve

ranc

e be

nefi

ts u

nder

this

Agr

eem

ent s

hall

ceas

e an

d E

xecu

tive'

s so

le s

ever

ance

or

sim

ilar

righ

ts s

hall

be th

ose

set f

orth

in th

e E

xecu

tive

Ret

entio

n Pl

an.

AR

TIC

LE

X.

MIS

CE

LL

AN

EO

US

10.1

No

Ass

igna

bilit

y. T

his

Agr

eem

ent i

s pe

rson

al to

Exe

cutiv

e an

d w

ithou

t the

pri

or w

ritte

n co

nsen

t of

the

Com

pany

sha

ll no

t be

assi

gnab

le b

y E

xecu

tive

othe

rwis

e th

an b

y w

ill o

r th

e la

ws

of d

esce

nt a

nddi

stri

butio

n. T

his

Agr

eem

ent s

hall

inur

e to

the

bene

fit o

f an

d be

enf

orce

able

by

Exe

cutiv

e's

lega

l rep

rese

ntat

ives

.

10.2

Suc

cess

ors.

Thi

s A

gree

men

t sha

ll in

ure

to th

e be

nefi

t of

and

be b

indi

ng u

pon

the

Com

pany

and

its

succ

esso

rs a

nd a

ssig

ns. T

he C

ompa

ny w

ill r

equi

re a

ny s

ucce

ssor

(w

heth

er d

irec

t or

indi

rect

, by

purc

hase

, mer

ger,

con

solid

atio

n or

oth

erw

ise)

to a

ll or

sub

stan

tially

all

of th

e bu

sine

ss o

r as

sets

of

the

Com

pany

or

any

Pare

nt C

orpo

ratio

n of

any

suc

cess

or (

whe

ther

dir

ect o

r in

dire

ct)

by p

urch

ase,

mer

ger,

cons

olid

atio

n or

oth

erw

ise

to a

ll or

sub

stan

tially

all

of th

e bu

sine

ss a

sset

s of

the

Com

pany

, to

assu

me

expr

essl

y an

d ag

ree

to p

erfo

rm th

is A

gree

men

t in

the

sam

e m

anne

r an

d to

the

sam

e ex

tent

that

the

Com

pany

wou

ld b

e re

quir

ed to

per

form

it if

no

such

suc

cess

ion

had

take

n pl

ace.

Any

suc

cess

or to

the

busi

ness

or

asse

ts o

f th

e C

ompa

ny w

hich

ass

umes

or

agre

es to

per

form

this

Agr

eem

ent b

y op

erat

ion

of la

w, c

ontr

act,

or o

ther

wis

e sh

all b

e jo

intly

and

sev

eral

ly li

able

with

the

Com

pany

und

er th

is A

gree

men

t as

if s

uch

succ

esso

r w

ere

the

Com

pany

.

10.3

Pay

men

ts to

Ben

efic

iary

. If

Exe

cutiv

e di

es b

efor

e re

ceiv

ing

amou

nts

to w

hich

Exe

cutiv

e is

ent

itled

und

er th

is A

gree

men

t, su

ch a

mou

nts

shal

l be

paid

in a

lum

p su

m to

one

or

mor

e be

nefi

ciar

ies

desi

gnat

ed in

wri

ting

by E

xecu

tive

(eac

h, a

"B

enef

icia

ry")

, or

if n

one

is s

o de

sign

ated

, to

Exe

cutiv

e's

esta

te.

10.4

Non

-Alie

natio

n of

Ben

efits

. Ben

efits

pay

able

und

er th

is A

gree

men

t sha

ll no

t be

subj

ect i

n an

y m

anne

r to

ant

icip

atio

n, a

liena

tion,

sal

e, tr

ansf

er, a

ssig

nmen

t, pl

edge

, enc

umbr

ance

, cha

rge,

gar

nish

men

t,ex

ecut

ion

or le

vy o

f an

y ki

nd, e

ither

vol

unta

ry o

r in

volu

ntar

y, b

efor

e ac

tual

ly b

eing

rec

eive

d by

Exe

cutiv

e, a

nd a

ny s

uch

atte

mpt

to d

ispo

se o

f an

y ri

ght t

o be

nefi

ts p

ayab

le u

nder

this

Agr

eem

ent s

hall

bevo

id.

-26-

10.5

No

Def

eren

ce. U

nles

s ot

herw

ise

expr

essl

y pr

ovid

ed in

this

Agr

eem

ent,

no d

eter

min

atio

n pu

rsua

nt to

, or

inte

rpre

tatio

n of

, thi

s A

gree

men

t mad

e by

the

boar

d of

dir

ecto

rs (

or a

ny c

omm

ittee

ther

eof)

of

the

Com

pany

or

any

Succ

esso

r C

orpo

ratio

n fo

llow

ing

a C

hang

e of

Con

trol

or

Imm

inen

t Cha

nge

Dat

e sh

all b

e en

title

d to

any

pre

sum

ptiv

e va

lidity

or

othe

r de

fere

nce

in c

onne

ctio

n w

ith a

ny ju

dici

al o

rad

min

istr

ativ

e pr

ocee

ding

rel

atin

g to

or

aris

ing

unde

r th

is A

gree

men

t.

10.6

Sev

erab

ility

. If

any

one

or m

ore

Art

icle

s, S

ectio

ns o

r ot

her

port

ions

of

this

Agr

eem

ent a

re d

ecla

red

by a

ny c

ourt

or

gove

rnm

enta

l aut

hori

ty to

be

unla

wfu

l or

inva

lid, s

uch

unla

wfu

lnes

s or

inva

lidity

shal

l not

ser

ve to

inva

lidat

e an

y A

rtic

le, S

ectio

n or

oth

er p

ortio

n no

t so

decl

ared

to b

e un

law

ful o

r in

valid

. Any

Art

icle

, Sec

tion

or o

ther

por

tion

so d

ecla

red

to b

e un

law

ful o

r in

valid

sha

ll be

con

stru

ed s

oas

to e

ffec

tuat

e th

e te

rms

of s

uch

Art

icle

,Se

ctio

n or

oth

er p

ortio

n to

the

fulle

st e

xten

t pos

sibl

e w

hile

rem

aini

ng la

wfu

l and

val

id.

10.7

Am

endm

ents

. Thi

s A

gree

men

t sha

ll no

t be

amen

ded

or m

odif

ied

at a

ny ti

me

exce

pt b

y w

ritte

n in

stru

men

t exe

cute

d by

the

Com

pany

and

Exe

cutiv

e. T

he C

ompa

ny s

hall

not a

men

d or

term

inat

e th

isA

gree

men

t in

any

man

ner

follo

win

g th

e E

ffec

tive

Dat

e or

dur

ing

any

Imm

inen

t Cha

nge

Peri

od w

ithou

t the

pri

or w

ritte

n co

nsen

t of

the

Exe

cutiv

e.

10.8

Not

ices

. All

notic

es a

nd o

ther

com

mun

icat

ions

und

er th

is A

gree

men

t sha

ll be

in w

ritin

g an

d de

liver

ed b

y ha

nd, b

y na

tiona

lly-r

ecog

nize

d de

liver

y se

rvic

e th

at p

rom

ises

ove

rnig

ht d

eliv

ery,

or

byfi

rst-

clas

s re

gist

ered

or

cert

ifie

d m

ail,

retu

rn r

ecei

pt r

eque

sted

, pos

tage

pre

paid

, add

ress

ed a

s fo

llow

s:

If t

o E

xecu

tive

:

at E

xecu

tive'

s m

ost r

ecen

t hom

e ad

dres

s on

file

gp

y

with

the

Com

pany

.

If t

o th

e C

ompa

ny:

McD

onal

d's

Cor

pora

tion

One

McD

onal

d's

Plaz

a

Oak

Bro

ok, I

L 6

0523

Atte

ntio

n: G

ener

al C

ouns

el

or to

suc

h ot

her

addr

ess

as e

ither

par

ty s

hall

have

fur

nish

ed to

the

othe

r in

wri

ting.

Not

ice

and

com

mun

icat

ions

sha

ll be

eff

ectiv

e w

hen

actu

ally

rec

eive

d by

the

addr

esse

e.

10.9

Cou

nter

part

s. T

his

Agr

eem

ent m

ay b

e ex

ecut

ed in

two

or m

ore

coun

terp

arts

, eac

h of

whi

ch s

hall

be d

eem

ed a

n or

igin

al, b

ut a

ll of

whi

ch to

geth

er c

onst

itute

one

and

the

sam

e in

stru

men

t.

10.1

0 G

over

ning

Law

. Thi

s A

gree

men

t sha

ll be

inte

rpre

ted

and

cons

true

d in

acc

orda

nce

with

the

law

s of

the

Stat

e of

Illi

nois

with

out r

egar

d to

its

choi

ce o

f la

w p

rinc

iple

s.

-27-

10.1

1 C

aptio

ns. T

he c

aptio

ns o

f th

is A

gree

men

t are

not

apa

rt o

f th

e pr

ovis

ions

her

eof

and

shal

l hav

e no

for

ce o

r ef

fect

.

10.1

2 N

umbe

r an

d G

ende

r. W

here

ver

appr

opri

ate,

the

sing

ular

sha

ll in

clud

e th

e pl

ural

, the

plu

ral s

hall

incl

ude

the

sing

ular

, and

the

mas

culin

e sh

all i

nclu

de th

e fe

min

ine.

10.1

3 T

ax W

ithho

ldin

g. T

he C

ompa

ny m

ay w

ithho

ld f

rom

any

am

ount

s pa

yabl

e un

der

this

Agr

eem

ent a

ny T

axes

that

are

req

uire

d to

be

with

held

pur

suan

t to

any

appl

icab

le la

w o

r re

gula

tion.

10.1

4 N

o W

aive

r. E

xecu

tive'

s fa

ilure

to in

sist

upo

n st

rict

com

plia

nce

with

any

pro

visi

on o

f th

is A

gree

men

t sha

ll no

t be

deem

ed a

wai

ver

of s

uch

prov

isio

n or

any

oth

er p

rovi

sion

of

this

Agr

eem

ent.

Aw

aive

r of

any

pro

visi

on o

f th

is A

gree

men

t sha

ll no

t be

deem

ed a

wai

ver

of a

ny o

ther

pro

visi

on, a

nd a

ny w

aive

r of

any

def

ault

in a

ny s

uch

prov

isio

n sh

all n

ot b

e de

emed

a w

aive

r of

any

late

r de

faul

t the

reof

or o

f an

y ot

her

prov

isio

n.

10.1

5 E

ntir

e A

gree

men

t. T

his

Agr

eem

ent c

onta

ins

the

entir

e un

ders

tand

ing

of th

e C

ompa

ny a

nd E

xecu

tive

with

res

pect

to it

s su

bjec

t mat

ter.

IN W

ITN

ESS

WH

ER

EO

F, E

xecu

tive

and

the

Com

pany

hav

e ex

ecut

ed th

is C

hang

e of

Con

trol

Em

ploy

men

t Agr

eem

ent a

s of

the

date

fir

st a

bove

wri

tten.

EX

EC

UT

IVE

McD

ON

AL

D'S

CO

RP

OR

AT

ION

By:

___

____

____

____

____

____

____

Titl

e: _

____

____

____

____

____

___

-28-

AN

NE

X A

FO

RM

OF

NO

N-C

OM

PE

TIT

ION

AN

D R

EL

EA

SE A

GR

EE

ME

NT

Thi

s ag

reem

ent,

rele

ase

and

wai

ver

(the

"A

gree

men

t"),

mad

e as

of

the

___

day

of _

____

____

____

___,

___

__, i

s m

ade

by a

nd b

etw

een

McD

onal

d's

Cor

pora

tion

and

(tog

ethe

r w

ith a

ll su

cces

sors

ther

eto,

the

"Com

pany

") a

nd _

____

____

____

__ (

"Exe

cutiv

e").

WH

ER

EA

S, th

e C

ompa

ny a

nd th

e E

xecu

tive

have

pre

viou

sly

ente

red

into

a C

hang

e-of

-Con

trol

Sup

plem

ent a

nd A

men

dmen

t to

Em

ploy

men

t Agr

eem

ent,

date

d as

of

____

____

____

____

_, 2

00_

("C

hang

eof

Con

trol

Agr

eem

ent"

);

gp

y

NO

W T

HE

RE

FOR

E, i

n co

nsid

erat

ion

for

rece

ivin

g be

nefi

ts a

nd s

ever

ance

und

erSe

ctio

n 4.

1 of

the

Cha

nge

of C

ontr

ol A

gree

men

t and

in c

onsi

dera

tion

of th

e re

pres

enta

tions

, cov

enan

ts a

nd m

utua

l pro

mis

es s

et f

orth

in th

is A

gree

men

t, th

e pa

rtie

s ag

ree

as f

ollo

ws:

1. D

efin

ed T

erm

s. W

hen

used

her

ein,

unl

ess

othe

rwis

e sp

ecif

ied,

term

s sh

all h

ave

the

sam

e de

fini

tions

as

prov

ided

in th

e C

hang

e of

Con

trol

Agr

eem

ent.

2. R

elea

se. E

xcep

t with

res

pect

to th

e C

ompa

ny's

obl

igat

ions

und

er th

e C

hang

e of

Con

trol

Agr

eem

ent,

the

Exe

cutiv

e, a

nd E

xecu

tive'

s he

irs,

exe

cuto

rs, a

ssig

ns, r

epre

sent

ativ

es, a

gent

s, le

gal r

epre

sent

ativ

es,

and

pers

onal

rep

rese

ntat

ives

, her

eby

rele

ases

, acq

uits

and

for

ever

dis

char

ges

the

Com

pany

, its

Sub

sidi

arie

s, th

e Su

rviv

ing

Cor

pora

tion

and

thei

r re

spec

tive

dire

ctor

s, o

ffic

ers,

age

nts,

ser

vant

s, e

mpl

oyee

s,at

torn

eys,

sha

reho

lder

s, s

ucce

ssor

s, a

ssig

ns a

nd a

ffili

ates

, of

and

from

any

and

all

clai

ms,

liab

ilitie

s, d

eman

ds, c

ause

s of

act

ion,

cos

ts, e

xpen

ses,

atto

rney

s fe

es, d

amag

es a

nd o

blig

atio

ns o

f ev

ery

kind

and

natu

re, i

n la

w, e

quity

, or

othe

rwis

e, k

now

n an

d un

know

n, s

uspe

cted

and

uns

uspe

cted

, dis

clos

ed a

nd u

ndis

clos

ed, a

risi

ng o

ut o

f or

in a

ny w

ay r

elat

ed to

agr

eem

ents

, eve

nts,

act

s or

con

duct

at a

ny ti

me

prio

rto

the

day

prio

r to

exe

cutio

n of

this

Agr

eem

ent,

incl

udin

g bu

t not

lim

ited

to: a

ny a

nd a

ll su

ch c

laim

s an

d de

man

ds d

irec

tly o

r in

dire

ctly

ari

sing

out

of

or in

any

way

con

nect

ed w

ith th

e E

xecu

tive'

sem

ploy

men

t with

the

Com

pany

; the

Exe

cutiv

e's

term

inat

ion

of e

mpl

oym

ent w

ith th

e C

ompa

ny; c

laim

s or

dem

ands

rel

ated

to s

alar

y, b

onus

es, c

omm

issi

ons,

sto

ck, s

tock

opt

ions

, or

any

othe

r ow

ners

hip

inte

rest

s in

the

Com

pany

, vac

atio

n pa

y, f

ring

e be

nefi

ts, e

xpen

se r

eim

burs

emen

ts, s

abba

tical

ben

efits

, sev

eran

ce b

enef

its, o

r an

y ot

her

form

of

com

pens

atio

n or

equ

ity; c

laim

s pu

rsua

nt to

any

fed

eral

, sta

te,

loca

l law

, sta

tute

, ord

inan

ce o

r ca

use

of a

ctio

n in

clud

ing,

but

not

lim

ited

to, t

he f

eder

al C

ivil

Rig

hts

Act

of

1964

, as

amen

ded;

the

fede

ral A

ge D

iscr

imin

atio

n in

Em

ploy

men

t Act

of

1967

, as

amen

ded;

the

fede

ral A

mer

ican

s w

ith D

isab

ilitie

s A

ct o

f 19

90; t

ort l

aw; c

ontr

act l

aw; w

rong

ful d

isch

arge

; dis

crim

inat

ion;

fra

ud; d

efam

atio

n; h

aras

smen

t; em

otio

nal d

istr

ess;

or

brea

ch o

f th

e im

plie

d co

vena

nt o

f go

odfa

ith a

nd f

air

deal

ing.

Thi

s R

elea

se d

oes

not a

pply

to a

ny c

ompe

nsat

ion

or b

enef

its to

whi

ch th

e E

xecu

tive

may

be

entit

led

unde

r th

is A

gree

men

t or

the

Cha

nge

of C

ontr

ol A

gree

men

t or

to a

ny r

ight

s to

inde

mni

fica

tion

unde

r by

-law

s or

oth

er a

gree

men

ts o

f th

e C

ompa

ny o

r an

y ot

her

Em

ploy

er.

1

3. N

o In

duce

men

t. E

xecu

tive

agre

es th

at n

o pr

omis

e or

indu

cem

ent t

o en

ter

into

this

Agr

eem

ent h

as b

een

offe

red

or m

ade

exce

pt a

s se

t for

th in

this

Agr

eem

ent,

that

the

Exe

cutiv

e is

ent

erin

g in

to th

isA

gree

men

t with

out a

ny th

reat

or

coer

cion

and

with

out r

elia

nce

or a

ny s

tate

men

t or

repr

esen

tatio

n m

ade

on b

ehal

f of

the

Com

pany

or

by a

ny p

erso

n em

ploy

ed b

y or

rep

rese

ntin

g th

e C

ompa

ny, e

xcep

t for

the

wri

tten

prov

isio

ns a

nd p

rom

ises

con

tain

ed in

this

Agr

eem

ent.

4. C

onfi

dent

ial I

nfor

mat

ion.

(a)

Exe

cutiv

e ac

know

ledg

es th

at it

is th

e po

licy

of th

e C

ompa

ny to

mai

ntai

n as

sec

ret a

nd c

onfi

dent

ial a

ll C

onfi

dent

ial I

nfor

mat

ion,

and

that

Con

fide

ntia

l Inf

orm

atio

n ha

s be

en a

nd w

ill b

e de

velo

ped

atsu

bsta

ntia

l cos

t and

eff

ort t

o th

e C

ompa

ny. E

xecu

tive

ackn

owle

dges

that

he

will

hav

e ac

cess

to C

onfi

dent

ial I

nfor

mat

ion

with

res

pect

to th

e C

ompa

ny w

hich

info

rmat

ion

is a

val

uabl

e an

d un

ique

ass

et o

fth

e C

ompa

ny a

nd th

at d

iscl

osur

e of

suc

h C

onfi

dent

ial I

nfor

mat

ion

wou

ld c

ause

irre

para

ble

dam

age

to th

e C

ompa

ny's

bus

ines

s an

d op

erat

ions

.

(b)

Exe

cutiv

e ac

know

ledg

es th

at (

i) C

onfi

dent

ial I

nfor

mat

ion

is, a

s be

twee

n th

e C

ompa

ny a

nd E

xecu

tive,

the

excl

usiv

e pr

oper

ty o

f th

e C

ompa

ny,

(ii)

wha

teve

r E

xecu

tive

crea

tes

in th

e pe

rfor

man

ce o

f du

ties

in th

e co

urse

of

Exe

cutiv

e's

empl

oym

ent,

incl

udin

g id

eas,

dev

elop

men

ts, w

ritin

gs, i

mpr

ovem

ents

, des

igns

, gra

phic

and

mus

ical

wor

ks (

the

"Wor

k Pr

oduc

t")

is th

e pr

oper

ty o

f th

e C

ompa

ny, a

nd (

iii)

to th

e ex

tent

that

any

of

the

Wor

k Pr

oduc

t is

capa

ble

of p

rote

ctio

n by

cop

yrig

ht, i

t is

crea

ted

with

in th

e sc

ope

of E

xecu

tive'

s em

ploy

men

t and

isw

ork

mad

e fo

r hi

re. T

o th

e ex

tent

that

any

suc

h W

ork

Prod

uct m

ay n

ot b

e a

wor

k m

ade

for

hire

, Exe

cutiv

e he

reby

ass

igns

to th

e C

ompa

ny a

ll ri

ghts

in s

uch

Wor

k Pr

oduc

t. T

o th

e ex

tent

that

any

of

the

Wor

k Pr

oduc

t is

an in

vent

ion,

Exe

cutiv

e he

reby

ass

igns

to th

e C

ompa

ny a

ll ri

ght,

title

, and

inte

rest

in a

nd to

inve

ntio

ns, i

mpr

ovem

ents

, dis

cove

ries

, or

idea

s co

ncei

ved

or in

vent

ed b

y E

xecu

tive

duri

ng th

ete

rm o

f E

xecu

tive'

s em

ploy

men

t (th

e "I

nven

tions

"). T

he C

ompa

ny a

ckno

wle

dges

that

this

Agr

eem

ent d

oes

not a

pply

to a

n in

vent

ion

for

whi

ch n

o eq

uipm

ent,

supp

lies,

fac

ility

, or

trad

e se

cret

info

rmat

ion

of th

e C

ompa

ny w

as u

sed

and

whi

ch w

as d

evel

oped

ent

irel

y on

Exe

cutiv

e's

own

time,

unl

ess

the

Inve

ntio

n (x

) re

late

s to

the

busi

ness

of

the

Com

pany

or

to th

e C

ompa

ny's

act

ual o

r de

mon

stra

bly

antic

ipat

ed r

esea

rch

or d

evel

opm

ent,

or(y

) re

sults

fro

m a

ny w

ork

perf

orm

ed b

y E

xecu

tive

for

the

Com

pany

. Exe

cutiv

e ag

rees

to e

xecu

te a

ny d

ocum

ents

at a

ny ti

me

reas

onab

ly r

equi

red

by th

e C

ompa

ny in

con

nect

ion

with

the

regi

stra

tion

ofco

pyri

ght,

the

assi

gnm

ent o

r se

curi

ng o

f pa

tent

pro

tect

ion

for

any

Inve

ntio

n, o

r ot

her

perf

ectio

n of

the

Com

pany

's o

wne

rshi

p of

the

Wor

k Pr

oduc

t.

(c)

Bot

h du

ring

Exe

cutiv

e's

empl

oym

ent b

y th

e C

ompa

ny a

nd a

t any

tim

e af

ter

the

Ter

min

atio

n D

ate,

Exe

cutiv

e:

(i)

shal

l not

, dir

ectly

or

indi

rect

ly, d

ivul

ge, f

urni

sh o

r m

ake

acce

ssib

le to

any

Per

son

conf

iden

tial i

nfor

mat

ion,

exc

ept:

-2-

(A)

to th

e ex

tent

Exe

cutiv

e re

ason

ably

and

in g

ood

faith

bel

ieve

s th

at s

uch

actio

ns a

re r

elat

ed to

, and

req

uire

d by

, Exe

cutiv

e's

perf

orm

ance

of

his

dutie

s un

der

this

Agr

eem

ent;

or

(B)

as m

ay b

e co

mpe

lled

by a

pplic

able

law

or

adm

inis

trat

ive

regu

latio

n; p

rovi

ded

that

Exe

cutiv

e, to

the

exte

nt n

ot p

rohi

bite

d fr

om d

oing

so

by a

pplic

able

law

or

adm

inis

trat

ive

regu

latio

n, s

hall

give

the

Com

pany

wri

tten

notic

e of

the

info

rmat

ion

to b

e so

dis

clos

ed p

ursu

ant t

o cl

ause

(B

) of

this

sen

tenc

e as

far

in a

dvan

ce o

f its

dis

clos

ure

as is

pra

ctic

able

, sha

ll co

oper

ate

with

the

Com

pany

in it

s ef

fort

s to

prot

ect t

he in

form

atio

n fr

om d

iscl

osur

e, a

nd s

hall

limit

Exe

cutiv

e's

disc

losu

re o

f su

ch in

form

atio

n to

the

min

imum

dis

clos

ure

requ

ired

by

law

or

adm

inis

trat

ive

regu

latio

n (u

nles

s th

e C

ompa

ny a

gree

s in

wri

ting

to a

gre

ater

leve

l of

disc

losu

re);

(ii)

sha

ll no

t use

for

his

ow

n be

nefi

t in

any

man

ner,

any

Con

fide

ntia

l Inf

orm

atio

n;

(iii)

sha

ll no

t cau

se a

ny s

uch

Con

fide

ntia

l Inf

orm

atio

n to

bec

ome

publ

icly

kno

wn;

and

gp

y

(iv)

sha

ll ta

ke a

ll re

ason

able

ste

ps to

saf

egua

rd s

uch

Con

fide

ntia

l Inf

orm

atio

n an

d to

pro

tect

it a

gain

st d

iscl

osur

e, m

isus

e, lo

ss a

nd th

eft.

(d)

For

purp

oses

of

this

Agr

eem

ent,

Con

fide

ntia

l Inf

orm

atio

n re

pres

ents

trad

e se

cret

s su

bjec

t to

prot

ectio

n un

der

the

Uni

form

Tra

de S

ecre

ts A

ct, o

r to

any

com

para

ble

prot

ectio

n af

ford

ed b

y ot

her

appl

icab

le la

ws.

5. N

on-S

olic

itatio

n. D

urin

g th

e pe

riod

beg

inni

ng o

n th

e A

gree

men

t Dat

e an

d en

ding

on

the

firs

t ann

iver

sary

of

the

Ter

min

atio

n D

ate,

Exe

cutiv

e sh

all n

ot, d

irec

tly o

r in

dire

ctly

:

(a)

othe

r th

an in

con

nect

ion

with

the

good

-fai

th p

erfo

rman

ce o

f hi

s du

ties

as a

n of

fice

r of

the

Com

pany

, enc

oura

ge a

ny e

mpl

oyee

of

the

Com

pany

and

/or

its S

ubsi

diar

ies

to te

rmin

ate

his

or h

er r

elat

ions

hip

with

the

Com

pany

and

/or

its S

ubsi

diar

ies;

(b)

solic

it th

e em

ploy

men

t or

enga

gem

ent a

s a

cons

ulta

nt o

r ad

vise

r, o

f an

y em

ploy

ee o

f th

e C

ompa

ny a

nd/o

r its

Sub

sidi

arie

s (o

ther

than

by

the

Com

pany

or

its S

ubsi

diar

ies)

, or

caus

e or

enc

oura

ge a

nyPe

rson

to d

o an

y of

the

fore

goin

g;

(c)

esta

blis

h (o

r ta

ke p

relim

inar

y st

eps

to e

stab

lish)

a b

usin

ess

with

, or

enco

urag

e ot

hers

to e

stab

lish

(or

take

pre

limin

ary

step

s to

est

ablis

h) a

bus

ines

s w

ith, a

ny e

mpl

oyee

of

the

Com

pany

and

/or

itsSu

bsid

iari

es; o

r

(d)

inte

rfer

e w

ith th

e re

latio

nshi

p of

the

Com

pany

and

/or

its S

ubsi

diar

ies

with

, or

ende

avor

to e

ntic

e aw

ay f

rom

the

Com

pany

and

/or

its S

ubsi

diar

ies,

any

Per

son

who

or

whi

ch a

t any

tim

e (w

heth

er b

efor

eor

aft

er E

xecu

tive'

s T

erm

inat

ion

Dat

e) w

as o

r is

an

empl

oyee

, cus

tom

er, v

endo

r or

sup

plie

r of

, or

mai

ntai

ned

a bu

sine

ss r

elat

ions

hip

(whe

ther

as

a fr

anch

isee

or

othe

rwis

e) w

ith, t

he C

ompa

ny a

nd/o

r its

Subs

idia

ries

.

-3-

6. N

on-C

ompe

titio

n C

oven

ant.

Exe

cutiv

e co

vena

nts

that

that

dur

ing

the

peri

od b

egin

ning

on

the

Ter

min

atio

n D

ate

and

endi

ng o

n th

e fi

rst a

nniv

ersa

ry o

f th

e T

erm

inat

ion

Dat

e, E

xecu

tive

shal

l not

:

(i)

dire

ctly

or

indi

rect

ly, i

n an

y ca

paci

ty, e

ngag

e or

par

ticip

ate

in, o

r be

com

e em

ploy

ed b

y or

ren

der

advi

sory

or

cons

ultin

g se

rvic

es in

con

nect

ion

with

any

Pro

hibi

ted

Bus

ines

s, p

rovi

ded

that

not

hing

in th

iscl

ause

(i)

sha

ll pr

eclu

de E

xecu

tive

from

per

form

ing

serv

ices

on

beha

lf o

f an

inve

stm

ent b

anki

ng o

r co

mm

erci

al b

anki

ng, a

uditi

ng o

r co

nsul

ting

firm

so

long

as

he o

r sh

e is

not

eng

aged

in r

ende

ring

serv

ices

to o

r so

liciti

ng b

usin

ess

of a

Pro

hibi

ted

Bus

ines

s; o

r

(ii)

mak

e an

y fi

nanc

ial i

nves

tmen

t, w

heth

er in

the

form

of

equi

ty o

r de

bt, o

r ow

n an

y in

tere

st, d

irec

tly o

r in

dire

ctly

, in

any

Proh

ibite

d B

usin

ess,

pro

vide

d th

at n

othi

ng in

this

cla

use

(ii)

sha

ll re

stri

ctE

xecu

tive

from

mak

ing

any

inve

stm

ent n

ot in

exc

ess

of 5

% o

f th

e C

omm

on S

tock

in a

ny c

ompa

ny w

hose

sto

ck is

list

ed o

n a

natio

nal s

ecur

ities

exc

hang

e or

act

ivel

y tr

aded

in th

e ov

er-t

he-c

ount

er m

arke

tif

suc

h in

vest

men

t doe

s no

t giv

e E

xecu

tive

the

righ

t or

abili

ty to

con

trol

or

infl

uenc

e th

e po

licy

deci

sion

s of

any

Pro

hibi

ted

Bus

ines

s.

For

purp

oses

of

this

Sec

tion

"Pro

hibi

ted

Bus

ines

s" s

hall

mea

n an

y Pe

rson

and

any

bra

nche

s, o

ffic

es o

r op

erat

ions

ther

eof,

whi

ch is

a d

irec

t and

mat

eria

l com

petit

or o

f th

e C

ompa

ny o

r an

y of

its

Subs

idia

ries

in a

ny c

ount

ry o

f th

e w

orld

or

in a

ny s

tate

of

the

Uni

ted

Stat

es, w

hich

is o

ne o

f th

e te

n (1

0) o

r fe

wer

Per

sons

des

igna

ted

as a

Pro

hibi

ted

Bus

ines

s on

Exh

ibit

1 to

this

Agr

eem

ent a

t the

tim

e th

isA

gree

men

t is

exec

uted

.

7. R

easo

nabl

enes

s of

Res

tric

tive

Cov

enan

ts.

(a)

Exe

cutiv

e ac

know

ledg

es th

at th

e co

vena

nts

cont

aine

d in

Sec

tions

4, 5

and

6 a

re r

easo

nabl

e in

the

scop

e of

the

activ

ities

res

tric

ted,

the

geog

raph

ic a

rea

cove

red

by th

e re

stri

ctio

ns, a

nd th

e du

ratio

n of

the

rest

rict

ions

, and

that

suc

h co

vena

nts

are

reas

onab

ly n

eces

sary

to p

rote

ct th

e C

ompa

ny's

legi

timat

e in

tere

sts

in it

s C

onfi

dent

ial I

nfor

mat

ion

and

in it

s re

latio

nshi

ps w

ith it

s em

ploy

ees,

cus

tom

ers

and

supp

liers

. Exe

cutiv

e fu

rthe

r ac

know

ledg

es s

uch

cove

nant

s ar

e es

sent

ial e

lem

ents

of

this

Agr

eem

ent a

nd th

at, b

ut f

or s

uch

cove

nant

s, th

e C

ompa

ny w

ould

not

hav

e en

tere

d in

to th

is A

gree

men

t.

(b)

The

Com

pany

and

Exe

cutiv

e ha

ve e

ach

cons

ulte

d w

ith th

eir

resp

ectiv

e le

gal c

ouns

el a

nd h

ave

been

adv

ised

con

cern

ing

the

reas

onab

lene

ss a

nd p

ropr

iety

of

such

cov

enan

ts.

8. R

ight

to I

njun

ctio

n, S

urvi

val o

f U

nder

taki

ngs.

(a)

In r

ecog

nitio

n of

the

conf

iden

tial n

atur

e of

the

Con

fide

ntia

l Inf

orm

atio

n, a

nd in

rec

ogni

tion

of th

e ne

cess

ity o

f th

e lim

ited

rest

rict

ions

impo

sed

by S

ectio

ns 4

, 5 a

nd 6

, the

par

ties

agre

e th

at it

wou

ld b

eim

poss

ible

to m

easu

re s

olel

y in

mon

ey th

e da

mag

es w

hich

the

Com

pany

wou

ld s

uffe

r if

Exe

cutiv

e w

ere

to b

reac

h an

y of

his

obl

igat

ions

und

er s

uch

Sect

ions

. Exe

cutiv

e ac

know

ledg

es th

at a

ny b

reac

h of

any

prov

isio

n of

suc

h Se

ctio

ns w

ould

irre

para

bly

inju

re th

e C

ompa

ny. A

ccor

ding

ly, E

xecu

tive

agre

es th

at if

he

brea

ches

any

of

the

prov

isio

ns o

f su

ch S

ectio

ns, t

he C

ompa

ny s

hall

be e

ntitl

ed, i

n ad

di-

-4-

tion

to a

ny o

ther

rem

edie

s to

whi

ch th

e C

ompa

ny m

ay b

e en

title

d un

der

this

Agr

eem

ent o

r ot

herw

ise,

to a

n in

junc

tion

to b

e is

sued

by

a co

urt o

f co

mpe

tent

juri

sdic

tion,

to r

estr

ain

any

brea

ch, o

r th

reat

ened

brea

ch, o

f su

ch p

rovi

sion

s, a

nd E

xecu

tive

here

by w

aive

s an

y ri

ght t

o as

sert

any

cla

im o

r de

fens

e th

at th

e C

ompa

ny h

as a

n ad

equa

te r

emed

y at

law

for

any

suc

h br

each

.

(b)

If a

cou

rt d

eter

min

es th

at a

ny o

f th

e co

vena

nts

incl

uded

in S

ectio

ns 4

, 5 a

nd 6

is u

nenf

orce

able

in w

hole

or

in p

art b

ecau

se o

f su

ch c

oven

ant's

dur

atio

n or

geo

grap

hica

l or

othe

r sc

ope,

suc

h co

urt s

hall

have

the

pow

er to

mod

ify

the

dura

tion

or s

cope

of

such

pro

visi

on, a

s th

e ca

se m

ay b

e, s

o as

to c

ause

suc

h co

vena

nt a

s so

mod

ifie

d to

be

enfo

rcea

ble.

gp

y

(c)

All

of th

e pr

ovis

ions

of

Sect

ions

4, 5

and

6 s

hall

surv

ive

any

Ter

min

atio

n of

Em

ploy

men

t with

out r

egar

d to

(i)

the

reas

ons

for

such

term

inat

ion

or (

ii) th

e ex

pira

tion

of th

e A

gree

men

t Ter

m.

9. I

f E

xecu

tive

brea

ches

the

rest

rict

ive

cove

nant

s co

ntai

ned

in S

ectio

ns 4

, 5 a

nd 6

, suc

h vi

olat

ion

shal

l be

rem

edie

d as

pro

vide

d he

rein

, but

sha

ll no

t aff

ect t

he C

ompa

ny's

obl

igat

ion

to p

ay b

enef

its o

rot

herw

ise

fulf

ill it

s ob

ligat

ions

und

er th

is A

gree

men

t exc

ept a

nd to

the

exte

nt th

at s

uch

viol

atio

n is

the

basi

s fo

r E

xecu

tive'

s T

erm

inat

ion

with

Cau

se.

10. C

ompl

ianc

e to

Dat

e. E

xecu

tive

here

by c

oven

ants

and

pro

mis

es th

at h

e ha

s no

t tak

en o

r ca

used

to b

e ta

ken,

dur

ing

a pe

riod

of

at le

ast n

inet

y (9

0) d

ays

prio

r to

the

Eff

ectiv

e D

ate,

any

act

ion

that

wou

ldvi

olat

e th

e co

vena

nts

cont

aine

d in

Sec

tions

4, 5

and

6 o

f th

is A

gree

men

t.

11. A

dvic

e of

Cou

nsel

; Tim

e to

Con

side

r; R

evoc

atio

n. E

xecu

tive

ackn

owle

dges

the

follo

win

g:

(i)

Exe

cutiv

e re

ceiv

ed a

cop

y of

this

Agr

eem

ent o

n __

____

____

__, 2

00_.

(ii)

Exe

cutiv

e ha

s re

ad th

is A

gree

men

t, an

d un

ders

tand

s its

lega

l and

bin

ding

eff

ect.

Exe

cutiv

e is

act

ing

volu

ntar

ily a

nd o

f E

xecu

tive'

s ow

n fr

ee w

ill in

exe

cutin

g th

is A

gree

men

t.

(iii)

Exe

cutiv

e ha

s be

en a

dvis

ed to

see

k an

d ha

s ha

d th

e op

port

unity

to s

eek

lega

l cou

nsel

in c

onne

ctio

n w

ith th

is A

gree

men

t.

(iv)

Exe

cutiv

e w

as g

iven

[21

/45]

day

s (t

he "

Con

side

ratio

n Pe

riod

") to

con

side

r th

e te

rms

of th

is A

gree

men

t bef

ore

sign

ing

it.

(v)

If E

xecu

tive

does

not

del

iver

a s

igne

d co

py o

f th

is A

gree

men

t to

the

Com

pany

on

or b

efor

e th

e la

st d

ay o

f th

e C

onsi

dera

tion

Peri

od, t

his

Agr

eem

ent s

hall

be v

oid

and

Exe

cutiv

e w

ill n

ot r

ecei

ve th

ebe

nefi

ts d

escr

ibed

in S

ectio

n 4.

1 of

the

Cha

nge

of C

ontr

ol A

gree

men

t.

Exe

cutiv

e un

ders

tand

s th

at, i

f E

xecu

tive

timel

y si

gns

this

Agr

eem

ent a

nd d

eliv

ers

it to

the

Com

pany

, Exe

cutiv

e m

ay r

esci

nd th

is A

gree

men

t at a

ny ti

me

with

in s

even

(7)

day

s

-5-

afte

r si

gnin

g it

by d

eliv

erin

g a

wri

tten

notic

e to

the

Com

pany

. Exe

cutiv

e un

ders

tand

s th

at th

is A

gree

men

t will

not

be

effe

ctiv

e un

til a

fter

the

seve

n-da

y re

scis

sion

per

iod

has

expi

red.

12. S

ever

abili

ty. I

f al

l or

any

part

of

this

Agr

eem

ent i

s de

clar

ed b

y an

y co

urt o

r go

vern

men

tal a

utho

rity

to b

e un

law

ful o

r in

valid

, suc

h un

law

fuln

ess

or in

valid

ity s

hall

not i

nval

idat

e an

y ot

her

port

ion

ofth

is A

gree

men

t. A

ny s

ectio

n or

a p

art o

f a

sect

ion

decl

ared

to b

e un

law

ful o

r in

valid

sha

ll, if

pos

sibl

e, b

e co

nstr

ued

in a

man

ner

whi

ch w

ill g

ive

effe

ct to

the

term

s of

the

sect

ion

to th

e fu

llest

ext

ent

poss

ible

whi

le r

emai

ning

law

ful a

nd v

alid

.

13. A

men

dmen

t. T

his

Agr

eem

ent s

hall

not b

e al

tere

d, a

men

ded,

or

mod

ifie

d ex

cept

by

wri

tten

inst

rum

ent e

xecu

ted

by th

e C

ompa

ny a

nd th

e E

xecu

tive.

A w

aive

r of

any

por

tion

of th

is A

gree

men

t sha

ll no

tbe

dee

med

a w

aive

r of

any

oth

er p

ortio

n of

this

Agr

eem

ent.

14. C

ount

erpa

rts.

Thi

s A

gree

men

t may

be

exec

uted

in s

ever

al c

ount

erpa

rts,

eac

h of

whi

ch s

hall

be d

eem

ed to

be

an o

rigi

nal,

but a

ll of

whi

ch to

geth

er w

ill c

onst

itute

one

and

the

sam

e in

stru

men

t.

15. H

eadi

ngs.

The

hea

ding

s of

this

Agr

eem

ent a

re n

ot p

art o

f th

e pr

ovis

ions

her

eof

and

shal

l not

hav

e an

y fo

rce

or e

ffec

t.

16. A

pplic

able

Law

. The

pro

visi

ons

of th

is A

gree

men

t sha

ll be

inte

rpre

ted

and

cons

true

d in

acc

orda

nce

with

the

law

s of

the

Stat

e of

Illi

nois

with

out r

egar

d to

its

choi

ce o

f la

w p

rinc

iple

s.

IN W

ITN

ESS

WH

ER

EO

F, th

e pa

rtie

s ha

ve e

xecu

ted

this

Agr

eem

ent a

s of

the

date

s sp

ecif

ied

belo

w.

EX

EC

UT

IVE

DA

TE

: ___

____

____

___

McD

ON

AL

D'S

CO

RP

OR

AT

ION

By:

____

____

____

____

____

____

____

____

____

Titl

e:__

____

____

____

____

____

____

____

___

DA

TE

: ___

____

____

___

-6-

AN

NE

X B

gp

y

FO

RM

OF

EX

HIB

IT 1

TO

NO

N-C

OM

PE

TIT

ION

AN

D R

EL

EA

SE A

GR

EE

ME

NT

PR

OH

IBIT

ED

BU

SIN

ESS

ES

Exh

ibit

10(

l)

The

fol

low

ing

is a

wri

tten

desc

ript

ion

of a

n or

al a

rran

gem

ent e

nter

ed in

to o

n M

arch

21,

200

2 w

ith a

Nam

ed E

xecu

tive

Off

icer

.

"Fol

low

ing

a th

orou

gh a

nnua

l rev

iew

of

the

Com

pany

's le

ader

ship

team

and

the

man

y in

itiat

ives

that

are

in p

lace

to g

row

the

busi

ness

and

incr

ease

sha

reho

lder

val

ue, t

he B

oard

of

Dir

ecto

rs h

as a

sked

Jac

kM

. Gre

enbe

rg to

com

mit

to c

ontin

uing

as

McD

onal

d's

Chi

ef E

xecu

tive

Off

icer

for

at l

east

thre

e m

ore

year

s an

d he

agr

eed

to d

o so

."

76

McD

onal

d's

Cor

pora

tion

Exh

ibit

12. M

cDon

ald'

s C

orpo

ratio

n st

atem

ent R

e: c

ompu

tatio

n of

rat

ios

DOLLARS IN MILLIONS Years ended December 31, 2001 2000 1999

1998 1997

====================================================================================================================================

Earnings available for fixed charges

Income before provision for income taxes $ 2,329.7/(1)/ $2,882.3 $2,884.1

$2,307.4/(3)/ $2,407.3

Minority interest expense (income) 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 (15.4) 16.2 21.9

23.7 28.3

Provision for income taxes of 50% owned affiliates

included in consolidated income before

provision for income taxes 51.0 93.7 72.8

99.9 69.0

Portion of rent charges (after reduction for rental

income from subleased properties) considered

to be representative of interest factors* 252.5 207.0 178.5

161.3 145.9

Interest expense, amortization of debt discount

and issuance costs, and depreciation of

capitalized interest* 510.3 470.3 440.1

461.9 424.8

gp

y

------------------------------------------------------------------------------------------------------------------------------------

$ 3,128.1 $3,669.5 $3,597.4

$3,054.2 $3,075.3

====================================================================================================================================

Fixed charges

Portion of rent charges (after reduction for rental

income from subleased properties) considered

to be representative of interest factors* $ 252.5 $ 207.0 $ 178.5 $

161.3 $ 145.9

Interest expense, amortization of debt discount

and issuance costs, and fixed charges related to

redeemable preferred stock* 492.9 457.9 431.3

453.4 426.1

Capitalized interest* 15.4 16.5 14.7

18.3 23.7

------------------------------------------------------------------------------------------------------------------------------------

$ 760.8 $ 681.4 $ 624.5 $

633.0 $ 595.7

====================================================================================================================================

Ratio of earnings to fixed charges 4.11/(2)/ 5.39 5.76

4.82/(4)/ 5.16

====================================================================================================================================

* In

clud

es a

mou

nts

of th

e re

gist

rant

and

its

maj

ority

-ow

ned

subs

idia

ries

, and

one

-hal

f of

the

amou

nts

of 5

0% o

wne

d af

filia

tes.

(1)

Incl

udes

$25

2.9

mill

ion

of s

peci

al it

ems

note

d in

the

foot

note

to th

e ta

ble

on p

age

9.

(2)

Exc

ludi

ng th

e sp

ecia

l ite

ms

in (

1) a

bove

, the

rat

io o

f ea

rnin

gs to

fix

ed c

harg

es f

or th

e ye

ar e

nded

Dec

embe

r 31

, 200

1 w

ould

hav

e be

en 4

.45.

(3)

Incl

udes

$16

1.6

mill

ion

of M

ade

For

You

cos

ts a

nd th

e $1

60.0

mill

ion

spec

ial c

harg

e re

late

d to

the

hom

e of

fice

pro

duct

ivity

initi

ativ

e fo

r a

tota

l of

$321

.6 m

illio

n.

(4)

Exc

ludi

ng M

ade

For

You

cos

ts a

nd th

e sp

ecia

l cha

rge,

the

ratio

of

earn

ings

to f

ixed

cha

rges

for

the

year

end

ed D

ecem

ber

31, 1

998

wou

ld h

ave

been

5.3

3.

McD

onal

d's

Cor

pora

tion

77

Exh

ibit

21. M

cDon

ald'

s C

orpo

ratio

n su

bsid

iari

es o

f th

e re

gist

rant

Nam

e of

Sub

sidi

ary

(Sta

te o

r C

ount

ry o

f In

corp

orat

ion)

DO

ME

STIC

SU

BSI

DIA

RIE

SM

cDon

ald'

s D

euts

chla

nd, I

nc. (

Del

awar

e)M

cDon

ald'

s R

esta

uran

t Ope

ratio

ns I

nc. (

Del

awar

e) M

cG D

evel

opm

ent C

o. (

Del

awar

e)C

hipo

tle M

exic

an G

rill,

Inc

. (D

elaw

are)

Bos

ton

Mar

ket C

orpo

ratio

n (D

elaw

are)

FO

RE

IGN

SU

BSI

DIA

RIE

SM

cDon

ald'

s Fr

anch

ise

Gm

bH (

Aus

tria

)M

cDon

ald'

s A

ustr

alia

Lim

ited

(Aus

tral

ia)

McD

onal

d's

Fran

ce, S

.A. (

Fran

ce)

gp

y

MD

C I

nmob

iliar

ia d

e M

exic

o S.

A. d

e C

.V. (

Mex

ico)

McD

onal

d's

Res

taur

ants

Pte

., L

td (

Sing

apor

e) R

esta

uran

tes

McD

onal

d's

S.A

. (Sp

ain)

McK

im C

ompa

ny L

td. (

Sout

h K

orea

)Sh

in M

ac C

ompa

ny L

td. (

Sout

h K

orea

)M

cDon

ald'

s N

eder

land

B.V

. (N

ethe

rlan

ds)

Mos

cow

-McD

onal

d's

(Can

ada)

McD

onal

d's

Res

taur

ants

Lim

ited

(Uni

ted

Kin

gdom

)

----

----

----

----

----

----

----

----

----

----

----

----

----

----

----

----

----

----

----

---=

The

nam

es o

f ce

rtai

n su

bsid

iari

es h

ave

been

om

itted

as

follo

ws:

(a)

49 w

holly

-ow

ned

subs

idia

ries

of

the

Com

pany

, eac

h of

whi

ch o

pera

tes

one

or m

ore

McD

onal

d's

rest

aura

nts

with

in th

e U

nite

d St

ates

.(b

) A

dditi

onal

sub

sidi

arie

s, in

clud

ing

som

e fo

reig

n, o

ther

than

thos

e m

entio

ned

in (

a), b

ecau

se c

onsi

dere

d in

the

aggr

egat

e as

a s

ingl

e su

bsid

iary

, the

y w

ould

not

con

stitu

te a

sig

nifi

cant

sub

sidi

ary.

78

McD

onal

d's

Cor

pora

tion

Exh

ibit

23. C

onse

nt o

f in

depe

nden

t aud

itors

We

cons

ent t

o th

e in

corp

orat

ion

by r

efer

ence

in th

e fo

llow

ing

Reg

istr

atio

n St

atem

ents

of

McD

onal

d's

Cor

pora

tion

and

in th

e re

late

d pr

ospe

ctus

es o

f ou

r re

port

dat

ed J

anua

ry 2

4, 2

002

with

res

pect

to th

eC

onso

lidat

ed f

inan

cial

sta

tem

ents

of

McD

onal

d's

Cor

pora

tion

incl

uded

in th

is A

nnua

l Rep

ort (

Form

10-

K)

for

the

year

end

ed D

ecem

ber

31, 2

001.

-------------------------------------

Commission File No.

-------------------------------------

Form S-8 Form S-3

-------------------------------------

33-09267 33-00001

33-24958 33-64873

33-49817 333-25899

33-50701 333-59145

33-58840 333-60170

333-03409 333-82920

333-65033

333-36776

333-36778

333-71656

-------------------------------------

ER

NST

& Y

OU

NG

LL

P

Chi

cago

, Illi

nois

Mar

ch 2

5, 2

002

Exh

ibit

99

Inve

stor

Rel

ease

FO

R I

MM

ED

IAT

E R

EL

EA

SE F

OR

MO

RE

IN

FO

RM

AT

ION

CO

NT

AC

T:

03/2

2/02

Inv

esto

rs: M

ary

Hea

ly, 6

30-6

23-6

429

Med

ia: A

nna

Roz

enic

h, 6

30-6

23-7

316

gp

y

McD

ON

AL

D'S

FIR

ST Q

UA

RT

ER

200

2 U

PD

AT

E

OA

K B

RO

OK

, IL

- M

cDon

ald'

s C

orpo

ratio

n ex

pect

s fi

rst q

uart

er 2

002

earn

ings

per

sha

re to

be

$.29

- $

.30

excl

udin

g th

e ch

arge

s no

ted

belo

w. J

ack

Gre

enbe

rg, C

hair

man

and

Chi

ef E

xecu

tive

Off

icer

note

d, "

Bas

ed o

n ex

pect

ed f

irst

qua

rter

res

ults

and

our

out

look

for

the

year

, we

expe

ct a

nnua

l ear

ning

s pe

r sh

are

to b

e to

war

d th

e lo

wer

end

of

our

prev

ious

ly a

nnou

nced

ran

ge o

f $1

.47

- $1

.54

in c

onst

ant

curr

enci

es*,

exc

ludi

ng th

e ch

arge

s no

ted

belo

w. I

f fo

reig

n cu

rren

cy e

xcha

nge

rate

s re

mai

n w

here

they

are

toda

y, w

e ex

pect

ann

ual 2

002

earn

ings

per

sha

re to

be

nega

tivel

y im

pact

ed b

y ab

out 2

cen

ts. I

nth

e fi

rst q

uart

er, w

e ex

pect

the

per

shar

e cu

rren

cy im

pact

to b

e ne

utra

l to

nega

tive

one

cent

."

The

Com

pany

exp

ects

to r

ecor

d a

firs

t qua

rter

non

-cas

h ch

arge

of

appr

oxim

atel

y $4

5 m

illio

n, p

re a

nd a

fter

tax

($.0

3 pe

r sh

are)

, pri

mar

ily r

elat

ed to

the

impa

irm

ent o

f as

sets

in L

atin

Am

eric

a an

d th

ecl

osin

g of

32

unde

rper

form

ing

rest

aura

nts

in T

urke

y, a

s a

resu

lt of

con

tinue

d ec

onom

ic w

eakn

ess.

Inc

ludi

ng th

is $

45 m

illio

n ch

arge

, we

expe

ct f

irst

qua

rter

ear

ning

s pe

r sh

are

to b

e $.

26 -

$.2

7, b

efor

e th

ecu

mul

ativ

e ef

fect

of

the

acco

untin

g ch

ange

des

crib

ed b

elow

.

The

Com

pany

is r

equi

red

to a

dopt

SFA

S N

o. 1

42, "

Goo

dwill

and

Oth

er I

ntan

gibl

e A

sset

s,"

effe

ctiv

e Ja

nuar

y 1,

200

2. S

FAS

142

indi

cate

s th

at g

oodw

ill w

ill n

o lo

nger

be

amor

tized

but

will

be

subj

ect t

oan

nual

impa

irm

ent t

ests

. In

2001

, am

ortiz

atio

n of

goo

dwill

was

app

roxi

mat

ely

$30

mill

ion

afte

r ta

x ($

.02

per

shar

e). W

e ex

pect

the

elim

inat

ion

of g

oodw

ill a

mor

tizat

ion

to b

enef

it 20

02 n

et in

com

e by

asi

mila

r am

ount

. As

a re

sult

of o

ur in

itial

goo

dwill

impa

irm

ent t

ests

, we

expe

ct a

non

-cas

h ch

arge

of

appr

oxim

atel

y $1

00 m

illio

n af

ter

tax

($.0

8 pe

r sh

are)

, in

the

firs

t qua

rter

for

the

cum

ulat

ive

effe

ct o

f th

isac

coun

ting

chan

ge. T

he im

pair

ed g

oodw

ill is

pri

mar

ily in

Lat

in A

mer

ica,

whe

re e

cono

mie

s ha

ve w

eake

ned

sign

ific

antly

ove

r th

e la

st s

ever

al y

ears

.

- 1

-

McD

onal

d's

Syst

emw

ide

sale

s fo

r th

e fi

rst t

wo

mon

ths

of 2

002

wer

e $6

.2 b

illio

n, u

p 3

perc

ent i

n co

nsta

nt c

urre

ncie

s ov

er th

e sa

me

peri

od la

st y

ear.

We

expe

ct s

ales

to im

prov

e as

the

year

pro

gres

ses

and

expe

ct c

onst

ant c

urre

ncy

sale

s to

incr

ease

6 -

7 p

erce

nt f

or th

e ye

ar.

Gre

enbe

rg a

lso

com

men

ted,

"O

ur E

urop

ean

busi

ness

is p

erfo

rmin

g w

ell.

Eur

opea

n sa

les

incr

ease

d 8

perc

ent f

or th

e fi

rst t

wo

mon

ths

of th

e ye

ar in

con

stan

t cur

renc

ies.

We

are

plea

sed

with

the

prog

ress

inE

urop

e an

d ex

pect

hig

h-si

ngle

dig

it in

crea

ses

in th

is s

egm

ent's

con

stan

t cur

renc

y sa

les

and

oper

atin

g in

com

e fo

r th

e fi

rst q

uart

er. F

or th

e ye

ar, E

urop

e's

cons

tant

cur

renc

y sa

les

are

expe

cted

to in

crea

se in

high

-sin

gle

digi

ts w

hile

thei

r co

nsta

nt c

urre

ncy

oper

atin

g in

com

e is

exp

ecte

d to

incr

ease

in h

igh-

sing

le to

low

dou

ble-

digi

ts (

excl

udin

g sp

ecia

l cha

rges

of

$45.

8 m

illio

n in

200

1).

"In

the

U.S

., sa

les

grew

3 p

erce

nt f

or th

e fi

rst t

wo

mon

ths

of 2

002.

Thr

ough

out t

he U

.S.,

the

Com

pany

and

its

owne

r/op

erat

ors

are

focu

sed

on d

eliv

erin

g Q

SC s

uper

iori

ty, v

alue

and

gre

at ta

stin

g fo

od to

cust

omer

s ev

ery

day.

We

belie

ve o

ur U

.S. i

nitia

tives

will

dri

ve th

e bu

sine

ss f

orw

ard,

and

exp

ect s

ales

to in

crea

se in

the

low

-sin

gle

digi

ts f

or th

e qu

arte

r, a

nd m

id-s

ingl

e di

gits

for

the

year

as

we

gain

mom

entu

m. I

n th

e fi

rst q

uart

er, w

e ex

pect

U.S

. ope

ratin

g in

com

e to

dec

line

in th

e lo

w to

mid

-sin

gle

digi

ts, a

s a

resu

lt of

abo

ut $

22 m

illio

n of

pay

men

ts to

ow

ner/

oper

ator

s to

fac

ilita

te th

e in

trod

uctio

n of

afr

ont c

ount

er te

am s

ervi

ce s

yste

m. E

xclu

ding

thes

e pa

ymen

ts, w

e ex

pect

U.S

. ope

ratin

g in

com

e to

incr

ease

in th

e lo

w-s

ingl

e di

gits

for

the

firs

t qua

rter

. For

the

year

, we

expe

ct U

.S. o

pera

ting

inco

me

toin

crea

se in

mid

-sin

gle

digi

ts (

incl

udin

g th

e $2

2 m

illio

n of

pay

men

ts to

ow

ner/

oper

ator

s in

200

2 an

d ex

clud

ing

spec

ial c

harg

es o

f $1

81.0

mill

ion

in 2

001)

.

"Sal

es in

our

Asi

a/Pa

cifi

c/M

iddl

e E

ast/A

fric

a se

gmen

t (A

PME

A)

cont

inue

to b

e af

fect

ed b

y w

eak

econ

omie

s in

sev

eral

mar

kets

. In

addi

tion,

con

cern

s ab

out t

he s

afet

y of

Jap

anes

e be

ef c

ontin

ue to

impa

ctsa

les,

eve

n th

ough

McD

onal

d's

Japa

n on

ly u

ses

beef

fro

m A

ustr

alia

and

New

Zea

land

. APM

EA

's c

onst

ant c

urre

ncy

sale

s de

clin

ed 2

per

cent

for

the

firs

t tw

o m

onth

s of

the

year

. In

the

seco

nd h

alf

of th

eye

ar, w

e ex

pect

impr

ovem

ent i

n th

is s

egm

ent a

s w

e ar

e ho

pefu

l con

sum

er c

once

rns

in J

apan

will

eas

e an

d w

e fa

ce e

asie

r co

mpa

riso

ns."

- 2

-

In L

atin

Am

eric

a, w

hich

con

tinue

s to

be

affe

cted

by

wea

k ec

onom

ies,

con

stan

t cur

renc

y sa

les

decl

ined

3 p

erce

nt f

or th

e fi

rst t

wo

mon

ths

of th

e ye

ar. C

onst

ant c

urre

ncy

sale

s in

Can

ada

incr

ease

d 2

perc

ent

quar

ter-

to-d

ate.

Par

tner

Bra

nds'

sal

es in

crea

sed

11 p

erce

nt q

uart

er-t

o-da

te, p

rim

arily

due

to e

xpan

sion

and

pos

itive

com

para

ble

sale

s.

In c

onju

nctio

n w

ith it

s fi

rst q

uart

er 2

002

inte

rim

upd

ate,

McD

onal

d's

Cor

pora

tion

will

bro

adca

st it

s co

nfer

ence

cal

l with

mem

bers

of

man

agem

ent l

ive

over

the

Inte

rnet

on

Frid

ay, M

arch

22,

200

2 at

10:

00a.

m. C

entr

al T

ime.

Int

eres

ted

part

ies

are

invi

ted

to li

sten

by

logg

ing

on to

http

://w

ww

.mcd

onal

ds.c

om/c

orpo

rate

/inve

stor

and

clic

king

"L

ates

t Inv

esto

r W

ebca

st,"

whi

ch a

ppea

rs b

elow

the

stoc

k qu

ote.

McD

onal

d's

is th

e w

orld

's le

adin

g fo

od s

ervi

ce r

etai

ler

with

ove

r 30

,000

res

taur

ants

in 1

21 c

ount

ries

ser

ving

46

mill

ion

peop

le e

ach

day.

Cer

tain

for

war

d-lo

okin

g st

atem

ents

are

incl

uded

in th

is r

elea

se. T

hey

use

such

wor

ds a

s "m

ay,"

"w

ill,"

"ex

pect

," "

belie

ve,"

"pl

an"

and

othe

r si

mila

r te

rmin

olog

y. T

hese

sta

tem

ents

ref

lect

man

agem

ent's

curr

ent e

xpec

tatio

ns r

egar

ding

fut

ure

even

ts a

nd o

pera

ting

perf

orm

ance

and

spe

ak o

nly

as o

f th

e da

te o

f th

is r

elea

se. T

hese

for

war

d-lo

okin

g st

atem

ents

invo

lve

a nu

mbe

r of

ris

ks a

nd u

ncer

tain

ties.

The

follo

win

g ar

e so

me

of th

e fa

ctor

s th

at c

ould

cau

se a

ctua

l res

ults

to d

iffe

r m

ater

ially

fro

m th

ose

expr

esse

d in

or

unde

rlyi

ng o

ur f

orw

ard-

look

ing

stat

emen

ts: t

he e

ffec

tiven

ess

of o

pera

ting

initi

ativ

es a

ndad

vert

isin

g an

d pr

omot

iona

l eff

orts

, as

wel

l as

chan

ges

in: g

loba

l and

loca

l bus

ines

s an

d ec

onom

ic c

ondi

tions

; cur

renc

y ex

chan

ge a

nd in

tere

st r

ates

; foo

d, la

bor

and

othe

r op

erat

ing

cost

s; p

oliti

cal o

rec

onom

ic in

stab

ility

in lo

cal m

arke

ts; c

ompe

titio

n; c

onsu

mer

pre

fere

nces

, spe

ndin

g pa

ttern

s an

d de

mog

raph

ic tr

ends

; leg

isla

tion

and

gove

rnm

enta

l reg

ulat

ion;

and

acc

ount

ing

polic

ies

and

prac

tices

. The

fore

goin

g lis

t of

impo

rtan

t fac

tors

is n

ot e

xclu

sive

.

The

Com

pany

und

erta

kes

no o

blig

atio

n to

pub

licly

upd

ate

or r

evis

e an

y fo

rwar

d-lo

okin

g st

atem

ents

, whe

ther

as

a re

sult

of n

ew in

form

atio

n, f

utur

e ev

ents

or

othe

rwis

e.

* In

form

atio

n in

con

stan

t cur

renc

ies

excl

udes

the

effe

ct o

f fo

reig

n cu

rren

cy tr

ansl

atio

n on

rep

orte

d re

sults

, exc

ept f

or h

yper

infl

atio

nary

eco

nom

ies,

suc

h as

Rus

sia,

who

se f

unct

iona

l cur

renc

y is

the

U.S

.D

olla

r. C

onst

ant c

urre

ncy

resu

lts a

re c

alcu

late

d by

tran

slat

ing

the

curr

ent y

ear

resu

lts a

t pri

or y

ear

mon

thly

ave

rage

exc

hang

e ra

tes.

gp

y

mcdonald’s corporation annual report

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