-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EwLNxnQcbqQmL0NY4tRRlAe0ptgN/osTyCJ4ZJ5sGUJLIbZKzdyc+7P04X2k5Sl+ XzUKV95duu8J//G4EyobxA== 0000068505-96-000007.txt : 19960513 0000068505-96-000007.hdr.sgml : 19960513 ACCESSION NUMBER: 0000068505-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960510 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTOROLA INC CENTRAL INDEX KEY: 0000068505 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 361115800 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07221 FILM NUMBER: 96560024 BUSINESS ADDRESS: STREET 1: 1303 E ALGONQUIN RD CITY: SCHAUMBURG STATE: IL ZIP: 60196 BUSINESS PHONE: 7085765000 FORMER COMPANY: FORMER CONFORMED NAME: MOTOROLA DELAWARE INC DATE OF NAME CHANGE: 19760414 10-Q 1 1ST QUARTER 10-Q 1996 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ending March 30, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to _________ Commission file number: 1-7221 MOTOROLA, INC. (Exact name of registrant as specified in its charter) Delaware 36-1115800 (State of Incorporation) (I.R.S. Employer Identification No.) 1303 E. Algonquin Road, Schaumburg, Illinois 60196 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 576-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of each of the issuer's classes of common stock as of the close of business on March 30, 1996: Class Number of Shares Common Stock; $3 Par Value 592,011,609 Motorola, Inc. and Consolidated Subsidiaries Index Part I Financial Information Page Item 1 Financial Statements Statements of Consolidated Earnings Three-Month Periods ended March 30, 1996 and April 1, 1995 3 Condensed Consolidated Balance Sheets at March 30, 1996 and December 31, 1995 4 Statements of Condensed Consolidated Cash Flows Three-Month Periods ended March 30, 1996 and April 1, 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II Other Information Item 1 Legal Proceedings 13 Item 2 Changes in Securities 14 Item 3 Defaults Upon Senior Securities 14 Item 4 Submission of Matters to a Vote of Security Holders 14 Item 5 Other Information 14 Item 6 Exhibits and Reports on Form 8-K 14 Part I - Financial Information Motorola, Inc. and Consolidated Subsidiaries Statements of Consolidated Earnings (Unaudited) (In millions, except per share amounts) Three Months Ended March 30, April 1, 1996 1995 Net sales $ 6,955 $ 6,011 Costs and expenses Manufacturing and other costs of sales 4,718 3,878 Selling, general and administrative expenses 1,072 1,090 Depreciation expense 523 431 Interest expense, net 51 21 Total costs and expenses 6,364 5,420 Earnings before income taxes 591 591 Income taxes provided on earnings 207 219 Net earnings $ 384 $ 372 Net earnings per common and common equivalent share (1) Fully diluted: Net earnings per common and common equivalent share $ .63 $ .61 Average common and common equivalent shares outstanding, fully diluted (in millions) 608.6 608.7 Dividends paid per share $ .10 $ .10 (1) Average primary common and common equivalent shares outstanding for the three months ended March 30, 1996 and April 1, 1995 were 608.6 million and 608.7 million, respectively. Primary earnings per common and common equivalent share were the same as fully diluted for the first quarters ended March 30, 1996 and April 1, 1995. See accompanying notes to condensed consolidated financial statements. Motorola, Inc. and Consolidated Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In millions) March 30, December 31, 1996 1995 Assets Cash and cash equivalents $ 845 $ 725 Short-term investments 289 350 Accounts receivable, less allowance for doubtful accounts (1996, $129; 1995, $123) 4,080 4,081 Inventories 3,438 3,528 Other current assets 1,875 1,826 Total current assets 10,527 10,510 Property, plant and equipment, less accumulated depreciation (1996, $8,494; 1995, $8,110) 9,597 9,356 Other assets (1) 3,252 2,935 Total Assets $23,376 $22,801 Liabilities and Stockholders' Equity Notes payable and current portion of long-term debt $ 1,655 $ 1,605 Accounts payable 1,869 2,018 Accrued liabilities 4,260 4,170 Total current liabilities 7,784 7,793 Long-term debt 1,956 1,949 Other liabilities (1) 2,143 2,011 Stockholders' equity (1) 11,493 11,048 Total liabilities and stockholders' equity $23,376 $22,801 (1) SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" requires the carrying value of certain investments to be adjusted to their fair value which resulted in the Company recording an increase to stockholders' equity, other assets and deferred taxes of $459 million, $759 million and $300 million as of March 30, 1996; and $328 million, $543 million, and $215 million as of December 31, 1995. See accompanying notes to condensed consolidated financial statements. Motorola, Inc. and Consolidated Subsidiaries Statements of Condensed Consolidated Cash Flows (Unaudited) (In millions) Three Months Ended March 30, April 1, 1996 1995 Net cash provided by operations $ 951 $ 639 Investing Payments for property, plant and equipment (822) (969) (Increase) decrease in short-term investments 61 (16) (Increase) in other investing activities (75) (132) Net cash used for investing activities (836) (1,117) Financing Net increase in commercial paper and short-term borrowings 51 620 Proceeds from issuance of debt 24 1 Repayment of debt (20) (9) Payment of dividends to stockholders (59) (59) Other financing activities 9 34 Net cash provided by financing activities 5 587 Net increase in cash and cash equivalents $ 120 $ 109 Cash and cash equivalents, beginning of year $ 725 $ 741 Cash and cash equivalents, end of period $ 845 $ 850 See accompanying notes to condensed consolidated financial statements. Motorola, Inc. and Consolidated Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The Condensed Consolidated Balance Sheet as of March 30, 1996, the Statements of Consolidated Earnings for the three-month periods ended March 30, 1996 and April 1, 1995, and the Statements of Condensed Consolidated Cash Flows for the three-month periods ended March 30, 1996 and April 1, 1995 have been prepared by the Company. In the opinion of management, all adjustments (which include reclassifications and normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 30, 1996 and for all periods presented, have been made. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the appendix of the Company's proxy statement for the 1996 Annual Meeting of Shareholders of the Corporation. The results of operations for the three-month period ended March 30, 1996 are not necessarily indicative of the operating results for the full year. 2. Inventories Inventories consist of the following (in millions): March 30, Dec. 31, 1996 1995 Finished goods $ 1,034 $ 1,026 Work in process and production materials 2,404 2,502 Inventories $ 3,438 $ 3,528 3. Income Taxes The Internal Revenue Service (IRS) has examined the federal income tax returns for Motorola, Inc. through 1987 and has settled the respective returns through 1985. The IRS has completed its field audit of the years 1986 and 1987. In connection with these audits, the IRS has proposed adjustments to the Company's income and tax credits for those years which would result in additional tax. The Company disagrees with most of the proposed adjustments and is contesting them. In the opinion of the Company's management, the final disposition of these matters, and proposed adjustments from other tax authorities, will not have a material adverse effect on the consolidated financial position, liquidity or results of operations of the Company. 4. Supplemental Cash Flows Information A net income tax cash refund totaling $7 million was recognized during the first quarter of 1996 compared to a net cash payment totaling $204 million for the same period a year earlier. Cash payments for interest expense (net of amount capitalized) were $67 million and $51 million, for the first three- month periods ended March 30, 1996 and April 1, 1995, respectively. Motorola, Inc. and Consolidated Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations This commentary should be read in conjunction with the sections of the following documents for a full understanding of Motorola's financial condition and results of operations: from Motorola, Inc.'s 1995 Summary Annual Report to Stockholders, the Letter to Stockholders on page 2; and from the Proxy Statement for the 1996 Annual Meeting of Shareholders of the Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations on pages F-1 through F-11, and the Consolidated Financial Statements and Footnotes to the Consolidated Financial Statements, pages F-13 through F-28; and from Motorola, Inc.'s Quarterly Report on Form 10-Q for the period ending March 30, 1996, of which this commentary is a part, the Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements, pages 3 through 6. Results of Operations: Motorola, Inc. reported higher sales and earnings for the first quarter of 1996. Sales rose to $7.0 billion in the first quarter of 1996, up 16 percent from $6.0 billion a year earlier. Earnings were $384 million, compared with $372 million in the same period a year earlier. Motorola's net margin on sales (net earnings divided by net sales) during the first quarter of 1996 was 5.5 percent compared to 6.2 percent for the year-earlier period. Primary and fully diluted net earnings per common and common equivalent share for the first quarter of 1996 were 63 cents, compared to 61 cents a year earlier. Earnings would have been flat in comparison to the first quarter of 1995 without a lower corporate tax rate of 35 percent versus 37 percent in the year-earlier period. The tax rate for the full year ended December 31, 1995 was 36 percent. Gross margin declined to 32.2 percent of sales in the first quarter of 1996 from 35.5 percent of sales during the year-earlier period. Gross margin declines in all of the Company's major businesses were largely offset by the advantage gained from lower selling, general and administrative costs. Depreciation and interest expenses increased as a percent of sales. General Systems Sector's segment sales rose to $2.7 billion, an increase of 16 percent from the first quarter of 1995. Orders increased 23 percent and operating profits were lower than in the first quarter of 1995. Cellular Subscriber orders were higher, led by the Pan America and Greater China regions. The increase in the Pan America order growth was in comparison to the first quarter 1995 which had been adversely affected when excess cellular inventory levels had accumulated in the U.S. distribution channels. Orders in Europe were down significantly. In the U.S. cellular market, the subscriber base growth rate is expected to be similar to what was experienced in 1995. Cellular Infrastructure orders were up significantly over the year-earlier period. Growth was highest in Japan, China and Europe. Orders were lower in Pan America as well as the remainder of all other international markets combined. PCS (personal communications systems) systems being built in the U.S. is expected to have little impact to either subscriber or infrastructure sales until late 1996, at the earliest. Motorola Computer Group orders were also higher. Segment sales in the Semiconductor Products Sector increased 14 percent from the first quarter of 1995 to $2.1 billion, and orders declined 5 percent. Operating profits were higher than in the first quarter of 1995 but would have been flat except for a net gain realized from a real estate transaction. Orders were higher in the Americas but declined in Asia-Pacific, Europe and Japan. Orders increased in the computer (mainframe and mid-range) and communications segments. The personal computer/workstation segment was down significantly and other key segments were also lower. Distributor orders rose. Order growth was highest for fast static random access memories, customer-specified microcontrollers, high-performance embedded processors, sensors, digital signal processors, digital-analog circuits, and power transistors. Logic/analog and discrete product orders were lower. Semiconductor industry growth has slowed causing pricing pressures on a wide range of products, and although the Company's manufacturing capacity expansion programs are continuing, the rate of investment in capital expenditures is being adjusted downward. Start-up costs related to new manufacturing capacity increased significantly during the first quarter of 1996 compared to a year ago and were slightly higher compared to the fourth quarter of 1995. The Company presently expects that this segment will continue to incur start-up costs and inefficiencies for a few quarters as a result of its capacity expansion program and its increased depreciation costs as a percent of sales. In the Messaging, Information and Media segment sales increased 26 percent to $990 million and operating profits were higher compared with the first quarter of 1995. Orders increased 15 percent from the first quarter of 1995. In the Paging Products Group, paging orders increased significantly in the United States. Orders also grew in China, while orders in other international markets were lower. Orders in the Wireless Data Group were lower. Orders in the Information Systems Group were significantly higher and were especially strong in China. The Multimedia Group also reported higher orders and began initial shipments of cable telephony equipment. The Paging Products Group continues to lead the financial performance of this segment. In the Land Mobile Products segment sales increased 4 percent to $821 million and operating profits were lower compared with the first quarter of 1995 due to increases in manufacturing and engineering costs. Orders were flat. Higher orders in the Network Solutions Group were offset by lower orders in the Radio Products Group and iDEN (integrated Dispatch Enhanced Network) products group. Sales of iDEN equipment increased, largely due to higher subscriber unit sales. The sector made significant progress in technology changes to enhance the voice quality of iDEN systems. In the Automotive, Energy and Controls Group, sales decreased 9 percent, orders decreased 7 percent and operating profits were lower compared to the first quarter of 1995, due to pricing pressures and reduced demand for components and energy products serving the cellular communications business. Construction began for the Flat Panel Display Division headquarters in Tempe, Arizona. The results for this group are reported as part of the "Other Products" segment. In the Government and Space Technology Group (GSTG), group sales increased 47 percent. Orders were 41 percent higher, and an operating profit was recognized, compared with a loss a year ago. Development of the IRIDIUM (Registered Trademark) global communications system progressed during the quarter, with the completion of additional milestones, one of which was accepted subject to completion of tests. Iridium, Inc. raised an additional $315 million in financing commitments, largely from its existing investors, increasing the venture's total capital base to more than $1.9 billion. Bank financing, which will require significant recourse to Motorola during the initial technology deployment and regulatory approval phases of the program, will be necessary beginning in the third quarter of 1996 for Iridium, Inc. to continue to make payments to Motorola. The bank financing is presently being negotiated and there can be no assurance as to the outcome of such negotiations. A proposal for Motorola to guarantee $750 million of such financing has been accepted by Iridium, Inc., subject to certain additional internal approvals. There can be no assurances that such a guarantee will be sufficient for the bank financing. GSTG is recording reserves that currently result in a minimal level of profit recognition for the IRIDIUM project. These reserves are reevaluated periodically. The results for this group are reported as part of the "Other Products" segment. Motorola's manufacturing and other costs of sales during the first quarter of 1996 and 1995 were $4.7 billion, 67.8 percent of net sales, and $3.9 billion, 64.5 percent of net sales, respectively. This increased percent of sales resulted primarily from three factors: start-up costs and inefficiencies associated with the process of adding major elements of new semiconductor manufacturing capacity; more competitive pricing for semiconductors, especially memory products, as industry growth has slowed; and the continuation of a strategy to remain a price leader in the cellular telephone and paging industries worldwide in order to influence the continuing growth of these markets. These pricing pressures have contributed to lower sales and order growth. Comparisons of earnings may also be difficult for the quarters ahead. Selling, general and administrative expenses during the first quarter of 1996 were $1,072 million, or 15.4 percent of sales down from $1,090 million, or 18.1 percent of sales a year ago, as management, in anticipation of continuing pressure on gross margins, maintained its focus during the first quarter of 1996 on holding the overall growth of these costs to a level less than the growth of sales. Major transitions to new technologies continue in Motorola's equipment businesses. These are very important to the Company's long-term growth and are already beginning to result in significant new businesses. These technologies include two-way and voice paging, CDMA (code divisional multiple access) for cellular and PCS systems, wireless local loop, telephony and high speed data modems for cable systems, and integrated dispatch radios. As new technologies enter the Company's revenue base, their early life cycle levels of profitability are low until markets mature and manufacturing economies of scale develop to reduce unit costs. Liquidity and Capital Resources: Inventories at March 30, 1996 decreased slightly by 3 percent or $90 million, compared with inventories at December 31, 1995. Inventory turns improved from 4.4 turns as of December 31, 1995 to 5.4 turns as of March 30, 1996. The improved inventory results were led by the General Systems Sector which experienced lower inventory levels within the Cellular Subscriber Group (CSG) and the Cellular Infrastructure Group (CIG). Property, plant and equipment, less accumulated depreciation, increased $241 million since December 31, 1995, and depreciation expense during the first quarter of 1996 increased 21 percent totaling $523 million compared to $431 million for the year-earlier period due to the Semiconductor Products Sector and other Sector/Group capacity expansions. Motorola's notes payable and current portion of long-term debt increased to $1,655 million at March 30, 1996, from $1,605 million at December 31, 1995, an increase of approximately 3 percent. Net debt (notes payable and current portion of long-term debt plus long-term debt less short-term investments and cash equivalents) to net debt plus equity decreased to 19.3 percent at March 30, 1996 from 19.8 percent at December 31, 1995. The Company's total domestic and foreign credit facilities aggregated $3.4 billion at March 30, 1996, of which $428 million were used and the remaining amount was not drawn, but was available to back up outstanding commercial paper which totaled $1.3 billion at March 30, 1996. The Company uses financial instruments to hedge, and therefore help reduce, its overall exposure to the effects of currency fluctuations on cash flows of foreign operations and investments in foreign countries. The Company's strategy is to offset the gains or losses of the financial instruments against losses or gains on the underlying operational cash flows or investments based on the operating business units' assessment of risk. Motorola does not speculate in these financial instruments for profit on the exchange rate price fluctuations alone. Motorola does not trade in currencies for which there are no underlying exposures, and the Company does not enter into trades for any currency to intentionally increase the underlying exposure. Essentially all the Company's non-functional currency receivables and payables denominated in major currencies which can be traded on open markets are hedged. Some of the Company's exposure is to currencies which are not traded on open markets, such as those in Latin America and China, and these are addressed, to the extent reasonably possible, through managing net asset positions, product pricing, and other means, such as component sourcing. Currently, the Company primarily hedges firm commitments. The Company expects that there could be hedges of anticipated transactions in the future. As of March 30, 1996, and April 1, 1995, the Company had net outstanding foreign exchange contracts totaling $1.2 billion and $1.3 billion, respectively. The following schedule shows the five largest foreign exchange hedge positions as of March 30, 1996, and the corresponding positions at April 1, 1995: Millions of U.S. Dollars Buy (Sell) March 30, April 1, 1996 1995 Japanese Yen (361) (279) British Pound Sterling (180) (130) Spanish Peseta (125) (146) Singapore Dollar 94 76 Danish Kroner 62 1 As of March 30, 1996 and April 1, 1995, outstanding foreign exchange contracts primarily consisted of short-term forward contracts. Net deferred losses on these forward contracts which hedge designated firm commitments were immaterial at March 30, 1996. The foreign exchange financial instruments which hedge various investments in foreign subsidiaries are marked to market monthly as are the underlying investments and the results are recorded in the financial statements. Motorola's research and development expense was $556 million in the first quarter of 1996, compared with $501 million in the first quarter of 1995. Research and development expenditures for the year ended December 31, 1995 were $2.2 billion. The Company continues to believe that a strong commitment to research and development drives long-term growth. At March 30, 1996, the Company's fixed asset expenditures for the first quarter totaled $822 million, compared with $969 million in the first quarter of 1995. The Company is currently anticipating that fixed asset expenditures incurred during 1996 could total approximately $3.5 billion, significantly lower than fixed asset expenditures incurred during 1995 which aggregated $4.2 billion. The decrease in expected fixed asset expenditures for 1996 reflects management's commitment to adjusting investment levels to better match current industry conditions, particularly with respect to the semiconductor industry. Return on average invested capital (net earnings divided by the sum of stockholders' equity, long-term debt, notes payable and the current portion of long-term debt, less short-term investments and cash equivalents) was 14.0 percent based on the performance of the four preceding fiscal quarters ending March 30, 1996, compared with 16.8 percent based on the performance of the four preceding fiscal quarters ending April 1, 1995. Motorola's current ratio (the ratio of current assets to current liabilities) was 1.35 at March 30, 1996, unchanged from December 31, 1995. "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: Statements that are not historical facts, including statements about (i) General Systems Sector's subscriber base growth rate and the impact of PCS systems on subscriber or infrastructure sales; (ii) Semiconductor Products Sector's start-up costs and inefficiencies; (iii) Iridium, Inc. financing negotiations; (iv) the effect of pricing pressures; (v) the effect of transitions to new technologies and research and development activities; and (vi) fixed asset expenditures, are forward-looking statements that involve risks and uncertainties. Motorola wishes to caution the reader that the factors below, along with the factors set forth in its 1996 proxy statement in Management's Discussion and Analysis at pages F-10 and F-11, in some cases have affected and could affect Motorola's actual results causing results to differ materially from those in any forward-looking statement: a moderating growth rate in the cellular subscriber base in the United States and, to some extent, in Europe; underutilization of plants and factories and delays in start of production in facilities, including those in the Semiconductor Products Sector and General Systems Sector; the outcome of the Iridium, Inc. financing negotiations and acceptance of Motorola's guarantee; product development risks, including technological difficulties and commercialization; demand and market acceptance risks for new and existing products, technologies and services, including new cellular phones, paging products, computer products and automobile products, PCS systems, and digital technology; the impact of world-wide economic conditions on growth and demand for wireless communications; and unexpected fixed asset expenditures. IRIDIUM (Registered Trademark) is a registered trademark and service mark of Iridium, Inc. Information by Industry Segment (Unaudited) Summarized below are the Company's segment sales as defined by industry segment for the three months ended March 30, 1996 and April 1, 1995: March 30, April 1, (In millions) 1996 1995 (1) % Change General Systems Products $2,716 $2,346 16 Semiconductor Products 2,146 1,881 14 Messaging, Information and Media Products 990 788 26 Land Mobile Products 821 790 4 Other Products 916 818 12 Adjustments and eliminations (634) (612) 4 Industry segment totals $6,955 $6,011 16 (1) Information for 1995 has been reclassified to reflect the realignment of various business units. Part II - Other Information Item 1 - Legal Proceedings. There are currently eight cases pending in Phoenix, Arizona arising out of alleged groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona. The plaintiffs in the consolidated Lofgren/Betancourt/Ford/Wilkins v. Motorola lawsuits, pending in Arizona Superior Court, Maricopa County, filed and served on Motorola a Fourth Amended Complaint on March 14, 1996. These consolidated cases involve claims by approximately 200 plaintiffs alleging that Motorola and approximately 30 other defendants contaminated the soil, air and groundwater in the Phoenix/Scottsdale area, causing health problems. On April 12, 1996, three plaintiffs in the consolidated Lofgren/Betancourt/Ford/Wilkins v. Motorola lawsuits stipulated to dismiss their claims with prejudice. (See Item 3 of the Company's Summary Annual Report on Form 10-K for the year ended 1995 for additional disclosures regarding cases arising out of alleged groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona.) Motorola is a defendant in several cases arising out of the Company's manufacture and sale of portable cellular telephones. Verb, et. al. v. Motorola, Inc., et al., Circuit Court of Cook County, Illinois, 93 L 3238, is a purported class action by purchasers of portable cellular phones against the Company and seven other corporate defendants, alleging economic loss. The Illinois Appellate Court affirmed the trial court's dismissal of this case on March 29, 1996, and further appellate activity is contemplated. Wright v. Motorola, et. al., Circuit Court of Cook County, Illinois, 95 LD 4929, Kane, et. al., v. Motorola, Inc., et. al., Circuit Court of Cook County, Illinois, 93 L 15256, Crist v. Motorola, Inc. et al., Circuit Court of Cook County, Illinois, 94 CH 1077, are cases where individuals allege that brain cancer was caused by or aggravated by the use of a cellular telephone. These cases have been stayed since the ruling in the Verb case of March 29, 1996. Schiffner v. Motorola, Inc., Circuit Court of Cook County, Illinois, 95 CH 1879 is another class action by purchasers of portable cellular phones. Rittman, et. al. v. Motorola, Inc., et. al., District Court for Tarrant County, Texas, 348-160584-96 and Ward v. Motorola, Inc., et al., State Court of Fulton County, Georgia, 94 VS 91470, where the trial court's denial of the Company's motion for summary judgment is on appeal to the Georgia Appellate Court, are cases where individuals allege that brain cancer was caused by or aggravated by the use of cellular phones. Christopher v. Motorola, Inc., United States District Court for the Northern District of Ohio, 95 CV 2100, was a case where an individual alleged that brain cancer was caused by or aggravated by the use of a cellular phone. This case was dismissed by the plaintiff on or about April 19, 1996. Silber, et. al. v. Motorola, Inc., et. al., Supreme Court of the State of New York, County of New York, 118924/95, is an action wherein it is alleged that a traffic accident was caused by the use of a cellular phone. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial condition, liquidity or results of operations of Motorola. Item 2 - Changes in Securities. Not applicable. Item 3 - Defaults Upon Senior Securities. Not applicable. Item 4 - Submission of Matters to a Vote of Security Holders. (a) and (c). The Company held its annual meeting of stockholders on May 7, 1996, and the following matters were voted on at that meeting: 1. The election of the following directors who will serve until their successors are elected and qualified, or their earlier death or resignation: BROKER DIRECTOR FOR WITHHELD NON-VOTES H. Laurance Fuller 507,068,950 5,832,427 0 Christopher B. Galvin 511,146,488 1,754,889 0 Robert W. Galvin 511,131,030 1,770,347 0 Anne P. Jones 511,139,642 1,761,735 0 Donald R. Jones 511,135,935 1,765,442 0 Judy C. Lewent 511,090,874 1,810,503 0 Walter E. Massey 511,070,057 1,831,320 0 John F. Mitchell 511,127,107 1,774,270 0 Thomas J. Murrin 511,157,110 1,744,267 0 Nicholas Negroponte 511,055,744 1,845,633 0 John E. Pepper, Jr. 511,147,909 1,753,468 0 Samuel C. Scott III 511,168,441 1,732,936 0 Gary L. Tooker 511,168,388 1,732,989 0 William J. Weisz 511,161,301 1,740,076 0 B. Kenneth West 511,163,536 1,737,841 0 Dr. John A. White 511,170,988 1,730,389 0 2. The adoption of the Motorola Share Option Plan of 1996 was approved by the following vote: For, 312,995,916; Against, 68,290,547; Abstain, 4,043,669; and Broker Non-Votes, 127,571,245. Item 5 - Other Information. Not applicable. Item 6 - Exhibits and Reports on Form 8-K. (a) Exhibits 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share 27 Financial Data Schedule (filed only electronically with the SEC) 99 Amended Mitchell Consulting Agreement 99.1 Motorola Share Option Plan of 1996 (b) Reports on Form 8-K Cautionary statement for purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 filed January 10, 1996 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOTOROLA, INC. (Registrant) Date: May 10, 1996 By: /s/ Kenneth J. Johnson Kenneth J. Johnson Corporate Vice President and Controller (Chief Accounting Officer and Duly Authorized Officer of the Registrant) EXHIBIT INDEX Number Description of Exhibits Page No. 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share 18 27 Financial Data Schedule (filed only electronically with the SEC) -- 99 Amended Mitchell Consulting Agreement 19 99.1 Motorola Share Option Plan of 1996 22 EX-27 2 FINANCIAL DATA SCHEDULE TO 10-Q
5 The schedule contains summary financial information extracted from the consolidated Balance Sheet as of 3/30/96 and the Statement of Consolidated Earnings for the year ended 3/30/96 and is qualified in its entirety by reference to such financial statments. 1,000,000 3-MOS DEC-12-1996 JAN-01-1996 MAR-30-1996 694 440 4209 (129) 3438 10527 18091 (8494) 23376 7784 1956 0 0 1776 9717 23376 6955 0 4718 5706 523 0 51 591 207 0 0 0 0 384 0.633 0.633 Total cost includes: cost of goods sold, selling & admin expense, total Foreign Exchange (gain)/loss Other expense includes: depreciation expenses
EX-11 3 EXHIBIT 11 TO 10Q Exhibit 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share Three Months Ended March 30, 1996 and April 1, 1995 (In millions, except per share amounts) Three Months Ended March 30, April 1, 1996 1995 Net Income $ 384 $ 372 Add: Interest on Zero coupon notes due 2009 and 2013, net of tax and effect of executive incentive and employee profit sharing plans 1 2 Adjusted net income 385 374 Earnings per common and common equivalent share - Primary Weighted average common shares outstanding 591.7 588.3 Common equivalent shares Stock options 10.2 12.7 Zero coupon notes due 2009 and 2013 6.7 7.7 Common and common equivalent shares - primary (in millions) 608.6 608.7 Net earnings per share - primary $ .63 $ .61 Earnings per common and common equivalent share - Fully Diluted: Weighted average common shares outstanding 591.7 588.3 Common equivalent shares: Stock options 10.2 12.7 Zero coupon notes due 2009 and 2013 6.7 7.7 Common and common equivalent shares - fully diluted (in millions) 608.6 608.7 Net earnings per share - fully diluted .63 .61 EX-99 4 EXHIBIT 99 TO 10Q EXHIBIT NUMBER 99 CONSULTANT AGREEMENT This Agreement is entered into as of this 1st day of May, 1996, between Motorola, Inc., a Delaware corporation, with an office at 1303 E. Algonquin Road, Schaumburg, Illinois, 60196 ("Motorola") and John F. Mitchell ("Consultant"). In consideration of the mutual promises contained herein and other valuable consideration, the parties mutually agree as follows: 1. TERM. This Agreement shall begin on May 1, 1996, and continue through April 30, 1997, and may thereafter be renewed on an annual basis upon written agreement of the parties, provided, however, that either Motorola or Consultant may terminate this Agreement or any renewal thereof upon thirty (30) days' notice to the other party. 2. STATEMENT OF SERVICES. Consultant agrees to make available to Motorola consulting services in the areas described in Appendix A and other areas as shall from time to time be agreed upon by Consultant and Motorola. 3. PAYMENT. For services performed pursuant to this Agreement, Consultant will be compensated at an amount and under such terms as are contained in a separate memo between Consultant and Gary Tooker; said memo being incorporated herein as Appendix B. Consultant shall be reimbursed for all expenses which are necessary for and incident to the performance of service hereunder upon approval of Motorola. 4. RECORDS, REPORTS AND INFORMATION. Consultant agrees to furnish Motorola with reports and information regarding the services covered by this Agreement at such times and as often as Motorola may request. 5. INDEPENDENT CONTRACTOR. Consultant shall perform services hereunder only as an independent contractor and shall not be entitled to participate in Motorola's profit sharing, pension, or other plans for the benefit of Motorola employees except as Consultant may otherwise be eligible by virtue of any period of employment with Motorola. 6. CODE OF CONDUCT. Notwithstanding Consultant's status as an independent contractor, Motorola expects that and Consultant hereby agrees to conduct himself on behalf of Motorola in accordance with the relevant sections of the Motorola Code of Conduct, which is attached hereto as Appendix C. Should Consultant require interpretation of any section of said Code of Conduct, such can be obtained by contacting Motorola's Senior Vice President and General Counsel, who is currently A. Peter Lawson, 1303 E. Algonquin Road, Schaumburg, Illinois 60196; (847) 576-5008. 7. PROTECTION OF MOTOROLA'S BUSINESS. Except as required to perform services under this Agreement, Consultant will not use, publish or otherwise disclose to others, during the term of this Agreement and for five (5) years after termination thereof, any confidential information of Motorola or its customers or suppliers, and will take all reasonable precautions to prevent disclosure of the confidential information to any unauthorized persons or entities. Consultant further agrees that, during the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, he will not provide services as a consultant or employee to any independent company or business segment of a company to the extent that it competes with Motorola or a business segment of Motorola. 8. WRITINGS AND OTHER DATA TO BECOME PROPERTY OF MOTOROLA. Consultant agrees that all notes, writings, drawings, designs, analyses, memoranda and other data prepared and/or produced by Consultant in the performance of this Agreement shall be the sole property of Motorola, including all rights, title and interest of whatever kind, and shall not be disclosed to any other person or firm by Consultant. Upon termination of this Agreement, Consultant shall return all of the above, and any other Motorola property or records which relate to the business of Motorola to an appropriate Motorola representative. 9. GENERAL REPRESENTATION OF COMPLIANCE. Consultant agrees to comply with all standards, laws and procedures pertaining to this Agreement which are currently in effect or which are subsequently implemented by any government agency or industry consortium to which Motorola belongs. 10. ENTIRE AGREEMENT. This Agreement constitutes the final expression of the agreement of the parties; it is intended as a complete and exclusive statement of the terms of their agreement; and it supersedes all prior and concurrent promises, representations, negotiations, discussions, and agreements that may have been made in connection with the subject matter hereof. IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the day and year first above written. MOTOROLA, INC. BY: /s/ John F. Mitchell BY: /s/ A. Peter Lawson John F. Mitchell A. Peter Lawson Senior Vice President and General Counsel EX-99.1 5 EXHIBIT 99.1 TO 10Q Exhibit 99.1 MOTOROLA SHARE OPTION PLAN OF 1996 1. NAME AND PURPOSE 1.1 Name. The name of this plan is the Motorola Share Option Plan of 1996 (the "Plan"). 1.2 Purpose. Motorola has established the Plan to promote the interests of Motorola and its stockholders by providing full and part-time employees of Motorola or its Subsidiaries and members of Motorola's Board who are not employees of Motorola or any of its Subsidiaries (each a "Non-Employee Director") with additional incentive to increase their efforts on Motorola's behalf and to remain in the employ or service of Motorola or its Subsidiaries and with the opportunity, through stock ownership, to increase their proprietary interest in Motorola and their personal interest in its continued success and progress. 2. DEFINITIONS 2.1 General Definitions. The following words and phrases, when used herein, unless otherwise specifically defined or unless the context clearly indicates otherwise, shall have the following meanings: (a) Affiliate. Any corporation, partnership, joint venture or other business entity in which Motorola or a Subsidiary holds an ownership interest. (b) Board. The Board of Directors of Motorola. (c) Change in Control. The events described in Section 11.2. (d) Code. The Internal Revenue Code of 1986, as amended, and the regulations promulgated pursuant thereto. (e) Committee. The Compensation Committee of the Board. (f) Common Stock. Motorola's common stock, $3 par value per Share. (g) Directors. Members of the Board of Motorola. (h) Disinterested Person. A person described in Rule 16b-3(c)(2) or any successor definition adopted by the SEC. (i) Effective Date. The date that the Plan is approved by both the directors of Motorola and the stockholders of Motorola, and if not approved by both on the same day, the date of the last approval. (j) Employee. Any person employed by Motorola or a Subsidiary on a full or part-time basis. (k) Employee Stock Options. Stock Options granted to an Employee under Article 4 of the Plan, including both NSOs and ISOs. (l) Exchange Act. The Securities Exchange Act of 1934, as amended. (m) Fair Market Value. The average of the high and low sale prices of Shares as reported for the New York Stock Exchange - Composite Transactions on a given date, or, in the absence of sales on a given date, the average of the high and low sale prices (as so reported) for the New York Stock Exchange - - Composite Transactions on the last previous day on which a sale occurred prior to such date. With respect to an ISO, as defined below, if such method of determining Fair Market Value shall not be consistent with the then current regulations of the U.S. Secretary of the Treasury, Fair Market Value shall be determined in accordance with those regulations. (n) ISO. An incentive stock option that meets the requirements of Section 422 (or any successor section) of the Code. (o) Motorola. Motorola, Inc. or any successor. (p) NSO. A Stock Option that does not qualify as an ISO. (q) Non-Employee Director. Is defined in Section 1.2. (r) Non-Employee Stock Option Period. Is defined in Section 5.3. (s) Non-Employee Stock Option. Is defined in Section 5.1. (t) Non-Exercise Period. The period, for each Employee Stock Option, ending twelve (12) months from the date of its grant, or any longer period or periods determined by the Committee and set forth in, or incorporated by reference into, the Employee Stock Option. (u) Optionee. An Employee who has been granted an Employee Stock Option under the Plan. (v) Participant. An individual who is granted a Stock Option under in the Plan. (w) Plan. The Motorola Share Option Plan of 1996 and all amendments and supplements thereto. (x) Plan Year. The calendar year. (y) Rule 16b-3. Rule 16b-3 promulgated by the SEC, as amended, or any successor rule in effect from time to time. (z) SEC. The Securities and Exchange Commission. (aa) Share. A share of Common Stock. (bb) Stock Options. Employee Stock Options and Non-Employee Stock Options. (cc) Subsidiary; Subsidiaries. Any corporation or other entity in which a fifty percent (50%) or greater interest is, at the time, directly or indirectly owned by Motorola or by one or more Subsidiaries or by Motorola and one or more Subsidiaries, except that: (i) with respect to ISOs, "Subsidiary" shall mean "subsidiary corporation" as defined in Section 424(f) of the Code, and (ii) with respect to Directors and any elected officer of Motorola or a Subsidiary subject to Section 16 of the Exchange Act, the terms "Subsidiary" or "Subsidiaries" mean and include any corporation or other entity at least a majority of the outstanding voting shares of which (other than directors' qualifying shares) is, at the time, directly or indirectly owned by Motorola or by one or more Subsidiaries or by Motorola and one or more Subsidiaries. (dd) Successor-in-Interest. Is defined in Section 4.5(a)(ii). (ee) Total and Permanent Disability. Is defined in Section 4.5(a)(i). 2.2 Other Definitions. In addition to the above definitions, certain words and phrases used in the Plan and any Stock Option certificate may be defined elsewhere in the Plan or in such Stock Option certificate. 3. SHARES SUBJECT TO PLAN 3.1 Number of Shares. The number of Shares for which Stock Options may be granted under the Plan shall be (i) 29,000,000 Shares, plus (ii) the total number of Shares with respect to which no options have been granted under Motorola's Share Option Plan of 1991 on the Effective Date, plus (iii) the number of Shares as to which options granted under Motorola's Share Option Plan of 1991 terminate or expire without being fully exercised, subject, in each case, to Sections 3.2 and 3.3. Shares issued under the Plan may be either authorized and unissued Shares or issued Shares reacquired by Motorola. No Employee may receive Stock Options relating to more than 300,000 Shares in any Plan Year (as adjusted pursuant to Section 3.3). 3.2 Reusage. If a Stock Option expires or is terminated, surrendered or canceled without having been fully exercised, the Shares covered by such Option shall again be available for use under the Plan. 3.3 Adjustments. If there is any change in the Common Stock by reason of any stock split, stock dividend, spin-off, split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, the number and class of Shares available for Stock Options the number of Shares to be automatically granted under Section 5.1 hereof and the number of Shares subject to outstanding Stock Options and the price of each of the foregoing, as applicable, shall be appropriately adjusted by the Committee to provide Participants with the same relative rights before and after such adjustment. 4. EMPLOYEE STOCK OPTIONS 4.1 Grant of Employee Stock Options. The Committee shall have authority to grant Stock Options (ISOs or NSOs) to Employees. The Committee shall determine the number of Shares subject to each Employee Stock Option, the purchase price per Share, the term of the Employee Stock Option, the time or times at which the Employee Stock Option may be exercised, and all other terms and conditions of the Employee Stock Option. The Option exercise price per Share of an Employee Stock Option may not be less than the Fair Market Value of a Share on the date of grant. The Committee may accelerate the exercisability of any Employee Stock Option, including the waiver or modification of any installment exercise provisions. The Committee may in its discretion, delegate to members of the Committee and/or one or more elected officers of Motorola the authority to grant Stock Options to Employees who are not subject to Section 16 of the Exchange Act. 4.2 NSOs and ISOs. (a) The Stock Option exercise price of any Stock Option may not be less than the Fair Market Value on the date of grant of the Shares of the Common Stock subject to the Stock Option. (b) ISOs. The following additional terms and conditions shall apply to ISOs: (i) No ISO shall be granted to any Participant who, at the time the Employee Stock Option is granted, would own (within the meaning of Section 422(b) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of Motorola. (ii) The aggregate Fair Market Value (determined as of the time the Employee Stock Option is granted) of the Shares of Common Stock with respect to which one or more ISO's are exercisable for the first time by any individual Optionee during any calendar year (under all plans of the Company and its Subsidiaries) shall not exceed $100,000.00. (iii) Each ISO, by its terms, shall (1) not be exercisable after the expiration often (10) years after the date it is granted and (2) not be transferrable by the Optionee otherwise than by will or the applicable laws of descent and distribution or by operation of a death beneficiary designation made by the Optionee in accordance with rules established by the Committee and shall be exercisable during the Optionee's lifetime only by the Optionee or the Optionee's guardian or legal representative if the Optionee is legally incompetent. 4.3 Exercise of Employee Stock Options; Payment. (a) An Employee Stock Option may be exercised by the Optionee submitting to Motorola such form(s) as are prescribed for such purpose. Motorola may require the surrender of the Employee Stock Option certificate if one has been issued. No Employee Stock Option shall be exercisable for less than a minimum of fifty (50) Shares except in cases where the number of Shares represented by the Employee Stock Option being exercised is less than fifty (50), in which case, the Employee Stock Option shall not be exercisable for less than all shares represented by such Option. (b) Payment for Shares purchased upon exercise of an Employee Stock Option shall be paid in full as permitted by Section 13 for all Shares purchased at the time of purchase. No fractional Shares may be purchased. 4.4 Non-Exercise Period. Except as provided herein for Optionees who die while in the employ of Motorola or any Subsidiary or for a Change in Control, no Employee Stock Option granted under the Plan may be exercised prior to the expiration of the Non-Exercise Period. No Employee Stock Option may be exercised after expiration of its stated term. 4.5 Effect of Termination of Employment on Employee Stock Options: (a) Termination of Employment During the Non-Exercise Period. (i) Except for a Change in Control and except for a disability leave of absence as provided in Section 4.5(a)(iii) hereof, if, during the Non-Exercise Period, the Optionee's employment with Motorola and its Subsidiaries shall terminate for any reason (including retirement) other than death, transfer to an Affiliate and other than Total and Permanent Disability (as that term is defined in the Motorola Profit Sharing and Investment Plan) of the Optionee, as determined by the Committee or its designee, the Optionee's right to exercise the Employee Stock Option shall terminate and all rights thereunder shall cease; provided, however, if the Optionee's employment terminates by reason of the transfer of such Optionee to an Affiliate, the Committee shall have the power and authority, in its discretion, to determine whether or not any or all of the Employee Stock Options held by the Optionee shall terminate or shall continue in effect (in which case such Options shall be subject to all of the conditions of the Plan, including this Section 4.5, and such other conditions as the Committee may impose, with "termination of employment," "employment is terminated" or "employment shall have been terminated" or words of like import or intent meaning termination of employment with the Affiliate.) (ii) If, during the Non-Exercise Period, an Optionee dies while in the employ of Motorola or any Subsidiary, the deceased Optionee's Successor- in-Interest shall have the right to exercise, in whole or in part, at any time during the remainder of the term of such Employee Stock Option, the entire amount of the Shares subject to such Employee Stock Option (without regard to any installment limitation on the exercise of the Employee Stock Option). For purposes of the Plan, the term "Successor-in-Interest" shall mean the deceased Optionee's death beneficiary, personal representative, or any person who acquired the right to exercise such Employee Stock Option by bequest or inheritance or by reason of the laws of descent and distribution. (iii) If, during the Non-Exercise Period, an Optionee's employment with Motorola and its Subsidiaries shall terminate because of the Total and Permanent Disability of the Optionee or if the Optionee shall be put on disability leave of absence status because of the Total and Permanent Disability of the Optionee, each Employee Stock Option held by such an Optionee which has a Non-Exercise Period in effect at the time of termination of employment or commencement of the disability leave of absence shall become exercisable at the time the applicable Non-Exercise Period elapses or terminates, and the Optionee shall then have the right to exercise, in whole or in part, each such Employee Stock Option for the entire amount of Shares subject to each such Employee Stock Option (without regard to any installment limitation on exercise of the Employee Stock Option) at any time during the remainder of the term of the Employee Stock Option. The unexercised portion of each Employee Stock Option shall terminate upon expiration of the term of such Stock Option, and any unexercised portion shall terminate immediately if and when the Optionee is employed by a competitor of Motorola or any Subsidiary without written consent of the Committee. (b) Termination of Employment After the Non-Exercise Period. (i) By Termination of Employment Without Cause. If the Non-Exercise Period shall have elapsed or terminated and the Optionee's employment with Motorola and its Subsidiaries shall have been terminated thereafter by Motorola or any Subsidiary without cause, the Optionee shall have the right to exercise the then presently exercisable unexercised portion of the Employee Stock Option at any time during a period of twelve (12) months after the date of termination of employment. The unexercised portion of the Employee Stock Option may be exercised, in whole or in part, for the number of Shares which were or would have become exercisable to the extent the Optionee could have exercised such Employee Stock Option had the Optionee remained in the employ of Motorola or any Subsidiary during the twelve (12) month period immediately following the date of termination of employment. Except as otherwise provided in Section 4.5(b)(vii) hereof, the unexercised and/or unexercisable portion of each Employee Stock Option shall terminate twelve (12) months after an Optionee's employment with Motorola and its Subsidiaries shall have been so terminated, and any unexercised and/or unexercisable portion shall terminate immediately if and when the Optionee is employed by a competitor of Motorola or any Subsidiary without the written consent of the Committee. (ii) By Termination of Employment for Cause. If the Non-Exercise Period shall have elapsed or terminated and the Optionee's employment is terminated by Motorola or any Subsidiary for cause, any unexercised portion of any Employee Stock Option granted to the Optionee shall terminate with the Optionee's termination of employment. As used herein, the term "cause" means (a) the failure of the Optionee to carry out the duties assigned to the Optionee as a result of incompetence or willful neglect, as determined by the Committee, or (b) such other reasons, including the existence of a conflict of interest, as the Committee may determine. (iii) By Voluntary Termination of Employment. If the Non-Exercise Period shall have elapsed or terminated and the Optionee voluntarily terminates employment with Motorola or any Subsidiary for reasons other than the retirement of the Optionee, any unexercised portion of the Optionee's Employee Stock Option shall terminate with the Optionee's termination of employment. (iv) By Retirement. If the Non-Exercise Period shall have elapsed or terminated and the Optionee's employment with Motorola or any Subsidiary shall have been terminated because of the retirement of the Optionee from Motorola or any Subsidiary at age 55 or older, the Optionee shall have the right to exercise, in whole or in part, the unexercised portion of any Employee Stock Option held by such Optionee for the entire amount of Shares subject to such Stock Option (without regard to any installment limitation on exercise of the Employee Stock Option) at any time during the remainder of the term of such Stock Option. The unexercised portion of each Employee Stock Option shall terminate upon expiration of the term applicable to each such Employee Stock Option, and any unexercised portion shall terminate immediately if and when the Optionee is employed by a competitor of Motorola or any Subsidiary without the written consent of the Committee. For purposes of this Section 4.5, if the Optionee is a participant in Motorola's pension plan or the pension plan of any Subsidiary, the term "retirement" shall mean the Optionee's retirement as provided for in the applicable pension plan. If the Optionee is not a participant in Motorola's pension plan or the pension plan of any Subsidiary, "retirement" of an Optionee shall be determined by the Committee. In no event can retirement take place prior to age 55 even if permitted under the applicable pension plan. (v) By Total and Permanent Disability. If the Non-Exercise Period shall have elapsed or terminated, and the Optionee's employment with Motorola and its Subsidiaries shall have been terminated because of the Total and Permanent Disability of the Optionee or if the Optionee shall be put on disability leave of absence status because of the Total and Permanent Disability of the Optionee, the Optionee shall have the right to exercise, in whole or in part, the unexercised portion of any Employee Stock Option held by such Optionee for the entire amount of Shares subject to such Employee Stock Option (without regard to any installment limitation on exercise of the Employee Stock Option) at any time during the remainder of the term of the Employee Stock Option. The unexercised portion of each Employee Stock Option shall terminate upon expiration of the term of each such Employee Stock Option, and any unexercised portion shall terminate immediately if and when the Optionee is employed by a competitor of Motorola or any Subsidiary without the written consent of the Committee. (vi) By Death. If the Non-Exercise Period shall have elapsed or terminated and the Optionee dies while in the employ of Motorola or any Subsidiary, the unexercised portion of the Employee Stock Option may be exercised, in whole or in part, at any time during the remainder of the term of the Employee Stock Option by the Optionee's Successor-in-Interest, for the entire number of Shares subject to the Employee Stock Option (without regard to any installment limitation on exercise of the Employee Stock Option). (vii) Effect of Death After Termination of Employment Without Cause or Retirement. If the Non-Exercise Period shall have elapsed or terminated and the Optionee dies during the twelve (12) month period immediately following the Optionee's termination of employment by Motorola or any Subsidiary without cause and at the time of death such Optionee is not employed by a competitor of Motorola or any Subsidiary (or while employed by a competitor of Motorola or any Subsidiary with the written consent of the Committee), the unexercised portion of the Employee Stock Option may be exercised by the Optionee's Successor-in-Interest at any time during the remainder of the term of the Employee Stock Option, in whole or in part, for the number of Shares which were or would have become exercisable had the Optionee survived for the remainder of the term of the Employee Stock Option, without regard to the requirement of exercise within twelve (12) months after termination of employment without cause. If the Non-Exercise Period shall have elapsed or terminated and the Optionee dies after retirement prior to the expiration of the term of the Employee Stock Option, and, if at the time of death such Optionee is not employed by a competitor of Motorola or any Subsidiary (or while employed by a competitor of Motorola or any Subsidiary with the written consent of the Committee), the unexercised portion of the Employee Stock Option may be exercised for the entire number of Shares subject to such Employee Stock Option (without regard to any installment limitation on exercise of the Employee Stock Option), by the Optionee's Successor-in-Interest at any time during the remainder of the term of the Employee Stock Option. (viii) By Transfer of Optionee to an Affiliate. If the Non-Exercise Period shall have elapsed or terminated and the Optionee's employment with Motorola and its Subsidiaries shall terminate by reason of the transfer of such Optionee to an Affiliate, the Committee shall have the power and authority, in its discretion, to determine whether or not any or all of the Employee Stock Options held by the Optionee shall continue in effect for the remainder of the term of such Employee Stock Option or for the period otherwise applicable under the provisions of the Plan. Any Employee Stock Option which the Committee permits to continue in effect beyond the period otherwise applicable under the Plan shall be subject to all of the terms and conditions of the Plan, including this Section 4.5 and such other conditions as the Committee may impose (with "termination of employment", "employment shall terminate", "terminates employment", "employment is terminated" or "employment shall have been terminated" or words of like import or intent meaning termination of employment with the Affiliate). (c) Procedure on Death. No transfer of an Employee Stock Option pursuant to Section 4.5 (a)(ii), (b)(vi) and (b)(vii) above, by will or by the laws of descent and distribution, shall be effective unless Motorola shall have been furnished with written notice thereof and a copy of the will, if any, and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the Successor-in-interest or Successors-in- interest of the terms and conditions of the Employee Stock Option, and under no circumstances shall the right of any such Successor-in-Interest to exercise any such Employee Stock Option extend beyond the applicable period specified in sub-paragraph (a)(ii), (b)(vi) or (b)(vii) above, or beyond the expiration of the term of such Employee Stock Option. (d) Leaves of Absence and Lay-offs. If an Optionee is placed on leave of absence status (except as provided in Section 4.5 (a)(iii) or (b)(v) above) by Motorola or any Subsidiary, each Employee Stock Option then held by the optionee, whether exercisable or non- exercisable, shall be suspended at such time, but the period of time during which the Optionee is on leave of absence shall be counted in determining when the Non-Exercise Period elapses. If an Optionee is placed on lay-off status by Motorola or any Subsidiary, any then non-exercisable Employee Stock Option shall terminate and any then exercisable Employee Stock Option may be exercised during the period of twelve (12) months from the date the Optionee is placed on lay-off status and shall be suspended thereafter to the extent not exercised. In any case, the unexercised portion of each suspended Employe Stock Option shall either (i) terminate upon the Optionee's termination of employment with Motorola and its Subsidiaries or (ii) be reinstated upon such Optionee returning from leave of absence or lay-off status to active employment status with Motorola or any Subsidiary. (e) Meaning of Termination of Employment. Wherever in this Article or elsewhere in the Plan the words "termination of employment, employment is terminated, employment shall terminate or employment shall have been terminated" or words of like import or intent are used, they shall mean the last day worked by the Participant rather than the last day the Participant is on the payroll of Motorola or any Subsidiary. 5. NON-EMPLOYEE STOCK OPTIONS 5.1 Automatic Grant of Non-Employee Stock Options. On June 1, 1996 and on June 1 of each Plan Year after 1996 in which the Plan is in effect, each individual elected, re-elected or continuing as a Non-Employee Director shall automatically receive a NSO covering 1,000 Shares (a "Non-Employee Stock Option"). Notwithstanding the foregoing, if, on that day, the General Counsel of Motorola determines, in his or her sole discretion, that Motorola is in possession of material, undisclosed information about Motorola, then the annual grant of NSO's to Non-Employee Directors shall be suspended until the second day after public dissemination of such information and the price, exercisability date and Non-Employee Stock Option Period shall then be determined by reference to such later date. If Common Stock is not reported as traded on the New York Stock Exchange - Composite Transactions on any date a grant would otherwise be awarded, then the grant shall be made the next day thereafter on which Common Stock is so traded. 5.2 Price. The Stock Option exercise price of a Non-Employee Stock Option shall be the Fair Market Value of the Shares subject to such Stock Option on the date of grant. 5.3 Exercisability. A Non-Employee Stock Option granted under the Plan shall become exercisable twelve months after the date of grant (except as otherwise provided in Section 5.6 for retirement and Section 5.7 for death which occurs during such period and in Article 11 if a Change in Control occurs during such period) and shall expire, except as otherwise provided herein, 10 years after the date of grant ("Non-Employee Stock Option Period"). 5.4 Payment. The Non-Employee Stock Option exercise price shall be paid in full as permitted by Section 13 for all Shares purchased at the time the Non-Employee Stock Option is exercised. No fractional Shares may be purchased. Motorola may require the surrender of the Non-Employee Stock Option certificate if one has been issued, and no Non-Employee Stock Option may be exercised for less than fifty (50) Shares, except in cases where the number of shares represented by the Non-Employee Stock Option being exercised is less than fifty (50), in which case the Non-Employee Stock Option shall not be exercisable for less than all Shares represented by such Stock Option. 5.5 Termination. Upon cessation of services as a Non-Employee Director (for reasons other than retirement as defined in Section 5.6 hereof or death) only those Non-Employee Stock Options immediately exercisable at the date of cessation of service shall be exercisable by the Non-Employee Director. Such Non-Employee Stock Options must be exercised within 30 days after cessation of service (but in no event after the expiration of the Non-Employee Stock Option Period) or they shall be forfeited. If, however, the Non-Employee Director during or after his or her service on the Board, engages, directly or indirectly, in any activity which is in competition with any activity of Motorola or any Subsidiary or in any action or conduct which is in any manner adverse or in any way contrary to the interests of Motorola, or any Subsidiary, any unexercised portion of such Non-Employee Stock Options shall immediately terminate, unless otherwise determined by the Chief Executive Officer of Motorola. The determination of whether a Director is or has engaged in any competitive activity or in any action or conduct which is adverse or contrary to the interests of Motorola or any of its Subsidiaries shall be made by the Chief Executive Officer of Motorola, and such determination shall be conclusive and binding upon all parties. 5.6 Retirement. As used in this Article 5, the term "retirement" shall mean, for Non-Employee Directors, resignation at or after age 65, failure to stand for re-election at or after age 65 or failure to be re-elected at or after age 65. Upon retirement, all Non-Employee Stock Options previously granted to a Non-Employee Director shall become or continue to be exercisable, except as otherwise provided herein. Such Non-Employee Stock Options must be exercised prior to the expiration of the Non-Employee Stock Option Period or they shall be forfeited. 5.7 Death. Upon the death of a Non-Employee Director, all Non-Employee Stock Options previously granted to the Non-Employee Director shall become exercisable by his or her Successor-in-Interest, except as otherwise provided herein. Such Non-Employee Stock Options can be exercised during the remainder of the Non-Employee Stock Option Period. 5.8 Amendments. An amendment of this Article 5 amending provisions of the kind described in Rule 16b-3(c)(2)(ii)(A) under the Exchange Act shall not be made more frequently than once every six months unless necessary to comply with the Code. No amendment may revoke or alter in a manner unfavorable to a Non-Employee Director holding Non-Employee Stock Options any Non-Employee Stock Options then outstanding, without such Non-Employee Director's approval. 5.9 Interpretation. The Chief Executive Officer of Motorola shall administer, construe and interpret this Article 5, whose decisions shall be conclusive and binding on all parties. The Chief Executive Officer of Motorola is authorized, subject to the provisions of this Article 5, from time to time to establish such rules and regulations as he or she may deem appropriate for the proper administration or operation of this Article 5. Non-Employee Stock Options may be evidenced by certificates at the option of the Chief Executive Officer of Motorola. 6. ELIGIBILITY The Participants shall be determined by the Committee, except for Non- Employee Stock Options which shall be automatically granted to Non-Employee Directors under Article 5 and except to the extent authority has been delegated under Section 7.1 hereof. In making its determinations, the Committee shall consider past, present and expected future contributions of Employees to Motorola and its Subsidiaries. 7. ADMINISTRATION 7.1 Committee. The Plan (except for Article 5 and the Non-Employee Stock Options automatically granted thereunder) shall be administered by the Committee; provided, however, if at any time Rule 16b-3 and Section 162(m) of the Code, and any implementing regulations (and any successor provisions thereof), so permit without adversely affecting the ability of the Plan to comply with the conditions for exemption from Section 16 of the Exchange Act (or any successor provision) provided by Rule 16b-3 and the exemption from the limitations on the deductibility of certain executive compensation provided by Section 162(m), the Committee may delegate the administration of the Plan in whole or in part, on such terms and conditions, to such other person or persons as it may determine in its discretion. References to the Committee hereunder shall include the Board where appropriate. The membership of the Committee or such successor committee shall be constituted so as to comply at all times with the applicable requirements of Rule 16b-3 and Section 162(m). No member of the Committee shall have within one year prior to his appointment received awards under the Plan or under any other plan, program or arrangement of the Company or any of its affiliates if such receipt would cause such member to cease to be a "disinterested person" under Rule 16b-3; provided that if at any time Rule 16b-3 so permits without adversely affecting the ability of the Plan to comply with the conditions for exemption from Section 16 of the Exchange Act (or any successor provision) provided by Rule 16b-3, one or more members of the Committee may cease to be a "disinterested person." 7.2 Authority. Subject to the terms of the Plan, and except for the Non-Employee Stock Options granted under Article 5 (over which the Committee shall have no discretion), the Committee shall have complete power and authority to: (a) determine the individuals to whom Employee Stock Options are granted, the type and amounts to be granted and the time of all such grants; (b) determine the terms, conditions and provisions of, and restrictions relating to, each Employee Stock Option granted; (c) administer, interpret and construe the Plan and the Employee Stock Options; (d) prescribe, amend and revoke rules and regulations relating to the Plan; (e) maintain accounts, records and ledgers relating to the Plan; (f) maintain records concerning its decisions and proceedings; (g) employ agents, attorneys, accountants or other persons for such purposes as the Committee considers necessary or desirable; (h) take, at any time, any action permitted by Section 11.1 irrespective of whether any Change in Control has occurred or is imminent; and (i) do and perform all acts which it may deem necessary or appropriate for the administration of the Plan and carry out the purposes of the Plan. 7.3 Determinations. All determinations of the Committee shall be final, binding and conclusive upon all persons, including Motorola and its Subsidiaries and Participants and their respective legal representatives, Successors-in Interest and permitted assigns and upon all other persons claiming by, through, under or against any of them. 8. AMENDMENT Except as hereinafter provided, and except as may be required for compliance with Rule 16b-3 and Section 162(m) of the Code, the Board or the Committee shall have the right and power to amend the Plan at any time and from time to time. Only the Board may amend Article 5 of the Plan, subject to such Article and subject to compliance with Rule 16b-3. Neither the Board nor the Committee may amend the Plan in a manner which would impair or adversely affect the rights of the holder of a Stock Option without the holder's consent. If the Code or any other applicable statute, rule or regulation, including, but not limited to, those of any securities exchange, requires stockholder approval with respect to the Plan or any type of Plan amendment, then to the extent so required, stockholder approval shall be obtained. 9. TERM AND TERMINATION 9.1 Term. The Plan shall commence as of the Effective Date and, subject to the terms of the Plan, including those in Section 14.7 requiring stockholder approval for implementation or limiting the period over which ISOs may be granted, shall continue in full force and effect until five (5) years from the Effective Date, unless sooner terminated by the Board. 9.2 Termination. The Plan may be terminated at any time by the Board. Termination shall not in any manner impair or adversely affect any Stock Option outstanding at the time of termination. 10. MODIFICATION OR TERMINATION 10.1 General. Subject to the provisions of Section 10.2, the amendment or termination of the Plan shall not impair or adversely affect a Participant's right to any Stock Option granted prior to such amendment or termination. 10.2 Committee's Right. Any Stock Option granted may be converted, modified, forfeited or canceled, in whole or in part, by the Committee if and to the extent permitted in the Plan or applicable Stock Option certificate or with the consent of the Participant to whom such Stock Option was granted. Subject to the limitations in the Plan, the Committee may grant Stock Options on such terms and conditions, which may be different than those specified in the Plan, as it may deem desirable in order to comply with, or make available the benefits of, the laws of any foreign jurisdiction. 11. CHANGE IN CONTROL 11.1 Stock Option Vesting and Payment. Upon the occurrence of a Change in Control, each Stock Option outstanding on the date on which the Change in Control occurs shall immediately become exercisable in full for the remainder of its term and each Participant holding Stock Options shall have the right, at his or her election made during a period of sixty (60) days following the date on which the Change in Control occurs, to have Motorola purchase any or all such Stock Options for an immediate lump-sum cash payment equal to the product of (1) the excess, if any, of the higher of (i) the average of the high and low sale prices of the Common Stock as reported on the New York Stock Exchange - Composite Transactions on the date immediately prior to the date of payment, or if Shares did not trade on such date, on the last previous day on which Shares traded prior to such date, or (ii) the highest per Share price for Common Stock actually paid in connection with the Change in Control, over the per Share exercise price of each such Stock Option held, and (2) the number of Shares covered by each such Stock Option. 11.2 Change in Control. A Change in Control shall mean: A Change in Control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act whether or not Motorola is then subject to such reporting requirement; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (A) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Motorola representing 20% or more of the combined voting power of Motorola's then outstanding securities (other than Motorola or any employee benefit plan of Motorola; and, for purposes of the Plan, no Change in Control shall be deemed to have occurred as a result of the "beneficial ownership," or changes therein, of Motorola's securities by either of the foregoing), (B) there shall be consummated (i) any consolidation or merger of Motorola in which Motorola is not the surviving or continuing corporation or pursuant to which Shares of Common Stock would be converted into cash, securities or other property, other than a merger of Motorola in which the holders of Common Stock immediately prior to the merger have (directly or indirectly) at least an 80% ownership interest in the outstanding common stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Motorola, (C) the stockholders of Motorola approve any plan or proposal for the liquidation or dissolution of Motorola, or (D) as the result of, or in connection with, any cash tender offer, exchange offer, merger or other business combination, sale of assets, proxy or consent solicitation (other than by the Board), contested election or substantial stock accumulation (a "Control Transaction"), the members of the Board immediately prior to the first public announcement relating to such Control Transaction shall thereafter cease to constitute a majority of the Board. 12. CERTIFICATES AND TRANSFER OF STOCK OPTIONS 12.1 Provisions of Stock Option Certificates. ISOs may be evidenced by Incentive Stock Option certificates and NSOs may be evidenced by Non-Qualified Stock Option certificates. Each certificate may include, but shall not be limited to, the following: description of the type of Stock Option; the Stock Option's duration; its transferability; the exercise price; the exercise period; the Non-Exercise Period; the person or persons who may exercise the Stock Option; the effect upon such Stock Option of the Participant's death or other termination of employment; and the Stock Option's conditions. 12.2 Transfer of Stock Options. Except as set forth in the next sentence of this Section 12.2, a Stock Option shall not be transferable by a Participant other than by operation of a death beneficiary designation made by the Participant in accordance with rules established by the Committee, or the Chief Executive Officer of Motorola, as appropriate, by will or the applicable laws of descent and distribution and shall be exercisable during the Participant's lifetime only by him or her or his or her guardian or legal representative if the Participant is legally incompetent. Notwithstanding the foregoing, except to the extent that it would cause the Plan to fail to meet the conditions required to be met under Rule 16b-3, the Chief Executive Officer of Motorola, in the case of Non-Employee Stock Options, and the Committee, in the case of Employee Stock Options, shall have the power and authority to provide, as a term of any NSO, that such NSO may be transferred without consideration by the Non-Employee Director or the Optionee, as applicable, to a member or members of his or her immediate family (i.e., a child, children, grandchild, grandchildren, or spouse) and/or to a trust or trusts for the benefit of an immediate family member or family members. 13. PAYMENT Upon the exercise of a Stock Option, the amount due Motorola is to be paid: (a) in cash; (b) by the transfer to Motorola of Shares owned by the Participant valued at Fair Market Value on the date of transfer; (c) by any combination of the payment methods specified in (a) and (b) above; or (d) such other manner as may be authorized from time to time by the Committee. Notwithstanding the foregoing, any method of payment other than (a) and (b) may be used only with the approval of the Committee or if and to the extent so provided in the applicable Stock Option certificate. 14. GENERAL 14.1 Tax Withholding. At the time Motorola is required to withhold any Federal Insurance Contribution Act ("FICA") tax and/or any federal, state or local tax of any kind with respect to the exercise of any Stock Option, the Participant shall pay to Motorola the amount of any such FICA, federal, state or local tax or taxes required to be withheld. The obligations of Motorola under the Plan shall be conditional on payment of all withholding taxes, and Motorola shall have the right to deduct any such taxes from any payment of any kind under the Plan or otherwise due to the Participant. With the consent of Motorola, withholding tax obligations may be settled, in whole or in part, with Common Stock. At any time when a Participant is required to pay to Motorola an amount required to be withheld under applicable tax laws upon exercise of a Stock Option, the Participant may, with the consent of Motorola, satisfy this obligation in whole or in part by transfer to Motorola of Shares previously owned by the Participant, by electing (the "Election") to have Motorola withhold from the distribution Shares of Common Stock having a value equal (as near as possible) to the amount required to be withheld or by a combination of such means, provided, however, that the amount of federal, state and local income taxes that may be paid by transfer or withholding of Shares shall not exceed the statutory minimum withholding requirements. The amount of any withholding tax not paid by transfer or withholding of Shares shall be paid to Motorola in cash. The value of the Shares transferred or to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined ("Tax Date") or if Shares did not trade on the New York Stock Exchange on the Tax Date, as of the last previous date Shares did so trade. Each Election must be made on or prior to the Tax Date. The Committee may disapprove of any Election or may suspend, condition, restrict or terminate the right to make Elections. An Election is irrevocable, unless revocation is approved by the Committee. 14.2 Compliance With Legal Requirements. Anything in the Plan to the contrary notwithstanding: (a) Motorola may, if it shall determine it necessary or desirable for any reason, at the time of award of any Stock Option or the issuance of any Shares of Common Stock, require the recipient of the Stock Option, as a condition to the receipt thereof or to the receipt of Shares of Common Stock issued pursuant thereto, to deliver to Motorola a written representation of present intention to acquire the Stock Option or the Shares of Common Stock issued pursuant thereto for his or her own account for investment and not for distribution; and (b) if at any time Motorola further determines that the listing, registration or qualification (or any updating of any such document) of any Stock Option or the Shares of Common Stock issuable pursuant thereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the grant of any Stock Option or the issuance of Shares of Common Stock pursuant thereto, such Stock Option shall not be granted or such Shares of Common Stock shall not be issued, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to Motorola. In addition, Motorola may terminate any Stock Option or terminate, condition, restrict or limit the issuance or delivery of any Shares of Common Stock if it determines that such Stock Option or delivery violates any applicable laws, regulations or rules, including but not limited to, those of any stock exchange or Rule 16b-3. 14.3 Indemnification and Exculpation. Each person, who is or shall have been a member of the Board or of the Committee, shall be indemnified and held harmless by Motorola against and from any and all loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof (with Motorola's written approval) or paid by such person in satisfaction of a judgment in any such action, suit, or proceeding, except a judgment based upon a finding of such person's bad faith, subject, however, to the condition that upon the institution of any claim, action, suit or proceeding against such person, such person shall in writing give Motorola an opportunity, at its own expense, to participate in, and to the extent it may wish, to assume the defense thereof before such person undertakes to handle it on such person's own behalf. The foregoing right of indemnification shall not be exclusive of any other right to which such person may be entitled as a matter of law, under the Delaware General Corporation Law, the Restated Certificate of Incorporation or By-Laws of Motorola or otherwise, or any power that Motorola may have to indemnify such person or hold such person harmless. Each member of the Board or of the Committee, and each officer and employee of Motorola shall be fully justified in relying or acting upon any information furnished on behalf of Motorola by any person or persons other than himself or herself in connection with the administration of the Plan. In no event shall any person who is or shall have been a member of the Board or of the Committee, or an officer or employee of Motorola, be liable for any determination made or other action taken or any omission to act in reliance upon any such information, or for any action taken (including the furnishing of information) or any failure to act, if in good faith. 14.4 Headings. The headings of the sections and subsections of the Plan are for convenience of reference only and shall not be used to construe any provision of the Plan. 14.5 Governing Law. The Plan shall be governed by, and construed and administered in accordance with, the laws of the State of Illinois except to the extent that any federal law otherwise controls. 14.6 Employment Rights. Nothing in the Plan or in any grant of any Employee Stock Option shall restrict the right of Motorola or any Subsidiary to terminate the employment of any Participant at any time, with or without cause, or to increase or decrease the compensation of any Participant. 14.7 Approval by Stockholders. The Plan has been approved by the Board of Directors and is subject to approval by the affirmative votes of the holders of a majority of the Shares present, or represented, and entitled to vote at the meeting of stockholders at which the Plan is submitted. 14.8 Implementation of the Plan and Grant of Employee Stock Options Under 1991 Plan. If the Plan is implemented pursuant to Section 14.7, except as herein provided, no further options will be granted under the Share Option Plan of 1991. If the Board of Directors terminates this Plan after it has been implemented, stock options may be granted under the Share Option Plan of 1991, but not as to any Shares issued or subject to Stock Options under this Plan. TABLE OF CONTENTS 1. NAME AND PURPOSE 1 1.1 Name 1 1.2 Purpose 1 2. DEFINITIONS 1 2.1 General Definitions 1 2.2 Other Definitions 3 3. SHARES SUBJECT TO PLAN 3 3.1 Number of Shares 3 3.2 Reusage 4 3.3 Adjustments 4 4. EMPLOYEE STOCK OPTIONS 4 4.1 Grant of Employee Stock Options 4 4.2 NSOs and ISOs 4 4.3 Exercise of Employee Stock Options; Payment 5 4.4 Non-Exercise Period 5 4.5 Effect of Termination of Employment on Employee Stock Options 5 5. NON-EMPLOYEE STOCK OPTIONS 11 5.1 Automatic Grant of Non-Employee Stock Options 11 5.2 Price 11 5.3 Exercisability 11 5.4 Payment 12 5.5 Termination 12 5.6 Retirement 12 5.7 Death 12 5.8 Amendments 13 5.9 Interpretation 13 6. ELIGIBILITY 13 7. ADMINISTRATION 13 7.1 Committee 13 7.2 Authority 14 7.3 Determinations 14 8. AMENDMENT 14 9. TERM AND TERMINATION 15 9.1 Term 15 9.2 Termination 15 10. MODIFICATION OR TERMINATION 15 10.1 General 15 10.2 Committee's Right 15 11. CHANGE IN CONTROL 15 11.1 Stock Option Vesting and Payment 15 11.2 Change in Control 16 12. CERTIFICATES AND TRANSFER OF STOCK OPTIONS 16 12.1 Provisions of Stock Option Certificates 16 12.2 Transfer of Stock Options 17 13. PAYMENT 17 14. GENERAL 17 14.1 Tax Withholding 17 14.2 Compliance with Legal Requirements 18 14.3 Indemnification and Exculpation 19 14.4 Headings 19 14.5 Governing Law 19 14.6 Employment Rights 19 14.7 Approval by Stockholders 20 14.8 Implementation of the Plan and Grant of Employee Stock Options Under 1991 Plan 20 m^^^Document Error^^^0 R -----END PRIVACY-ENHANCED MESSAGE-----