-----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, BSPHTW/pMgBK9CFhuruNHxVYTKj0fBUgjxIbBgyHa5g18w/dUqdoQysPzfapUlZo 9Z+eXKjk8qiA+OvLFhm8Fw== 0000950131-97-002031.txt : 19970326 0000950131-97-002031.hdr.sgml : 19970326 ACCESSION NUMBER: 0000950131-97-002031 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: CSX 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07221 FILM NUMBER: 97561904 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-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 NO. 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 EAST ALGONQUIN ROAD, SCHAUMBURG, ILLINOIS 60196 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER (847) 576-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $3 Par Value per Share New York Stock Exchange Chicago Stock Exchange Liquid Yield Option Notes due 2009 New York Stock Exchange Liquid Yield Option Notes due 2013 New York Stock Exchange Rights to Purchase Junior Participating New York Stock Exchange Preferred Stock, Series A Chicago Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of voting stock held by non-affiliates of the registrant as of January 31, 1997 was approximately $39.2 billion (based on closing sale price of $68.375 per share as reported for the New York Stock Exchange--Composite Transactions). The number of shares of the registrant's Common Stock, $3 par value per share, outstanding as of January 31, 1997 was 593,866,999. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT LOCATION IN FORM 10-K -------- ----------------------- Portions of Registrant's Proxy Statement for 1997 Parts I, II, III and IV Annual Meeting of Stockholders Including Management's Discussion and Analysis and Consolidated Financial Statements
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1: BUSINESS (a) General development of business. Motorola, Inc. is a corporation organized under the laws of the State of Delaware as the successor to an Illinois corporation organized in 1928. Motorola's principal executive offices are located at 1303 East Algonquin Road, Schaumburg, Illinois 60196 (telephone number: 847-576-5000). Motorola, Inc., one of the world's leading providers of electronic equipment, systems, components and services for worldwide markets, is engaged in the design, manufacture and sale, principally under the Motorola brand, of a diversified line of such products. These products include two-way land mobile communication systems, paging and wireless data systems, personal communications equipment and systems and other forms of electronic communication systems; subscriber and infrastructure equipment for the telephone market; cellular mobile and portable telephones and systems; semiconductors, including integrated circuits, discrete devices and microprocessor units; information systems products such as modems, multiplexers and network processors; electronic equipment for military and aerospace use; electronic engine controls, and other automotive and industrial electronic equipment; and multifunction computer systems for distributed data processing and office automation applications. Motorola also provides services for paging, cellular telephone, shared mobile radio and wireless data. The term "Motorola" as used hereinafter means Motorola, Inc. or Motorola, Inc. and its subsidiaries, as the context requires. (b) Financial information about industry segments. The response to this section of Item 1 is incorporated by reference to Note 7 of the Notes to the Consolidated Financial Statements contained in the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders. (c) Narrative description of business. GENERAL SYSTEMS PRODUCTS The Cellular Subscriber Sector (formerly the Cellular Subscriber Group) and the Cellular Infrastructure Group design, manufacture, sell, install and service cellular infrastructure and radiotelephone equipment. In addition, the Cellular Subscriber Sector resells cellular line service in the U.S., New Zealand, Germany, France and the U.K. markets. The Network Management Group is a joint venture partner in cellular operating systems in Argentina, Chile, the Dominican Republic, Honduras, Hong Kong, India, Israel, Japan, Jordan, Lithuania, Mexico, Nicaragua, Pakistan, Russia, Thailand, and Uruguay. In addition, the Network Management Group acts as an investor in Iridium(R) gateway companies which operate in North America, Central America, South America and India. The Cellular Infrastructure Group products include electronic exchanges (i.e., telephone switches), base site controllers and radio base stations. Radiotelephone products include mobile, portable, personal and transportable radiotelephones with various options, personal communications equipment and cordless telephones. Products are marketed worldwide through original equipment manufacturers, carriers, distributors, dealers, retailers and, in certain countries, through a direct sales force. Financing of cellular infrastructure equipment is sometimes offered to qualifying customers. Radio frequencies are required to provide cellular services. The allocation of frequencies is regulated in the United States and other countries throughout the world, and limited spectrum space is allocated for cellular services. The growth of the cellular and personal communications industry may be affected if adequate frequencies are not allocated for its use, or alternatively, if new technology is not developed to increase capacity on presently allocated frequencies which may have an effect on the segment's results. 1 The Motorola Computer Group develops, manufactures, sells and services multi-function computer systems and board level products, together with operating systems and system enablers based on the Motorola 68000, 88000 and PowerPC(TM) series microprocessors, including computers compatible with the Mac(R) OS operating system. These products are sold worldwide to a variety of customers, some of whom produce computer products which compete with the Group. The Computer Group's products are marketed to end-users, original equipment manufacturers, value-added resellers and distributors throughout the world. The Motorola Computer Group also markets computer products and peripherals that it does not manufacture. The segments products are subject to constant changes in technology. Consequently, the General Systems Products segment has an extensive research and development program. The General Systems Products segment's backlog amounted to $2.03 billion at December 31, 1996 and $1.47 billion at December 31, 1995. The 1996 backlog is believed to be generally firm, and approximately 94% of that amount is expected to be shipped during 1997. This forward-looking estimate of the firmness of such orders is subject to future events which may cause the percentage of the 1996 backlog actually shipped to change. The segment has several material customers, worldwide, the loss of any one or more of which could have a material impact on the results of the segment. The General Systems Products segment experiences intense competition from numerous competitors in world-wide markets ranging from some of the world's largest companies to small, specialized firms. Competitive factors in the market for the products are price, service, delivery, quality, availability, warranty, product features, company image, time to market and product and system performance. An additional factor for the Cellular Infrastructure Group is vendor financing because customers are looking to equipment vendors as one additional source of funding. An additional factor for the Motorola Computer Group products is the availability of software products to address specific user applications. Participation in a very competitive industry requires a continuing high level of investment in technology. Management believes that, looking forward, Motorola's commitment to research and development programs for improving existing products and developing new products and its utilization of state-of-the-art technology will allow these businesses to remain competitive. Materials used in the segment's operations are generally second-sourced to ensure a continuity of supply. Occasionally, there are shortages of required purchased components. Energy necessary for the segment's operations consists of electricity, natural gas and gasoline, all of which are currently adequate in supply. The segment's factories are highly automated and therefore, dependent upon a steady supply of electrical power. Difficulties in obtaining any of the aforementioned items could affect the segment's results. The Cellular Subscriber Sector carries reasonable product inventories in distribution centers to meet customer delivery requirements. As a general rule, the Cellular Subscriber Sector does not permit customers to return merchandise. The Cellular Infrastructure Group permits customer returns in accordance with specific contract terms, and the Motorola Computer Group permits customers to return products in accordance with practices followed in the computer industry. The Cellular Subscriber Sector has offered extended payment terms when necessary to meet competitive offerings. In the Cellular Infrastructure Group, payment terms are particular to individual contracts, a majority of which provide for the hold back of certain residual payments until system acceptance by the customer. For qualifying customers, the Cellular Infrastructure Group finances equipment purchases under various arrangements. Credit terms offered by the Motorola Computer Group normally are in accordance with practices followed in the computer industry. Occasionally, the Motorola Computer Group uses installment sale agreements and leases which are sold to a Motorola finance subsidiary. Patent protection is very important to the cellular business. Reference is made to the material under the heading "General" for information relating to patents and trademarks and seasonality of business with respect to this industry segment. The segment's headquarters are located in Schaumburg, Illinois. The segment operates manufacturing facilities in Tempe, Arizona; Arlington Heights, Grayslake, Harvard, Libertyville and McHenry, Illinois; Ft. 2 Worth, Texas; Swindon, England; Easter Inch, Scotland; Flensburg, Germany; Arad, Israel; Tianjin, China and Campinas, Brazil. The segment also has joint venture manufacturing operations in Austria and China. SEMICONDUCTOR PRODUCTS Semiconductors control and amplify electrical signals and are used in a broad range of electronic products, including consumer electronic products, computers, communications equipment, solid-state ignition systems and other automotive electronic products, major home appliances, industrial controls, robotics, aircraft, missiles, space vehicles, calculators and automatic controls. The semiconductor products manufactured by Motorola's Semiconductor Products segment include integrated circuit devices (metal-oxide semiconductor and bipolar) such as high-performance microprocessors, microcontrollers and peripherals; digital signal processors; dynamic and fast/application-specific static random access memories; custom and proprietary bipolar and MOS digital- analog components; emitter-coupled logic; programmable logic devices; deep submicron CMOS gate array, cell-based and customizable standard products; rectifiers; zener and tuning diodes; power and small signal transistors; RF and microwave devices, thyristors, optoelectronics and sensors. The segment sells its products worldwide to original equipment manufacturers through its own sales force. Products also are sold through a network of industrial distributors in the United States. Sales outside the United States are made through the segment's own sales staff and through independent distributors. Products manufactured by the segment are also supplied to other operating units of Motorola. Other businesses of Motorola collectively constitute the segment's largest customer, and the loss of, or significant reduction of purchases by them has and could continue to affect the segment's results. Customers are allowed to return merchandise for the period the longer of, (i) the product warranty period of the distributor or (ii) three years. The segment and its results are affected by the cyclical nature of the semiconductor industry. Available capacity, cyclical customer demands, new product introduction and aggressive pricing has and could continue to impact its business and results. The segment experienced underutilization of certain of its facilities producing products with reduced market demand. The segment's capacity for certain other products is being increased to meet current market demand. In addition the segment supplements its internal manufacturing capacity with joint venture manufacturing facilities and purchases of products from outside vendors. The semiconductor industry is subject to rapid changes in technology, and requires a high level of capital spending and an extensive research, development and design program to maintain state-of-the-art technology. Accordingly, the segment maintains an extensive research and development program in advanced semiconductor technology. The segment's backlog amounted to $2.32 billion at December 31, 1996 and $3.25 billion at December 31, 1995. In addition to a decline due to general market conditions in 1996, the backlog declined by a significant amount due to changes in booking procedures implemented throughout 1996. An increasing number of the segment's customers are converting to schedule sharing, Just-In- Time warehouses, and inventory minimum-maximum stocking versus the traditional "order." This causes backlog to decrease, as low as zero in some instances, while the actual level of demand may stay the same or increase. The Semiconductor Products segment experiences intense competition from numerous competitors ranging from large companies offering a full range of products to small companies specializing in certain segments of the market. The competitive environment also is changing as a result of increased alliances between competitors. The segment competes in many markets, including the telecommunications, personal computer/work station, industrial, automotive, consumer, computer, government and distributor markets. In 1996, the segment exited its military business. Due to the multitude of competitors, price, service, technology, warranty, availability, time to market, product features, company image and product quality are important factors in competition. The ability to 3 develop new products to meet customer requirements and to meet customer delivery schedules also are competitive factors. Management believes, looking forward, that Motorola's commitment to research and development of new products combined with utilization of state-of-the-art technology should allow the segment to remain competitive. The segment is not currently experiencing any shortages in obtaining raw materials. A significant portion of certain materials and parts used by the segment is supplied from a single country. With respect to other materials, the segment is seeking additional sources of supply to minimize the risk of obtaining materials from only a few sources. Electricity, oil and natural gas are used extensively in the segment's operations. All of these energy sources are available in adequate quantities for current needs. Electricity and oil are the primary energy sources for the segment's foreign operations, and presently, there are no shortages of these sources although the reliability of electrical power has been a problem from time to time. Difficulties in obtaining any of the aforementioned items could affect the segment's results. Reference is made to the material under the heading "General" for information relating to patents and trademarks and seasonality of business with respect to this industry segment. The Semiconductor Products segment's headquarters are in Phoenix, Arizona. Its manufacturing facilities are located in Chandler, Mesa, Phoenix and Tempe, Arizona; Irvine, California; Research Triangle Park, North Carolina; Austin, Texas; Tianjin, China; Toulouse, France; Munich, Germany; Kwai Chung and Tai Po, Hong Kong; Aizu and Sendai, Japan; Seoul, Korea; Geneva, Switzerland; Tel Aviv, Israel; Kuala Lumpur and Seremban, Malaysia; Guadalajara, Mexico; Carmona and Manila, the Philippines; Singapore; Chung-Li, Taiwan; and East Kilbride and South Queensferry, Scotland. LAND MOBILE PRODUCTS The Land Mobile Products Sector ("LMPS") designs, manufactures and sells analog and digital two-way voice and data products and systems for a variety of worldwide applications. As a principal supplier of mobile and portable FM two-way radio products and systems, LMPS provides equipment and systems to meet the communications needs of individuals and many different types of business, institutional and governmental organizations. Products of LMPS provide voice and data communications between vehicles, persons and base stations. Also, LMPS provides network services for two-way radio subscribers in international markets through joint ventures. The principal customers for two-way radio products and systems include public safety agencies, such as police, fire, highway maintenance departments and forestry services; petroleum companies; gas, electric and water utilities; telephone companies; diverse industrial companies; mining companies; transportation companies such as railroads, airlines, taxicab operations and trucking firms; institutions, such as schools and hospitals; and companies in the construction, vending machine and service businesses. Also, there is an emerging consumer two-way radio market using the products for personal and family communication needs. These products also are sold and leased to various federal agencies for many uses. In addition to the federal government, a material part of the business of LMPS is dependent on one external customer, the loss of either of which could have a material effect on the segment's business. Users of two-way radios are regulated by a variety of governmental and other regulatory agencies throughout the world. In the United States, users of two- way radios are licensed by the Federal Communications Commission ("FCC") which has broad authority to make rules and regulations and prescribe restrictions and conditions to carry out the provisions of the Communications Act of 1934. The FCC has authorized two services and specific channels for consumer applications; the General Mobile Radio Service requires a license for consumers while the Family Radio Service does not require a license. The FCC's authority includes, among other things, the power to classify radio stations, prescribe the nature of the service to be rendered by each class of station, assign frequencies to the various classes of stations and regulate the kinds of equipment which may be 4 used. Regulatory agencies in other countries have similar types of authority. Motorola has developed products using trunking and data communications technologies to enhance spectral efficiencies. The growth and results of the two-way radio communications industry and the results of the segment may be materially affected by the rules and regulations adopted by regulatory agencies, if adequate frequencies are not allocated for its use, or, if new technology is not developed to increase capacity on presently allocated frequencies. LMPS also manufactures and sells signaling and control systems and communication control centers used in two-way radio operations. This segment carries on an extensive product development program. Its products make substantial use of solid-state semiconductor components, including integrated circuits. The products manufactured and marketed by LMPS are sold directly through its own distribution force, or through independent authorized distributors and dealers and retailers, network service providers and independent commission sales representatives. Leasing and conditional sale arrangements are also made available to customers. The direct distribution force also provides systems engineering and technical services to meet the customer's particular needs. The customer may choose to install and maintain the equipment with its own employees, or may obtain installation, service and parts from a network of Motorola authorized service stations (most of whom are also authorized dealers) or from other non-Motorola service stations. Some of the leases and conditional sale contracts entered into by LMPS are sold to several unaffiliated finance companies and banks on terms which, in some instances, provide recourse to Motorola with certain limitations. Some leases and conditional sale contracts are sold to a Motorola finance subsidiary. Subscriber units are sold directly and through indirect distribution channels. In certain circumstances, the segment permits customers to return products in accordance with industry practices. This segment's backlog amounted to $1.18 billion at December 31, 1996 and $1.18 billion at December 31, 1995. The 1996 backlog amount is believed to be generally firm, and approximately 91% of that amount is expected to be shipped during 1997. This forward-looking estimate of the firmness of such orders is subject to future events which may cause the percentage of the 1996 backlog actually shipped to change. This segment experiences widespread, intense competition from numerous competitors ranging from some of the world's largest, diversified companies to foreign state-owned telecommunications companies to many small, specialized firms. The principal manufacturing operations of many competitors are located outside of the United States. Competitive factors for LMPS include price, performance, quality, delivery, service, warranty, technology, product features and performance, time to market, and availability of systems engineering, with no one factor being dominant. An additional factor is vendor financing because customers are looking to equipment vendors as one additional source of funding. Management believes, looking forward, that Motorola's commitment to research and development programs for improving existing products and developing new products and its utilization of state-of-the-art technology should allow this segment to remain competitive. Availability of materials and components required by this segment is relatively dependable and certain, but normal fluctuations in market demand and supply could cause temporary, selective shortages and affect results. LMPS operates certain offshore subassembly plants, the loss of one or more of which could constrain its production capabilities and affect results. Natural gas, electricity and, to a lesser extent, oil, are the primary sources of energy. Current supplies of these forms of energy are considered to be adequate for this segment's United States and foreign operations. However, difficulties in obtaining any of the aforementioned items could affect the segment's results. LMPS provides custom products based on assembling basic units into a large variety of models or combinations. This requires stocking of inventories and large varieties of piece parts as well as a variety of basic level assemblies to meet short delivery requirements. Patent protection is very important to the segment's business. Reference is made to the material under the heading "General" for information relating to patents and trademarks with respect to this segment. 5 This segment's headquarters are located in Schaumburg, Illinois, with major manufacturing facilities in Schaumburg, Illinois; Plantation, Florida; Mount Pleasant, Iowa; Swords, Ireland; Arad, Israel; and Penang, Malaysia. MESSAGING, INFORMATION AND MEDIA PRODUCTS Motorola's Messaging, Information and Media Sector ("MIMS") manufactures, distributes and sells paging subscriber, paging infrastructure, and related products such as paging software and accessories. MIMS also provides network services for paging and wireless data and gateway communication subscribers through wholly-owned and operated businesses as well as domestic and international joint ventures. It also manufactures and sells modems, analog and digital transmission devices and other data communication devices. In addition MIMS manufactures equipment that enable voice, video and high-speed data communications over cable networks. It also offers handwriting and speech recognition software for various applications. MIMS provides equipment and systems to meet the communication needs of many different types of business, institutional and governmental organizations. Also, there is a growing base of paging and modem customers using the products for personal and family communication needs. A majority of the Sector's manufacturing, distribution and sales occurs outside of the United States. Radio frequencies are required to provide paging and wireless data information services. The allocation of frequencies is regulated in the United States and other countries throughout the world, and limited spectrum space is allocated for these services. The growth of the paging and wireless data information industry and this segment's results could be affected if adequate frequencies are not allocated for its use, or alternatively, if new technology is not developed to increase capacity on presently allocated frequencies. The segment's backlog amounted to $775 million at December 31, 1996 and $926 million at December 31, 1995. The 1996 backlog is believed to be generally firm, and approximately 100% of that amount is expected to be shipped during 1997. This forward-looking estimate of the firmness of such orders is subject to future events which may cause the percentage of the 1996 backlog actually shipped to change. Several large paging carriers represent a material part of the business of the MIMS segment, the loss of one or more of which could have a material adverse effect on the results of the MIMS segment. MIMS products are sold through both domestic and international sales organizations which sell through direct and indirect channels such as distributors, retailers and value-added resellers. This segment carries on an extensive product development program. Its products make substantial use of solid-state semiconductor components, including integrated circuits. This segment experiences widespread, intense competition from numerous competitors ranging from some of the world's largest, diversified companies to foreign state-owned telecommunications companies to many small, specialized firms. The principal manufacturing operations of many competitors are located outside of the United States. Competitive factors for MIMS include, but are not limited to, price, quality, time-to-market, technology, company image, service, warranty, product features and availability. Materials and components required by this segment are relatively dependable and certain, but normal fluctuations in market demand and supply could cause temporary, selective shortages. Occasionally, shortages or extended delivery periods have occurred in various component parts, the effects of which have generally been industry-wide and short in duration. Natural gas, electricity and oil are the primary sources of energy. These types of energy are currently readily available, but difficulties in obtaining any of the aforementioned items could affect the segment's results. Patent protection is very important to the segment's business. Reference is made to the material under the heading "General" for information relating to patents and trademarks and seasonality with respect to this segment. 6 This segment's headquarters are located in Schaumburg, Illinois, with manufacturing facilities in Lake Zurich, Illinois; Boynton Beach, Florida; Ft. Worth, Texas; Mansfield, Massachusetts; Huntsville, Alabama; Singapore; Tianjin, China; Vega Baja, Puerto Rico; and Dublin, Ireland; additionally, software development and administration offices are located in Alpharetta, Georgia and Palo Alto, California. OTHER PRODUCTS AUTOMOTIVE, ENERGY AND COMPONENTS SECTOR The Automotive, Energy and Components Sector (formerly the Automotive Energy and Controls Group) manufactures and sells products in three major categories: automotive and industrial electronics; energy storage products and systems; and ceramic and quartz electronic components. The Sector also includes operations which manufacture electronic ballasts for fluorescent lighting, radio frequency identification devices and printed circuit boards. The Sector established a Flat Panel Display Division to develop the next generation of flat panel displays. The Sector is involved in several joint ventures. The Sector sells its automotive and industrial electronics products to original equipment manufacturers, including foreign and domestic automobile manufacturers, heavy vehicle manufacturers, farm equipment manufacturers and industrial customers. The energy storage products business and the ceramic and quartz products business sell primarily to other industry segments within Motorola, principally the Land Mobile Products, Messaging, Information and Media Products and General Systems Products segments. A large part of the Sector's business is dependent upon the business of these other Motorola industry segments, collectively and two other external customers. The loss of any of these three customers could have a material adverse effect on the business of the Sector. Demand for products is linked to automobile sales in the United States and other countries where the Sector sells its products. The Sector experiences competition from numerous global competitors including automobile manufacturers. Competitive factors in the sale of all of the Sector's products include price, product quality and performance, supply integrity, quality reputation, experience, responsiveness and design and manufacturing technology. The Sector's backlog amounted to $259 million at December 31, 1996 and $257 million at December 31, 1995. The 1996 backlog is believed to be generally firm, and approximately 100% of that amount is expected to be shipped during 1997. This forward-looking estimate of the firmness of such orders is subject to future events which may cause the percentage of the 1996 backlog actually shipped to change. All materials used by the Sector have good availability at this time. The Sector uses electricity and gas in its operations, which are currently adequate in supply. However, difficulties in obtaining any of the aforementioned items could affect the Sector's results. Reference is made to the material under the heading "General" for information relating to patents and trademarks with respect to this Sector. The Sector's headquarters is located in Northbrook, Illinois. It has manufacturing operations located in Scottsdale and Tempe, Arizona; San Jose, California; Atlanta, Georgia; Northbrook, Buffalo Grove, Schaumburg and Vernon Hills, Illinois; Albuquerque, New Mexico; Elma, New York; Carlisle, Pennsylvania; Seguin, Texas; Angers, France; Stotfold, England; Singapore; Tianjin, China; Chung-Li, Taiwan; Penang, Malaysia; Dublin, Ireland; and San Jose, Costa Rica. SPACE AND SYSTEMS TECHNOLOGY GROUP The Space and Systems Technology Group, formerly called the Government and Space Technology Group, is engaged in the design, development and production of electronic systems and products, and it competes for a variety of United States Government projects and commercial business. The Group has diversified its activities 7 by applying its core technologies to commercial opportunities. The Group provides electronic and communications equipment products that have various applications based upon customer requirements of the Group's three business segments: government, commercial and satellite communications. The government business segment, known as the Government Electronics Division and Government Systems Operations, primarily performs research, development and production work under contracts with governmental agencies, but also conducts independent research and development programs. The government business segment produces diversified military electronic equipment, including military communications equipment, radar systems, data links, display systems, positioning and navigation systems, missile guidance equipment, electronic ordnance devices and drone electronic systems. The government business segment has been predominantly dependent upon the United States Government as its main customer, acting as either a prime contractor or a subcontractor to other prime contractors. The total loss of all of this business could have a material adverse effect on the Group's results. Contracts are secured from United States Government agencies and their suppliers by negotiation and competitive bidding. Competition has increased substantially in all aspects of the government business due to a smaller defense budget and consolidations in the industry. Competitors include large and small technically competent firms. Some competitors from whom the segment procured subcontract work in the past are becoming more vertically integrated and are performing the work previously subcontracted. This Group currently looking forward expects to continue to meet competition on the basis of price and quality of product performance. The Group's Satellite Communications Group (SCG) is developing the IRIDIUM(R) satellite-based communication system. The IRIDIUM(R) system is a space-based wireless communications system that is being designed to provide global digital service to hand-held telephones and related equipment. The IRIDIUM(R) system involves four components: (1) a constellation of low earth orbit satellites, (2) centralized system control centers, (3) approximately ten gateways located throughout the world; and (4) individual subscriber units for voice, data, facsimile and paging. SCG is the prime contractor under contracts with Iridium LLC to provide and launch the satellites, construct the centralized system control centers and gateways; maintain the performance of the constellation and provide certain computer systems and software for the system. During the last four years, these contracts have become a significant portion of the Group's business and are expected to remain a major contributor to the Group's sales for the next several years. Iridium LLC's failure to make payments under these contracts or the loss of these contracts could have a material adverse effect on the Group's and Motorola's results. SCG has entered into significant subcontracts for portions of the system for which it will generally remain obligated even if Iridium LLC is unable to satisfy the terms of its contracts with SCG, including funding. In addition, Motorola has guaranteed $750 million of Iridium LLC's bank financing which could be affected by Iridium LLC's failure to make such payments. SCG also performs research, development, design and manufacturing services for space-based equipment for government customers. Total sales for the Group include sales made to a number of free world governments and corporations. Products of the Group are marketed outside the United States by a few distributors, by independent representatives and by the Group's own sales force. In 1996, a small percentage (approximately 5%) of the Group's business was conducted internationally, primarily through the government business segment. These sales generally relate to the development and deployment of defense, security and commercial air traffic management systems with Canada and selected countries, concentrated in the Asia-Pacific region. The Group's backlog amounted to $1.02 billion at December 31, 1996 and $906 million at December 31, 1995. The 1996 backlog is believed to be generally firm and 72% of that amount is expected to be shipped during 1997. These shipments could be significantly impacted to the extent that additional funding is not received by Iridium LLC. All contracts with the United States Government are subject to cancellation at the convenience of the Government, and the contracts with Iridium LLC may be terminated by Iridium LLC pursuant to the terms set forth in the contracts. The forward-looking estimate of the firmness of the 1996 backlog as discussed above is subject to future events which may cause the percentage of the 1996 backlog actually shipped to change. 8 Bookings during 1996 for the Iridium LLC space system contract were delayed because Iridium LLC needed to obtain additional funding required to continue to make contractual payments to Motorola. Iridium LLC is negotiating to obtain additional funding during 1997. If such financing is obtained the orders not booked related to the space system contract are expected to be booked. There can be no assurance that Iridium LLC will obtain the additional financing. Materials used by the Group in its operations are generally available. Natural gas and electricity are the principal types of energy used, and availability of both to the Group is currently more than adequate. Difficulties in obtaining any of the aforementioned items could affect the Group's results. Patents continue to become more important as competition increases in a declining U.S. Government market and as the Group expands commercial opportunities. Also reference is made to the material under the heading "General" for information relating to patents and trademarks. The Group has its headquarters in Scottsdale, Arizona, with manufacturing facilities in Scottsdale and Chandler, Arizona. GENERAL Customers. Motorola is not dependent for a material part of its overall business upon a single or a very few customers. Approximately 2.9% of Motorola's total sales and revenues in 1996 were received from various branches and agencies, including the armed services, of the United States Government. All contracts with the United States Government are subject to cancellation at the convenience of the Government. Government contractors, including Motorola, are routinely subjected to numerous audits and investigations, which may be either civil or criminal in nature. The consequences of these audits and investigations may include administrative action to suspend business dealings with the contractor and to exclude it from receiving new business. In addition, Motorola, like other contractors, is internally reviewing aspects of its government contracting operations, and, where appropriate, taking corrective actions and making voluntary disclosures to the Government. From time to time, these audits and investigations may adversely affect Motorola and its results. Backlog. Motorola's aggregate backlog position, including the backlog position of subsidiaries through which some of its business units operate, as of the end of the last two fiscal years, was approximately as follows: December 31, 1996........................................... $7.59 billion December 31, 1995........................................... $7.99 billion
The orders supporting the 1996 backlog amounts shown in the foregoing table are believed to be generally firm, and approximately 99% of orders on hand at December 31, 1996 are expected to be shipped during 1997. However, this is a forward-looking estimate of the amount expected to be shipped, and future events may cause the percentage actually shipped to change. The Semiconductor Products segment's backlog position has declined due to various factors described in Item 1(c). This decline affected Motorola's overall backlog position in 1996. Motorola uses the percentage-of-completion method to recognize revenues and costs associated with most long-term contracts. For contracts involving certain technologies, revenues and profits, or parts thereof, are deferred until technological feasibility is established and customer acceptance is obtained. For other product sales, revenue is recognized at the time of shipment, and reserves are established for price protection and cooperative marketing programs with distributors. Research and Development. Throughout its history, Motorola has relied, and continues to rely, primarily on its research and development programs for the development of new products and its production engineering 9 capabilities for the improvement of existing products. Technical data and product application ideas are exchanged among Motorola's industry segments on a regular basis. Research and development expenditures relating to new product development or product improvement, other than customer-sponsored contracts, were approximately $2,394 million in 1996, $2,197 million in 1995 and $1,860 million in 1994. In addition, research funded under customer-sponsored contracts amounted to approximately $758 million in 1996, $546 million in 1995 and $601 million in 1994. Approximately 15,800 professional employees were engaged in such research activities (including customer-sponsored contracts) during 1996. Patents and Trademarks. Motorola owns 8,420 patents in the United States and 8,298 in foreign countries. These foreign patents are counterparts of Motorola's United States patents. During 1996, Motorola was granted 1,225 United States patents. Many of the patents owned by Motorola are used in its operations or licensed for use by others, and Motorola is licensed to use certain patents owned by others. In some instances, certain of the patents licensed by Motorola to others have generated significant amounts of revenue to Motorola. Motorola considers its trademark "MOTOROLA" and the "M" symbol to be valuable assets. These are protected through trademark registrations. Other trademarks of Motorola are protected and registered in the relevant markets, but are used only on limited product lines. Environmental Quality. Motorola operations are from time to time the subjects of investigations, conferences, discussions and negotiations with various federal, state and local environmental agencies with respect to the discharge or cleanup of hazardous waste and compliance by those operations with environmental laws and regulations. The balance of the response to this section of Item 1 is incorporated by reference to Note 6 of the Notes to the Consolidated Financial Statements under the caption "Environmental and Legal" and the information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Environmental Matters" contained in the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders. Miscellaneous. At December 31, 1996, there were approximately 139,000 employees of Motorola and its subsidiaries. The business of Motorola and its industry segments is taking on certain seasonal characteristics: the Semiconductor Products segment has tended to have stronger, seasonally- adjusted sales in the first half of the year; and sales of products, such as cellular telephones and pagers, in consumer markets tend to increase in the fourth quarter. An increase or decrease in large system orders in the Cellular Infrastructure Group and the Land Mobile Products segment could cause the volatility of orders, revenues and profits recognized in any particular period. Business Risk Factors. Except for historical matters, the matters discussed in this Form 10-K are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements under the following headings; (i) "General Systems Products," about the allocation of frequencies, development of technologies, expected shipments during 1997, the loss of material customers and competitiveness through research and development and technology; (ii) "Semiconductor Products," about the loss of or reduction in purchases by customers, capacity, cyclical customer demands, new product introductions and aggressive pricing, expected shipments during 1997, competitiveness through research and development and technology and sources of supplies; (iii) "Land Mobile Products," about the loss of material customers, the allocation and regulations of frequencies, expected shipments during 1997, competitiveness through research and development and technology and the availability of supplies; (iv) "Messaging, Information and Media Products," about the allocation of frequencies, development of technologies, the loss of material customers and expected shipments during 1997; (v) "Automotive, Energy and Components Sector," about the loss of material 10 customers, expected shipments during 1997 and the availability of supplies; (vi) "Space and Systems Technology Group," about the loss of material customers, competitiveness, the impact of Motorola's investment in Iridium LLC, expected shipments during 1997 and the availability of supplies; and (vii) "General," about expected shipments during 1997, seasonality, large system orders, and the growth from products. Motorola wishes to caution readers that in addition to the important factors described elsewhere in this Form 10-K, the following important factors, among others, sometimes have affected, and in the future could affect, Motorola's actual results and could cause Motorola's actual consolidated results during 1997, and beyond, to differ materially from those expressed in any forward looking statements made by, or on behalf of, Motorola: . Motorola's actions in connection with continued and increasing price and product competition in many product areas, including, but not limited to semiconductor products, cellular subscriber products and modems; deficiencies in certain product segments, particularly cellular telephones and modems; . Difficulties or delays in the development, production, testing and marketing of products, including, but not limited to, a failure to ship new products and technologies when anticipated, including, but not limited to, two-way and voice paging, Code Division Multiple Access (CDMA) for cellular and Personal Communication Systems (PCS), wireless local loop, telephony and high-speed data for cable and integrated dispatch radio, the failure of customers to accept these products or technologies when planned, any defects in products and a failure of manufacturing economies to develop when planned; . Risk related to the loss of material customers of one or more of Motorola's businesses, including the unexpected loss of sales and market perception, particularly because of the trend towards increasingly large system contracts for the Cellular Infrastructure Group and the Land Mobile Products Sector. . The ability of the semiconductor industry to sustain a rebound and the ability of Motorola's semiconductor business to capitalize on that rebound and compete in the highly competitive semiconductor business. Factors that could affect Motorola's ability to compete are production inefficiencies and higher costs related to underutilized facilities, both wholly-owned and joint venture facilities; shortage of manufacturing capacity; start-up expenses, inefficiencies and delays and increased depreciation costs in connection with the capital investments in 1997 for facilities in Korea, China, Arizona and Texas; competitive factors, such as rival chip architectures, mix of products, acceptance of new products and price pressures; risk of inventory obsolescence due to shifts in market demand; and the effect of lower orders from Motorola's other businesses such as the Cellular Subscriber Sector and the Automotive, Energy and Components Sector; . The risks related to the Iridium(R) project including: the ability of investors to timely obtain licenses and sign agreements for, and to market, the service, to timely receive and, as appropriate, operate and sell telecommunications equipment and to otherwise timely finance and operate a successful telecommunications business; the successful and timely orbiting of the project's low-earth orbit satellites and the successful and timely operation of such satellites and related ground equipment; the ability of Iridium LLC to raise the significant funds it needs during at least the next few years to continue to make contractual payments to Motorola and to make debt payments and otherwise operate, including raising needed funds in early 1997; the outcome of Motorola's and Iridium's negotiations to increase Iridium LLC's bank financing and Motorola's guarantee; the risks associated with the large Iridium systems contracts and the financial risk to Motorola under those contracts, including the difficulty in projecting costs associated with those contracts; the market acceptance (both on its own and when compared to possible competitors) of what is expected to be the first worldwide global satellite-based communications service and of the related equipment; and the significant technological and other risks associated with the development and commercial operation of the project, including any software and support systems-related risks; . The effects of, and changes in, laws and regulations, other activities of governments, agencies and similar organizations, including, but not limited to, those affecting frequency, use and availability of spectrum authorizations and licensing; and 11 . The costs and other effects of legal and administrative cases and proceedings (whether civil, such as environmental and product-related, or criminal), settlements and investigations, claims, and changes in those items, and developments or assertions by or against Motorola relating to intellectual property rights and intellectual property licenses. Certain portions of Motorola's Proxy Statement for the 1997 annual meeting of stockholders with Management's Discussion and Analysis and Consolidated Financial Statement are incorporated by reference into this Form 10-K. There are additional important factors included therein, including those beginning on page F-8 of the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders, that sometimes have affected, and in the future could affect, Motorola's actual results and could cause Motorola's actual consolidated results during 1997, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Motorola. (d) Financial information about foreign and domestic operations and export sales. Domestic export sales to third parties were $3.74 billion in 1996, $3.59 billion in 1995 and $2.97 billion in 1994. Domestic export sales to affiliates were $6.31 billion in 1996, $6.64 billion in 1995 and $4.40 billion in 1994. The remainder of the response to this section of Item 1 is incorporated by reference to Note 7 of the Notes to the Consolidated Financial Statements and the "1996 Compared With 1995" and "1995 Compared With 1994" sections of Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders. IRIDIUM(R) is a registered trademark and service mark of Iridium LLC. ITEM 2: PROPERTIES Motorola's principal executive offices are located at 1303 East Algonquin Road, Schaumburg, Illinois 60196. Its other major facilities in the United States are located in Arlington Heights, Buffalo Grove, Grayslake, Harvard, Lake Zurich, Libertyville, Northbrook, Schaumburg and Vernon Hills, Illinois; Elma, New York; Phoenix, Chandler, Scottsdale, Mesa and Tempe, Arizona; Boynton Beach and Plantation, Florida; Atlanta, Georgia; Austin, Ft. Worth and Seguin, Texas; Mount Pleasant, Iowa; Mansfield, Massachusetts; Huntsville, Alabama; Research Triangle Park, North Carolina; Albuquerque, New Mexico; Carlisle, Pennsylvania; and Irvine and San Jose, California. Motorola also operates manufacturing facilities or sales offices in 39 other countries. (See "Narrative Description of Business" for information regarding the location of the principal manufacturing facilities for each industry segment.) Motorola owns 129 facilities (manufacturing, sales, service and office, 73 of which are located in the United States and 56 of which are located in other countries. Motorola leases 505 such facilities, 305 of which are located in the United States and 200 of which are located in other countries. Motorola generally considers the productive capacity of the plants operated by each of its industry segments adequate and suitable for the requirements of each of such segments. New semiconductor product manufacturing facilities in Korea, China, Arizona and Texas are under construction and a new facility for Cellular handsets is under construction in Jaguariuna, Brazil. The extent of utilization of such manufacturing facilities varies from plant to plant and from time to time during the year. ITEM 3: LEGAL PROCEEDINGS Motorola is a named defendant in seven cases arising out of alleged groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona. On January 29, 1997, plaintiffs dismissed their appeal in Camelhead Equities et al. v. Motorola et al., a suit filed on June 1, 1993, for business losses by four failed real estate development limited partnerships alleging that groundwater contamination caused property damage and the failure of their real 12 estate development, and this matter is concluded. McIntire et al. v. Motorola, and Farr v. Motorola are pending in the U.S. District Court for the District of Arizona. Baker et al. v. Motorola et al., Lofgren et al. v. Motorola et al., Bentancourt et al. v. Motorola et al., Ford et al. v. Motorola et al. and Wilkins et al. v. Motorola et al. are pending in the Arizona Superior Court, Maricopa County. The McIntire lawsuit, filed on December 20, 1991, involves approximately 925 plaintiffs (325 personal injury, 125 property damage, and 475 personal injury and property damage) who allege that the operations of Motorola at several facilities in Phoenix and Scottsdale, Arizona have caused property damage and health problems by contaminating the soil, groundwater and air in the area surrounding those facilities. Farr is a personal injury and wrongful death case, filed on November 17, 1995, based on like allegations of environmental contamination. The Baker lawsuit, filed on February 11, 1992, is a class action, involving six representative individual named plaintiffs, alleging that Motorola and 28 other defendants contaminated the soil, air and groundwater in the Phoenix/Scottsdale area, diminishing property values and exposing members of the class to possible adverse health effects. On August 24, 1994, the Baker court certified two classes, a property damage class consisting of all persons who were residents, property owners or lessees of property which overlies, or is adjacent to, the alleged groundwater pollution, and a medical monitoring class consisting of all persons who resided in Phoenix and/or Scottsdale for more than one year continuously during the years between 1955 and 1989, and who received potable drinking water containing trichloroethylene at a level equal to or exceeding 2.0 parts per billion, on average. The Lofgren, Bentancourt, Ford and Wilkins lawsuits, filed on April 6, 1993, July 16, 1993, June 10, 1994 and July 19, 1995, respectively, have been consolidated. The consolidated cases involve more than 200 plaintiffs, alleging that Motorola and about 30 other defendants contaminated the soil, air and groundwater in the Phoenix/Scottsdale area, causing health problems. All seven lawsuits seek compensatory and punitive damages. The McIntire complaint includes personal injury and property damage claims and seeks injunctive relief. The Baker complaint seeks damages for medical monitoring and alleges claims for property, business and economic loss and seeks declaratory and injunctive relief. Motorola and several of its directors and officers are named defendants in a consolidated alleged class action for alleged violations of Section 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5, Kaufman, et al. v. Motorola, Inc. et al., which was filed on May 19, 1995 and is pending in the U.S. District Court for the Northern District of Illinois. Plaintiffs maintain that Motorola and the individual defendants inflated the price of Motorola stock by failing to timely disclose a buildup of cellular phone inventory with its distributors. Plaintiffs propose a class period of November 4, 1994 through February 17, 1995, and seek an unspecified amount of damages. A class action, In Re Nextel Communications Securities Litigation, against Nextel Communications, Inc., certain of its officers and directors and Motorola for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, is pending in the United States District Court for the District of New Jersey. The pending complaint, a consolidation of cases previously filed against Nextel, was filed on July 11, 1995 and maintains that the defendants artificially inflated the price of Nextel common stock through a series of alleged misrepresentations and omissions. Plaintiffs propose a class period of July 22, 1993 through January 10, 1995 and seek an unspecified amount of monetary damages. Motorola is a defendant in several cases arising out of Motorola's manufacture and sale of portable cellular telephones. In Verb, et al. v. Motorola, Inc., et al., a purported economic loss class action by purchasers of portable cellular phones against Motorola and seven other corporate defendants filed on February 1, 1993, the Illinois Appellate Court in 1996 affirmed the Cook County, Illinois Circuit Court's dismissal of the case; plaintiffs have petitioned for leave to appeal to the Illinois Supreme Court. Schiffner v. Motorola, Inc., filed on March 3, 1995 in the Circuit Court of Cook County, Illinois, is another economic loss purported class action by purchasers of portable cellular phones. Jerald P. Busse, et al. v. Motorola, Inc. et al., filed on October 26, 1995 in the Circuit Court of Cook County, Illinois, Chancery Division, is a purported class action alleging that defendants have failed to adequately warn consumers of the alleged dangers of cellular telephones and challenging ongoing safety studies. 13 Crist v. Motorola, Inc. et al., filed on August 20, 1993 in the Circuit Court of Cook County, Illinois, Ward v. Motorola, Inc., et al., filed on October 4, 1994 in the State Court of Fulton County, Georgia, Wright v. Motorola, et al., filed on March 2, 1995 in the Circuit Court of Cook County, Illinois, Kane, et al., v. Motorola, Inc., et al., filed on December 13, 1993 in the Circuit Court of Cook County, Illinois, and Rittman, et al. v. Motorola, Inc., et al., 151st District Court of Harris County, Texas, originally filed on August 31, 1995 in Tarrant County, Texas, are cases where individuals allege that brain cancer was caused by or aggravated by the use of a cellular telephone. In Ward, the Georgia Court of Appeals has ruled that summary judgment should be entered on behalf of Motorola and plaintiffs have petitioned for certiorari to the Georgia Supreme Court. The stay entered in the Wright, Kane and Crist cases after the ruling in the Verb case in 1996 has been lifted based on the Illinois Appellate Court decision in the Verb case. Pennsylvania Bancshares, Inc. et al. v. Motorola, Inc., et al., filed on October 10, 1995 in the Court of Common Pleas, Montgomery County, Pennsylvania, is a purported class action wherein it is alleged that Motorola, Inc. systematically engages in deceptive trade practices, including without limitation, intentionally misrepresenting the quality of certain types of cellular telephones. Silber, et. al. v. Motorola, Inc., et al., filed on August 1, 1995 in the Supreme Court of The State of New York, County of Suffolk, which was transferred from the County of New York, is an action wherein it is alleged that a traffic accident was caused by the use of a cellular phone. The information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Environmental Matters" and in Note 6 of the Notes to the Consolidated Financial Statements under the caption "Environmental and Legal" contained in the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders is incorporated herein by reference. Motorola is a defendant in various other suits, claims and investigations which arise in the normal course of business. In the opinion of management, the ultimate disposition of these matters, including those matters described above in this Item 3, will not have a material adverse effect on the consolidated financial position, liquidity or results of operations of Motorola. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT Following are the persons who were the executive officers of Motorola as of December 31, 1996, their ages as of December 31, 1996, their current titles and positions held during the last five years: Gary L. Tooker; age 57; Vice Chairman of the Board and Chief Executive Officer since December 1993; President and Acting Chief Executive Officer from October 1993 to December 1993; and President and Chief Operating Officer from January 1990 to October 1993. On January 1, 1997, Mr. Tooker became Chairman of the Board. Christopher B. Galvin; age 46; President and Chief Operating Officer since December 1993; and Senior Executive Vice President and Assistant Chief Operating Officer from January 1990 to December 1993. On January 1, 1997, Mr. Galvin became Chief Executive Officer. Robert W. Galvin; age 74; Chairman of the Executive Committee of the Board of Directors since January 1990. Keith J. Bane; age 57; Executive Vice President and Chief Corporate Staff Officer since February 1995; Senior Vice President and Chief Corporate Staff Officer from August 1994 to February 1995; Senior Vice President and Motorola Director of Strategy, Technology and External Relations from October 1993 to August 1994; and Senior Vice President and Motorola Director of Strategy from November 1988 to October 1993. 14 Arnold S. Brenner; age 59; Executive Vice President and General Manager, Japan Group since November 1988. Thomas D. George; age 56; Executive Vice President, and President and General Manager, Semiconductor Products Sector since April 1993; Executive Vice President and Assistant General Manager, Semiconductor Products Sector from November 1992 to April 1993; and Senior Vice President and Assistant General Manager, Semiconductor Products Sector from July 1986 to November 1992. Mr. George has announced his planned retirement from Motorola later in 1997. Glenn A. Gienko; age 44; Executive Vice President and Director of Human Resources since May 1996; Senior Vice President and Director of Human Resources from June 1995 to May 1996; Corporate Vice President--Human Resources, General Systems Sector from February 1994 to June 1995; and Vice President--Human Resources, General Systems Sector from June 1990 to February 1994. Merle L. Gilmore; age 48; Executive Vice President, President and General Manager, Land Mobile Products Sector ("LMPS"), since July 1994; Senior Vice President and President and General Manager, LMPS, from June 1994 to July 1994; Senior Vice President and Assistant General Manager, LMPS, from July 1992 to June 1994; and Senior Vice President and General Manger, Worldwide Radio Products Group, LMPS, from May 1991 to July 1992. Robert L. Growney; age 54; Executive Vice President, President and General Manager, Messaging, Information and Media Sector since January 1994; Executive Vice President and General Manager, Paging and Wireless Data Group from September 1992 to January 1994; and Senior Vice President and General Manager, Paging and Telepoint Systems Group from January 1991 to September 1992. On January 1, 1997, Mr. Growney became President and Chief Operating Officer. Carl F. Koenemann; age 58; Executive Vice President and Chief Financial Officer since December 1991. James A. Norling; age 54; Executive Vice President, and President, Motorola Europe, Middle East and Africa since April 1993; and Executive Vice President, and President and General Manager, Semiconductor Products Sector from December 1989 to April 1993. On January 1, 1997, Mr. Norling became President and General Manager, Messaging, Information and Media Sector. Edward F. Staiano; age 60; Executive Vice President, and President and General Manager, General Systems Sector since December 1989. Mr. Staiano retired as of January 1, 1997. Frederick T. Tucker; age 56; Executive Vice President and President and General Manager, Automotive, Energy and Controls Group since September 1992; and Senior Vice President and General Manager, Automotive and Industrial Electronics Group from April 1988 to September 1992. On January 7, 1997, Mr. Tucker became President and General Manager, Automotive and Industrial Components Sector. Richard H. Weise; age 61; Senior Vice President since November 7, 1996; Senior Vice President and Secretary since February 20, 1996 to November 7, 1996; Senior Vice President, General Counsel and Secretary from November 1985 to February 20, 1996. Mr. Weise retired as of January 1, 1997. Richard W. Younts; age 57; Executive Vice President and Corporate Executive Director International-Asia and Americas since December 1993; and Senior Vice President and Corporate Executive Director, International-Asia and Americas from July 1991 to December 1993. The above executive officers, with the exception of Messrs. Staiano and Weise, will serve as officers of Motorola until the regular meeting of the Board of Directors in May 1997 or until their respective successors shall have been elected except as noted above. Christopher B. Galvin is a son of Robert W. Galvin. There is no family relationship between any of the other executive officers listed above. 15 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Motorola's Common Stock is listed on the New York, Chicago, London and Tokyo Stock Exchanges. The remainder of the response to this Item is incorporated by reference to the information under the caption "Quarterly and Other Financial Data" of Motorola's Consolidated Financial Statements contained in the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders. ITEM 6: SELECTED FINANCIAL DATA The response to this Item is incorporated by reference to the information under the caption "Five-Year Financial Summary" of Motorola's Consolidated Financial Statements contained in the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The response to this Item is incorporated by reference to the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item is incorporated by reference to the information under the captions "Management's Responsibility For Financial Statements," "Independent Auditors' Report," "Statements of Consolidated Earnings," "Statements of Consolidated Stockholders' Equity," "Consolidated Balance Sheets," "Statements of Consolidated Cash Flows," "Supplemental Cash Flow Information," "Notes to Consolidated Financial Statements," "Quarterly and Other Financial Data" and "Five Year Financial Summary" of Motorola's Consolidated Financial Statements contained in the attachment to Motorola's Proxy Statement for the 1997 annual meeting of stockholders. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The response to this Item required by Item 401 of Regulation S-K, with respect to directors, is incorporated by reference to the information under the caption "Nominees" on pages 1 through 5 of Motorola's Proxy Statement for the 1997 annual meeting of stockholders and with respect to executive officers, is contained in Part I hereof under the caption "Executive Officers of the Registrant". The response to this Item required by Item 405 of Regulation S-K is incorporated by reference to the information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 16 of Motorola's Proxy Statement for the 1997 annual meeting of stockholders. ITEM 11: EXECUTIVE COMPENSATION The response to this Item is incorporated by reference to the information under the caption "Director Compensation" on pages 6 and 7 of Motorola's Proxy Statement for the 1997 annual meeting of stockholders and "Summary Compensation Table," "Stock Option Grants in 1996," "Aggregated Option Exercises in 1996 and 1996 Year-End Option Values," "Long-Term Incentive Plans--Awards in 1996," "Pension and Supplementary Retirement Plans," and "Termination of Employment and Change in Control Arrangements" on pages 9-11 of Motorola's Proxy Statement for the 1997 annual meeting of stockholders. 16 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this Item is incorporated by reference to the information under the caption "Security Ownership of Management of Motorola" on pages 8 and 9 of Motorola's Proxy Statement for the 1997 annual meeting of stockholders. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this Item is incorporated by reference to the information under the caption "Director Compensation" on page 7 of Motorola's Proxy Statement for the 1997 annual meeting of stockholders. PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements See Part II, Item 8 hereof. 2. Financial Statement Schedule and Auditors' Report
TITLE SCHEDULE ----- -------- Valuation and Qualifying Accounts.................................. II
All schedules omitted are inapplicable or the information required is shown in the Consolidated Financial Statements or notes thereto. The auditors' report of KPMG Peat Marwick LLP with respect to the Financial Statement Schedule is located at page 26. 3. Exhibits Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Exhibit Index attached hereto, which is incorporated herein by this reference. Following is a list of management contracts and compensatory plans and arrangements required to be filed as exhibits to this form by Item 14(c) hereof: Motorola Executive Incentive Plan ("MEIP") Motorola Long Range Incentive Plan of 1994 Share Option Plan of 1982 Share Option Plan of 1991 Share Option Plan of 1996 Motorola Elected Officers Supplementary Retirement Plan Executive Health Plan Accidental Death and Dismemberment Insurance for MEIP Participants Arrangement for Directors' Fees Retirement Plan for Non-Employee Directors Deferred Fee Plan for Outside Directors Officers' Group Life Insurance Policy Consultant Agreement with John F. Mitchell Form of Termination Agreement Policy Protecting Salary and Medical Benefits Insurance Policy for Non-employee Directors Motorola, Inc. Non-Employee Directors' Stock Plan (b)Reports on Form 8-K. Motorola filed no reports on Form 8-K during the last quarter of 1996. (c)Exhibits See Item 14(a)3 above. 17 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Motorola, Inc.: Under date of January 9, 1997, except for note 9, which is as of March 14, 1997, we reported on the consolidated balance sheets of Motorola, Inc. and consolidated subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1997 proxy statement to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in Part IV, Item 14(a)2. The financial statement schedule is the responsibility of Motorola's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP January 9, 1997 Chicago, Illinois 18 SCHEDULE II MOTOROLA, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1996 (IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ---------- --------------------- ---------- ---------- ADDITIONS --------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS & OTHER END OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ---------- ---------- ---------- ---------- ---------- 1996 Allowance for doubtful accounts............. $123 $ 42 -- $ 28(1) $137 Product and service warranties........... $309 $160 -- $155(2) $314 Customer reserves..... $349 $524 -- $488(3) $385 1995 Allowance for doubtful accounts............. $118 $ 45 -- $ 40(1) $123 Product and service warranties........... $283 $122 -- $ 96(2) $309 Customer reserves..... $121 $790 -- $562(3) $349 1994 Allowance for doubtful accounts............. $ 91 $ 48 -- $ 21(1) $118 Product and service warranties........... $166 $195 -- $ 78(2) $283 Customer reserves..... $ 51 $291 -- $221(3) $121
- -------- (1) Uncollectible accounts written off (2) Warranty claims paid (3) Customer claims paid/reductions in reserves 19 CONSENT OF INDEPENDENT AUDITORS The Board of Directors of Motorola, Inc.: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 333-03681, 333-03731 and 333-12817) and Form S-3 (Nos. 33-62911 and 333-11433 ) of Motorola, Inc. and consolidated subsidiaries of our reports dated January 9, 1997, except for note 9, which is as of March 14, 1997, relating to the consolidated balance sheets of Motorola, Inc. and consolidated subsidiaries as of December 31, 1996 and 1995, and the related statements of consolidated earnings, stockholders' equity, and cash flows and related financial statement schedule for each of the years in the three-year period ended December 31, 1996, which reports appear in or are incorporated by reference in the annual report on Form 10-K of Motorola, Inc. for the year ended December 31, 1996. /s/ KPMG Peat Marwick LLP March 19, 1997 Chicago, Illinois 20 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, MOTOROLA, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. MOTOROLA, INC. /s/ Christopher B. Galvin By: _________________________________ Christopher B. Galvin Chief Executive Officer March 14, 1997 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF MOTOROLA, INC. AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Christopher B. Galvin Director and Principal 3/14/97 ____________________________________ Executive Officer Christopher B. Galvin /s/ Carl F. Koenemann Principal Financial Officer 3/3/97 ____________________________________ Carl F. Koenemann /s/ Kenneth J. Johnson Principal Accounting Officer 3/4/97 ____________________________________ Kenneth J. Johnson /s/ H. Laurance Fuller Director 3/4/97 ____________________________________ H. Laurance Fuller /s/ Robert W. Galvin Director 3/14/97 ____________________________________ Robert W. Galvin /s/ Robert L. Growney Director 3/3/97 ____________________________________ Robert L. Growney /s/ Anne P. Jones Director 3/4/97 ____________________________________ Anne P. Jones /s/ Donald R. Jones Director 3/14/97 ____________________________________ Donald R. Jones /s/ Judy C. Lewent Director 3/3/97 ____________________________________ Judy C. Lewent /s/ Walter E. Massey Director 3/1/97 ____________________________________ Walter E. Massey /s/ John F. Mitchell Director 3/1/97 ____________________________________ John F. Mitchell
21
SIGNATURE TITLE DATE --------- ----- ---- /s/ Thomas J. Murrin Director 3/1/97 ____________________________________ Thomas J. Murrin /s/ Nicholas Negroponte Director 3/3/97 ____________________________________ Nicholas Negroponte /s/ John E. Pepper, Jr. Director 3/2/97 ____________________________________ John E. Pepper, Jr. /s/ Samuel C. Scott III Director 3/1/97 ____________________________________ Samuel C. Scott III /s/ Gary L. Tooker Director 3/4/97 ____________________________________ Gary L. Tooker /s/ William J. Weisz Director 3/1/97 ____________________________________ William J. Weisz /s/ B. Kenneth West Director 3/3/97 ____________________________________ B. Kenneth West /s/ John A. White Director 3/14/97 ____________________________________ John A. White
22 EXHIBIT INDEX
EXHIBIT NO. EXHIBIT ----------- ------- 3(i) Restated Certificate of Incorporation of Motorola, Inc., as amended, including Certificate of Designation, Preferences and Rights for Junior Participating Preferred Stock, Series A (incorporated by reference to Exhibit 3(i)(b) to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1994). 3(ii) By-Laws of Motorola, Inc., revised as of November 14, 1996. 4.1 Rights Agreement dated November 9, 1988 (incorporated by reference to Exhibit (1) to Motorola's Registration Statement on Form 8-A dated November 15, 1988). 4.2 Amendment to Rights Agreement dated August 7, 1990 (incorporated by reference to Exhibit 2 to Motorola's Form 8 dated August 9, 1990 amending Motorola's Registration Statement on Form 8-A dated November 15, 1988). 4.3 Amendment No. 2 on Form 8 dated December 2, 1992 amending Motorola's Registration Statement on Form 8-A dated November 15, 1988 (incorporated by reference to Motorola's Form 8 dated December 2, 1992). 4.3(a) Amendment No. 3 on Form 8-A/A dated February 28, 1994 amending Motorola's Registration Statement on Form 8-A dated November 15,1988 (incorporated by reference to Motorola's Amendment No. 3 on Form 8-A/A dated February 28, 1994). 4.4 LYONs Indenture dated September 1, 1989 (incorporated by reference to Exhibit 4(a) to Motorola's Registration Statement on Form S-3, Registration No. 33-30662). 4.5 Indenture dated as of March 15, 1985 between Motorola, Inc. and Harris Trust and Savings Bank, as Trustee, and specimen of 8.40% Debentures due August 15, 2031 under the Indenture (incorporated by reference to Exhibits 4(C) and 4(B), respectively, to Motorola's Current Report on Form 8-K dated August 12, 1991). 4.6 Indenture dated as of October 1, 1991 between Motorola, Inc. and Harris Trust and Savings Bank, as Trustee (incorporated by reference to Exhibit 4.5 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 4.7 Specimen of 7.60% Notes due January 1, 2007 (incorporated by reference to Exhibit 4.6 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 4.8 Specimen of 6 1/2% Notes due March 1, 2008 (incorporated by reference to Exhibit 4(B) to Motorola's Current Report on Form 8-K dated March 1, 1993). 4.9 LYONs Indenture dated as of September 1, 1993 (incorporated by reference to Exhibit 4(v) to Motorola's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993). 4.10 Indenture dated as of May 1, 1995 between Motorola, Inc. and Harris Trust and Savings Bank, as Trustee (incorporated by reference to Exhibit 4(d) to Motorola's Registration Statement on Form S-3, Registration No. 33-56055). 4.11 Specimen of 7 1/2% Debentures due May 15, 2025 (incorporated by reference to Exhibit 4(B) to Motorola's Current Report on Form 8-K dated May 15, 1995). 4.12 Specimen of 6$% Debentures due September 1, 2025 (incorporated by reference to Exhibit 4.12 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.1 Motorola Executive Incentive Plan, as amended through November 23, 1993, including the Long Range Incentive Program (incorporated by reference to Exhibit 10.1 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.2 Motorola Long Range Incentive Plan of 1994 (incorporated by reference to Exhibit 10.2 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993).
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EXHIBIT NO. EXHIBIT ----------- ------- 10.3 Share Option Plan of 1982, as amended through March 24, 1992 (incorporated by reference to Exhibit 10.3 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Exhibit 10.2(a) to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and Exhibit 10.3 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 10.4 Share Option Plan of 1991, as amended through August 7, 1995 (incorporated by reference to Exhibit 10.4 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and Exhibit 10.4 to Motorola's Report on Form 10-K for the fiscal year ended December 31, 1995). 10.5 Resolutions Amending Sections 8 and 10(2) of the Share Option Plan of 1982, and Resolutions Amending Sections 7 and 9(b) of the Share Option Plan of 1991, effective August 15, 1996. 10.6 Share Option Plan of 1996, as amended through August 15, 1996. 10.7 Motorola Elected Officers Supplementary Retirement Plan, as amended through February 6, 1995 (incorporated by reference to Exhibit 10.5 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.8 Executive Health Plan. 10.9 Accidental death and dismemberment insurance for MEIP participants (incorporated by reference to Exhibit 10.7 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.10 Arrangement for directors' fees and retirement plan for non- employee directors (description incorporated by reference from pages 6 and 7 of Motorola's Proxy Statement for the 1997 annual meeting of stockholders). 10.11 Deferred Fee Plan for Outside Directors, as amended February 6, 1996 (incorporated by reference to Exhibit 10.9 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.12 Motorola, Inc. Non-Employee Directors' Stock Plan, as amended August 15, 1996. 10.13 Officers' Group Life Insurance Policy (incorporated by reference to Exhibit 10.10 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.14 Consultant Agreement dated May 1, 1996 between Motorola, Inc. and John F. Mitchell (incorporated by reference to Exhibit 99 to Motorola's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996). 10.15 Form of Termination Agreement in respect of a change in control (incorporated by reference to Exhibit 10.15 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.16 Policy protecting salary and medical benefits of employees in the event of an unsolicited change in control (incorporated by reference to Exhibit 10.16 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.17 Insurance policy covering non-employee Directors (incorporated by reference to the description on page 6 of Motorola's Proxy Statement for the 1997 annual meeting of stockholders and to Exhibit 10.16 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1989).
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EXHIBIT NO. EXHIBIT ----------- ------- 10.18 Iridium Space System Contract between Motorola, Inc. and Iridium, Inc., as amended to date, and Iridium Communications Systems Operations and Maintenance Contract between Motorola, Inc. and Iridium, Inc., as amended to date (incorporated by reference to Exhibits 99.2 and 99.3, respectively, to Motorola's Current Report on Form 8-K dated August 2, 1993 and Exhibits 99(a) and 99(b), respectively, to Motorola's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994). 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share. 21 Subsidiaries of Motorola. 23 Consent of KPMG Peat Marwick LLP. See page 28 of the Annual Report on Form 10-K of which this Exhibit Index is a part. 27 Financial Data Schedule (filed only electronically with SEC).
25 EX-3.(II) 2 BY-LAWS OF MOTOROLA EXHIBIT 3(ii) Revised as of November 14, 1996 MOTOROLA, INC. ------------- BYLAWS ------ ARTICLE I --------- Offices and Corporate Seal -------------------------- The registered office of the Corporation required by the Delaware General Corporation Law shall be 1209 Orange Street, Wilmington, Delaware, 19801, and the address of the registered office may be changed from time to time by the Board of Directors. The principal business office of the Corporation shall be located in the Village of Schaumburg, County of Cook, State of Illinois. The Corporation may have such other offices, either within or without the State of Illinois, as the Board of Directors may designate or as the business of the Corporation may require from time to time. The registered office of the Corporation required by the Illinois Business Corporation Act may be, but need not be, the same as its place of business in the State of Illinois, and the address of the registered office may be changed from time to time by the Board of Directors. The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation and the state of incorporation and the words "Corporate Seal". ARTICLE II ---------- Board of Directors ------------------ Section 1. General Powers. The business and affairs of the Corporation shall be managed by, or under the direction of, its Board of Directors. Section 2. Number, Tenure and Qualifications. The number of directors of the Corporation shall be sixteen (16), or such other number fixed from time to time by the -2- Board of Directors. Each director shall hold office until his successor shall have been elected and qualified, or until his earlier death or resignation. Section 3. Vacancies. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled for the remainder of the unexpired term by the affirmative vote of a majority of the directors then in office although less than a quorum. Section 4. Compensation. Directors who also are employees of the Corporation shall not receive any additional compensation for services on the Board of Directors. By resolution of the Board of Directors, a fixed sum may be allowed directors who are not employees of the Corporation for attendance at each regular or special meeting of the Board of Directors or any committee of the Board of Directors, and by resolution of the Board of Directors an additional fixed fee may be allowed directors who are not employees of the Corporation in consideration of other services and continuous interest and study of the affairs of the Corporation. Travel and other expenses actually incurred may be allowed all directors for attendance at each regular or special meeting of the Board of Directors or at any meeting of a committee of the Board of Directors or in connection with their other services to the Corporation. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 5. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees. Each committee shall consist of one or more of the directors of the Corporation, as selected by the Board of Directors, and the Board of Directors shall also designate a chairman of each committee and the members of each committee shall designate a person to act as secretary of the committee to keep the minutes of, and serve the notices for, all meetings of the committee and perform such other duties as the committee may direct. Such person may, but need not be a member of the committee. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee -3- shall have the power and authority of the Board of Directors in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation under Section 251 or 252 of the Delaware General Corporation Law, recommending to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the shareholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation, and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. Each committee of the Board of Directors may establish its own rules of procedure. Except as otherwise specified in a resolution designating a committee, one-third of the members of a committee shall be necessary to constitute a quorum of that committee for the transaction of business and the act of a majority of committee members present at a meeting at which a quorum is present shall be the act of the committee. Section 6. Validity of Contracts. No contract or other transaction entered into by the Corporation shall be affected by the fact that a director or officer of the Corporation is in any way interested in or connected with any party to such contract or transaction, or himself is a party to such contract or transaction, even though in the case of a director the vote of the director having such interest or connection shall have been necessary to obligate the Corporation upon such contract or transaction; provided, however, that in any such case (i) the material facts of such interest are known or disclosed to the directors or shareholders and the contract or transaction is authorized or approved in good faith by the shareholders or by the Board of Directors or a committee thereof through the affirmative vote of a majority of the disinterested directors (even though not a quorum), or (ii) the contract or transaction is fair to the Corporation as of the time it is authorized, approved or ratified by the shareholders, or by the Board of Directors, or by a committee thereof. -4- ARTICLE III ----------- Shareholders' Meetings ---------------------- Section 1. Place of Meetings. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal business office of the Corporation in the State of Illinois. Section 2. Annual Meetings. The annual meeting of the shareholders shall be held on the first Tuesday in the month of May in each year, at the hour of 5:00 o'clock P.M., or at such other day and hour as may be fixed by or under the authority of the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the state where the meeting is to be held, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for the annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as is convenient. Section 3. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or by the Board of Directors. Section 4. Voting - Quorum. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of any class or classes are enlarged, limited or denied by the Certificate of Incorporation or in the manner therein provided. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, except that directors shall be elected by a plurality of the votes of the shares represented at the meeting -5- and entitled to vote on the election of directors, except as otherwise required by Delaware law, the Certificate of Incorporation, or these Bylaws. No matter shall be considered at a meeting of shareholders except upon a motion duly made and seconded. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. Section 5. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy. Section 6. Notice of Meetings. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days (twenty days if the shareholders are to approve a merger or consolidation or a sale, lease or exchange of all or substantially all the Corporation's assets) nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, or the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, addressed to the shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Section 7. Voting Lists. The officer or agent having charge of the stock ledger of the Corporation shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each; which list, for a period of ten days prior to such meeting, shall be kept at the place where the meeting is to be held, or at another place within the city where the meeting is to be held, which other place shall be specified in the notice of meeting and the list shall be subject to inspection by any shareholder for -6- any purpose germane to the meeting, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock ledger shall be prima facie evidence as to who are the shareholders entitled to examine such list or ledger or to vote at any meeting of shareholders. Section 8. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the close of business on the date next preceding the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 9. Voting of Shares by Certain Holders. Neither treasury shares nor shares of the Corporation held by another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall be entitled to vote or to be counted for quorum purposes. Nothing in this paragraph shall be construed as limiting the right of the Corporation to vote its own stock held by it in a fiduciary capacity. -7- Shares standing in the name of another corporation, domestic or foreign, may be voted in the name of such corporation by any officer thereof or pursuant to any proxy executed in the name of such corporation by any officer of such corporation in the absence of express written notice filed with the Secretary that such officer has no authority to vote such shares. Shares held by an administrator, executor, guardian, conservator, trustee in bankruptcy, receiver or assignee for creditors may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a fiduciary may be voted by him, either in person or by proxy. A shareholder whose shares are pledged shall be entitled to vote such shares unless in the transfer by the pledgor on the books of the Corporation the pledgor has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Section 10. Advance Notice of Shareholder Nominations and Proposals for other Business. Nominations of persons for election to the Board of Directors and the proposal of business to be transacted by the shareholders may be made at an annual or special meeting of the shareholders only (a) pursuant to the Corporation's notice with respect to such meeting, (b) by or at the direction of the Board of Directors or (c) by any shareholder of the Corporation who was a shareholder of record on the record date set with respect to such meeting as provided for in Section 8 of Article III, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 10. For nominations or proposals for other business to be properly brought before an annual or special meeting by a shareholder pursuant to clause (c) above, the shareholder must give timely notice thereof in writing to the Secretary of the Corporation and such business must be a proper matter for shareholder action under the Delaware General Corporation Law and a proper matter for consideration at such meeting under the Certificate of Incorporation and these Bylaws. For such notice to be timely, it must be delivered to the Secretary at the principal business office of the Corporation not earlier than the 90th day prior to the date of such meeting and not later than the close of business on the later of (i) the 60th day prior to the date of such meeting or (ii) the 10th day following the day on which public announcement of the -8- date of such meeting is first made. If such shareholder's notice relates to a proposal by such shareholder to nominate one or more persons for election or re- election as a director, it shall set forth all information relating to each such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including, if and to the extent so required, such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected). If such shareholder's notice relates to any other business that the shareholder proposes to bring before the meeting, it shall set forth a brief description of such business, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made. Each such notice shall also set forth as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner. Persons nominated by shareholders to serve as directors of the Corporation who have not been nominated in accordance with this Section 10 shall not be eligible to serve as directors. Only such business shall be conducted at an annual or special meeting of shareholders as shall have been brought before the meeting in accordance with this Section 10. The chairman of the meeting shall determine whether a nomination or any business proposed to be transacted by the shareholders has been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for shareholder action at the meeting. For purposes of this Section 10, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service. Notwithstanding any provision in this Section 10 to the contrary, requests for inclusion of proposals in the Corporation's proxy statement made pursuant to Rule 14a-8 under the Exchange Act shall be deemed to have been -9- delivered in a timely manner if delivered in accordance with such Rule. Notwithstanding compliance with the requirements of this Section 10, the chairman presiding at any meeting of the shareholders may, in his sole discretion, refuse to allow a shareholder or shareholder representative to present any proposal which the Corporation would not be required to include in a proxy statement under any rule promulgated by the Securities and Exchange Commission. ARTICLE IV ---------- Board of Directors' Meetings ---------------------------- Section 1. Annual Meetings. An annual meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. Section 2. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Directors called by them. Section 3. Notice. Except as set forth in the next sentence, notice of any special meeting shall be given at least 24 hours prior to the meeting by written notice delivered or given personally (including by phone) or by mail or telegram or other written communication to each director at his business address or residence. If, however, the meeting is called by or at the request of the Chairman of the Board and if the Chairman of the Board decides that unusual and urgent business is to be transacted at the meeting (which decision shall be conclusively demonstrated by his giving notice of the meeting less than 24 hours prior to the meeting), then at least 2 hours' prior notice shall be given. If notice is given by telegram or courier, such notice shall be deemed to be given when the telegram is delivered to the telegraph company or courier company and any personal notice shall be deemed given when given. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting and objects thereat to the transaction of any business because the meeting is -10- not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 4. Quorum. One-third of the number of directors fixed by, or pursuant to, Section 2 of Article II shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such one-third is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 5. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 6. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent is entered in the minutes of the meeting or unless he files his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or forwards such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 7. Action by Directors Without a Meeting. Any action required to be taken at a meeting of directors, or at a meeting of a committee of directors, or any other action which may be taken at a meeting, may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the directors or members of the committee thereof entitled to vote with respect to the subject matter thereof and filed with the minutes of proceedings of the Board of Directors or committee and such consent shall have the same force and effect as a unanimous vote. Section 8. Participation in a Meeting by Telephone. Members of the Board of Directors or any committee of directors may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participating in a meeting pursuant to this Section 8 shall constitute presence in -11- person at such meeting. ARTICLE V --------- Officers and Chairman of the Board ---------------------------------- Section 1. Number, Election, Appointment, Removal, Vacancy. The elected officers of the Corporation shall be one Chairman, one Chief Executive Officer, a President, one or more Vice Presidents, a Chief Financial Officer, a Treasurer, a Secretary and a Controller, each of whom shall be elected by the Board of Directors. The appointed officers of the Corporation shall be one or more Assistant Treasurers and Assistant Secretaries, each of whom shall be appointed by the Chief Executive Officer and shall serve at his pleasure. The Board of Directors may designate one or more Vice Presidents as Senior Executive Vice President, one or more Vice Presidents as Executive Vice President and one or more Vice Presidents as Senior Vice President. Such other officers as may be necessary, including one or more Vice Chairmen of the Board, one or more Officers of the Board and a Chairman of the Executive Committee may be elected by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary, and the offices of President and Vice President. The elected officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Each elected officer shall hold office until his successor shall have been duly elected or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Any officer elected by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election shall not of itself create contract rights. A vacancy in any elected office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. -12- Section 2. Chairman of the Board of Directors. At its first meeting after the annual meeting of shareholders, the Board of Directors shall elect one of its own members to be the Chairman of the Board of Directors ("Chairman of the Board"). The Chairman of the Board shall work with the Board of Directors to define its structure, agenda and activities in order to fulfill its responsibilities and shall work with senior management to help ensure that matters for which management is responsible are appropriately reported to the Board of Directors. He shall preside at all meetings of the shareholders and of the Board of Directors and shall call and prescribe the content of such meetings. The Chairman of the Board shall lead the Board of Directors in its role of assessing the performance of the management of the Corporation. The Chairman of the Board shall also counsel the members of the Chief Executive Office, where appropriate, and shall perform such other duties as may be prescribed by the Board of Directors from time to time. The Chairman of the Board may designate one or more other directors to exercise the functions and to have the authority of the Chairman of the Board during the absence or disability of the Chairman of the Board and prior to any action by the Board of Directors to fill any vacancy. The Board of Directors may remove or replace the Chairman of the Board at any time and any vacancy in such position because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. Section 3. Chief Executive Officer. The Chief Executive Officer ("CEO") shall be the senior executive officer of the Corporation and shall in general supervise and control all the business and affairs of the Corporation. He shall direct the policy of the Corporation; and he may delegate powers to any other officer of the Corporation. Except where by law the signature of such other officer is required, the CEO shall possess the same power as such other officer to sign all certificates, contracts and other instruments and documents of the Corporation which may be authorized by the Board of Directors or otherwise, and shall possess the same power as such other officer to take any action authorized by these Bylaws or by the Board of Directors or otherwise. He shall also perform such duties as may be prescribed by the Board of Directors or by the Chairman of the Board of Directors acting for the Board of Directors from time to time. -13- Section 4. The President. The President, in the absence or disability of the CEO, shall exercise the functions and shall have the authority of the CEO. The President may sign, with the Secretary or other proper officer of the Corporation thereunto authorized by the Board of Directors (if the signature of the Secretary or such other officer is required), certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts, and other instruments and documents which may be authorized by the Board of Directors or otherwise, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general, shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Section 5. The Chairman of the Executive Committee, Senior Executive Vice Presidents, Executive Vice Presidents, Officers of the Board, Senior Vice Presidents and the Corporate Vice Presidents. The Chairman of the Executive Committee, Senior Executive Vice Presidents, Executive Vice Presidents, Officers of the Board, Senior Vice Presidents and the Corporate Vice Presidents, in the order designated by the Board of Directors or the Chairman of the Board, shall exercise the functions and shall have the authority of the President during the absence or disability of the President. The Chairman of the Executive Committee, each Senior Executive Vice President, Executive Vice President, Officer of the Board, Senior Vice President and Corporate Vice President shall have such powers as may be designated and shall discharge such duties as may be assigned to him from time to time by the Board of Directors or the Chief Executive Office. In addition to the duties described in the prior sentence, all these elected officers (except the Chairman of the Executive Committee) are authorized to sign and execute all agreements, contracts, leases, bids, proposals, deeds, assignments, powers of attorney, guarantee undertakings, instruments, documents, claims, including claims against the United States of America, and certifications of such claims, in the ordinary course of business of the Corporation, and to redelegate that authority in writing to others; provided, however, that only the CEO, the President, the Chief Financial Officer and the Treasurer are authorized to perform -14- those activities set forth in the third sentence of the first paragraph of Article V, Section 7, of these Bylaws. Section 6. The Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and the minutes of all meetings of the shareholders, in books provided by the Corporation for such purpose. He shall attend to giving and serving of all notices of the Corporation whereby meetings of the Board of Directors and shareholders are assembled. He shall provide lists of shareholders and their addresses required to be prepared by the provisions of any present or future statute of the State of Delaware. He may sign, with any other officer, in the name of the Corporation, all contracts and other instruments requiring the seal of the Corporation and may affix the seal thereto. He shall have charge of such books and papers as the Board of Directors may direct. He shall in general perform all of the duties which are incident to the office of secretary of a corporation, subject at all times to the direction and control of the Board of Directors. Section 7. The Chief Financial Officer and the Treasurer. The Chief Financial Officer shall be the senior financial officer of the Corporation. The Chief Financial Officer, the CEO, the President and the Treasurer shall each individually have the power, which may be redelegated in writing, on behalf of the Corporation, to borrow funds and to otherwise incur liabilities, to sell or discount bills, receivables and other instruments and rights, to enter into and deliver repurchase, credit, guarantee, surety, loan, interest rate, currency and other agreements, which may contain covenants restricting the Corporation's ability to take certain actions or require it to take certain actions, to sign and deliver acceptances, notes and other obligations, to buy and sell foreign exchange, whether for current or future delivery, or options on foreign exchange, to purchase, sell, exchange or otherwise deal in stock or other securities, to procure letters of credit, travelers' checks or similar instruments, to open and close accounts with any banking institution or other depository of funds, to sign, manually, by facsimile signature or otherwise, checks, drafts or other orders for the payment of funds (which each such institution is hereby authorized and directed to honor), to issue written, telephonic, electronic or oral instructions for the transfer of funds by wire or other electronic means or otherwise, to enter into agreements or documents with any -15- banking or financial institution with respect to any services, including, without limitation, electronic services, and to do all things in connection with any of these as any of them sees fit. The Chief Financial Officer, the CEO, the President and the Treasurer shall each individually also have the power, which may be redelegated in writing, on behalf of the Corporation, to guarantee, or to act as surety with respect to, any of the obligations of any entity of which any of the outstanding stock or securities is owned, directly or indirectly by the Corporation. In addition, the Chief Financial Officer, as well as each of the CEO, the President and the Treasurer, shall individually have the authority to vote all shares or securities in any entity directly or indirectly owned by the Corporation and to redelegate that authority in writing to others. The Treasurer shall have the custody of all of the funds and securities of the Corporation. He shall be empowered to endorse on behalf of the Corporation all checks, notes or other obligations and evidences of the payment of money, payable to the Corporation or coming into his possession, and shall deposit the funds arising therefrom, together with all other funds of the Corporation, coming into his possession, in such banks as may be selected as the depositories of the Corporation, or properly care for them in such other manner as the Board of Directors may direct. All checks and other instruments drawn on or payable out of the funds of the Corporation and all bills, notes or other evidence of indebtedness shall be signed by such officers and employees as the Board of Directors may designate. Whenever required by the Board of Directors so to do, he shall exhibit a complete and true statement of property in his possession, custody or control. He shall provide for the entry regularly, in records belonging to the Corporation, a full and accurate account of all money received and paid on account of the Corporation, together with all other business transactions. He shall, at all reasonable times within the hours of business, exhibit his records and accounts to any director. He shall perform all duties which are incident to the office of treasurer of a corporation, subject, however, at all times to the direction and control of the Board of Directors. If the Board of Directors shall so require, he shall give bond, in such sum and with such securities as the Board of Directors may direct, for the faithful performance of his duties and for the safe custody of the funds and property of the Corporation coming into his possession. -16- Section 8. The Controller. The Controller shall be the Chief Accounting Officer of the Corporation and shall: (a) keep, or cause to be kept, correct and complete books and records of account, including full and accurate accounts of receipt and disbursements in books belonging to the Corporation; and (b) in general, perform all duties incident to the office of Controller and such other duties as from time to time may be assigned to him by the Chairman of the Board or by the Board of Directors. In addition, the Controller, the Chief Financial Officer and the Treasurer shall each individually be authorized to sign powers of attorney on behalf of the Corporation and to appoint agents and attorneys to represent the Corporation in dealings before or with the Bureau of Customs. Section 9. Statutory Duties. Each respective officer shall discharge any and every duty, appertaining to his respective office, which is imposed on such officer by the provisions of any present or future statute of the State of Delaware. Section 10. Delegation of Duties. In case of the absence of any officer of the Corporation, the Chairman of the Board or the Board of Directors may delegate, for the time being, the duties of such officer to any other officer or to any director. Section 11. Salaries. The salaries of the officers and the Chairman of the Board shall be fixed from time to time by the Board of Directors unless such authority has been delegated by the Board of Directors, in which case, salaries shall be fixed by the person, persons or committee to whom authority has been delegated, subject to any limitations which may be contained in the resolution delegating such authority. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation. Section 12. Assistant Treasurers and Assistant Secretaries. The CEO may appoint, from time to time, as he may see fit, and may (but shall not be required to) fix the compensation of, one or more Assistant Treasurers and Assistant Secretaries, each of whom shall hold office during the pleasure of the CEO, and shall perform such duties as he may assign. -17- ARTICLE VI ---------- Certificates for Shares and Their Transfer ------------------------------------------ Section 1. Certificates for Shares. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the CEO or President, and by the Treasurer or the Secretary. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock ledger of the Corporation. Section 2. Transfer of Certificate. Transfer of shares of the Corporation shall be made only upon the records of the Transfer Agent appointed for this purpose, by the owner in person or by the legal representative of such owner and, upon such transfer being made, the old certificates shall be surrendered to the Transfer Agent who shall cancel the same and thereupon issue a new certificate or certificates therefor. Whenever a transfer is made for collateral security, and not absolutely, the fact shall be so expressed in the recording of the transfer. Section 3. Transfer Agent and Registrar. The Board of Directors may appoint a transfer agent and registrar of transfers and thereafter may require all stock certificates to bear the signature of such transfer agent and such registrar of transfers. The signature of either the transfer agent or the registrar, but not both, may be a facsimile. Section 4. Registered Holder. The Corporation shall be entitled to treat the registered holder of any shares as the absolute owner thereof and, accordingly, shall not be bound to recognize any equitable or other claim thereto, or interest therein, on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the statutes of the State of Delaware. -18- Section 5. Rules of Transfer. The Board of Directors also shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of the certificates for the shares of the Corporation. Section 6. Lost Certificates. Any person claiming a certificate for shares of this Corporation to be lost or destroyed, shall make affidavit of the fact and lodge the same with the Secretary of the Corporation, accompanied by a signed application for a new certificate. Such person shall give to the Corporation, to the extent deemed necessary by the Secretary or Treasurer, a bond of indemnity with one or more sureties satisfactory to the Secretary, and in an amount which, in his judgment, shall be sufficient to save the Corporation from loss, and thereupon the proper officer or officers may cause to be issued a new certificate of like tenor with the one alleged to be lost or destroyed. But the Secretary may recommend to the Board of Directors that it refuse the issuance of such new certificate in the event that the applicable provisions of the Uniform Commercial Code are not met. ARTICLE VII ----------- Contracts, Loans, Checks and Deposits ------------------------------------- Section 1. Contracts. The Board of Directors may authorize, by these Bylaws or any resolution, any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by these Bylaws or a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 3. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents, of the Corporation and in such manner as shall from time to time be determined by these Bylaws or a resolution of the Board of Directors. -19- Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. ARTICLE VIII ------------ Books and Records ----------------- Section 1. Location. Complete books and records of account together with minutes of the proceedings of the meetings of the shareholders and Board of Directors shall be kept. A record of shareholders, giving the names and addresses of all shareholders, and the number and class of the shares held by each, shall be kept by the Corporation at its registered office or principal place of business in the State of Illinois or at the office of a Transfer Agent or Registrar. ARTICLE IX ---------- Notices ------- Section 1. Manner of Notice. Whenever, under the provisions of the Certificate of Incorporation or of the Bylaws of the Corporation or of the statutes of the State of Delaware, notice is required to be given to a shareholder, to a director or to an officer, it shall not be construed to mean personal notice, unless expressly stated so to be. And any notice so required (other than notice by publication) may be given in writing by depositing the same in the United States mail, postage prepaid, directed to the shareholder, director or officer, at his, or her, address as the same appears on the records of the Corporation, and the time when the same is mailed shall be deemed the time of the giving of such notice. Section 2. Waiver of Notice. Any shareholder, director or officer may, in writing, waive the giving and the mailing of any notice required to be given or mailed either by and under the statutes of the State of Delaware or by and under the Bylaws. -20- ARTICLE X --------- Fiscal Year ----------- Section 1. Fiscal Year. The fiscal year of the Corporation shall begin on the 1st day of January and terminate on the 31st day of December. ARTICLE XI ---------- Emergency Bylaws ---------------- The Emergency Bylaws provided in this Article XI shall be operative upon (a) the declaration of a civil defense emergency by the President of the United States or by concurrent resolution of the Congress of the United States pursuant to Title 50, Appendix, Section 2291 of the United States Code, or any amendment thereof, or (b) upon a proclamation of a civil defense emergency by the Governor of the State of Illinois which relates to an attack or imminent attack on the United States or any of its possessions. Such Emergency Bylaws, or any amendments to these Bylaws adopted during such emergency, shall cease to be effective and shall be suspended upon any proclamation by the President of the United States, or the passage by the Congress of a concurrent resolution, or any declaration by the Governor of Illinois that such civil defense emergency no longer exists. Section 1. Board of Directors' Meetings. During any such emergency, any meeting of the Board of Directors may be called by any officer of the Corporation or by any director. Notice shall be given by such person or by any officer of the Corporation. The notice shall specify the place of the meeting, which shall be at the head office of the Corporation at the time if feasible, and otherwise, any other place specified in the notice. The notice shall also specify the time of the meeting. Notice may be given only to such of the directors as it may be feasible to reach at the time and by such means as may be feasible at the time, including publication or radio. If given by mail, messenger, telephone, or telegram, the notice shall be addressed to the director at his residence or business address, or such other place as the person giving the notice shall deem most suitable. Notice shall be similarly given, to the extent feasible in the judgment of the person giving the notice, to the other directors. Notice shall be given at least two days before the meeting, if feasible in the judgment of the person giving -21- the notice, and otherwise on any shorter time he may deem necessary. Section 2. Change of Head Office. The Board of Directors, during any such emergency may, effective in the emergency, change the head office or designate several alternative head offices, or regional offices or authorize the officers to do so. ARTICLE XII ----------- Director Emeritus ----------------- Section 1. Director Emeritus. The Board of Directors may at any time and from time to time award to former members of the Board of Directors in recognition of their past distinguished service and contribution rendered to the Corporation the honorary title "Director Emeritus." The award of this title shall not constitute an election or appointment to the Board of Directors, nor to any office of the Corporation, nor the bestowal of any duties, responsibilities or privileges associated therewith; and accordingly no "Director Emeritus" shall be deemed a "Director" as that term is used in these Bylaws. The title "Director Emeritus" shall carry no compensation, and holders thereof shall not attend any meetings of the Board of Directors or committees of the Board of Directors, except by written invitation, nor shall they be specially privy to any confidential information arising from such meeting. ARTICLE XIII ------------ Amendment of Bylaws ------------------- Section 1. Amendment of Bylaws. These Bylaws may be altered, amended or repealed and new Bylaws may be adopted at any meeting of the Board of Directors by a majority vote of the directors present at the meeting. EX-10.5 3 RESOLUTIONS AMENDING SECTIONS OF OPTION PLANS Exhibit 10.5 Resolutions Amending the Motorola, Inc. Share Option Plan of 1991 and the Motorola, Inc. Share Option Plan of 1982 RESOLVED, that, effective August 15, 1996, Section 7 of the Motorola, Inc. Share Option Plan of 1991 and Section 8 of the Motorola, Inc. Share Option Plan of 1982 are each amended to read as follows: "Except as set forth in the last sentence of this section, an option shall not be transferable by an optionee otherwise than by operation of a death beneficiary designation made by the optionee in accordance with rules established by the Committee, by will or by the applicable laws of descent and distribution, and during the lifetime of any optionee, an option shall be exercisable only by the optionee or by the optionee's guardian or legal representative if the optionee 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 under the 1934 Act, the Committee shall have the power and authority to provide, as a term of any Non-Qualified option, including any outstanding Non-Qualified option held by an optionee, that such Non-Qualified option may be transferred without consideration by the optionee 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." RESOLVED, that, effective August 15, 1996, Section 9(b) of the Motorola, Inc. Share Option Plan of 1991 and Section 10(2) of the Motorola, Inc. Share Option Plan of 1982 are each hereby amended by deleting the last sentence and substituting the following two sentences: "An election by an optionee to deliver Shares or to have Shares withheld to satisfy tax withholding requirements must be made on or prior to the Tax Date. The Committee may disapprove 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." EX-10.6 4 SHARE OPTION PLAN OF 1996 Exhibit 10.6 MOTOROLA SHARE OPTION PLAN OF 1996, as amended 8/15/96 ----------------------------------- 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 2 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 3 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 4 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 Motorola and its Subsidiaries) shall not exceed $100,000.00. (iii) Each ISO, by its terms, shall (1) not be exercisable after the 5 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 NonExercise 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.) 6 (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 7 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 8 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. 9 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 nonexercisable, 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 -------------------------- 10 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 11 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 12 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 Motorola 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 13 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. 14 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 ------------------------------------------ 15 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 Committee shall have the power and authority to provide, as a term of any NSO, including any outstanding NSO held by a Non- Employee Director or an Optionee, that such NSO may be transferred without consideration by the Non-Employee Director or the Optionee 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 ------- 16 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. 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 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 17 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. 18 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...........................................................3 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..............................................9 5.1 Automatic Grant of Non-Employee Stock Options....................10 5.2 Price............................................................10 5.3 Exercisability...................................................10 5.4 Payment..........................................................10 5.5 Termination......................................................10 5.6 Retirement.......................................................11 5.7 Death............................................................11 5.8 Amendments.......................................................11 5.9 Interpretation...................................................11 6. ELIGIBILITY............................................................11 7. ADMINISTRATION.........................................................11 7.1 Committee........................................................11 7.2 Authority........................................................12 7.3 Determinations...................................................13 8. AMENDMENT..............................................................13 9. TERM AND TERMINATION...................................................13 9.1 Term.............................................................13 9.2 Termination......................................................13 10. MODIFICATION OR TERMINATION............................................13 10.1 General..........................................................13 10.2 Committee's Right................................................13 11. CHANGE IN CONTROL......................................................14 11.1 Stock Option Vesting and Payment.................................14 11.2 Change in Control................................................14 12. CERTIFICATES AND TRANSFER OF STOCK OPTIONS.............................14 12.1 Provisions of Stock Option Certificates..........................15 12.2 Transfer of Stock Options........................................15 13. PAYMENT................................................................15 14. GENERAL................................................................15 14.1 Tax Withholding..................................................16 14.2 Compliance with Legal Requirements...............................16 14.3 Indemnification and Exculpation..................................17 14.4 Headings.........................................................17 14.5 Governing Law....................................................17 14.6 Employment Rights................................................17 14.7 Approval by Stockholders.........................................17 14.8 Implementation of the Plan and Grant of Employee Stock Options Under 1991 Plan..................................................18
EX-10.8 5 EXECUTIVE HEALTH PLAN Exhibit 10.8 The Executive Health Plan I. General Information A. Eligibility B. Pre-Existing Conditions C. Deductibles D. General Rules II. The Executive Health Plan In Conjunction with the Health Advantage Plan and the Global Health Advantage Plan A. Co-Payments B. Inpatient and Outpatient Services C. Coverage for Out-of-Network Providers D. Coverage for Non-Network Providers E. Coverage Chart for Medical Benefits F. Coverage for Vision Care G. Coverage Chart for Vision Care Benefits H. Coverage for Hearing Care I. Coverage Chart for Hearing Care Benefits J. Coverage for Non-Covered Expenses III. The Executive Health Plan In Conjunction with the Basic Medical Plan A. Coverage for Expenses Covered by the Basic Medical Plan B. Coverage Chart for Medical Benefits C. Coverage for Vision Care D. Coverage for Hearing Care E. Coverage for Non-Covered Expenses F. Coverage Chart for Medical Benefits IV. The Executive Health Plan in Conjunction with the Mental Health and Chemical Dependency Program A. Explanation of Plan B. Coverage of In-Network Expenses C. Coverage of Out-of-Network Expenses D. Coverage Chart for Mental Health and Chemical Dependency V. The Executive Health Plan in Conjunction with the Prescription Drug Program (PCS) A. Prescriptions Covered by the PCS Plan B. Prescriptions Not Covered by the PCS Plan VI. The Executive Health Plan in Conjunction with the Motorola Dental Plan A. Coverage for Expenses Covered by the Motorola Dental Plan B. Coverage for Orthodontia C. Coverage for Expenses Not Covered by the Motorola Dental Plan VII. The Executive Health Plan in Conjunction with Offshore Medical Plans Effective: 1/1/96 1 I. General Information ------------------- Eligibility - ----------- Executives and qualified dependents are eligible for the Executive Health Plan if enrolled in the Health Advantage Plan, the Global Health Advantage Plan (for expatriates), the Motorola Basic Medical (Indemnity) Plan or in one of our offshore medical plans. Executives are not eligible for medical coverage under the Executive Health Plan if enrolled in a United States-based Health Maintenance Organization (HMO). Limited coverage for dental and vision care services is available for HMO enrolled participants. All enrollment rules applicable to the primary plan in which you are a member apply to the Executive Health Plan. Coverage for dependent children ceases at age 19 or age 23 if the dependent is enrolled full-time (12 or more hours) in an accredited college or university. Pre-Existing Conditions - ----------------------- Pre-existing conditions are covered from the first day of enrollment in the Executive Health Plan for executives and qualified dependents. The pre-existing conditions for primary plans are not waived, however, and benefits for pre- existing conditions will be paid only under the Executive Health Plan. Deductibles - ----------- There are no deductibles to satisfy under the Executive Health Plan. Any deductibles under the primary plans must be satisfied. The Executive Health Plan will reimburse you for half of those deductibles. General Rules - ------------- Executives must comply with all primary plan rules to receive full coverage from their primary plans and the Executive Health Plan. This includes contacting CallCare for in-patient admissions, using network providers as described in the primary plans and satisfying all other requirements under the primary plans. Neither the Motorola Benefits Administration Office in Phoenix nor Executive Compensation will confirm benefits under the Executive Health Plan for providers. The Executive Health Plan is a non-qualified plan and only confirmation of benefits on the primary plans will be made. The Executive Health Plan will pay for charges governed by Section 213 of the United States Internal Revenue Service tax code. Motorola's attorneys will act as the final authorities on interpretation of Section 213 for any charges submitted for reimbursement under the Executive Health Plan. 2 The Executive Health Plan will not pay for charges considered over and above reasonable and customary under any of its primary plans. The Executive Health Plan will not cover charges for missed appointments, contact lens replacement insurance, plastic or cosmetic surgery or any other charges that are excluded from IRS Section 213. The Executive Health Plan will not process any claims that are older than one year from date of service. There will be no exceptions made to this policy. 3 II. The Executive Health Plan In Conjunction with the Health Advantage Plan and the Global Health Advantage Plan Co-Payments - ----------- Under the Health Advantage Plan, network providers will charge a $10 co-payment for office visits and lab work. This is the out-of-pocket cost under the plan and no additional payment will be made for co-payments under the Executive Health Plan. An exception to this rule is the Health Screening required for an executive health plan participant under the Health Advantage Plan. If the health screenings required under HAP are performed in conjunction with the Executive Physical, Motorola will reimburse the $10 co-payment under the Executive Health Plan. In-Network Inpatient and Outpatient Services - -------------------------------------------- The Executive Health Plan will reimburse the 10% not covered by the Health Advantage Plan for inpatient and outpatient hospital admissions, procedures performed in a specialty clinic or doctor's office, or for physical therapy. To obtain this full coverage, all HAP rules regarding CallCare must be followed and network providers must be used. Please refer to the chart at the end of this section for a list of procedures covered under inpatient and outpatient services. Out-of-Network Coverage - ----------------------- For executives enrolled in the Global Health Advantage Plan, all service is considered "out-of-network." Coverage for offshore medical claims will be paid at 90% under the primary plan and the additional 10% will be covered by the Executive Health Plan. Coverage for U.S. medical claims will be paid at 90% of reasonable and customary charges under Global HAP. The additional 10% of reasonable and customary charges will be covered by the Executive Health Plan. For executives enrolled in the Health Advantage Plan, if there is not a network provider available in the area, coverage will be 90% of reasonable and customary charges under the Health Advantage Plan. The additional 10% of reasonable and customary charges will be covered by the Executive Health Plan. This also applies to students who may be attending college in an area not served by one of Motorola's provider networks. Non-Network Coverage - -------------------- If executives or their qualified dependents receive care from a non-network provider in an area where a Motorola network has been established, the Health Advantage Plan will pay nothing. The Executive Plan will pay 50% of the reasonable and customary charges. There will be no exceptions to this policy. 4 COVERAGE EXAMPLES
- -------------------------------------------------------------------------------- Health Advantage Plan - -------------------------------------------------------------------------------- Medical Service Health Advantage Plan Executive Health Plan - -------------------------------------------------------------------------------- Required Screenings 100% at on-site health Not applicable fair $10.00 covered if $10.00 co-pay at network included in executive provider's office physical - -------------------------------------------------------------------------------- Early Detection Screenings $10.00 co-pay at network No coverage provider's office - -------------------------------------------------------------------------------- Office/Clinic Visits $10.00 No coverage (network provider) - -------------------------------------------------------------------------------- Office/Clinic Visits No coverage 50% up to R&C (non-network provider) - -------------------------------------------------------------------------------- Laboratory & X-Ray work $10.00 No coverage done at network provider's office - -------------------------------------------------------------------------------- Allergy Testing and 90% of negotiated rate 100% of negotiated Injections balance - -------------------------------------------------------------------------------- Durable Medical Equipment 90% 100% of balance and Supplies - -------------------------------------------------------------------------------- Specialty Lab & X-Ray 90% of negotiated rate 100% of negotiated (i.e., MRI, Ultrasounds) balance - -------------------------------------------------------------------------------- Surgery - Inpatient or 90% of negotiated rate 100% of negotiated Outpatient (with CallCare balance and using a Select Hospital) - -------------------------------------------------------------------------------- Surgery - Non-Emergency 50% of negotiated rate 50% of negotiated rate Inpatient (without balance CallCare and using a Select Hospital) - -------------------------------------------------------------------------------- Surgery - Non-Emergency 0% 50% of R&C Inpatient (with CallCare and without using a Select Hospital) - -------------------------------------------------------------------------------- Surgery - Non-Emergency 0% 50% of R&C Inpatient (without CallCare and without using a Select Hospital) - -------------------------------------------------------------------------------- Maternity 90% of hospital charges 100% of remaining at Select Hospitals hospital charges $10.00 co-pay for No coverage pre-natal and post-partum checks - -------------------------------------------------------------------------------- Therapies: Occupational, 90% of negotiated rates 100% of remaining Physical, Respiratory or negotiated rates or Speech (limited to 52 50% of visits after 52 visits per year for all in a calendar year except Respiratory) - -------------------------------------------------------------------------------- Training: Biofeedback & 90% of negotiated rates 100% of remaining Orthoptics negotiated rates - -------------------------------------------------------------------------------- Out of Area Treatment (All 90% of reasonable and 100% up to reasonable offshore treatment for customary and customary Global HAP participants) - --------------------------------------------------------------------------------
5 Vision Care Coverage - -------------------- If the executive or a qualified dependent chooses to use the Vision Service Plan to obtain vision services, the co-payments will not be covered by the Executive Health Plan. Any expenses for glasses or contacts over and above the co- payments will be covered at 100% up to $500 for each family member each year. In addition, if the executive or qualified dependent wishes to purchase additional pairs of glasses they will be covered at 100% up to the $500 limit. If the executive or a qualified dependent chooses to go outside the Vision Service Plan, the exam will be paid at 50% (the non-network provider rate) and any glasses or contacts would be covered at 100% up to $500 per family member per year.
- -------------------------------------------------------------------------------- Vision Service Plan - -------------------------------------------------------------------------------- Expense Vision Service Plan Executive Health Plan - -------------------------------------------------------------------------------- Vision examination (must $10.00 co-pay at No coverage for network be at least 12 months network provider's provider, non-network between exams) office provider covered at 50% - -------------------------------------------------------------------------------- Eyeglass lenses (must be $15.00 A $500 per person per at least 12 months year maximum has been between lens purchases) set for any additional lenses, frames - -------------------------------------------------------------------------------- Eyeglass frames (must be $30.00 or contacts purchased at least 24 months under the Vision Service between frame purchases) Plan. If the Vision Service Plan is - -------------------------------------------------------------------------------- Contact lenses (instead of Up to $100.00 not used, $500 per eyeglass lenses and person per year maximum frames must be at least is set for purchase of 12 months between lenses, frames or purchases) contacts - --------------------------------------------------------------------------------
6 Hearing Care Coverage - --------------------- If the executive or a qualified dependent chooses to use National Ear Care Plan (NECP), the examination co-payments will not be covered by the Executive Health Plan. For hearing aids, the Executive Health Plan will pay 50% of costs over the maximum covered by the NECP. If the executive or a qualified dependent chooses not to use the National Ear Care Plan, the exam and/or hearing aid expenses will be covered at 50%.
- -------------------------------------------------------------------------------- National Ear Care Plan - -------------------------------------------------------------------------------- Expense National Ear Care Plan Executive Health Plan - -------------------------------------------------------------------------------- Hearing Screenings (ages 5 100% coverage using No coverage if using and over, must be at network provider NECP, 50% if non-network least 12 months between provider screenings) - -------------------------------------------------------------------------------- Hearing exam: Adults and children 12 and $10.00 No coverage if using over (36 month intervals) NECP, 50% if non-network Children under age 12 (24 $10.00 provider month intervals) Children under age 5 (24 $20.00 month intervals) - -------------------------------------------------------------------------------- Hearing aid, hearing aid Up to $500.00 50% of costs over $500.00 repair, and when if using NECP, 50% of necessary, ear mold (36 total if using month intervals) non-network provider - -------------------------------------------------------------------------------- Hearing aid evaluation, 100% coverage using No coverage using NECP, fitting and dispensing network provider 50% if using non-network (36 month intervals) provider - -------------------------------------------------------------------------------- Cleaning/checking of 100% coverage using No coverage if using hearing aids (12 month network provider NECP, 50% of total if intervals) using non-network provider - --------------------------------------------------------------------------------
Non-Covered Expenses - -------------------- Expenses for chiropractic care or other medically necessary expenses allowed for deduction by IRS Section 213, but not covered by the Health Advantage Plan, will be covered at 50% under the Executive Health Plan. 7 III. The Executive Health Plan in Conjunction with the Basic Medical Plan -------------------------------------------------------------------- Charges Covered by the Basic Medical Plan - ----------------------------------------- The Basic Medical Plan will pay 80% of reasonable and customary charges for non- routine doctor's visits, inpatient and outpatient hospitalization, physical therapies and other medical charges. The Executive Health Plan will reimburse 50% of the balance up to reasonable and customary for these services. To obtain full coverage, all rules for contacting CallCare and using Select Hospitals must be followed. Please see the chart below for a detailed look at the coverage.
- -------------------------------------------------------------------------------- Basic Medical Plan - -------------------------------------------------------------------------------- Medical Service Basic Medical Plan Executive Health Plan - -------------------------------------------------------------------------------- Office/Clinic Visits 80% of reasonable & 50% of remaining (non-routine) customary expenses balance up to R&C - -------------------------------------------------------------------------------- Laboratory & X-Ray work 80% of R&C 50% of remaining balance up to R&C - -------------------------------------------------------------------------------- Allergy Testing and 80% of R&C 50% of remaining Injections balance up to R&C - -------------------------------------------------------------------------------- Durable Medical Equipment 80% of R&C 50% of remaining and Supplies balance up to R&C - -------------------------------------------------------------------------------- Specialty Lab & X-Ray 80% of R&C 50% of remaining (i.e., MRI, Ultrasounds) balance up to R&C - -------------------------------------------------------------------------------- Surgery - Inpatient or 80% of negotiated rate 50% of remaining Outpatient (with CallCare balance and using a Select Hospital) - -------------------------------------------------------------------------------- Surgery - Non-Emergency 50% of negotiated rate 50% of negotiated rate Inpatient (without balance CallCare and using a Select Hospital) - -------------------------------------------------------------------------------- Surgery - Non-Emergency 50% of R&C 50% of R&C balance Inpatient (with CallCare and without using a Select Hospital) - -------------------------------------------------------------------------------- Surgery - Non-Emergency 50% of R&C 50% of R&C balance Inpatient (without CallCare and without using a Select Hospital) - -------------------------------------------------------------------------------- Maternity 80% of hospital charges 50% of remaining at Select Hospitals balance 80% of doctor's fees up 50% of R&C balance to R&C - -------------------------------------------------------------------------------- Therapies: Occupational, 90% of negotiated rates 50% of remaining Physical, Respiratory or balance up to R&C Speech (limited to 52 visits per year for all except Respiratory) - -------------------------------------------------------------------------------- Training: Biofeedback & 90% of negotiated rates 50% of remaining Orthoptics balance up to R&C - --------------------------------------------------------------------------------
8 Vision Care - ----------- The Executive Health Plan will reimburse 50% of the charges for an eye exam. The Executive Health Plan will reimburse up to $500 per family member per year for prescription glasses, contact lenses or prescription sun glasses. Hearing Care - ------------ The Executive Health Plan will reimburse 50% of the charges for hearing screening, hearing exams and for hearing aids. Non-Covered Expenses - -------------------- Expenses for chiropractic care or other medically necessary expenses allowed for deduction by IRS Section 213, but not covered by the Basic Health Plan, will be covered at 50% under the Executive Health Plan. 9 IV. The Executive Health Plan in Conjunction with the Mental Health and ------------------------------------------------------------------- Chemical Dependency Program - --------------------------- Explanation of Plan - ------------------- The Mental Health and Chemical Dependency Program applies to participants in both the Health Advantage Plan and the Basic Medical Plan. The program uses network providers that have been screened for the proper credentials and must meet specific standards of care. If services are performed by non-network providers, benefits under the plan as well as number of visits or days of hospitalization will be reduced. In-Network Providers - -------------------- The Executive Health Plan will reimburse the additional 10% not covered by the Mental Health and Chemical Dependency Program for in-network inpatient facility/provider and day or evening treatment (partial hospitalization). The Executive Health Plan will not reimburse the $10 co-payment for in-network outpatient therapy. Out-of-Network Providers - ------------------------ If out-of-network providers are chosen, the Mental Health and Chemical Dependency Program will pay 50% of the Negotiated Network Schedule (NNS) rates for properly certified providers. The Executive Health Plan will reimburse 50% of the NNS balance. Since there are limits placed on the number of visits made to an outpatient provider or days of hospitalization, the Executive Health Plan will pay 50% of the NNS rates after the visit or hospitalization limits have been reached.
- -------------------------------------------------------------------------------- In-Network Provider Out-of-Network Provider - -------------------------------------------------------------------------------- Executive Executive Medical Service Primary Plan Plan Primary Plan Plan - -------------------------------------------------------------------------------- Inpatient Facility 90% of 100% of 50% of 50% of NNS scheduled scheduled Negotiated balance, fees fee balance Network 50% of NNS Schedule charges (NNS), after 10 annual days maximum 10 day stay - -------------------------------------------------------------------------------- Inpatient Provider 90% of 100% of 50% of 50% of NNS scheduled scheduled NNS, balance, fees fee balance annual 50% of NNS maximum 10 charges days after 10 days - -------------------------------------------------------------------------------- Day/Evening Treatment 90% of 100% of 50% of 50% of NNS (partial hospitalization) scheduled scheduled NNS, balance, fees fee balance annual 50% of NNS maximum 10 charges days after 10 days - -------------------------------------------------------------------------------- Outpatient $10 No coverage 50% of 50% of NNS co-payment NNS, balance, annual 50% of NNS maximum 20 charges visits after 20 visits - -------------------------------------------------------------------------------- Annual Out-of-Pocket Included in Not Not Not Maximum HAP or applicable included applicable Basic in HAP or Medical Basic Plan Medical maximums Plan maximums - --------------------------------------------------------------------------------
10 Continued
- -------------------------------------------------------------------------------- In-Network Provider Out-of-Network Provider - -------------------------------------------------------------------------------- Executive Executive Medical Service Primary Plan Plan Primary Plan Plan - -------------------------------------------------------------------------------- Aggregate Lifetime Maximum $1,000,000 $2,000,000 $50,000 $2,000,000 (including (including non-mental non-mental health health treatment) treatment) - -------------------------------------------------------------------------------- Chemical Dependency 3 per No maximum 3 per No maximum Courses of Treatment covered covered person person - --------------------------------------------------------------------------------
11 V. The Executive Health Plan in Conjunction with the Prescription Drug Program (PCS) Covered Prescriptions - --------------------- The Executive Health Plan does not reimburse the $5.00 or $10.00 co-payment for covered PCS prescriptions. The Executive Health Plan will also not reimburse for the difference between generic and brand name prescription drugs if the doctor okays the generic but the patient requests the brand name. If the executive chooses not to use the PCS plan for covered prescriptions, no coverage will be made under the Executive Health Plan. Non-Covered Prescriptions - ------------------------- The Executive Health Plan will reimburse 50% of the cost of prescription drugs not covered by the PCS plan (i.e., birth control pills, Retin-A if over age 26). The Executive Health Plan will also reimburse 50% of the cost of some over-the- counter medications if the medication is prescribed by a physician. For example, if a physician orders a patient to take one aspirin per day for a heart condition, the cost of the aspirin would be considered for reimbursement. A copy of the physician's prescription with diagnosis is needed and must be renewed annually for this coverage to be effective. 12 VI The Executive Health Plan in Conjunction with the Motorola Dental Plan Covered Expenses - ---------------- The Executive Health Plan will reimburse 50% of the reasonable and customary balance for dental charges covered by the Motorola Dental Plan. If the Motorola Dental Plan cuts back the benefit for service, the Executive Health Plan will pick up the full 50% of the reasonable and customary charges, and will not consider the reduced benefit. For example: If a dentist places a crown and, after review, the Motorola Dental Plan judges that the tooth needed a two-surface filling, the Motorola Dental Plan will pay only 80% of the reasonable and customary charge for a two-sided filling. The Executive Health Plan will reimburse 50% of the difference between the two-sided filling and the R&C price of a crown. Motorola urges all employees to obtain a pre-treatment estimate for any dental work performed so that the dentist and the employee are aware of any cut backs to the benefits before the work is performed. The pre-treatment estimate will only provide the benefit under the Motorola Dental Plan. The Executive Plan, as a non-qualified plan, will not be listed. Orthodontia - ----------- There are two ways in which orthodontia bills can be covered under the Executive Health Plan: 1) If an executive chooses to pay the complete orthodontia bill up front and submits the entire bill and proof of payment, the Motorola Dental Plan will reimburse the maximum amount allowed immediately. The Executive Health Plan will reimburse 50% of the balance immediately to the executive. This is the only situation in which a Motorola plan and the Executive Plan will reimburse for services that have not been completed. 2) If the executive chooses to pay the initial payment and then make monthly payments to the orthodontist, the Motorola Dental Plan will reimburse each payment at 80% up to the maximum amount allowed. The Executive Health Plan will pay 50% of the balance of each bill. After the Motorola Dental Plan has paid the maximum allowed, the Executive Health Plan will continue to cover the monthly fees at 50%. Non-Covered Expenses - -------------------- For expenses not covered by the Motorola Dental Plan, or for expenses incurred after the yearly annual maximum has been reached, the Executive Health Plan will reimburse 50% of the reasonable and customary charges. 13 VII The Executive Health Plan in Conjunction with Offshore Medical Plans For executives and their qualified dependents not covered by a U.S. plan, the Executive Health Plan will pay 50% of the balances not paid by local employee plans or by government plans. If certain coverage is not offered at all, dental for example, the Executive Health Plan will pay 50% of the total charges. The Benefits office requires that for charges not covered under local plans, an executive needs to submit a written statement with signature that the local plan does not provide coverage for the type of service being submitted. A new statement must be on file each year to continue to pay benefits. Bills for services must have written on them, in English, the following information: 1) Date of service 2) Type of service (office visit, lab work, eye glasses) 3) Diagnosis 4) Provider's name 5) Exchange rate for local currency to U.S. dollars If the exchange rate is not provided on the bill, the Benefits office will use the exchange rate for the date the bill is processed. All other information must be on the bill or the executive will receive an E-Mail asking for additional information. Payments under the Executive Health Plan are made in U.S. currency and checks are sent to the executive's home. EX-10.12 6 NON EMPLOYEE DIRECTORS' STOCK PLAN Exhibit 10.12 MOTOROLA, INC. NON-EMPLOYEE DIRECTORS' STOCK PLAN as amended August 15, 1996 1. Purpose The purpose of the Motorola, Inc. Non-Employee Directors' Stock Plan (the "Plan") is to advance the interests of Motorola, Inc. (the "Company") and its stockholders by enabling members of the Board of Directors of the Company (the "Board") who are not employees of the Company or any of its Subsidiaries to receive shares of the Company's common stock, par value $3 per share, ("Common Stock"), which Common Stock may be either authorized but unissued or treasury shares, in lieu of all or a portion of the compensation they receive for membership on the Board and committees thereof. 2. Administration The plan shall be administered by the Compensation Committee of the Board (the "Committee"). The Committee shall, subject to the provisions of the Plan, have the power to construe thereunder and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. Any decisions of the Committee in the administration of the Plan, as described herein, shall be final and conclusive. The Committee may authorize any one or more of its members or the secretary of the Committee or any officer, appointed vice president or employee of the Company to execute and deliver documents on behalf of the Committee. No member of the Committee shall be liable for anything done or omitted to be done by him or her or by any other member of the Committee in connection with the Plan, except for his or her own willful misconduct or as expressly provided by statute. 3. Participation Each member of the Board who is not a regular employee of the Company or any of its Subsidiaries (a "Non-Employee Director") shall be eligible to participate in the Plan. As used herein, the term "Subsidiary" means any partnership, corporation, association, limited liability company, joint stock company, trust, joint venture, unincorporated organization or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or of the other Subsidiaries of the Company or a combination thereof, or (ii) if a partnership, association, limited liability company, joint stock company, trust, joint venture, unincorporated organization or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more Subsidiaries of the Company or a combination thereof. For purposes hereof, the Company or a Subsidiary shall be deemed to have a majority ownership interest in a 2 partnership, association, limited liability company, joint stock company, trust, joint venture, unincorporated organization or other business entity if the Company or such Subsidiary shall be allocated a majority of partnership, association, limited liability company, joint stock company, trust, joint venture, unincorporated organization or other business entity gains or losses or shall be or control the managing director, the trustee, a manager or a general partner of such partnership, association, limited lability company, joint stock company, trust, joint venture, unincorporated organization or other business entity. 4. Election to Receive Common Stock in Lieu of Cash Compensation A Non-Employee Director may elect to reduce all or part of the cash compensation otherwise payable for services to be rendered by him or her as a director (including the annual retainer fee and any fees payable for services on the Board or any committee thereof) and to receive in lieu thereof shares of Common Stock. Any such election (a) shall be in writing, (b) shall specify an amount of such compensation to be received in the form of Common Stock, expressed as a percentage of the compensation otherwise payable in cash, as an amount in dollars of compensation otherwise payable in cash or as a type of fee (e.g., retainer fee) otherwise payable in cash, and (c) shall become effective on the date of receipt by the Company. Any such election shall continue in effect until a written election to revoke or change such election is received by the Company. 5. Issuance of Common Stock If a Non-Employee Director elects pursuant to Paragraph 4 above to receive Common Stock, there shall be issued to such director promptly after the end of each calendar quarter with respect to which such election applies a number of shares of Common Stock equal to the amount of such compensation divided by the average of the high and low prices per share of Common Stock reported for the New York Stock Exchange - Composite Transactions on the last business day of the calendar quarter for which the compensation would have been paid in cash in the absence of such election; provided, however, if the New York Stock Exchange is not open for trading on such business day or if Common Stock does not trade on such business day, the average of the high and low prices for the last day of such calendar quarter on which Common Stock did so trade shall be used. To the extent that the application of the foregoing formula would result in fractional shares of Common Stock being issuable, cash will be paid to the Non-Employee Director in lieu of such fractional shares based upon the value established pursuant to such formula. 6. Number of Shares of Common Stock Issuable Under the Plan The maximum number of shares of Common Stock that may be purchased under the Plan shall be 100,000; provided, however, that if the Company shall at any time increase or decrease the number of its outstanding shares of Common Stock or change in any way the rights and privileges of such shares by means of a payment of a stock dividend or any other distribution upon such shares payable in Common Stock, or through a stock split, reverse stock split, subdivision, consolidation, 3 combination, reclassification or recapitalization involving Common Stock, then the numbers, rights and privileges of the shares issuable under the Plan shall be increased, decreased or changed in like manner. 7. Miscellaneous Provisions (a) Neither the Plan nor any action taken hereunder shall be construed as giving any Non-Employee Director any right to be retained in the service of the Company. (b) A participant's rights and interest under the Plan may not be assigned or transferred, hypothecated or encumbered in whole or in part either directly or by operation of law or otherwise (except in the event of a participant's death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such right or interest of any participant in the Plan shall be subject to any obligation or liability of such participant. (c) No shares of Common Stock shall be issued hereunder unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign securities, securities exchange and other applicable laws and requirements. (d) It shall be a condition to the obligation of the Company to issue shares of Common Stock hereunder, that the participant pay to the Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes. If the amount requested is not paid, the Company shall have no obligation to issue, and the participant shall have no right to receive, shares of Common Stock. (e) The expenses of the Plan shall be borne by the Company. (f) The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the issuance of shares hereunder. (g) By accepting any Common Stock hereunder or other benefit under the Plan, each participant and each person claiming under or through him or her shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Company or the Committee. (h) The appropriate officers of the Company shall cause to be filed any registration statement required by the Securities Act of 1933, as amended, and any reports, returns or other information regarding any shares of Common Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any other applicable statute, rule or regulation. (i) The provisions of this Plan shall be governed by and construed in accordance with 4 the laws of the State of Delaware. (j) Pending issuance of shares of Common Stock hereunder, all compensation earned by a Non-Employee Director with respect to which an election to receive Common Stock pursuant to Paragraph 4 above has been made shall be the property of such director and shall be paid to him or her in cash in the event that shares of Common Stock are not used. (k) Headings are given to the sections of this Plan solely as a convenience to facilitate reference. Such headings, numbering and paragraphing shall not in any case be deemed in any way material or relevant to the construction of this Plan or any provisions thereof. The use of the singular shall also include within its meaning the plural, where appropriate, and vice versa. 8. Amendment The Plan may be amended at any time and from time to time by resolution of the Board as the Board shall deem advisable; provided, however, that no amendment shall become effective without stockholder approval if such stockholder approval is required by law, rule or regulation, and provided further, to the extent required by Rule 16b-3 under Section 16 of the Exchange Act, in effect from time to time, Plan provisions shall not be amended more than once every six months, except that the foregoing shall not preclude any amendment to comport with changes in the Internal Revenue Code of 1986, the Employee Retirement Income Security Act of 1974 or the rules thereunder in effect from time to time. No amendment of the Plan shall materially and adversely affect any right of any participant with respect to any shares of Common Stock theretofore issued without such participant's written consent. 9. Termination This Plan shall terminate upon the earlier of the following dates or events to occur: (a) upon the adoption of a resolution of the Board terminating the Plan; or (b) ten years from the date the Plan is initially approved and adopted by the stockholders of the Company in accordance with Paragraph 10 below. No termination of the Plan shall materially and adversely affect any of the rights or obligations of any person without his or her consent with respect to any shares of Common Stock theretofore earned and issuable under the Plan. 10. Stockholder Approval and Adoption The Plan shall be submitted to the stockholders of the Company for their approval and adoption at the meeting of stockholders of the Company to be held on May 2, 1995. The Plan shall not be effective unless and until the Plan has been so approved and adopted. The stockholders shall be deemed to have approved and adopted the Plan only if it is approved and adopted at a meeting of the stockholders duly held on that date (or any adjournment of said meeting occurring subsequent to such date) by vote taken in the manner required by the laws of the State of Delaware. EX-11 7 STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS Exhibit 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share (In millions, except per share amounts)
For the Years Ended ----------------------------------- Dec. 31, Dec. 31, 1996 1995 ------------- ------------ Net Income $ 1,154 $ 1,781 Add: Interest on Zero coupon notes due 2009 and 2013, net of tax and effect of executive incentive and employee profit sharing plans 4 7 ------------- ------------ Adjusted net income $ 1,158 $ 1,788 ============= ============ EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - PRIMARY: - --------------------------------------- Weighted average common shares outstanding 592.5 589.7 Common equivalent shares: Stock options 9.9 12.8 Zero coupon notes due 2009 and 2013 6.6 7.2 ------------- ------------ Common and common equivalent shares-primary (in millions) 609.0 609.7 ------------- ------------ Net earnings per share - primary $ 1.90 $ 2.93 ============= ============ EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - FULLY DILUTED: - --------------------------------------- Weighted average common shares outstanding 592.5 589.7 Common equivalent shares: Stock options 10.5 12.9 Zero coupon notes due 2009 and 2013 6.6 7.2 ------------- ------------ Common and common equivalent shares-fully diluted (in millions) 609.6 609.8 ------------- ------------ Net earnings per share-fully diluted $ 1.90 $ 2.93 ============= ============
EX-21 8 SUBSIDIARIES OF MOTOROLA Exhibit 21 MOTOROLA, INC. LISTING OF COMBINED AND MAJOR SUBSIDIARIES 12/31/96 Motorola International Capital Corporation Delaware Motorola International Development Corporation Delaware Embarc Communications Services, Inc. Nevada Motorola Foreign Sales Corporation Virgin Islands Motorola Credit Corporation Delaware Motorola Ardis, Inc. Delaware Nippon Motorola Limited Japan Motorola G.m.b.H. Germany Motorola Limited England Motorola Asia Limited Hong Kong Motorola Korea Limited Korea Motorola Canada Limited Canada Motorola Israel Limited Israel Motorola Semiconducteurs S.A. France Motorola Malaysia Sdn. Bhd. Malaysia Motorola de Mexico, S.A. Mexico Motorola Electronics Taiwan, Limited Taiwan Motorola Electronics Pte. Limited Singapore Motorola Semiconductor Hong Kong Limited Hong Kong Motorola Semiconductor Sdn. Bhd. Malaysia Motorola Electronics Sdn. Bhd. Malaysia Motorola Lighting, Inc. Delaware Motorola S.A. France Motorola S.p.A. Italy Motorola A.B. Sweden Motorola Australia Proprietary Limited Australia Motorola Espana S.A. Spain Motorola Philippines, Inc. Philippines Motorola Communications Israel Limited Israel Telcel S.A. Spain Motorola Electronic G.m.b.H. Germany Motorola A/S Denmark Motorola (China) Electronics Ltd. China Motorola Electronique Automobile S.A. France Motorola B.V. Holland Motorola China Holdings Limited Hong Kong Motorola de Puerto Rico, Inc. Delaware Motorola de Brasil LTDA. Brazil EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated Balance Sheet as of 12/31/96 and the Statement of Consolidated Earnings for the quarter ended 12/31/96 and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1,513 298 4,172 (137) 3,220 11,319 19,598 (9,830) 24,076 7,995 1,931 1,780 0 0 10,015 24,076 27,973 0 18,990 23,705 2,308 0 185 1,775 621 0 0 0 0 1,154 1.902 1.900 TOTAL COST INCLUDES: COST OF GOODS SOLD, SELLING & ADMIN EXPENSE, TOTAL EXCH (GAIN)/LOSS. OTHER EXPENSE INCLUDES: DEPRECIATION EXPENSES.
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