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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Motorola, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Notes:
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LOGO PROXY STATEMENT
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
1997 CONSOLIDATED
FINANCIAL
STATEMENTS
AND NOTES
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PRINCIPAL EXECUTIVE OFFICES: PLACE OF MEETING:
1303 East Algonquin Road Hyatt Regency Woodfield
Schaumburg, Illinois 60196 1800 E. Golf Road
Schaumburg, Illinois 60173
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
Notice is hereby given that the annual meeting of stockholders of Motorola,
Inc., a Delaware corporation, will be held at the Hyatt Regency Woodfield, 1800
E. Golf Road, Schaumburg, Illinois 60173 on Monday, May 4, 1998 at 5:00 P.M.,
local time, for the following purposes:
1. To elect directors for the ensuing year;
2. To consider and vote upon the Motorola Incentive Plan of 1998;
3. To act upon such other matters as may properly come before the meeting.
Only stockholders of Motorola of record at the close of business on March 13,
1998 will be entitled to vote at the meeting.
PLEASE NOTE THAT ATTENDANCE AT THE MEETING WILL BE LIMITED TO STOCKHOLDERS OF
MOTOROLA AS OF THE RECORD DATE (OR THEIR AUTHORIZED REPRESENTATIVES) HOLDING
ADMISSION TICKETS OR OTHER EVIDENCE OF OWNERSHIP. THE ADMISSION TICKET IS DE-
TACHABLE FROM YOUR PROXY CARD. IF YOUR SHARES ARE HELD BY A BANK OR BROKER,
PLEASE BRING TO THE MEETING YOUR BANK OR BROKER STATEMENT EVIDENCING YOUR
BENEFICIAL OWNERSHIP OF MOTOROLA STOCK TO GAIN ADMISSION TO THE MEETING.
WE HOPE YOU WILL ATTEND THE STOCKHOLDERS' MEETING. IN ORDER THAT THERE MAY BE A
PROPER REPRESENTATION AT THE MEETING, STOCKHOLDERS ARE REQUESTED TO VOTE THEIR
PROXIES EITHER BY TELEPHONE (IF THEY ARE STOCKHOLDERS OF RECORD OR PARTICIPANTS
IN THE MOTOROLA PROFIT SHARING AND INVESTMENT PLAN) OR BY SENDING THE PROXY
CARDS IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF STOCKHOLDERS ARE PRESENT AT THE MEETING, THEIR PROXIES MAY BE
WITHDRAWN, WHETHER PREVIOUSLY VOTED BY TELEPHONE OR BY MAIL, AND THEY MAY VOTE
PERSONALLY ON ALL MATTERS BROUGHT BEFORE THE MEETING. A LIST OF THE STOCKHOLD-
ERS ENTITLED TO VOTE AT THE MEETING WILL BE AVAILABLE FOR EXAMINATION AT
MOTOROLA'S GALVIN CENTER, 1297 EAST ALGONQUIN ROAD, SCHAUMBURG, ILLINOIS 60196
FOR TEN DAYS BEFORE THE ANNUAL MEETING.
By order of the Board of Directors
/s/ A. Peter Lawson
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A. Peter Lawson
Secretary
March 23, 1998
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LOGO
1303 E. Algonquin Road
Schaumburg, IL 60196-
1079
Gary L. Tooker
Chairman of the Board
March 23, 1998
Dear Stockholders:
It is a pleasure to invite you to join us at the 1998 Annual Meeting of Stock-
holders on Monday, May 4, 1998 beginning at 5:00 P.M. local time, at the Hyatt
Regency Woodfield in Schaumburg, Illinois.
At this year's annual meeting you will be asked to elect the Board of Directors
for the next year and to vote upon the Motorola Incentive Plan of 1998. The
goal is to more closely align the compensation of the Company's employees, of-
ficers and directors with the financial success of Motorola's shareholders. The
1998 Plan also will give Motorola the flexibility to keep pace with competitors
in a very competitive employment environment and to place more focus on in-
creasing shareholder value in the reward programs for executives and other em-
ployees.
Your vote on these matters is very important and we appreciate your continued
support. Please vote either by telephone or by completing the enclosed proxy
card and mailing it back even if you plan to attend the meeting.
Very truly yours,
/s/ Gary L. Tooker
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Gary L. Tooker
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PROXY STATEMENT
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PROXY STATEMENT
The annual meeting of stockholders of Motorola, Inc. (the "Company" or "Mo-
torola") will be held on May 4, 1998 for the purposes set forth in the accompa-
nying Notice. The only matters which the Board of Directors of the Company (the
"Board") intends to present are the election of directors and adoption of the
Motorola Incentive Plan of 1998. This Proxy Statement and the enclosed proxy
and the Company's Summary Annual Report for the fiscal year ended December 31,
1997 will be first mailed to stockholders on or about March 23, 1998. The Sum-
mary Annual Report is not incorporated by reference into this Proxy Statement
and is not to be deemed a part hereof.
Only stockholders of record at the close of business on March 13, 1998 will
be entitled to notice of and to vote at the meeting or any adjournments there-
of. On that date, there were 597,700,009 issued and outstanding shares of the
Company's common stock, $3 par value per share ("Common Stock"), the only class
of voting securities of the Company.
The enclosed proxy is solicited by the Board. If the proxy in such form is
properly returned by dating, signing and mailing, or the proxy is voted prop-
erly by using the telephone voting procedures, and choices are specified, the
shares represented thereby will be voted at the meeting in accordance with
those instructions. If no choices are specified, the proxy will be voted--
FOR - Election of directors nominated by the Board; and
FOR - Adoption of the Motorola Incentive Plan of 1998.
The proxy may be revoked by the stockholder giving it at any time before it
is voted by written notice of revocation or by a later proxy, in either case
delivered using the telephone voting procedures or by mail to the Secretary of
the Company. Attendance at the 1998 Annual Meeting will not automatically re-
voke a proxy, but a stockholder in attendance may request a ballot and vote in
person, thereby revoking a prior granted proxy.
If a stockholder is a participant in the Motorola Profit Sharing and Invest-
ment Plan (the "Profit Sharing Plan") the proxy card also will serve as a vot-
ing instruction for the trustees of those plans where all accounts are
registered in the same name. If shares of Common Stock in the Profit Sharing
Plan are not voted either by telephone or by returning the proxy card repre-
senting such shares, those shares will be voted by the trustees in the same
proportion as the shares voted by telephone or for which signed cards are re-
turned by other participants.
1. ELECTION OF DIRECTORS FOR A ONE YEAR TERM
The terms of office of all present directors of the Company will expire on
the day of the annual meeting upon the election of their successors. The number
of directors of the Company to be elected at the annual meeting is 16. The di-
rectors elected at the annual meeting will serve until their respective succes-
sors are elected and qualified or until earlier death or resignation.
NOMINEES
Each of the nominees named below is currently a director of the Company and,
other than Ronnie C. Chan, was elected at the annual meeting of stockholders
held on May 6, 1997. John F. Mitchell is not standing for re-election to the
Board pursuant to the Company's policy on age and tenure of directors.
At the time of the annual meeting, if any of the nominees named below is not
available to serve as a director (an event which the Board does not now antici-
pate), the proxies will be voted for the election as directors of such other
person or persons as the Board may designate, unless the Board, in its discre-
tion, reduces the number of directors.
Set forth below are the names and ages of the nominees, the principal occupa-
tion of each, the year in which first elected a director of the Company, the
business experience of each for at least the past five years and certain other
information concerning each of the nominees.
GARY L. TOOKER
PRINCIPAL OCCUPATION:CHAIRMAN OF THE BOARD, MOTOROLA, INC.
Director since 1986; Member of the Executive Committee
PHOTO Age at 12/31/97--58
Mr. Tooker started with the Company in 1962, holding ascending marketing and
operations assignments within the semiconductor business. He served as General
Manager of the Semiconductor Products Sector from 1981 through 1986 becoming
Executive Vice President and General Manager in 1984; he became Senior Execu-
tive Vice President and Chief Corporate Staff Officer in 1986; Chief Operating
Officer in 1988; President in 1990; Vice Chairman of the Board and Chief Execu-
tive Officer in 1993; and Chairman of the Board in January of 1997. Mr. Tooker
has served as Chairman of the Semiconductor Industry Association Board of Di-
rectors, the American Electronics Association and served on the Scottsdale, Ar-
izona Boys Club Board of Directors. He is a member of the Board of Directors of
Eaton Corporation, Atlantic Richfield Company (ARCO) and Catalyst. He is Chair-
man of the Board of Junior Achievement of Chicago, a member of the Executive
Committee of the Council on Competitiveness, a member of the Board of Trustees
of Morehouse College and the Arizona State University Foundation Board of Di-
rectors. He is International Chairman of the Pacific Basin Economic Council. He
is a member of the National Academy of Engineering, the Business Council, the
Institute of Electrical and Electronics Engineers and also a member of the Na-
tional Security Telecommunications Advisory Council. He is a graduate of Ari-
zona State University where he received a bachelor's degree in Electrical
Engineering and did post-graduate studies in Business Administration. He re-
ceived the Distinguished Alumnus Award in 1983 and was awarded an Honorary Doc-
tor of Humane Letters degree in 1996 from Arizona State University.
1
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PROXY STATEMENT
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[PHOTO] RONNIE C. CHAN
PRINCIPAL OCCUPATION:
CHAIRMAN, HANG LUNG
DEVELOPMENT GROUP
Director since 1997; Member of the Finance Committee
Age at 12/31/97--48
Mr. Chan has been the Chairman of Hong Kong based Hang Lung Development
Group since 1991. Hang Lung Development Group is made up of three publicly
traded companies in property development, property investment and hotels. In
1986, Mr. Chan co-founded the private Morningside/Springfield Group and is a
director of certain companies within the Group. The Morningside Group directs
investments in private companies. The Springfield Group engages in financial
trading, fund management and investment consulting. He is a member of the
Board of Directors of Enron Corporation and Standard Chartered PLC. Mr. Chan
obtained his first two degrees in biology from California State University in
1972 and 1974 and an MBA from the University of Southern California in 1976.
Mr. Chan is a U.S. citizen residing in Hong Kong.
[PHOTO] H. LAURANCE FULLER
PRINCIPAL OCCUPATION: CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER, AMOCO CORPORATION
Director since 1994; Member of the Nominating and Audit
Committees
Age at 12/31/97--59
Mr. Fuller is Chairman of the Board and Chief Executive Officer of Amoco
Corporation, an energy company. Mr. Fuller was elected President of Amoco Cor-
poration in 1983, and its Chairman of the Board and Chief Executive Officer in
1991. He has been a member of Amoco Corporation's Executive Committee and a
member of the Board of Directors of Amoco since 1981. Mr. Fuller joined Amoco
in 1961, was named President of Amoco Oil Company in 1978, and was elected Ex-
ecutive Vice President of Amoco Corporation in 1981. He is also a director of
The Chase Manhattan Corporation, The Chase Manhattan Bank, N.A., Abbott Labo-
ratories, Security Capital Group, the American Petroleum Institute, Catalyst,
and Rehabilitation Institute of Chicago. He is a trustee of Cornell University
and the Chicago Orchestral Association. Mr. Fuller graduated from Cornell Uni-
versity in 1961 with a B.S. degree in chemical engineering, and earned a J.D.
degree from DePaul University Law School in 1965.
[PHOTO] CHRISTOPHER B. GALVIN
PRINCIPAL OCCUPATION:
CHIEF EXECUTIVE OFFICER, MOTOROLA, INC.
Director since 1988; Member of the Executive and Management
Development Committees
Age at 12/31/97--47
Mr. Galvin began working for the Company part-time in 1967 and full-time in
1973. Between 1973 and 1988 he served in sales, sales management, marketing,
product management, service management and general management positions in the
Company's Two-Way Radio, Tegal subsidiary (semiconductor capital equipment
products) and Paging businesses. In 1988, he became Chief Corporate Staff Of-
ficer and was elected to the Motorola Board of Directors. In 1990, he was ap-
pointed to the Office of the Chief Executive as Senior Executive Vice
President and Assistant Chief Operating Officer. He served as President and
Chief Operating Officer from 1993 until he became Chief Executive Officer on
January 1, 1997. Mr. Galvin received a bachelor's degree from Northwestern
University and a master's degree with distinction from the Kellogg Graduate
School of Management at Northwestern. He is a trustee of Rand Corporation,
Northwestern University, and the American Enterprise Institute. Mr. Galvin is
the son of Robert W. Galvin.
[PHOTO] ROBERT W. GALVIN
PRINCIPAL OCCUPATION:
CHAIRMAN OF THE EXECUTIVE COMMITTEE, MOTOROLA, INC.
Director since 1945
Age at 12/31/97--75
Mr. Galvin started his career at the Company in 1940. He held the senior of-
ficership position in the Company from 1959 until 1990, when he became Chair-
man of the Executive Committee. He continues to serve as a full time officer
of the Company. He attended the University of Notre Dame and the University of
Chicago, and is currently a member of the Board of Trustees of Illinois Insti-
tute of Technology. Mr. Galvin has been awarded a number of honorary degrees
as well as industrial, professional and national awards and recognition.
2
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PROXY STATEMENT
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[PHOTO] ROBERT L. GROWNEY
PRINCIPAL OCCUPATION:
PRESIDENT AND CHIEF OPERATING OFFICER, MOTOROLA, INC.
Director since 1997; Member of the Finance Committee
Age at 12/31/97--55
Mr. Growney began his career with Motorola in 1966 holding various positions
in the Company's wireless communications businesses. He was appointed a company
officer in 1985, elected Corporate Vice President by the Board of Directors in
1986, elevated to Senior Vice President in 1989, to Executive Vice President in
1992, and to President and General Manager of the Messaging, Information and
Media Sector in 1994. He was elected President and Chief Operating Officer ef-
fective January 1, 1997, and elected to the Board of Directors in February of
1997. He is currently a Director of Microware Systems Corporation and a trustee
of Illinois Institute of Technology. Mr. Growney received both his bachelor's
degree in mechanical engineering and his master's degree in business adminis-
tration from Illinois Institute of Technology in Chicago.
[PHOTO] ANNE P. JONES
PRINCIPAL OCCUPATION: CONSULTANT
Director since 1984; Chairman of the Audit Committee and Member
of the Nominating Committee
Age at 12/31/97--62
Ms. Jones is currently working as a consultant. She was a partner in the
Washington, D.C. office of the Sutherland, Asbill & Brennan law firm from 1983
until 1994. Before that, she was a Commissioner of the Federal Communications
Commission, General Counsel of the Federal Home Loan Bank Board, and was on the
staff of the Securities and Exchange Commission from 1968 to 1977. She was Di-
rector of the Division of Investment Management of the Securities and Exchange
Commission in 1976 and 1977. Ms. Jones is a director of the IDS Mutual Fund
Group and C-COR Electronics, Inc. She holds B.S. and L.L.B. degrees from Boston
College and its Law School, respectively.
[PHOTO] DONALD R. JONES
PRINCIPAL OCCUPATION: RETIRED; FORMERLY EXECUTIVE VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER, MOTOROLA, INC.
Director since 1987; Chairman of the Finance Committee and
Member of the Audit Committee
Age at 12/31/97--67
Mr. Jones joined the Company in 1951; became Director of Finance and Planning
of the Communications Division in 1968; Treasurer of the Company in 1971; Vice
President and Assistant Chief Financial Officer in 1974; Senior Vice President
and Assistant Chief Financial Officer in 1984; and Executive Vice President and
Chief Financial Officer in 1985. He retired in 1991. He is a trustee of the
Kemper Mutual Funds, Chicago, Illinois. Mr. Jones received a B.S.E.E. degree
from the University of Illinois and did graduate work in Business Administra-
tion at Northwestern University.
[PHOTO] JUDY C. LEWENT
PRINCIPAL OCCUPATION: SENIOR
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER,
MERCK & CO., INC.
Director since 1995; Member of the
Finance and Audit Committees
Age at 12/31/97--48
Ms. Lewent has been Senior Vice President and Chief Financial Officer, Merck &
Co., Inc., a pharmaceuticals company, since 1992 and was formerly its Vice
President--Finance and Chief Financial Officer (1990-1992) and Vice President
and Treasurer (1987-1990). She is also a director of Astra Merck, Inc.; the
DuPont Merck Pharmaceutical Company; Johnson & Johnson Merck Consumer Pharma-
ceuticals Company; The Quaker Oats Company; Chugai MSD Co., Ltd; and Merial
Limited. Ms. Lewent is also a trustee of the Rockefeller Family Trust. Ms.
Lewent received a B.S. degree from Goucher College and a M.S. degree from MIT
Sloan School of Management.
3
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PROXY STATEMENT
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[PHOTO] DR. WALTER E. MASSEY
PRINCIPAL OCCUPATION:
PRESIDENT OF MOREHOUSE COLLEGE
Director since 1993; Chairman of
the Technology Committee and
Member of the Nominating Committee
Age at 12/31/97--59
Dr. Massey is President of Morehouse College. After being staff physicist and
post-doctoral fellow at Argonne National Laboratory, assistant professor at the
University of Illinois, associate professor and professor of physics at Brown
University, Dr. Massey then joined Argonne National Laboratory as its director
and was named to the additional position of Vice President for Re-search at the
University of Chicago in 1982. In 1984, he became Vice President for Research
and for Argonne National Laboratory, the University of Chicago. In 1991, he was
appointed by President Bush as the Director of the National Science Foundation.
In April, 1993 he became Provost and Senior Vice Presi-dent, Academic Affairs,
University of California System, and then became Pres-ident of Morehouse College
in August, 1995. Dr. Massey received a Ph.D. degree in physics and a Master of
Arts degree from Washington University. He also holds a Bachelor of Science
degree in Physics and Mathematics from Morehouse College. He is a director of
Amoco Corporation and BankAmerica Corporation and its subsidiary, Bank of
America, N.T.S.A. Dr. Massey previously served as a director of the Company from
May 1984 until May 1991 when he accepted his ap-pointment to the National
Science Foundation.
[PHOTO] THOMAS J. MURRIN
PRINCIPAL OCCUPATION: DEAN OF
DUQUESNE UNIVERSITY'S SCHOOL
OF BUSINESS ADMINISTRATION
Director since 1991; Chairman of
the Nominating Committee and
Member of the Compensation Committee
Age at 12/31/97--68
Mr. Murrin is Dean of Duquesne University's School of Business Administra-
tion. He previously was Deputy Secretary of the U.S. Department of Commerce and
served as a U.S. delegate to the NATO Industrial Advisory Group and as a member
of the Defense Policy Advisory Committee on Trade. From 1983 to 1987, he was
President of the Energy and Advanced Technology Group of Westinghouse Electric
Corporation, which he joined in 1951. Mr. Murrin also served as Chairman of the
Commission on the Federal Appointment Process, the Federal Quality Institute,
the Board of Overseers of the Commerce Department's Malcolm Baldrige National
Quality Award and the Defense Department's Defense Manufac-turing Board. He has
also served as Distinguished Service Professor in Tech-nology and Management at
Carnegie Mellon University, as Chairman of the Board of Trustees of Duquesne
University and as a member of the Board of Trustees of Fordham University. He is
a director of Duquesne Light Company and its holding company, DQE, Inc. He also
serves as Chairman of Governor Ridge's Technology 21 Program; as Chairman of the
Pittsburgh Tissue Engineering Institute and as Chair of the Assessment Panel of
the Pittsburgh Public School System.
[PHOTO] NICHOLAS NEGROPONTE
PRINCIPAL OCCUPATION: DIRECTOR OF MEDIA LABORATORY OF
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Director since 1996; Member of the Technology Committee
Age at 12/31/97--54
Mr. Negroponte is a founder and director of the Massachusetts Institute of
Technology's Media Laboratory, an interdisciplinary, multi-million dollar re-
search center focusing exclusively on the study and experimentation of future
forms of human and machine communication. Mr. Negroponte studied at MIT, where
as a graduate student he specialized in the then new field of computer aided
design. In 1967 he founded MIT's pioneering Architecture Machine Group, a com-
bination lab and think tank responsible for many radically new approaches to the
human-computer interface. He joined the MIT faculty in 1966 and became a full
professor in 1980. In 1992 Mr. Negroponte co-founded Wired magazine of which he
is the senior columnist. Mr. Negroponte received a B.A. and M.A. in Architecture
from Massachusetts Institute of Technology.
4
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PROXY STATEMENT
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[PHOTO] JOHN E. PEPPER, JR.
PRINCIPAL OCCUPATION: CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OF PROCTER & GAMBLE CO.
Director since 1994; Member of the Compensation and Management
Development Committees
Age at 12/31/97--59
Mr. Pepper is Chairman of the Board of Directors and Chief Executive of
Procter & Gamble Co., a consumer products company. Mr. Pepper joined Procter &
Gamble in 1963, became General Manager of Procter & Gamble Italia in 1974, and
was named Division Manager-International in 1977. In 1978, he returned to the
U.S. as Vice President-Packaged Soap and Detergent Division. He was elected Ex-
EXECUTIVE Vice President of Procter & Gamble Co. and was named to its Board of
Directors in 1984, was named President in 1986 and was named Chairman of the
Board and Chief Executive in July, 1995. Mr. Pepper is also a director of the
Xerox Corporation. He is Co-Chairman of the Governor's Education Council of the
State of Ohio, a Fellow of the Yale Corporation, and was Chairman of the 1994
Cincinnati United Way Campaign. He is Co-Chairman of the Cincinnati Youth Col-
laborative and a trustee of the Christ Church Endowment Fund. Mr. Pepper gradu-
ated from Yale University in 1960 and holds honorary doctorate degrees from
Mount St. Joseph College, Xavier University and St. Petersburg University (Rus-
sia).
[PHOTO] SAMUEL C. SCOTT III
PRINCIPAL OCCUPATION: PRESIDENT AND CHIEF OPERATING OFFICER OF
CORN PRODUCTS INTERNATIONAL
Director since 1993; Chairman of the Compensation Committee and
Member of the Executive and Management Development Committees
Age at 12/31/97--53
Mr. Scott is currently President and Chief Operating Officer of Corn Products
International. Prior to this position, he was Vice President of CPC Interna-
tional and President of CPC's worldwide corn refining business. Mr. Scott joined
CPC International in 1973 in the Corn Refining Division. He held a num-ber of
positions during his career with CPC. He became a Vice President of CPC in 1991
and President of the Corn Refining Division in 1995. On December 31, 1997, CPC
spun off its corn refining division as a separate corporation, Corn Products
International. Mr. Scott serves on the Board of Directors of Corn Products
International, Reynolds Metals Company, the Corn Refiners Association and
Inroads Chicago. Mr. Scott graduated from Fairleigh Dickinson University, with a
bachelor's degree in engineering in 1966 and obtained an MBA degree there in
1973.
[PHOTO] B. KENNETH WEST
PRINCIPAL OCCUPATION: SENIOR CONSULTANT FOR CORPORATE
GOVERNANCE TO TEACHERS INSURANCE AND ANNUITY ASSOCIATION-
COLLEGE RETIREMENT EQUITIES FUND
Director since 1976; Chairman of the Management Development
Committee and Member of the Executive and Finance Committees
Age at 12/31/97--64
Mr. West is currently serving as Senior Consultant for Corporate Governance to
TIAA-CREF, a major pension fund company. He retired as Chairman of Harris
Bankcorp, Inc. in 1995 where he had been employed since 1957. He is also a di-
rector of The Pepper Companies, Inc. Mr. West is a 1955 Phi Beta Kappa graduate
of the University of Illinois and after joining Harris Bank received an M.B.A.
with honors in 1960 from the University of Chicago. He is a past Chairman of the
Board of Trustees of the University of Chicago and in 1988 was awarded the
University's honorary Doctor of Laws degree. He is a past President of the Uni-
versity of Illinois Foundation and is a past Chairman of the Civic Committee of
the Commercial Club of Chicago of which he is also a past President. Mr. West is
currently serving as Vice Chairman of the National Park Foundation.
[PHOTO] DR. JOHN A. WHITE
PRINCIPAL OCCUPATION: CHANCELLOR, UNIVERSITY OF ARKANSAS
Director since 1995; Member of the Audit and Technology
Committees
Age at 12/31/97--58
Dr. White is currently Chancellor of the University of Arkansas. Dr. White
served as Dean of Engineering at Georgia Institute of Technology from 1991 to
early 1997, having been a member of the faculty since 1975. During the period
from July 1988 to September 1991, he served as Assistant Director of the Na-
tional Science Foundation in Washington, D.C. He is a director of Eastman Chem-
ical Company, CAPS Logistics, Inc., Logility, Inc., and Russell Corporation, a
member of the National Science Board, the National Academy of Engineering, and
past president of the National Consortium for Graduate Degrees for Minorities in
Engineering and Science, Inc. Dr. White received a B.S.I.E. from the University
of Arkansas, a M.S.I.E. from Virginia Polytechnic Institute and State University
and a Ph.D. from The Ohio State University.
5
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PROXY STATEMENT
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INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP served as the Company's independent public accountants
for the fiscal year ended December 31, 1997 and are serving in such capacity
for the current fiscal year. The appointment of independent public accountants
is made annually by the Board. The decision of the Board is based on the rec-
ommendation of the audit committee, which reviews both the audit scope and es-
timated audit fees. Representatives of KPMG Peat Marwick LLP are expected to
be present at the annual meeting and will have the opportunity to make a
statement if they desire to do so and to respond to appropriate questions of
stockholders.
MEETINGS OF THE BOARD OF DIRECTORS OF THE COMPANY
During 1997, the Board had eight meetings. All incumbent directors attended
75% or more of the combined total of meetings of the Board and the committees
on which they served during 1997.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has standing audit and legal, compensation, nominating, executive,
finance, technology and management development committees. The Board also
forms ad hoc committees from time to time.
The Audit and Legal Committee (Ms. A. Jones, chairman, and Messrs. Fuller,
D. Jones, White and Ms. Lewent) which held three meetings during 1997, reviews
the accounting standards and principles followed by the Company; recommends to
the Board the appointment of independent auditors, and then reviews and ap-
proves the scope of their examinations, reports and evaluations; and receives
internal audit reports directly from the Company's internal auditors, and mon-
itors progress in the correction of any important deficiencies raised by ei-
ther auditors. The committee also receives reports from the Company's health,
safety and environmental audit function and business ethics compliance commit-
tee; monitors adherence to established corporate policies, codes and practic-
es, and arranges for any special investigations or audits that may be deemed
necessary. The committee also receives periodic reports from the Company's
general counsel; reviews the Company's policy, practice, staffing and posture
regarding legal matters; and reviews the Company's relationships with all ex-
ternal and internal attorneys.
The Compensation Committee (Messrs. Scott, chairman, Murrin, and Pepper,
none of whom is an employee of the Company) which held six meetings during
1997, reviews aggregate total compensation for all elected officers; and fixes
the salaries of the elected senior officers reporting directly to the Chief
Executive Office (the "Management Board") and of those officers who report di-
rectly to the Chief Executive Office but are not members of the Management
Board. The committee administers all compensation plans or programs which re-
quire Board responsibilities; monitors all compensation and benefit plans; re-
views Board member oversight and the performance of the Chairman of the Board
and the members of the Chief Executive Office.
The Nominating Committee (Messrs. Murrin, chairman, Fuller, Massey and Ms.
A. Jones) which held three meetings during 1997, provides written criteria as
a guideline in selecting and reviewing Board candidates; develops and prepares
a "management slate" for the annual meeting; consults with the Chairman of the
Board on proposed assignments as Committee Chairmen and members; periodically
reviews with other Board members and the Chief Executive Office the overall
effectiveness of the Board organization and the conduct of its business; annu-
ally reviews the corporate governance guidelines; and monitors procedures for
reviewing the independence and performance of all Board members.
The committee considers individuals recommended by stockholders as potential
future nominees. The names and qualifications must be submitted to the Nomi-
nating Committee in care of the Secretary of the Company at 1303 East Algon-
quin Road, Schaumburg, Illinois 60196.
The Executive Committee (Messrs. R. Galvin, chairman, C. Galvin, Mitchell,
Scott, Tooker and West) which did not meet in 1997, may review the Company's
strategic planning process, allocation of resources, and exercise Board au-
thority on specific matters assigned by the Board from time to time.
The Finance Committee (Messrs. D. Jones, chairman, Chan, Growney, West and
Ms. Lewent) which held four meetings during 1997, makes recommendations with
respect to the overall financial posture of the Company.
The Technology Committee (Messrs. Massey, chairman, Mitchell, Negroponte and
White) which held five meetings during 1997, identifies and assesses signifi-
cant technological issues and needs affecting the Company.
The Management Development Committee (Mr. West, chairman, and Messrs. C.
Galvin, Mitchell, Pepper and Scott) which held three meetings during 1997,
regularly reviews the process and results of the Company's organization and
management development program.
DIRECTOR COMPENSATION
In 1997, directors who are not employees of the Company ("non-employee di-
rectors") were paid an annual retainer of $40,000. The Company does not intend
to increase this retainer for the next year because, beginning in June 1996,
the Company began granting annual options to acquire shares of Motorola common
stock to non-employee directors. In 1997, non-employee directors received op-
tions to acquire 2,500 shares of common stock. Each non-employee director who
is chairman of a committee receives an additional $4,000 per annum. Each non-
employee director receives $1,500 per day for directors' meetings attended,
$1,000 per day for committee meetings attended which are not held in conjunc-
tion with, and on the same day as, directors' meetings; $500 per day for com-
mittee meetings attended which are held in conjunction with, and on the same
day as, director or committee meetings; and $1,500 per day and a pro-rata por-
tion thereof for partial days, for assigned work for the benefit of the Com-
pany or any subsidiary which is requested by the Board or its Chairman, any
committee of the Board or a member of the Chief Executive Office. Non-employee
directors may elect to defer receipt of all or any portion of their compensa-
tion until the year after they cease being a director, become disabled or
reach a designated age. Such deferred amounts are credited with inter-
6
<PAGE>
PROXY STATEMENT
--------------------
est at a rate based on the discount rate for ninety-day Treasury bills. Pay-
ments generally may be made in a lump sum or in annual installments over a pe-
riod not exceeding ten years. The entire undistributed deferred amount (plus
interest) will be distributed in a lump sum upon a participating director's
death. The Company also reimburses its directors and spouses who accompany di-
rectors, in certain instances, for travel, lodging and related expenses they
incur in attending Board and committee meetings.
In February 1996, the Board voted to terminate its retirement plan. Non-em-
ployee directors elected after the vote were not entitled to benefits under
this plan, and non-employee directors already participating in the plan accrued
no additional benefits for services after May 31, 1996. Directors with accrued
vested benefits are entitled to receive payment of such benefits in accordance
with the applicable payment terms of the plan, including payments to his or her
spouse in the event of death.
Non-employee directors are covered by insurance that provides accidental
death and dismemberment coverage of $500,000 per person. The spouse of each
such director is also covered by such insurance when traveling with the direc-
tor on business trips for the Company. The Company pays the premiums for such
insurance. The total premiums for coverage of all such directors and their
spouses during the year ended December 31, 1997 was $3,864.
In May 1995, the stockholders approved the adoption of the Non-Employee Di-
rectors' Stock Plan, pursuant to which non-employee directors may elect to re-
ceive all or a part of the cash compensation received for services as a
director in shares of Common Stock. Five directors are participating in the
plan.
Mr. Robert W. Galvin, a director and executive officer, owns an airplane,
which he used on business travel for the Company for approximately 75.9% of its
miles flown in 1997. The Company employs pilots and mechanics for airplanes
which it owns. They also devote a portion of their time to Mr. Galvin's air-
plane, including those times when it is not being used on Company business. The
Company pays the salaries and the cost of fringe benefits of these employees.
Mr. Galvin pays all of the other expenses of his airplane, except that the cost
of fuel, oil and relatively minor incidental crew and flight expenses incurred
solely in connection with Company business flights, are paid by the Company.
Mr. Galvin does not charge the Company when other Company personnel accompany
him on his airplane on business trips. In 1997, and historically, the percent-
age of the total expenses of the airplane which has been paid by the Company
has been less than the percentage of usage of the airplane for Company busi-
ness.
Mr. John F. Mitchell performed services primarily as a senior consultant to
the Company on the IRIDIUM(R) project. During 1997 he received $290,400, plus
expenses as compensation for these services.
APPROVAL BY STOCKHOLDERS
In order to be elected, a nominee must receive the vote of a plurality of the
outstanding shares of Common Stock represented at the meeting and entitled to
vote. Each share is entitled to one vote. Shares may be voted for or withheld
from each nominee. Shares that are withheld and broker non-votes will have no
effect on the outcome of the election.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES NAMED HEREIN AS
DIRECTORS. UNLESS INDICATED OTHERWISE BY YOUR PROXY VOTE, THE SHARES WILL BE
VOTED FOR THE ELECTION AS DIRECTORS OF SUCH NOMINEES.
7
<PAGE>
PROXY STATEMENT
- ------------------
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
The following table sets forth information as of January 31, 1998 (except as
indicated below) regarding the beneficial ownership of shares of Common Stock
by each director and nominee for director of the Company, by the persons named
in the Summary Compensation Table on page 9, and by all current directors, nom-
inees and current executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES TOTAL
UNDER SHARES
SHARES EXERCISABLE BENEFICIALLY
NAME OWNED(1) OPTIONS(2) OWNED(3)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Christopher B. Galvin(4) 3,106,614 390,000 3,511,990(5)
Gary L. Tooker 153,469 544,000 720,913(6)
Robert L. Growney 29,972 194,373 224,971
Merle L. Gilmore 24,554 168,000 193,266
James A. Norling 40,632 384,000 425,752
Ronnie C. Chan -- -- --
H. Laurance Fuller 7,811 1,000 8,811
Robert W. Galvin(4) 15,142,581 -- 15,176,758(7)
Anne P. Jones 4,094 1,000 5,094
Donald R. Jones 51,202 1,000 103,404(8)
Judy C. Lewent 2,791 1,000 3,791
Walter E. Massey 3,292 1,000 4,292
John F. Mitchell 188,877 184,750 373,627
Thomas J. Murrin(4) 20,000 1,000 21,000
Nicholas Negroponte 898 1,000 1,898
John E. Pepper, Jr. 6,063 1,000 7,413(9)
Samuel C. Scott III 5,702 1,000 6,702
B. Kenneth West 5,000 1,000 6,000
John A. White 3,939 1,000 4,939
All current directors, nominees
and current executive officers as
a group (30 persons) 19,014,604 3,042,023 22,226,885(10)
</TABLE>
------------------------------------------------------------------
(1) Includes shares over which the person currently holds or shares voting
and/or investment power but excludes interests, if any, in shares held in
the Company's Profit Sharing Trust and the shares listed under "Shares Un-
der Exercisable Options."
(2) Includes shares under options exercisable on January 31, 1998 and options
which become exercisable within 60 days thereafter.
(3) Includes interests, if any, in shares held in the Company's Profit Sharing
Trust, which is subject to some investment restrictions, and the shares
listed under "Shares Under Exercisable Options." Unless otherwise indicat-
ed, each person has sole voting and investment power over the shares re-
ported. Each director, other than Mr. R. Galvin, owns less than 1% of the
Common Stock. Mr. R. Galvin beneficially owns 2.5% of the Common Stock.
All current directors and current executive officers as a group own 3.7%.
(4) As of February 24, 1998.
(5) Mr. C. Galvin has or shares investment and voting power with respect to
these shares as follows: sole voting and investment power, 774,492 shares;
shared voting and investment power, 1,646,576 shares; sole voting power
only, 303,085 shares; and shared voting power only, 382,461 shares. In-
cluded in Mr. C. Galvin's shares are 2,020,877 shares, which are shown in
this table to be owned by Mr. R. Galvin. Mr. C. Galvin disclaims benefi-
cial ownership of all shares not held directly by him and of 14,974 shares
owned by his wife, which are included for him under "Total Shares Benefi-
cially Owned."
(6) Mr. Tooker has shared voting and investment power over 131,570 of these
shares. Mr. Tooker disclaims beneficial ownership of 74,881 shares held in
certain trusts.
(7) Mr. R. Galvin has or shares investment and voting power with respect to
these shares as follows: sole voting and investment power, 9,710,955
shares; sole investment power only, 4,096,295 shares; and shared voting
and investment power, 1,335,331 shares. Included in Mr. R. Galvin's shares
are 2,020,877 shares, which are shown in this table to be owned by Mr. C.
Galvin. Mr. R. Galvin disclaims beneficial ownership of all shares not di-
rectly held by him and of 31,222 shares owned by his wife which are in-
cluded for him under "Total Shares Beneficially Owned." Christopher B.
Galvin, presently serves as co-trustee with his father, Robert W. Galvin,
and his mother, Mary B. Galvin, under certain trusts established for their
benefit, estate planning and charity and holds an executed general power
of attorney from them to manage their assets, including the voting or
selling of Motorola shares, if that becomes necessary.
(8) Mr. Jones disclaims beneficial ownership of 51,202 shares held by his
wife, which are included for him under "Total Shares Beneficially Owned."
(9) Mr. Pepper disclaims beneficial ownership of 200 shares held by his son
and 150 shares held by his daughter, which are included for him under "To-
tal Shares Beneficially Owned."
(10) All directors, nominees and current executive officers as a group have
shared voting and investment power over 1,899,380 of these shares.
8
<PAGE>
PROXY STATEMENT
--------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------ OTHER --------------------------------
ANNUAL ALL OTHER
COMPEN- SECURITIES LTIP COMPEN-
NAME AND SALARY BONUS ($) SATION ($) UNDERLYING PAYOUTS SATION ($)
PRINCIPAL POSITION YEAR ($) (1) (2) (4)(5) OPTIONS (#) ($)(6) (7)(8)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher B. Galvin 1997 990,000 955,000 5,615 80,000 * 7,661
Chief Executive Officer 1996 840,000 590,000 2,433 80,000 1,680,000 6,815
1995 770,000 800,000 1,896 60,000 1,540,000 10,492
Gary L. Tooker 1997 1,080,000 760,000 14,901 80,000 * 15,732
Chairman of the Board 1996 1,080,000 760,000 6,841 80,000 2,160,000 14,520
1995 990,000 1,030,000 5,882 80,000 1,980,000 16,002
Robert L. Growney 1997 720,000 695,000 4,428,617(3) 60,000 * 7,225
President and Chief 1996 546,667 228,900 2,968 95,000 820,001 6,075
Operating Officer 1995 466,667 725,000 2,326 35,000 700,001 7,421
Merle L. Gilmore 1997 565,000 495,000 2,064 40,000 * 6,252
Executive Vice President 1996 495,000 396,000 1,607 60,000 742,500 5,891
1995 414,583 550,000 1,295 30,000 414,583 9,687
James A. Norling 1997 635,000 400,000 3,927,376(3) 40,000 * 10,442
Executive Vice President 1996 593,333 378,000 3,432 40,000 1,186,666 9,858
1995 555,000 610,000 2,945 40,000 1,110,000 11,611
- -------------------------------------------------------------------------------------------------
</TABLE>
* Not currently available. See footnote (6).
(1) Including amounts deferred pursuant to salary reduction arrangements under
the Profit Sharing Plan.
(2) Significant portions of these amounts were earned in each of these years
under the Motorola Executive Incentive Plan ("MEIP") for performance during
that year.
(3) Elected officers participate in a supplementary retirement plan and gener-
ally become vested in the plan at age 55. A discussion of the Company's
pension and retirement plans is on page 12. At the time of vesting the Com-
pany makes a contribution to the trust for that plan. The purpose of that
contribution is to enable the trust to make payments of the benefits under
the plan due to the participant after retirement. Federal and state tax
laws require that the participant include in income the amount of any con-
tribution in the year it was made even though the participant receives no
cash in connection with such contribution or any payments from the retire-
ment plan. Because the participant receives no cash yet incurs a signifi-
cant income tax liability, the Company believes that it is appropriate to
reimburse the participant so that he or she is not paying additional taxes
as a result of a contribution. This is the Company's policy with respect to
elected officers all of whom participate in the plan, including those named
in the Compensation Table. In 1997 Mr. Growney and Mr. Norling were reim-
bursed for tax liability in the amounts of $4,423,360 and $ 3,922,049, re-
spectively.
(4) These amounts are the Company's reimbursements for income tax liability re-
sulting from the income imputed to that executive officer as a result of
coverage by a group life insurance policy for elected officers and business
travel by spouses on Company aircraft.
(5) The aggregate amount of perquisites and other personal benefits, securities
or property, given to each named executive officer valued on the basis of
aggregate incremental cost to the Company, was less than either $50,000 or
10% of the total of annual salary and bonus for that executive officer dur-
ing each of these years.
(6) Payments for 1996 under the Long Range Incentive program were not calcula-
ble until after distribution of the Company's proxy statement for 1997 and
appear for the first time in the table above. The 1997 payments under this
plan are not calculable at this time because comparator companies' data are
not available, but may be substantial and will be less than the maximum
award payable under the program.
(7) These figures for 1997 include the following amounts for the premiums paid
under the term life portion of the split-dollar life insurance: for Mr. C.
Galvin, $4,004; Mr. Tooker, $10,646; Mr. Growney, $4,996; Mr. Gilmore,
$2,823, and for Mr. Norling, $5,356.
9
<PAGE>
PROXY STATEMENT
- ------------------
(8) These figures include the following contributions made by the Company to
the Profit Sharing Plan for 1997: for Mr. C. Galvin, $3,657; Mr. Tooker,
$5,086; Mr. Growney, $2,229; Mr. Gilmore, $3,429. and for Mr. Norling,
$5,086.
STOCK OPTION GRANTS IN 1997
Individual Grants
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
(4) AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES APPRECIATION FOR
UNDERLYING % OF TOTAL EXERCISE OPTION TERM
OPTIONS GRANTED OPTIONS GRANTED OR BASE -------------------
(# OF SHARES) TO EMPLOYEES IN PRICE EXPIRATION 10%
NAME (1)(2) 1997 ($/SH) DATE(3) 5% ($)(4) ($)(4)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christopher B. Galvin 80,000 1.2% $64.66 11/26/07 1,839,200 5,992,800
Gary L. Tooker 80,000 1.2% $64.66 11/26/07 1,839,200 5,992,800
Robert L. Growney 60,000 .9% $64.66 11/26/07 1,379,400 4,494,600
Merle L. Gilmore 40,000 .6% $64.66 11/26/07 919,600 2,996,400
James A. Norling 40,000 .6% $64.66 11/26/07 919,600 2,996,400
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) These are options granted under the Share Option Plan of 1996 to acquire
shares of Common Stock.
(2) These options were granted at fair market value at the time of the grant,
are generally not exercisable until one year after grant and carry with
them the right to elect to have shares withheld upon exercise and/or to de-
liver previously acquired shares of Common Stock to satisfy tax withholding
requirements. The options granted in 1997 to these individuals represent
significantly less than 0.1% of the shares of Common Stock outstanding.
(3) These options could expire earlier in certain situations.
(4) The potential realizable value of the options, if any, granted in 1997 to
each of these executive officers was calculated by multiplying those op-
tions by the excess of (a) the assumed market value, at November 26, 2007,
of Common Stock if the market value of Common Stock were to increase 5% or
10% in each year of the option's 10-year term over (b) the base price
shown. This calculation does not take into account any taxes or other ex-
penses which might be owed. The assumed market value at a 5% assumed annual
appreciation rate over the 10-year term is $105.32 and such value at a 10%
assumed annual appreciation rate over that term is $167.71. At $105.32 the
total market value of the shares of Common Stock outstanding on March 13,
1998 would be $62,949,764,948 which would be an increase of $28,768,795,683
from the market value of such shares at the close of business on December
31, 1997. At $167.71, the total market value of the shares of Common Stock
outstanding on March 13, 1998 would be $100,240,268,509 which would be an
increase of $66,059,299,245 from the market value of such shares at the
close of business on December 31, 1997. The 5% and 10% appreciation rates
are set forth in the Securities and Exchange Commission rules and no repre-
sentation is made that the Common Stock will appreciate at these assumed
rates or at all.
AGGREGATED OPTION EXERCISES IN 1997
AND 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT END OF 1997 IN-THE-MONEY (2) OPTIONS
SHARES ACQUIRED (#) AT END OF 1997 ($)(3)
ON EXERCISE VALUE REALIZED ------------------------- -------------------------
NAME (# OF SHARES) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christopher B. Galvin -0- -0- 390,000 80,000 5,820,705 -0-
Gary L. Tooker -0- -0- 544,000 80,000 9,548,080 -0-
Robert L. Growney -0- -0- 194,373 60,000 701,277 -0-
Merle L. Gilmore 18,000 899,100 168,000 40,000 1,363,330 -0-
James A. Norling -0- -0- 384,000 40,000 9,371,560 -0-
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) The "value realized" represents the difference between the base (or exer-
cise) price of the option shares and the market price of the option shares
on the date the option was exercised. The value realized was determined
without considering any taxes which may have been owed.
(2) "In-the-Money" options are options whose base (or exercise) price was less
than the market price of Common Stock at December 31, 1997.
(3) Assuming a stock price of $57.18 per share, which was the closing price of
a share of Common Stock reported for the New York Stock Exchange-Composite
Transactions on December 31, 1997.
10
<PAGE>
PROXY STATEMENT
--------------------
LONG-TERM INCENTIVE PLANS-AWARDS IN 1997
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
OTHER PERIOD UNDER NON-STOCK
UNTIL PRICE-BASED PLANS (1)(2)(5)
NUMBER OF MATURATION OR -----------------------------
NAME RIGHTS (#)(2) PAYOUT THRESHOLD ($)(3) TARGET ($)(4) MAXIMUM ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Christopher B. Galvin 1 4 Years 1 1,237,500 2,475,000
Gary L. Tooker 1 4 Years 1 1,350,000 2,700,000
Robert L. Growney 1 4 Years 1 900,000 1,800,000
Merle L. Gilmore 1 4 Years 1 706,250 1,412,500
James A. Norling 1 4 Years 1 793,750 1,587,500
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) All the payments shown are potential assumed amounts. There is no assurance
that Motorola will achieve results that would lead to payments under the
Company's Long Range Incentive Plan of 1994 ("LRIPL") or that any payments
will be made under this plan.
(2) Under the LRIPL, at the beginning of each four-year cycle, the Compensation
Committee determines the objective measures/metrics for that cycle. The
measures/metrics used for this purpose are return on net assets ("RONA"),
shareholder return and sales growth over a four-year period, each weighted
at 25%, compared to a selected competitive group of companies. The fourth
measurement is fundable growth weighted at 25%. An award is earned only
when Company performance exceeds the minimum specified RONA floor, notwith-
standing superior performance versus the comparator group of companies, and
can range from 0% to 200% of the lesser of (1) 125% of the executive offi-
cer's annualized base salary on January 1 of the first year of the four
year cycle, or (2) 100% of the executive officer's annualized base salary
on December 31 of the last year of the four year cycle. No payments are
made unless the minimum specified RONA floor is exceeded by Motorola.
(3) At the performance threshold, which is that point at which a payment could
be made under the LRIPL each listed current executive officer who partici-
pates in the LRIPL could receive $1 under the LRIPL.
(4) At the performance target, which is that point at which 50% of the maximum
award under the LRIPL would be payable, the indicated payments would be
made under the LRIPL.
(5) These figures were calculated using the January 1, 1997 annualized base
salary for each participating executive officer.
11
<PAGE>
PROXY STATEMENT
- ------------------
PENSION AND SUPPLEMENTARY RETIREMENT PLANS
The Company maintains a retirement income plan known as the Motorola, Inc.
Pension Plan (the "Pension Plan"). The Company's general objective is for the
after-tax payments from the Pension Plan and Social Security to provide non-
elected officer employees who have 35 years of service under the present Pen-
sion Plan formula, with approximately 80% to 100% of their final after-tax
salary after their normal retirement. The Company has established a Supplemen-
tal Pension Plan ("Supplemental Plan") for participants in the Pension Plan
who are not elected officers and who receive compensation in excess of the re-
duced compensation limit imposed by changes to the Internal Revenue Code (the
"Code"). The purpose of the Supplemental Plan is to restore the benefits that
otherwise would have been provided by the Pension Plan if the compensation
limit of the Code had not been reduced.
The Company also maintains a supplementary retirement plan in which elected
officers, including the named executive officers, participate. If the benefit
payable annually (computed on a single life annuity basis) to any named execu-
tive officer under the Pension Plan (which is generally based on varying per-
centages of specified amounts of final average earnings, prorated for service,
as described in the Pension Plan) is less than the benefit calculated under
the supplementary plan, that officer will receive supplementary payments upon
retirement at age 60 or later. The total annual payments to such officer from
both plans will, generally, aggregate a percentage of the sum of such offi-
cer's rate of salary at retirement plus an amount equal to the highest average
of the Motorola Executive Incentive Plan ("MEIP") awards paid to such officer
for any five years within the last eight years preceding retirement, as dis-
closed in the Summary Compensation Table on page 9. Such percentage ranges
from 40% to 45%, depending upon such officer's years of service and other fac-
tors. However, the total annual pension payable on the basis of a single life
annuity to any named executive officer from the Pension Plan and supplementary
retirement plan is subject to a maximum of 70% of that officer's base salary
prior to retirement. If the officer is vested and retires at or after age 57
but prior to age 60, he or she may elect to receive a deferred unreduced bene-
fit when he or she attains age 60, or an actuarially reduced benefit when that
officer retires contingent upon entering into an agreement not to compete with
the Company. If a change in control (as defined) of the Company occurs, the
right of each non-vested elected officer to receive supplementary payments
will become vested on the date of such change in control.
Participants in the supplementary retirement plan generally become vested in
the plan at age 55. At the time of vesting the Company makes a contribution to
the trust for that plan. The purpose of that contribution is to enable the
trust to make payments of the benefits under the supplementary retirement plan
due to the participant after retirement. Federal and state tax laws require
that the participant include in income the amount of any contribution in the
year it was made even though the participant receives no cash in connection
with such contribution or any payments from the retirement plan. Because the
participant receives no cash yet incurs a significant income tax liability,
the Company believes that it is appropriate to reimburse the participant so
that he or she is not paying additional taxes as a result of a contribution.
This is the Company's policy with respect to elected officers all of whom par-
ticipate in the plan, including those named in the Compensation Table. In 1997
Robert Growney and James Norling were reimbursed for tax liability in the
amounts of $4,423,360 and $3,920,049 respectively; Gary Tooker was reimbursed
$5,152,431 in 1994 and Thomas George was reimbursed $2,919,920 in 1995.
Based on salary levels at December 31, 1997, and the average of the MEIP
awards paid for the highest five years out of the last eight years, for the
named executive officers in the Summary Compensation Table, the estimated an-
nual benefit payable upon retirement at normal retirement age from the Pension
Plan, as supplemented pursuant to the officers' supplementary retirement plan
described above, and a previous retirement income plan is Mr. C. Galvin,
$693,000; Mr. Tooker, $762,636; Mr. Growney, $504,000; Mr. Gilmore, $395,500,
and Mr. Norling, $446,760.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
The Company has adopted a policy (the "salary protection policy") which gen-
erally provides that most employees of the Company and its subsidiaries would
receive a lump sum payment, based on years of service and salary in the event
their employment is involuntarily terminated (except for specific reasons)
during a two-year period following an unsolicited change in control (as de-
fined) of the Company. This policy, which is subject to specified amendment
and termination, also provides for continuation of medical plan benefits. In
addition, the Company has entered into Termination Agreements with certain key
employees, including the named executive officers, who are not covered by the
salary protection policy because of the Termination Agreements. Each Termina-
tion Agreement provides for the payment of benefits in the event that (i) the
executive officer
12
<PAGE>
PROXY STATEMENT
--------------------
terminates his or her employment for any reason within one year of a change in
control (as defined), (ii) the executive officer terminates his or her employ-
ment for "good reason" (as defined) within two years of a change in control, or
(iii) the executive officer's employment is terminated for any reason other
than termination for "good cause" (as defined), disability, death or normal re-
tirement within two years of a change in control. In the case of (ii) and (iii)
above, accumulation by a person or group of a 20 percent stock position would
constitute a change in control, although, in the case of (i) above, a 51 per-
cent stock position would be required. No benefits are payable under the Termi-
nation Agreements in the case of any change in control which the Company's
Chairman of the Board determines to be the result of a transaction which was
initiated by the Company. The amount of the benefits payable to an executive
officer entitled thereto would be equal to, in addition to unpaid salary for
accrued vacation days and accrued salary and annual bonus through the termina-
tion date, an amount equal to three times the greater of the executive offi-
cer's highest annual base salary in effect during the three years immediately
preceding the change in control and the annual base salary in effect on the
termination date, plus an amount equal to three times the highest annual bonus
received during the immediately preceding five fiscal years ending on or before
the termination date. Benefits are subject to offset to the extent that such
offset would improve the executive officer's after-tax position by eliminating
any excise taxes otherwise imposed on the employee under the "parachute pay-
ment" provisions of the Internal Revenue Code. The term of each Termination
Agreement is subject to automatic one year extensions unless the Company gives
12 months prior notice that it does not wish to extend. In addition, if a
change in control occurs during the term, the Termination Agreement continues
for an additional two years.
The following graphs and related disclosure and the Report of Compensation
Committee on Executive Compensation shall not be deemed incorporated by refer-
ence by any general statement incorporating this proxy statement into any fil-
ing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this in-
formation by reference, and shall not otherwise be deemed filed under such
acts.
13
<PAGE>
PROXY STATEMENT
- ------------------
PERFORMANCE GRAPH
The following graphs compare the cumulative total return of Motorola, Inc.,
the S&P 500 Index and a composite S&P Electronic Subgroups Index composed of
the following six S&P indices, weighted by market value at each measurement
point: the S&P Communications-Equipment/ Manufacturers Index, the S&P Computer
Systems Index, the S&P Electrical Equipment Index, the S&P Electronics Defense
Index, the S&P Electronics (Instruments) Index, and the S&P Electronics (Semi-
conductors) Index. The S&P Communications-Equipment/Manufacturers Index cur-
rently consists of 3Com Corp., Andrew Corporation, Bay Networks, Inc.,
Cabletron Systems, Inc., Cisco Systems, Inc., DSC Communications Corp., Lucent
Technologies, Inc., Nextlevel Systems Inc., Northern Telecom Limited, Scien-
tific-Atlanta, Inc. and Tellabs Inc. The S&P Computer Systems Index currently
consists of Apple Computer, Inc., Compaq Computer Corporation, Data General
Corp., Dell Computer Corp., Digital Equipment Corp., EMC Corporation, Hewlett-
Packard Co., International Business Machines Corporation, Seagate Technology,
Inc., Silicon Graphics Inc., Sun Microsystems, Inc., and Unisys Corporation.
The S&P Electrical Equipment Index currently consists of AMP Inc., Emerson
Electric Co., General Electric Company, General Signal Corp., W.W. Grainger,
Inc., Honeywell Inc., Raychem Corp., and Thomas & Betts Corp. The S&P Elec-
tronics Defense Index currently consists of EG&G, Inc. The S&P Electronics
(Instruments) Index currently consists of Perkin-Elmer Corp. and Tektronix,
Inc. The S&P Electronics (Semiconductors) Index currently consists of Advanced
Micro Devices, Inc., Applied Materials, Inc., Intel Corporation, KLA Tencor
Corporation, LSI Logic Corp., Micron Technology, Inc., Motorola, Inc., Na-
tional Semiconductor Corp. and Texas Instruments Incorporated. These graphs
assume $100 was invested in the stock or the Index on December 31, 1992 and
1987 and also assume the reinvestment of dividends.
[GRAPH APPEARS HERE]
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG MOTOROLA, S&P 500 INDEX AND S&P ELECTRONIC SUBGROUPS INDEX
<TABLE>
<CAPTION>
Measurement Period S&P S&P Electronic
(Fiscal Year Covered) Motorola, Inc. 500 Index Subgroups Index
- --------------------- -------------- --------- ---------------
<S> <C> <C> <C>
Measurement Pt-
12/31/92 $100 $100 $100
FYE 12/31/93 $177.4 $110.1 $119.0
FYE 12/31/94 $224.1 $111.5 $133.3
FYE 12/31/95 $221.8 $153.4 $181.9
FYE 12/31/96 $240.1 $189.0 $256.5
FYE 12/31/97 $226.1 $252.1 $335.5
[GRAPH APPEARS HERE]
COMPARISON OF TEN-YEAR CUMULATIVE TOTAL RETURN
AMONG MOTOROLA, S&P 500 INDEX AND S&P ELECTRONIC SUBGROUPS INDEX
Measurement Period S&P S&P Electronic
(Fiscal Year Covered) Motorola, Inc. 500 Index Subgroups Index
- --------------------- -------------- --------- ---------------
Measurement Pt-
12/31/87 $100 $100 $100
FYE 12/31/88 $ 85.7 $116.8 $ 98.5
FYE 12/31/89 $120.7 $153.7 $104.1
FYE 12/31/90 $109.9 $148.9 $103.4
FYE 12/31/91 $138.5 $194.4 $119.2
FYE 12/31/92 $223.4 $209.2 $124.0
FYE 12/31/93 $396.3 $230.3 $147.6
FYE 12/31/94 $500.5 $233.3 $165.4
FYE 12/31/95 $495.4 $320.8 $225.6
FYE 12/31/96 $536.3 $395.4 $318.1
FYE 12/31/97 $504.9 $527.4 $416.0
</TABLE>
14
<PAGE>
PROXY STATEMENT
--------------------
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAM
The objective of Motorola's executive compensation program is to attract and
retain key executives critical to the long-term success of the Company. It is
designed to align compensation with business strategy and success, and with
Company values. This means having an integrated executive compensation program
that is intended to balance short-term performance with the achievement of
long-range strategic goals and that is designed to result in continuously im-
proving total shareholder value. The program rewards executives not only for
achieving Company goals, but also in relationship to the Company's performance
compared to peer industry company performance.
SUMMARY OF COMPENSATION PLANS
For many years, Motorola has participated in a number of compensation surveys
for all job categories, exempt and nonexempt, which it believes can be
"benchmarked." One of these surveys is a "consolidated industries" report on
the compensation for executive job categories in what are currently 272 compa-
nies, of which 23 are in the S&P Electronic Subgroups Index shown on page 14.
Another survey is on the compensation for executive job categories in what are
currently 26 large (sales of $5 billion or more) "high tech" and industrial
companies, selected for their being in some of the same general lines of busi-
ness as the Company or as being viewed as generally important to the overall
high tech industry. This "high tech" survey includes 13 of the companies in the
S&P Electronic Subgroups Index shown in the graph on page 14. Because Motorola
intends to attract and retain substantially above-average executives, the de-
termination of base salaries includes a factor that raises salary range mid-
points approximately 10% above the salary levels projected using the
"consolidated industries" report, as appropriately adjusted to reflect any
higher compensation for positions indicated in the "high tech" survey, on the
basis of the Company's size and organization level (determined using regression
analysis) for directly comparable and equivalent jobs. Each year, the Chief Ex-
ecutive Office confirms to the Committee that the executive salary range mid-
points are projected to be approximately 10% above the salary levels projected
using the "consolidated industries" report. Where Company positions are broader
or narrower than other comparable positions in other companies, appropriate
judgmental adjustments are made to recognize these differences. Where Company
positions are not comparable to others studied, the Company positions are as-
signed salary ranges, which provide relative equity in relation to other Motor-
ola positions. Using this method, salary grades for each elected officer
position (including the Chief Executive Office, discussed below) in the Company
were developed and approved.
It is also the Company's general intention that, where allowed by law and lo-
cal custom, all its employees should have the opportunity to increase their to-
tal compensation by participating in one or more incentive compensation plans,
where the payments are based on Company, unit, team, or individual performance.
Section 162(m) of the Internal Revenue Code generally limits the tax deduc-
tion to $1 million for compensation paid to the executive officers listed on
page 9 unless certain requirements are met. The Company is not planning to
change the process for determining awards under the Motorola Executive Incen-
tive Plan, one of the requirements for exemption from Section 162(m), because
it is believed to be in the best interest of the Company to continue to exer-
cise discretion, in the same manner as in the past, in the determination of
MEIP awards. MEIP awards will not, therefore, be deductible to the extent they
cause the applicable employee remuneration of any executive officer to exceed
one million dollars during any given taxable year. Payments under the Share Op-
tion Plan of 1996 and the Long Range Incentive Plan of 1994 are fully-deduct-
ible as amounts paid under these plans qualify as "performance based
compensation," compensation which is exempt from the limitation on deductions
that is imposed by Section 162(m). The Share Option Plan of 1996 and the Long
Range Incentive Plan of 1994 meet the requirements for exemption from Section
162(m) and compensation paid under these plans will be deductible.
In addition to a number of localized incentive programs, such as
salespersons' commissions, Motorola has four major incentive compensation pro-
grams in operation. All four of these relate in one way or another to Company
performance and in most cases, to sector, group, division, individual or team
performance.
1. The first such program is the Motorola Stakeholders Plan, a worldwide em-
ployee bonus plan that is generally available to eligible employees who are not
eligible for the Motorola Executive Incentive Plan or certain other bonus pro-
grams. In connection with the Stakeholders Plan, which was effective as of Jan-
uary 1, 1997, the Motorola Worldwide RONA Bonus Plan has been terminated.
Participants in the Stakeholders Plan in 1997 numbered approximately 136,500.
Pursuant to the Stakeholders Plan, if the Company exceeds a minimum RONA (Re-
turn On Net Assets) percentage (as determined by the Company) all participants
are eligible for a bonus. The size of the bonus is dependent upon (i) the ex-
tent to which such minimum percentage was exceeded by the Company and (ii) if,
and to what extent, the major business unit in which the participant works ex-
ceeded its minimum RONA percentage. The RONA percentage is calculated based on
profit after tax and net assets.
If the requisite financial goals are met, the participants will receive an
annual bonus paid 50% in cash and 50% in shares of the Company's common stock
(except in jurisdictions where the delivery of stock bonuses is not legally
permitted or practical, in which jurisdictions bonuses will be paid 100% in
cash). Bonuses under the Stakeholders Plan are earned and paid annually and, if
the requisite financial targets are met, are calculated and paid in the first
quarter of the following year.
2. The second such program is the Motorola Executive Incentive Plan (MEIP).
This is participated in by elected and appointed vice presidents and above (in-
cluding the named executive officers) and employees at certain levels of man-
agement and by specific professionals who are deemed individual contributors.
Participants in 1997 numbered 949.
15
<PAGE>
PROXY STATEMENT
- ------------------
MEIP awards are generally earned and paid annually and are determined and
awarded as a percentage of the participant's base salary earnings. The Company
may provide up to 7% of its annual consolidated pretax earnings after deduct-
ing 5% of capital employed, each as defined in the MEIP, for awards under this
Plan. Amounts were added to the reserve for 1997. The MEIP award for each par-
ticipant is based on the achievement of a mixture of financial, strategic non-
financial, and individual goals set for each calendar year. The MEIP sets no
limits on the amount of awards to individual participants, except that the ag-
gregate amounts awarded under the MEIP cannot exceed the amount reserved. In
addition, the Committee has established target and upper limit MEIP award lev-
els which vary by salary range and which are updated periodically based on
competitive survey information. For exceptional performance, the upper limit
award level guidelines can be exceeded. Beginning with 1998, the Company es-
tablished stock ownership guidelines for participants not governed by the
stock ownership guidelines discussed below for vice presidents and above. Such
MEIP participants are to own at least 300 shares within a specified period.
3. The third such program is the Long Range Incentive Plan of 1994 (LRIPL),
which for the cycle that began with 1997 is participated in to varying degrees
by 38 of the Company's elected officers (including the named executive offi-
cers) and which shareholders approved in 1994. The LRIPL award is determined,
in part, by the Company's RONA, sales growth and stockholder return over a
four-year period, compared to an average of a similar calculation for a group
of selected competitive companies chosen by the Committee (the "comparator
group index") and to Company targets. The comparator group index is a group of
what is now thirteen companies, generally in one or more of the same lines of
business as the Company, and believed by the Committee to be appropriate for
measuring comparative performance on the basis of the factors in the LRIPL
over a four-year period. An award is earned only when Company performance ex-
ceeds a minimum specified RONA floor, notwithstanding superior performance
versus the comparator group index and Company targets. Additionally the award
is determined, in part, by the Company's fundable growth.
The LRIPL or a predecessor plan has been in effect in seventeen succeeding
four-year cycles, the first of which began in 1982. Under the most recent
predecessor plan, the Long Range Incentive Program ("LRIPR"), since its incep-
tion payments have been made three times, for the cycles ending with 1994,
1995 and 1996, because the Company's overall RONA performance had not previ-
ously exceeded the RONA floor set in the LRIPR. This was the case before 1994
even though in the previous four completed four-year cycles the Company's fi-
nancial performance (as measured by LRIPR) exceeded the comparator group in-
dex. Maximum awards were paid for the four-year cycles ending with 1994, 1995
and 1996, except that no awards were paid, for the cycle ending with 1994, to
participants in one of the Company's businesses, because it did not achieve
the specified RONA floor for that business. For the four-year cycle ending
with 1997, the Company-wide RONA floor set in the LRIPL was exceeded by the
Company and payments may be substantial, but will be less than the maximum
award.
4. The last such program is the Share Option Plans. The Share Option Plans
are participated in by a wide range of managerial and individual contributors.
Recipients of Share Options in 1997 numbered approximately 14,800. There are
approximately 18,800 total current Share Option holders. Share Options are
typically awarded annually to encourage optionees to own Common Stock, thus
aligning their own personal financial worth to the Company's share price
growth. They are granted with option prices at the then-market price in quan-
tities as low as 25 shares to mid-range and lower level Company employees, and
in substantially higher numbers to senior managers. The final worth of Share
Options depends wholly on the increase in the value of the Common Stock,
which, over time, reflects the Company's performance, as viewed by the market.
Beginning with the Share Option grant in December, 1993, the Company estab-
lished higher minimum stock ownership level guidelines for executive officers,
including the Chief Executive Office. Under those guidelines, if a Chief Exec-
utive Office member does not own shares of Common Stock representing four
times his base salary or if other executive officers do not own shares of Com-
mon Stock representing three times their base salaries, then such officer must
retain fifty percent of the shares that remain from any exercise of the Decem-
ber, 1993 Share Option grant and any future Share Option grants (after deduct-
ing the number of shares of Common Stock that could be surrendered to cover
the cost of such exercise and any required tax withholdings, even if he or she
does not actually surrender shares), until the minimum stock ownership level
is reached. Additionally, these guidelines set a minimum stock ownership level
of 5,000 shares of Common Stock for all other elected officers and 1,000
shares of Common Stock for all appointed vice-presidents. Under these addi-
tional guidelines, if an elected officer or appointed vice-president does not
own shares of Common Stock representing the minimum stock ownership level,
then he or she must retain fifty percent of the shares that remain from any
exercise of any Share Option granted after June 30, 1994, or after the date he
or she becomes an elected officer or appointed vice-president if later, re-
spectively, and from any future Share Option grants, after deducting the num-
ber of shares of Common Stock that could be surrendered to cover the cost of
such exercise and any required tax withholdings, even if he or she does not
actually surrender shares, until the minimum Common Stock ownership level is
reached.
On one basis or another, the rewards under each of these four major plans
depend on overall Company performance, with some also taking account of sec-
tor, group, division, small team or individual performance. There have been
years when the employees of entire sectors, groups, or divisions, as well as
executive officers (including one or more of the five most highly compensated
at that time) have received no payments under the Stakeholders Plan (or its
predecessors) or under the MEIP or LRIPR.
The description of the Motorola Incentive Plan of 1998, which the Board is
recommending that stockholders approve at the Annual Meeting, begins on page
17. As noted there, the 1998 Plan will give Motorola the flexibility to keep
pace with other "high tech" and industrial companies in a very competitive em-
ployment environment and to place more focus on increasing shareholder value.
16
<PAGE>
PROXY STATEMENT
--------------------
CHIEF EXECUTIVE OFFICE
The compensation for the Chief Executive Office members consists of base sal-
ary, annual MEIP award eligibility, LRIPR and LRIPL award eligibility, Share
Options, and certain other benefits.
In addition to the studies mentioned earlier, a special Chief Executive Offi-
cer and Chief Operating Officer compensation study is conducted periodically
for the Committee of large (sales of $10 billion or more), industrial compa-
nies, currently numbering 20, nine of which are in the S&P Electronic Subgroups
Index shown in the graph on page 14, 17 of which are included in the "high
tech" industry survey discussed on page 15. This study uses regression analysis
techniques, which relate Motorola's size to these other companies' size to ap-
proximate the appropriate base salary, other components of compensation and the
total compensation levels which should be paid for the Chief Executive Office
members, before taking into account the financial and non-financial strategic
performance of the Company and the individual performance of the Chief Execu-
tive Office members. In determining the Chief Executive Office members' base
salaries, the Committee considered the results of these studies and the salary
range midpoints that are approximately 10% above salary levels projected on the
basis of the Company's size, together with the Company's performance on its own
financial and non-financial strategic goals and the individual performance of
the Chief Executive Office members. No particular weight was given to any one
of these goals in setting base salaries for the Chief Executive Office members.
The competitive studies gave the Committee a base from which to modify salary
and/or incentive compensation based upon performance. In 1997, the Committee
reviewed, and recommended for approval to the Board, the base salaries of the
Chief Executive Office members.
CHIEF EXECUTIVE OFFICE BASE SALARY
The 1997 base salaries of Christopher B. Galvin and Robert L. Growney, the
members of the Chief Executive Office, were primarily determined as a result of
the studies and survey data referred to above, were based on their leadership
performance and their performance on other subjective performance factors de-
scribed below and were reviewed by the full Board.
CHIEF EXECUTIVE OFFICE ANNUAL MEIP
For the 1997 MEIP award, 50% of the MEIP bonus was based on RONA, sales
growth and profits. The remaining 50% was based on a number of strategic goals,
such as goals related to: specific business units; Motorola's culture and the
development of people; brand equity; and technologies. In early 1997 and in
line with competitive survey information, the Committee established, for Chief
Executive Office members, a target annual MEIP award of 85% of base salary,
with a maximum of 170%. The Committee reviewed the Company's performance for
1997 and the Chief Executive Office members' leadership and effectiveness in
attaining the level of achievement of quantifiable (financial) and non-quanti-
fiable (judgmental) goals, determined that an MEIP award was warranted and
granted an award of approximately 96.5% of each individual's 1997 base salary
to the Chief Executive Office members.
CHIEF EXECUTIVE OFFICE SHARE OPTIONS
Share Options for 80,000 shares of Common Stock at the market price on Novem-
ber 26, 1997 were awarded to Christopher B. Galvin as part of the Company's an-
nual option program, and Share Options for 60,000 shares were similarly awarded
to Robert L. Growney. This level of option awards was made using the Commit-
tee's judgment. In making these grants, the Committee referred to the options
granted and exercised by these Chief Executive Office members from 1988 to 1997
and their stock ownership as of November 1, 1997.
CHIEF EXECUTIVE OFFICE LRIPR
For the four-year periods ending with 1995 and 1996, maximum awards were paid
to the Chief Executive Office members. Data are not yet available to compute
the comparator group index for 1997. The awards earned under the LRIPR for the
four-year period ending with 1997 cannot be calculated until the data necessary
to compute the comparator group index are made public by all of the companies
reflected in the index. The minimum corporate four-year RONA percentage re-
quired to be met for payment under LRIPR was met and awards for the four-year
period ending with 1997 may be substantial, but will be less than the maximum
award payable under LRIPR.
GENERAL
Overall, the Committee believes that the Chief Executive Office members are
being appropriately compensated in a manner that relates to performance and is
in the long-term interests of the Stockholders.
Respectfully submitted,
Samuel C. Scott III, Chairman
Thomas J. Murrin
John E. Pepper, Jr.
2. ADOPTION OF MOTOROLA INCENTIVE PLAN OF 1998
The Board has adopted the Motorola Incentive Plan of 1998 (the "1998 Plan")
and is recommending that stockholders approve the 1998 Plan at the Annual Meet-
ing. The goal is to more closely align the compensation of employees, officers
and directors with the financial success of Motorola's shareholders. The 1998
Plan also will give Motorola more flexibility to keep pace with competitors in
a very competitive employment environment and to place more focus on increasing
shareholder value in the reward programs for executives and other employees.
All of the companies in the survey of "high tech" and industrial companies men-
tioned in the Report of Compensation Committee on Executive Compensation on
page 15 have plans which authorize stock options. Eighty percent of those com-
panies also authorize restricted stock, eighty percent authorize stock appreci-
ation rights, and some of the plans authorize stock grants.
The 1998 Plan is part of a significant undertaking by the Company to reexam-
ine its compensation programs to ensure that all employees, officers and direc-
tors have a stake in the financial performance of the Company. The first step
towards that goal was the adoption of the Motorola Stakeholders Plan, a world-
wide employee bonus plan paid 50%
17
<PAGE>
PROXY STATEMENT
- ------------------
in cash and (where legally permitted and practicable) 50% in Motorola Common
Stock ("Common Stock" or "Shares"). All employees who are not eligible for the
Motorola Executive Incentive Plan ("MEIP") or certain other bonus plans are
eligible to participate in the Stakeholders Plan. The Stakeholders Plan re-
placed the previous bonus plan that was paid entirely in cash. The Company in-
tends to purchase substantially all of the Shares needed for the Stakeholders
Plan in the open market in cash transactions. As a result, there will not be a
material dilutive effect on the Company's shareholders as a result of this
plan.
Stock Options will continue to be the Company's most widely used form of
long-term incentive. The 1998 Plan also will enable participants in MEIP to
elect to take all or a portion of their awards in cash, stock or restricted
stock. All MEIP participants now have stock ownership requirements and the
guidelines increase for vice presidents and above. In addition, the 1998 Plan
will enable the Company to pay fifty percent of Long Range Incentive Plan of
1994 (LRIPL) awards in stock or restricted stock at the participant's elec-
tion, and the remaining fifty percent in cash. Currently, MEIP and LRIPL
awards are paid entirely in cash. The 1998 Plan will also permit stock grants,
restricted stock grants, performance share grants, stock appreciation rights
and cash awards. It is anticipated that stock appreciation rights will be used
in place of stock options, and any appreciation in value will be paid in cash,
in order to comply with the laws and regulations of foreign jurisdictions or
to make the grant a more effective form of compensation in a foreign jurisdic-
tion. In this very competitive employment environment, the Company intends
that the grants provided under the 1998 Plan align with the financial success
of shareholders. The Company also believes that the 1998 Plan is necessary for
the effective recruitment, motivation and retention of the caliber of employ-
ees essential for achievement of that success.
A SUMMARY OF THE PRINCIPAL FEATURES OF THE 1998 PLAN IS PROVIDED BELOW, BUT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE 1998 PLAN
WHICH WAS FILED ELECTRONICALLY WITH THIS PROXY STATEMENT WITH THE SECURITIES
AND EXCHANGE COMMISSION. SUCH TEXT IS NOT INCLUDED IN THE PRINTED VERSION OF
THIS PROXY STATEMENT.
If adopted, the 1998 Plan will replace the Share Option Plan of 1996 (the
"1996 Plan"), the plan under which the Company has been granting stock op-
tions. The 1996 plan was scheduled to terminate on May 6, 2001, unless termi-
nated earlier by the Board. The 1998 Plan is scheduled to terminate on May 4,
2002, unless terminated earlier by the Board.
Awards and grants under the 1998 Plan are referred to as "Benefits." Those
eligible for Benefits under the 1998 Plan are referred to as "Participants."
SHARES AVAILABLE FOR ISSUANCE
In order to effectively implement the 1998 Plan, an additional 12,500,000
Shares for Benefits will be needed in addition to the Shares remaining for
grants under the 1996 Plan which will be transferred to the 1998 Plan. On Feb-
ruary 28, 1998 there were approximately 25,197,000 Shares available for grants
under the 1996 Plan and approximately 29,978,310 Shares subject to outstanding
options. The 12,500,000 new shares represent 2.1% of the currently outstanding
Shares. Of the total Shares available for Benefits under the 1998 Plan not
more than 5,000,000 Shares will be awarded for Benefits that are not Stock Op-
tions.
ADMINISTRATION AND ELIGIBILITY
The 1998 Plan will be administered by the Compensation Committee of the
Board (the "Committee") except for the provisions on Non-Employee Stock Op-
tions, which will be administered by the Chief Executive Officer of the Compa-
ny. With respect to Stock Options other than Non-Employee Stock Options, the
Committee will approve the aggregate grants and awards and the individual
grants for all elected officers. Other awards and grants will be determined by
the Committee or pursuant to the plans under which such grants or awards are
made. The Chief Executive Officer and Chief Operating Officer each has author-
ity to grant or award Benefits to employees who are not subject to Section 16
of the Exchange Act of 1934, as amended (the "Exchange Act") up to certain
Share limits. Any subcommittee of the Committee has authority to grant or
award Benefits to employees, including elected officers who are not executive
officers of the Company, up to certain Share limits. In making its determina-
tions, the Committee is to consider past, present and expected future contri-
butions of persons employed by the Company or any of its Subsidiaries on a
full or part-time basis. Each Non-Employee Director will automatically receive
Non-Employee Stock Options on June 1 of each Plan Year (as defined in the 1998
Plan). Any reference to the Committee includes any delegate of the Committee.
No Participant may receive in any Plan Year (i) Stock Options relating to
more than 300,000 Shares, (ii) restricted stock relating to more than 100,000
Shares, (iii) stock appreciation rights ("SARs") relating to more than 50,000
Shares or (iv) performance shares relating to more than 20,000 Shares (all
subject to adjustment).
EMPLOYEE STOCK OPTIONS
GRANTS OF OPTIONS. The Committee is authorized to grant Stock Options to
full and part-time employees of the Company and its Subsidiaries
("Optionees"), which may be either incentive stock options ("ISOs") or non-
qualified stock options ("NSOs"). NSOs and ISOs are collectively referred to
as "Employee Stock Options." All ISOs are intended to comply with the provi-
sions of the Internal Revenue Code of 1986, as amended (the "Code"), applica-
ble to ISOs. The term of an ISO cannot exceed 10 years, and the exercise price
of any Employee Stock Option must be equal to or greater than the Fair Market
Value of the Shares on the date of the grant. For purposes of the 1998 Plan,
Fair Market Value generally means the average of the high and low sale price
of Shares as reported on the New York Stock Exchange--Composite Transactions.
EXERCISABILITY. Except for Optionees who die while in the employ of the Com-
pany or any Subsidiary or in the event of a Change in Control (as defined be-
low), no Employee Stock Option may be exercised until twelve months after the
date of grant set by the Committee (the "Non-Exercise Period"). Employee Stock
Options which may be exer-
18
<PAGE>
PROXY STATEMENT
--------------------
cised because of lapse or termination of the Non-Exercise Period are referred
to as "Exercisable Options," and Employee Stock Options that have not been held
beyond the Non-Exercise Period are referred to as "Non-Exercisable Options." No
Stock Option may be exercised after its stated term.
TERMINATION. If an Optionee dies while employed by the Company or any Subsid-
iary, such Optionee's Employee Stock Options, including otherwise Non-Exercis-
able Options, may be exercised in full by the Optionee's successor-in-interest
during the remainder of the term of each such option. If an Optionee's employ-
ment terminates because of total and permanent disability (including a leave of
absence as a result of total and permanent disability), the Optionee's Non-Ex-
ercisable Options become exercisable when the Non-Exercise Period elapses or
terminates and his or her Exercisable Options continue in effect. In either
case, the Optionee has the right to exercise such Optionee's Employee Stock Op-
tions at any time during the remainder of the term of each such option.
If an Optionee retires, the Optionee's Non-Exercisable Options terminate. If
an Optionee retires at age 55 or older, the Optionee's Exercisable Options may
be exercised in full at any time during the remainder of the term of each such
option, unless such Optionee is employed by a competitor of the Company or a
Subsidiary without the Committee's consent, in which case all such Optionee's
Exercisable Options terminate.
Except as provided below, if an Optionee voluntarily terminates his or her
employment with the Company or any Subsidiary, or the Company or any Subsidiary
terminates with cause the employment of an Optionee, all such Optionee's Em-
ployee Stock Options terminate. If the Company or any Subsidiary terminates the
employment of an Optionee without cause, such Optionee's Exercisable Options
may be exercised at any time during the twelve months after the date of termi-
nation of employment, unless such Optionee is employed by a competitor of the
Company or a Subsidiary without the Committee's consent, in which case all such
Optionee's Exercisable Options terminate. If the Optionee dies within twelve
months after termination without cause, all of such Optionee's Employee Stock
Options which have not yet been terminated will not terminate and may be exer-
cised in full during the remainder of the term of such Stock Option. If the
Optionee's employment is terminated as a result of a transfer to an affiliate
of the Company, the Committee has the authority to continue such Optionee's Em-
ployee Stock Options conditioned upon the Optionee's continued employment with
the affiliate. If an Optionee is placed on leave of absence status (other than
a leave of absence as a result of a total and permanent disability), all of
such Optionee's Employee Stock Options will be suspended until the Optionee's
employment is reinstated. If an employee is placed on layoff status, all such
Optionee's Exercisable Options as of the date thereof will be exercisable for a
period of twelve months and will be suspended thereafter to the extent not ex-
ercised; if the employee is returned to active status, all such Exercisable Op-
tions that were suspended will be reinstated. The unexercised portion of each
suspended Employee Stock Option of each Optionee on leave of absence or layoff
will terminate upon termination of employment or be reinstated when the
Optionee returns to active employment status.
NON-EMPLOYEE STOCK OPTIONS
AUTOMATIC GRANT OF NON-EMPLOYEE STOCK OPTIONS. On June 1, 1998 and on June 1
of each Plan Year after 1998, each individual elected, re-elected or continuing
as a Non-Employee Director will automatically receive an NSO covering 2,500
Shares, or such greater number of Shares as determined by the Board, subject to
anti-dilution adjustments (a "Non-Employee Stock Option"). The exercise price
of a Non-Employee Stock Option is the Fair Market Value of the Shares subject
to such Stock Option on the date of grant.
EXERCISABILITY. A Non-Employee Stock Option expires 10 years after the date
of grant and may not be exercised prior to the date twelve months after the
date of grant unless the Optionee retires after reaching age 65 (including
failure to stand for re-election or be re-elected), dies or there is a Change
in Control, in which case the Stock Options become immediately exercisable.
TERMINATION. Generally, upon cessation of services as a Non-Employee Director
(for reasons other than retirement after reaching the age of 65 or death)
unexercisable Non-Employee Stock Options terminate and only those Non-Employee
Stock Options immediately exercisable at the date of cessation of service may
be exercised 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 will be for-
feited. Upon retirement after reaching age 65 or death, all Non-Employee Stock
Options previously granted to a Non-Employee Director will become or will con-
tinue to be exercisable in accordance with their terms.
RESTRICTED STOCK GRANTS
GRANTS OF RESTRICTED STOCK. Restricted Stock consists of Shares which are
transferred or sold by Motorola to a Participant, but are subject to substan-
tial risk of forfeiture and to restrictions on their sale or other transfer by
the Participant ("Restricted Stock"). The Committee determines the eligible
Participants to whom, and the time or times at which, grants of Restricted
Stock will be made, the number of Shares to be granted, the price to be paid,
if any, the time or times within which the Shares covered by such grants will
be subject to forfeiture, the time or times at which the restrictions will ter-
minate, and all other terms and conditions of the grants. Restrictions could
include, but are not limited to, continuous service with the Company, the pas-
sage of time or other restrictions.
RIGHTS OF RESTRICTED STOCKHOLDERS. Subject to the applicable restrictions,
the Committee, in its sole discretion, as determined at the time of grant, may
provide that the Shares of Restricted Stock have any or all rights of unre-
stricted Shares, including the right to vote and to receive any cash or stock
dividends. The Committee, in its sole discretion, as determined at the time of
grant, also may permit or require the payment of cash dividends to be deferred
and, if the Committee so determines, reinvested in additional Restricted Stock
to the extent Shares are available under the 1998 Plan or otherwise be rein-
vested. The Committee may require that stock dividends issued with respect to
Restricted Stock be treated as additional Restricted Stock that are subject to
the
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PROXY STATEMENT
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same restrictions and other terms and conditions that apply to the Shares with
respect to which such dividends are issued.
GRANTS AND AWARDS UNDER THE MOTOROLA LONG RANGE INCENTIVE PLAN OF 1994,
MOTOROLA EXECUTIVE INCENTIVE PLAN AND MOTOROLA NON-EMPLOYEE DIRECTORS STOCK
PLAN
Grants and awards made under the Motorola Long Range Incentive Plan of 1994
(LRIPL) and the Motorola Executive Incentive Plan (MEIP) which are payable in
Common Stock or Restricted Stock, or both, will be paid from the Shares re-
served or available for issuance under the 1998 Plan and described above under
"Shares Available for Issuance." Compensation of Non-Employee Directors which
is payable in Common Stock or Restricted Stock, or both, under the Motorola
Non-Employee Directors Stock Plan also will be paid from Shares reserved or
available for issuance under the 1998 Plan.
AWARDS UNDER THE MEIP AND LRIPL. Participants in the MEIP may elect to take
all or a portion of their MEIP awards in cash, or if available and legally
permitted or practicable, Common Stock or Restricted Stock. Participants in
the LRIPL will receive 50% of their awards in cash and, where legally permit-
ted or practicable, 50% in Common Stock or Restricted Stock. The selection of
Restricted Stock is at the option of the Participant. A description of MEIP
and LRIPL is in the Report of the Compensation Committee on Executive Compen-
sation beginning on page 15.
DIRECTOR COMPENSATION. Upon adoption of the 1998 Plan, non-employee direc-
tors will be paid 50% of their compensation in Common Stock or Restricted
Stock and may elect to have all or a portion of their remaining cash compensa-
tion in Common Stock or Restricted Stock. Compensation includes retainer fees,
meeting fees and all other fees for services to the Board or the Company, but
does not include expenses. The selection of Restricted Stock is at the option
of the non-employee director.
DETERMINATION OF RESTRICTIONS. The Board or the Committee will determine the
restrictions and conditions applicable to Restricted Stock. It is anticipated
that the restrictions applicable to Restricted Stock received under MEIP,
LRIPL or paid to non-employee directors will be primarily related to the pas-
sage of time.
PERFORMANCE SHARES
DESCRIPTION. Performance Shares are the right of a Participant to whom a
grant of such Shares is made to receive Shares or cash or a combination of
Shares and cash equal to the Fair Market Value of such Shares at a future date
in accordance with the terms of such grant.
GRANTS. The Committee may grant an award of Performance Shares subject to
such terms and conditions as the Committee deems appropriate, which may in-
clude, but are not limited to, achievement of specific business objectives,
attainment of growth rates, attainment of profit and/or other performance ob-
jectives for Motorola or one of its operating units to be achieved by the end
of a specified period or other measurements of performance. If the established
performance objectives are achieved, the Participant will be paid in Shares of
Common Stock equal to the number of Performance Shares initially granted to
that Participant or in cash equal to the Fair Market Value of such Shares or a
combination thereof. If such objectives are not met, each award of Performance
Shares may provide for lesser payments in accordance with formulas established
in the award.
STOCKHOLDER STATUS. The award of Performance Shares to a Participant will
not create any rights in such Participant as a stockholder of Motorola until
the issuance of Common Stock with respect to an award.
NO ADJUSTMENTS. No adjustment will be made in Performance Shares awarded on
account of cash or stock dividends which may be paid or other rights which may
be issued to the holders of Common Stock prior to the end of any period for
which performance objectives were established and Common Stock or cash is is-
sued to the Participant.
STOCK APPRECIATION RIGHTS
GRANTS OF STOCK APPRECIATION RIGHTS. The Committee has the authority to
grant Stock Appreciation Rights (SARs) to employees and to determine the num-
ber of Shares subject to each SAR, the term of the SAR, the time or times at
which the SAR may be exercised and all other terms and conditions of the SAR.
An SAR is a right, denominated in Shares, to receive, upon exercise of the
right, in whole or in part, without payment to Motorola, an amount, payable in
Shares, in cash or a combination thereof, that is equal to the excess of (i)
the Fair Market Value of Common Stock on the date of exercise of the right
over (ii) the Fair Market Value of Common Stock on the date of grant of the
right multiplied by the number of Shares for which the right is exercised.
NON-EXERCISE PERIOD. Except as described below, no SAR granted under the
1998 Plan may be exercised prior to the expiration of the Non-Exercise Period
or exercised after expiration of its stated term.
CERTAIN TERMS AND CONDITIONS RELATED TO EMPLOYEE STOCK OPTIONS APPLY TO
STOCK APPRECIATION RIGHTS. The terms and conditions of Section 4.5 of the 1998
Plan applicable to Employee Stock Options will also apply to SARs. Those terms
are described above under the heading Termination.
STOCK AWARDS
The committee may award Shares of Common Stock to an employee without pay-
ment therefor, as additional compensation for his or her services to the Com-
pany or a Subsidiary.
CASH AWARDS
A Cash Award consists of a monetary payment made by Motorola to an employee
as additional compensation for his or her services to the Company or a Subsid-
iary. A Cash Award may be made in tandem with another Benefit or may be made
independently of any other Benefit. Cash Awards may be subject to other terms
and conditions, which may vary from time to time and among employees, as the
Committee determines to be appropriate.
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PROXY STATEMENT
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PAYMENT FOR BENEFITS
Payment for Shares purchased upon exercise of a Stock Option or in the case
of any other Benefit that requires a payment to the Company must be made in
full at the time of purchase. Payment may be made in cash, by the transfer to
the Company of Shares owned by the participant valued at Fair Market Value on
the date of transfer, any combination of those payment methods or in such other
manner as may be authorized by the Committee. In the case of the exercise of
Employee Stock Options, if the Committee so permits, payment may be made by the
delivery of Restricted Stock during the period that the restrictions are in
place; provided, however, that the number of Shares issued upon exercise of
such Employee Stock Options, equal to the number of Shares of Restricted Stock
used as payment therefor, will be subject to the same restrictions as the Re-
stricted Stock so used, plus any additional restrictions imposed by the Commit-
tee.
AMENDMENT OF THE 1998 PLAN
Except as may be required for compliance with Rule 16b-3 under the Exchange
Act and Section 162(m) of the Code, the Board or the Committee has the right
and power to amend the 1998 Plan provided, however, that neither the Board nor
the Committee may amend the 1998 Plan in a manner which would impair or ad-
versely affect the rights of the holder of a Benefit without the holder's con-
sent. 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 1998 Plan or any type of amendment
thereto, then to the extent so required, stockholder approval will be obtained.
TERMINATION OF THE 1998 PLAN
The 1998 Plan may be terminated at any time by the Board and is scheduled to
terminate on May 4, 2002. Termination will not in any manner impair or ad-
versely affect any Benefit outstanding at the time of termination.
COMMITTEE'S RIGHT TO MODIFY BENEFITS
Any Benefit granted may be converted, modified, forfeited or canceled, in
whole or in part, by the Committee if and to the extent permitted in the 1998
Plan or applicable agreement entered into in connection with a Benefit grant or
with the consent of the Participant to whom such Benefit was granted. The Com-
mittee may grant Benefits on terms and conditions different than those speci-
fied in the 1998 Plan to comply with the laws and regulations of any foreign
jurisdiction or to make the Benefits more effective under such laws and regula-
tions.
CHANGE IN CONTROL
STOCK OPTIONS. Upon the occurrence of a Change in Control, each Stock Option
outstanding on the date on which the Change in Control occurs will immediately
become exercisable in full for the remainder of its term and each Participant
holding Stock Options will have the right, at his or her election made during a
period of 60 days following the date on which the Change in Control occurs, to
have the Company 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 Fair Market Value on the date immediately prior to the date of pay-
ment, 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.
RESTRICTED STOCK. Upon the occurrence of a Change in Control, the restric-
tions on all Shares of Restricted Stock outstanding on the date on which the
Change in Control occurs will be automatically terminated and each Participant
holding Restricted Stock will have the right to receive unrestricted Shares in
substitution for the Shares of Restricted Stock or, at his or her election made
during a period of 60 days following the date on which the Change in Control
occurs, the right to have Motorola purchase any or all Shares of Restricted
Stock for an immediate lump-sum cash payment equal to the product of (1) the
higher of (i) Fair Market Value 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 and (2) the
number of Shares of such Restricted Stock, plus the value of any Cash Award re-
lating to such Restricted Stock.
PERFORMANCE SHARES. Upon the occurrence of a Change in Control, any perfor-
mance objectives with respect to any Performance Shares previously granted, but
still considered outstanding (as a right to receive Shares at a future date and
any related Cash Award) will be deemed to have been attained to the full and
maximum extent, and Shares of Common Stock and any related Cash Award will be
paid to the Participant in an amount or amounts determined in accordance with
the terms and conditions set forth in the applicable agreement relating to the
Performance Shares.
STOCK APPRECIATION RIGHTS. Upon the occurrence of a Change in Control, each
SAR outstanding on the date on which the Change in Control occurs will immedi-
ately become exercisable in full for the remainder of its term and each Partic-
ipant holding a Stock Appreciation Right will 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
Appreciation Rights for an immediate lump-sum cash payment equal to the product
of (1) the higher of (i) the Fair Market Value on the date immediately prior to
the date of payment, or if Shares did not trade on such date, on the last pre-
vious 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 and (2) the number of Shares covered by each such Stock Appreciation
Right.
OTHER BENEFITS. Upon the occurrence of a Change in Control, any terms and
conditions with respect to other Benefits previously granted under the 1998
Plan will be deemed to be fully satisfied and the Benefits will be paid out im-
mediately to the Participants in amounts determined in accordance with the
terms and conditions set forth in the applicable grant, award or agreement re-
lating to such
Benefits.
For purposes of the 1998 Plan, the term "Change in Control" is defined as (i)
any change in the person or group
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PROXY STATEMENT
- ------------------
that possesses, directly or indirectly, the power to direct or cause the di-
rection of the management and the policies of the Company, whether through the
ownership of voting securities, by contract or otherwise; (ii) the acquisi-
tion, directly or indirectly, of securities of the Company representing at
least 20 percent of the combined voting power of the outstanding securities of
the Company (other than by the Company, or any employee benefit plan of the
Company); (iii) certain mergers and consolidations involving the Company; (iv)
the sale or other disposition of all or substantially all of the Company's as-
sets; (v) a liquidation or dissolution of the Company approved by its stock-
holders; and (vi) a change in the majority of the board in existence prior to
the first public announcement relating to any cash tender offer, exchange of-
fer, merger or other business combination, sale of assets, proxy or consent
solicitation (other than by the Board of the Company), contested election or
substantial stock accumulation.
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, con-
solidation, reorganization, combination or exchange of Shares, the number and
class of Shares available for Benefits, and the number of Shares subject to
outstanding Benefits, and the price of each of the foregoing, as applicable,
will be appropriately adjusted by the Committee to provide Participants with
the same relative rights before and after such adjustment.
NEW 1998 PLAN BENEFITS
As described above, the selection of the employees of the Company and its
Subsidiaries who will receive grants under the 1998 Plan are to be determined
by the Committee in its discretion. Therefore, it is not possible to predict
the amounts that will be received by or allocated to particular individuals or
groups of employees nor to determine the amounts that would have been received
or allocated for 1997 if the 1998 Plan had been in effect. During 1997, op-
tions to purchase approximately 6,862,000 Shares were granted to approximately
14,800 employees. No other grants of Benefits were made in 1997 under the 1996
Plan. Non-Employee Directors are the exception because their participation is
based on an automatic grant of NSOs. If the 1998 Plan is approved, each of the
twelve Non-Employee Directors of the Company will receive 2,500 grants of NSOs
on June 1, 1998. However, no dollar value is assigned to the NSOs because
their exercise price will be the Fair Market Value of the underlying stock on
the date of grant. As of March 12, 1998, the price of a Share was $55.13 as
reported for the New York Stock Exchange--Composite Transactions.
REUSAGE
If a Stock Option expires or is terminated, surrendered or canceled without
having been fully exercised or if Restricted Stock, Performance Shares or
Stock Appreciation Rights are forfeited or terminated without the issuance of
all of the Shares subject thereto, the Shares covered by such Benefits will
again be available for use under the 1998 Plan. Shares covered by a Benefit
granted under the 1998 Plan will not be counted as used unless and until they
are actually and unconditionally issued and delivered to a Participant. The
number of Shares which are transferred to Motorola by a Participant to pay the
exercise or purchase price of a Benefit will be subtracted from the number of
Shares issued with respect to such Benefit for the purpose of counting Shares
used. Shares withheld to pay withholding taxes in connection with the exercise
or payment of a Benefit will not be counted as used. Shares covered by a Bene-
fit granted under the 1998 Plan which is settled in cash will not be counted
as used.
FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised by counsel that the federal income tax conse-
quences as they relate to Benefits are as follows:
INCENTIVE STOCK OPTIONS. An Optionee does not generally recognize taxable
income upon the grant or upon the exercise of an ISO. Upon the sale of ISO
Shares, the Optionee recognizes income in an amount equal to the difference,
if any, between the exercise price of the ISO shares and the Fair Market Value
of those Shares on the date of sale. The income is taxed at long-term capital
gains rates if the Optionee: (1) has not disposed of the stock within two
years after the date of the grant of the ISO, (2) has held the Shares for at
least one year after the date of exercise and (3) has continuously remained in
the employ of the Company (or of a Subsidiary) from the date of grant until
three months before exercise (expanded to 12 months if the employment has
ceased as a result of total and permanent disability). The employment and
holding period requirements are waived when an Optionee dies.
The exercise of an ISO may, depending upon the number of ISOs exercised and
upon other factors unique to the Optionee's individual income tax situation,
trigger liability for the alternative minimum tax.
The Company does not receive a federal income tax deduction when an employee
exercises an ISO or sells ISO Shares if the employee: (1) has held the Shares
for at least one year after the date of exercise and (2) has held the Shares
for at least two years after the date of the grant of the ISO.
If an Optionee makes a disqualifying disposition of ISO Shares (i.e., sells
ISO Shares before having held them for at least one year after the date of ex-
ercise and two years after the date of grant), the Optionee recognizes ordi-
nary income (currently taxable at a maximum federal rate of 39.6 percent) to
the extent of the lesser of (1) the gain realized upon the sale or (2) the
difference between the exercise price and the Fair Market Value of the Shares
on the date of exercise. Any additional gain is treated as long-term or short-
term capital gain depending upon how long the Optionee has held the ISO Shares
prior to disposing of them in a disqualifying disposition. In the year of a
disqualifying disposition, the Company receives a federal income tax deduction
in an amount equal to the ordinary income which the Optionee recognizes as a
result of the disqualifying disposition.
NON-QUALIFIED STOCK OPTIONS. An Optionee does not recognize taxable income
upon the grant of an NSO, including a Non-Employee Director Stock Option. Upon
the exercise of such a Stock Option, the Optionee recognizes ordinary income
to the extent the Fair Market Value of the Shares received upon exercise of
the NSO on the date of ex-
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PROXY STATEMENT
--------------------
ercise exceeds the exercise price. The Company receives an income tax deduction
in an amount equal to the ordinary income which the Optionee recognizes upon
the exercise of the Stock Option.
If an Optionee sells Shares received upon the exercise of an NSO, the
Optionee recognizes capital gain income to the extent the sales proceeds exceed
the Fair Market Value of such Shares on the date of exercise. The capital gains
are long-term in nature if the Optionee has held the Shares for at least one
year and one day prior to selling it. The maximum long-term capital gains rate
for Shares held more than one year but not more than 18 months is currently 28
percent. The maximum rate for Shares held more than 18 months is 20 percent.
Ordinary income and short-term capital gains (gains on Shares held one year or
less) are currently taxed at graduated federal rates that range from 15-to-39.6
percent.
OTHER BENEFITS. In the case of an exercise of an SAR or of Performance Shares
or an award of Common Stock, the Participant will generally recognize ordinary
income upon the exercise date (or upon the date Common Stock is awarded) in an
amount equal to any cash received and the Fair Market Value of any unrestricted
Shares received. In that taxable year, the Company will receive a federal in-
come tax deduction in an amount equal to the ordinary income which the Partici-
pant has recognized.
A Participant who receives an award of Restricted Stock or elects to have all
or a portion of his or her compensation paid in the form of Restricted Stock
does not generally recognize taxable income at the time of the award or pay-
ment. Instead, assuming the existence of proper restrictions, the Participant
recognizes ordinary income in the first taxable year in which his or her inter-
est in the Shares becomes either (1) freely transferable or (2) no longer sub-
ject to substantial risk of forfeiture. On the date restrictions lapse, the
Participant includes in taxable income the Fair Market Value of the Shares less
the cash, if any, that he or she has paid for the Shares.
A Participant may elect to recognize income at the time he or she receives
Restricted Stock rather than at the time his or her interest in the Shares be-
comes freely transferable or is no longer subject to substantial risk of for-
feiture. If the Participant makes this election, he or she recognizes ordinary
income in an amount equal to the Fair Market Value of the Restricted Stock
(less any cash paid for the Shares) on the date of the award or payment.
Any gain (or loss) generated after the restrictions have lapsed or after an
election to recognize income at the time of award or payment has been filed is
capital in nature and is taxed in accordance with the rate structure described
in the tax discussion regarding Stock Options. The Company receives a compensa-
tion expense deduction in the taxable year in which restrictions lapse (or in
the taxable year of the award or payment if, at that time, the Participant had
filed a timely election to accelerate recognition of income).
The Company may not deduct compensation of more than $1,000,000 that is paid
to an individual who, on the last day of the taxable year, is either the
Company's chief executive officer or is among one of the four other most high-
ly-compensated officers for that taxable year. The limitation on deductions
does not apply to certain types of compensation, including qualified perfor-
mance-based compensation. The Company believes that Benefits in the form of Em-
ployee Stock Options, Performance Shares and SARs, and awards under the LRIPL,
constitute qualified performance-based compensation and, as such, will be ex-
empt from the $1,000,000 limitation on deductible compensation.
APPROVAL BY STOCKHOLDERS
In order to be adopted the 1998 Plan must be approved by the affirmative vote
of a majority of the outstanding shares of Common Stock represented at the
meeting and entitled to vote. Each share is entitled to one vote. Abstentions
will be considered shares present in person or by proxy and entitled to vote
and will, therefore, have the effect of a vote against the matter. Broker non-
votes will be considered shares not present for this purpose and will have no
effect on the outcome of the vote; however, abstentions and broker non-votes
will be counted for determining if a quorum is present for the annual meeting.
THE BOARD RECOMMENDS A VOTE FOR ADOPTION OF THE MOTOROLA INCENTIVE PLAN OF
1998. UNLESS OTHERWISE INDICATED ON THE PROXY, THE SHARES WILL BE VOTED FOR
ADOPTION OF THE MOTOROLA INCENTIVE PLAN OF 1998.
OTHER MATTERS
The Board knows of no other business to be transacted at the annual meeting
of stockholders, but if any other matters do come before the meeting, it is the
intention of the persons named in the accompanying proxy to vote or act with
respect to them in accordance with their best judgment.
MANNER AND COST OF PROXY SOLICITATION
The Company pays the cost of solicitation of proxies. In addition to the so-
licitation of proxies by use of the mails, officers, directors and regular em-
ployees of the Company, acting on its behalf, may solicit proxies by telephone
or personal interview. Also, the Company has retained D. F. King & Co., Inc. to
aid in the solicitation of proxies for which the Company will pay an estimated
fee of $14,000, plus expenses. The Company will, at its expense, request bro-
kers and other custodians, nominees and fiduciaries to forward proxy soliciting
material to the beneficial owners of shares held of record by such persons.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Arnold S. Brenner, an executive officer, inadvertently failed to timely re-
port on his Form 5 that as a trustee he gifted 955 shares to his children in
December, 1996.
PROPOSALS
Proposals of stockholders intended to be presented at the Company's 1999 an-
nual meeting of stockholders must be received at the Company's principal execu-
tive offices not later than November 23, 1998.
The nominating committee will consider nominees recommended by stockholders
as candidates for election to the
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Board at the next annual meeting of stockholders. A stockholder wishing to nom-
inate a candidate for election to the Board is required to give written notice
to the Secretary of the Company of his or her intention to make such a nomina-
tion. The notice of nomination must be received by the Company not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting of stockholders; provided, however, that in the event
that the date of the annual meeting is more than 30 days prior to or more than
60 days after such anniversary date, notice must be received not less than 60
days or more than 90 days prior to such annual meeting or within 10 days after
the meeting date is announced. The notice of nomination is required to contain
certain information about both the nominee and the stockholder making the nomi-
nation. A nomination which does not comply with the above procedure will be
disregarded.
Such proposals or nominations should be addressed to A. Peter Lawson, Secre-
tary, Motorola, Inc., 1303 East Algonquin Road, Schaumburg, Illinois 60196.
By order of the Board of Directors
Signature
A. Peter Lawson
Secretary
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MANAGEMENT'S
DISCUSSION AND ANALYSIS
---------------------
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This commentary should be read in conjunction with the Consolidated Finan-
cial Statements and Notes, presented on pages F-12-F-26 of this Proxy State-
ment, for a full understanding of Motorola's financial position and results of
operations.
In accordance with Rule 14a-3(c) under the Securities Exchange Act of 1934
(the "Exchange Act"), as adapted to the "Summary Annual Report" procedure, the
information contained in the following commentary and consolidated financial
statements and notes is provided solely for the information of stockholders
and the Securities and Exchange Commission. Such information shall not be
deemed to be "soliciting material" or to be "filed" with the Commission or
subject to Regulation 14A under the Exchange Act (except as provided in Rule
14a-3) or to the liabilities of Section 18 of the Exchange Act, unless, and
only to the extent that, it is expressly incorporated by reference into the
Form 10-K of Motorola, Inc. for its fiscal year ending December 31, 1997.
MOTOROLA, INC.
1997 COMPARED WITH 1996
Sales increased 7% to $29.8 billion from $28.0 billion in 1996. Geographic
market sales, measured by the locale of the end customer as a percent of total
Motorola sales, remained constant in 1996 and 1997 in the U.S., Europe, China
and in other rest-of-the-world markets, at 42%, 19%, 11% and 6%, respectively.
Geographic market sales increased from 1996 to 1997 in Latin America from 5%
to 7%. Geographic market sales declined from 1996 to 1997 in the Asia Pacific
region from 10% to 9% and in Japan from 7% to 6%.
Primarily because of current economic conditions in certain Asian markets
and related devaluation of currencies that adversely affected fourth-quarter
results, management estimates the total Company sales growth for the first
quarter to be flat or slightly higher compared to the year-ago quarter. Motor-
ola is experiencing, and expects to continue to experience, a slower rate of
growth in sales in Southeast Asia as customers defer purchases, particularly
purchases of cellular infrastructure and two-way radio public safety systems.
Certain customers in these countries are expected to decrease or discontinue
their orders, however, the Company cannot predict the extent of such actions.
During late 1997 and continuing into 1998, the Company's Consumer Systems
Group and Semiconductor Components Group, both part of the Semiconductor Prod-
ucts Sector, have been affected by significant softness in demand in Asia and
increased price pressure in most other regional semiconductor markets. The
Company believes that this is the result of competitors seeking to maintain
unit volume production and market share during this slower growth period. The
Company's paging business has had slower than normal order patterns in Asia
despite recent improvements in China. The Cellular Infrastructure Group has
had a significant slowing of business in those Asian countries most affected
by currency devaluations.
Motorola does not currently expect any material asset writedowns as a result
of currency devaluations in Southeast Asia and currently is not facing any ma-
terial bad debt exposure as a result of existing loans to customers in South-
east Asia. However, Motorola is providing greater financing assistance in some
circumstances to customers in the region.
The Company has a sizable business in Asia, particularly China and Japan.
Although Motorola expects the weak economic conditions in Southeast Asia to
contribute to a slower rate of growth in the gross domestic product of China,
they are not expected to have a material impact on the Company's sales in
China in 1998 compared to 1997. Motorola expects the impact to its sales of
China's slower gross domestic product (GDP) growth rate to be offset by im-
proved cellular phone product offerings for 1998 compared to 1997, an end in
1998 to the reduction of paging inventories within the distribution channels
in China that adversely affected the Company's sales in 1997, the continuing
buildout of cellular systems by major cellular infrastructure customers in
China, and reduced manufacturing costs for some products.
However, if the weak economic conditions in Southeast Asia spread to other
parts of Asia or have a greater impact on China, Japan or the rest of the
world than anticipated by the Company, estimated sales growth could be impact-
ed, and in some cases materially. This would impact the Company's operating
profit.
Despite the economic conditions in certain Asian markets, the Company be-
lieves the Asia region continues to represent a solid long-term growth oppor-
tunity. The Company will continue making investments in Asia as it deems
appropriate, including strategic investments in technology.
Segment operating profits were $2.3 billion in both 1997 and 1996. Net earn-
ings in 1997 were $1.18 billion, or $1.94 per diluted common share, compared
with $1.15 billion in 1996, or $1.90 per diluted common share. Net margin on
sales was 4.0%, compared with 4.1% during 1996. The 1997 earnings included net
special charges of $306 million before taxes, equivalent to 32 cents per di-
luted share after taxes, resulting primarily from restructuring decisions to
exit several unprofitable businesses that no longer had long-term strategic
value to the Company. These businesses include dynamic random access memory
(DRAM) semiconductors, MacOS(R)-compatible computer systems and retail analog
modems. Net special charges in 1996 totaled $136 million before taxes, equiva-
lent to 15 cents per diluted share after taxes. Excluding the net special
charges in both years, 1997 earnings would have been $1.38 billion, or $2.26
per share, compared with $1.24 billion, or $2.05 per share in 1996. The main
factor contributing to the 1997 increase in earnings, excluding the net spe-
cial charges, was the recovery of the Semiconductor Products segment from the
industry-wide recession of 1996. Other contributors were the growth in sales
and profits of the Cellular Products and Land Mobile Products segments.
Motorola's selling, general and administrative expenses were $5.5 billion,
or 18.5% of sales, in 1997 compared to $4.7 billion, or 16.9% of sales, in
1996. By comparison to 1996, the difference in dollars resulted from increases
in normal operating expenses, the higher net special charges mentioned earli-
er, and higher incentive compensation payments to the general employee popula-
tion.
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Depreciation expense was $2.3 billion in 1997 and 1996. During 1998, depre-
ciation expense is expected to increase.
The effective tax rate for 1997 and 1996 was 35% compared to a 36% rate for
1995. The Company currently expects an effective tax rate of 33% during 1998.
In recent years, a large portion of the Company's net sales, operating prof-
its and growth have come from its non-U.S. operations. As a result, future
Company business activities and financial results could be significantly af-
fected by the stability and policies of non-U.S. governments, particularly as
they relate to prevailing social and economic conditions, inflation rates,
monetary fluctuations, balance of payments, non-U.S. exchange rates or trade
restrictions, prohibitions and generally by economic conditions in those mar-
kets.
1996 COMPARED WITH 1995
Sales increased 3% to $28.0 billion from $27.0 billion in 1995. Geographic
market sales, measured by the locale of the end customer as a percent of total
Motorola sales, remained constant in 1995 and 1996 in China at 11%. Geographic
market sales increased from 1995 to 1996 in the United States from 41% to 42%,
in Latin America from 4% to 5%, and in other rest-of-the-world markets from 5%
to 6%. Geographic market sales declined from 1995 to 1996 in Europe from 20%
to 19%, in the Asia Pacific region from 11% to 10%, and in Japan from 8% to
7%.
Segment operating profits were $2.3 billion in 1996 compared with $3.2 bil-
lion in 1995. The main factor contributing to the decline in earnings and
slowdown in sales growth in 1996 was the recession in the semiconductor indus-
try. Other factors included product deficiencies in certain segments of the
cellular telephone and modem businesses, slower sales in the U.S. paging busi-
ness, and their impact on related component products such as rechargeable bat-
teries.
Motorola's selling, general and administrative expenses were $4.7 billion,
or 16.9% of sales, in 1996 compared to $4.6 billion, or 17.2% of sales, in
1995. By comparison to 1995, the difference in dollars resulted from increases
in normal operating expenses and special charges related to various asset
writedowns and strategic decisions to end certain technology development pro-
grams that no longer offered the growth potential to justify further invest-
ment. These increases were largely offset by lower incentive compensation
payments to employees that resulted from the decrease in Company profits.
Net earnings in 1996 were $1.15 billion, or $1.90 per diluted common share,
compared with $2.05 billion in 1995, or $3.37 per diluted common share. In-
cluded in the 1995 results is a one-time gain on the sale of 800 megahertz
Specialized Mobile Radio business, systems and licenses in the U.S. to Nextel
Communications, Inc. for shares of Nextel stock. The 1995 earnings also in-
clude net special charges of $43 million before taxes, equivalent to 4 cents
per diluted share after taxes. Excluding the effects of the one time gain and
the net special charges for both years, 1996 earnings would have been $1.24
billion, or $2.05 per diluted common share, compared with $1.79 billion, or
$2.95 per diluted common share in 1995. Net margin on sales was 4.1%, compared
with 7.6% during 1995. Excluding the one-time gain and net special charges for
both years, 1996 net margin on sales was 4.4%, compared to 6.6% in 1995.
MOTOROLA, INC. SEGMENTS
The following commentary should be read in conjunction with the 1997 finan-
cial results of each reporting segment as detailed in Note 8, "Information by
Industry Segment and Geographic Region" of the Consolidated Financial State-
ments and Notes in this Proxy Statement.
CELLULAR PRODUCTS
The Cellular Products segment, formerly the General Systems Products seg-
ment, primarily designs, manufactures, markets, distributes, installs, and
services cellular infrastructure equipment and cellular telephone subscriber
units.
Segment sales advanced 10% to $11.9 billion, orders rose 9% and segment op-
erating profits were higher. Sales increased over 1996 as the segment contin-
ued to benefit from the growth of the world-wide cellular industry, which saw
the number of subscribers using cellular systems around the world increase to
approximately 201 million from approximately 135 million at the end of 1996.
Despite this growth, the world market penetration for cellular telephones is
still only approximately 3%.
For 1997, Cellular Subscriber Sector (CSS) sales and orders were higher.
Sales and orders increased in all major geographic markets except Asia, where
they declined. Motorola's line of GSM (Global System for Mobile Communica-
tions) products had strong unit volume growth in each quarter of 1997 which
significantly contributed to CSS sales growth. In 1997, average selling price
declines for both digital and analog products were within the historical
range.
The Company's share of the overall cellular telephone market has declined as
a result of an acceleration of the technology shift from analog to digital,
increasing competition in the digital product market, and delays in the
Company's introduction of some digital products. Historically, the Company's
share of the analog market has been higher when compared to its current share
of the digital market. The Company expects to introduce new digital products
in 1998 to increase its digital product market share. However, the Company's
overall market share may continue to be adversely affected if the transition
from analog to digital technology goes faster than anticipated. The impact of
that transition has affected, in 1997 and continuing in 1998, demand for ana-
log products in the U.S. In the largest digital market, GSM and derivative
products, Motorola is in a leadership position and has maintained or grown its
share over the past year.
In 1997, CSS debuted a variety of new and innovative wireless communications
products. In the first quarter, the Sector announced the MicroTac(R) Interna-
tional 8800 cellular phone, the world's first cellular phone capable of oper-
ating on both GSM and Personal Communication Service (PCS) networks. Later in
the year, Motorola demonstrated another world first in mobile communications
with the first live demonstration of its seamless Dual Band MicroTAC Interna-
tional 8900 cellular telephone on a GSM system. Motorola also expanded its GSM
product line to include the D160 "entry level" GSM phone and the Slimlite(TM)
"mid-tier" phone.
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Motorola also announced the availability in Japan of the worlds smallest PHS
(Personal Handyphone Systems) phone that blends wireless communications be-
tween the home, the office and the mobile environment by switching automati-
cally from a home cordless phone to a mobile phone within the PHS public
network.
In the fourth quarter, the MicroDigital M75 Time Division Multiple Access
(TDMA) cellular telephone became commercially available. Motorola's latest
digital personal phone weighs as little as six ounces and incorporates a vari-
ety of beneficial features for consumers in a compact and convenient package.
The segment's Cellular Infrastructure Group (CIG) sales and orders were
higher. CIG sales and orders were higher in Pan America and Asia but lower in
Europe.
The Company's share of the cellular infrastructure equipment market has de-
clined primarily as a result of an acceleration of the technology shift from
analog to digital, increasing competition in the digital equipment market, and
the Company's decision not to develop U.S. Time Division Multiple Access
(TDMA) infrastructure equipment. The Company expects to benefit from its de-
velopment of Code Division Multiple Access (CDMA) digital technology and has
continued to establish itself as a leading provider of CDMA infrastructure
equipment worldwide by winning major contracts in Japan, Israel, Peru and the
U.S. in 1997. During the year, CIG increased the number of commercial CDMA
networks it has launched to 38.
CIG also announced it had won contracts to deploy or expand GSM networks in
more than 15 markets in 1997. To date, CIG has been awarded contracts to de-
ploy more than 80 GSM networks in more than 40 countries worldwide. CIG is the
market leader in wireless local loop deployments worldwide with WiLL(R) sys-
tems in more than 25 countries and has provided infrastructure for several of
the largest wireless local loop networks thus far deployed.
SEMICONDUCTOR PRODUCTS
The Semiconductor Products segment designs, produces and distributes inte-
grated semiconductor solutions and components for the consumer, networking and
computing, transportation and wireless communications markets worldwide.
Segment sales increased 2% to $8.0 billion, orders were up 17% and segment
operating profits were lower, but would have increased except for the second
quarter $170 million special charge in connection with exiting the DRAM busi-
ness. Segment orders were higher in all major geographic markets, benefiting
from the end of the 1996 recession in the world-wide semiconductor industry.
Segment sales were higher in Asia, but declined in Europe and Pan America. Mo-
torola internal business units consumed approximately 22% of the segment's
product output in 1997.
In mid-1997, the Semiconductor Products Sector (SPS) was reorganized into
five groups, four of which are market focused and one that is product focused:
Networking & Computing Systems Group, Wireless Subscriber Systems Group,
Transportation Systems Group, Consumer Systems Group, and Semiconductor Compo-
nents Group. In addition, manufacturing was placed under centralized manage-
ment. All groups experienced higher sales and higher orders in 1997 compared
with 1996.
In 1997, a decision was made to phase out of the DRAM market, reallocating
resources to other more profitable technologies, including proprietary fast
static random access memories (FSRAM) and integrated memories such as flash
and electrically erasable programmable read-only memory (EEPROM).
To better serve emerging customer needs in the Latin America region, the
Sector opened a Semiconductor Technology Center near Sao Paulo, Brazil, to
provide world class integrated design, software and applications support. The
center is focusing on design of new products for high growth automotive,
telecom and consumer electronics end markets.
During 1997, SPS made a significant technology announcement about develop-
ment of a process that uses copper interconnects rather than aluminum in inte-
grated circuits. The dual inlaid copper interconnect technology is designed to
bring high-end computing power to products such as cellular phones and per-
sonal digital assistants.
In 1997, the Sector invested significantly in development of embedded proc-
essors and applications to leverage the PowerPC(TM) architecture into new
business opportunities. Numerous design-ins for embedded applications of
PowerPC cores occurred in communications, networking and consumer/multimedia
markets. Motorola and IBM announced a commitment to expand joint development
of the PowerPC architecture to high-performance, 32-bit embedded solutions,
and Motorola delivered three new PowerPC microprocessors featuring next-gener-
ation design and 0.25 micron process technology. The segment also announced
porting of the JavaOS(TM) operating system to the MPC821 PowerPC microproces-
sor, which will enable system manufacturers to build handheld, portable commu-
nication devices that can quickly perform compute-intensive applications for
modems, imaging, and voice and handwriting recognition.
During the year, SPS announced the industry's first 350 megahertz (MHz) mi-
croprocessor unit (MPU), a PowerPC 604e(TM) model, for volume desktop and por-
table computing applications. To fill an important slot in its microprocessor
applications portfolio, SPS introduced the M-CORE(TM) microRISC (Reduced In-
struction Set Computer) 32-bit architecture tailored for cost-effective, ultra
low-power consumer, transportation and industrial products. The Sector also
continued to expand the ColdFire(R) processor family, adding a 32-bit embedded
microprocessor architecture that is ideal for a wide variety of applications,
including printers. SPS finalized an agreement with Mitsubishi that will allow
both companies to provide the embedded merchant market with system solutions
using ColdFire processor and DRAM memory functions on a single chip.
As smart cards continued to provide a dramatically expanding market for
semiconductors in 1997, Motorola selectively launched new alliances and a num-
ber of new product introductions. During the year, Visa launched its largest
U.S. smart card program to date in New York City, using smart cards powered by
Motorola MCUs, with 15,000 customers and 600 vendors.
In mid year, SPS also introduced the MPAA020 Field Programmable Analog Array
(FPAA), the industry's first true analog counterpart to a Field Programmable
Gate Array (FPGA). The device provides customers the capability to
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create custom analog integrated circuit designs with the same flexibility as
in a digital FPGA. By the end of 1997, Motorola had received product innova-
tion awards for the FPAA from two prestigious industry trade publications.
LAND MOBILE PRODUCTS
The Land Mobile Products segment is comprised primarily of the following
businesses: Radio Network Solutions Group, iDEN(R), or Integrated Digital En-
hanced Network Group, and Radio Products Group. The segment designs, manufac-
tures and distributes analog and digital two-way voice and data radio
communications products and systems for applications worldwide, from on-site
to wide-area communications.
Segment sales rose 23% to $4.9 billion and operating profits were higher.
Segment geographic sales and orders were higher in Europe and Pan America
while they declined in Asia, which is presently a small market for this seg-
ment. Orders increased 27% and were higher for both the segment's traditional
analog products and its newer digital systems products. Orders for iDEN(R)
equipment were higher as more than one million subscribers were added to iDEN
systems around the world during 1997. In the segment's other businesses, de-
mand was greater for both large advanced systems and analog portable and mo-
bile two-way radios.
During 1997, the Radio Network Solutions Group (RNSG) experienced increased
sales and orders. RNSG expanded its CENTRALINK 911(TM) line of products for
the emergency dispatch market and introduced a number of data products includ-
ing: the Mobile Workstation 520, a mobile data terminal that provides the
power of a desktop computer for in-vehicle use under rugged conditions; and
vehicular and portable radio modems. RNSG announced the VersiTAC(TM) Inte-
grated Wireless Data Solution, which enhances the benefits of operating on a
public wireless network by integrating applications, devices and networks with
existing wireline systems, as well as enabling users to integrate a private
wireless data system with a public data system to create one network solution.
In Europe, RNSG began shipping its Dimetra(TM) system, making it the first
manufacturer to ship a system fully compliant with the TETRA (Terrestrial
Trunked Radio) digital trunking standard. In September 1997, RNSG completed
the acquisition of the Private Mobile Radio (PMR) business of Robert Bosch
GmbH, Germany, to enhance distribution and broaden its product portfolio in
Europe.
For 1997, iDEN(R) sales and orders were higher. Orders for iDEN subscriber
and infrastructure radio equipment were higher, primarily due to orders re-
ceived from Nextel Communications, Inc. as it continues the rollout of its na-
tionwide integrated digital enhanced network in the U.S. and from Nextel
International, Inc. for iDEN systems under construction in various markets,
including Argentina, Brazil and Mexico. Orders for new iDEN systems and expan-
sions of existing systems were received from several other customers in vari-
ous international markets. Shipments began on the smallest, lightest
integrated digital handset, the iDEN i600(TM), which enables users to make a
wireless telephone call, hold a group or private conference with the push of a
button, and receive text messages. The handset has many convenient features
including VibraCall(R) silent alert, the ability to have two phone numbers and
extended battery performance.
In 1997, the Radio Products Group (RPG) had higher sales and orders. RPG in-
troduced new portable and mobile two-way radios meeting market-specific re-
quirements in different countries for a variety of industrial, government,
commercial and consumer applications. The GM950 mobile two-way radio with Se-
lect 5 signaling offers mobile workers in Europe and Asia advanced functions
and improved audio. The GP68 portable two-way radio was introduced into Latin
American countries. The 1225 series of two-way radios, including portables,
mobiles and a repeater, was introduced in the Americas region to meet the
needs of commercial and industrial customers, providing them with greater
spectrum flexibility. The GR1225 repeater also was introduced in Asian coun-
tries.
Motorola's consumer TalkAbout(TM) portable two-way radio began shipping in
the U.S. in 1997 and was introduced in Taiwan, representing Asia's first Fam-
ily Radio Service (FRS) two-way radio. A new Spirit(R) M-series(TM) of busi-
ness radios operates on frequencies with simplified licensing and was
introduced to provide business and commercial customers with simple-to-use,
on-site communications. The TalkAbout and Spirit series of consumer two-way
radios can be purchased in the U.S. at more than 13,000 retail locations as
well as through catalogs.
The Smartcard Systems Business was established to serve the global smart
card market as a total solutions provider. The business announced its initial
M-Smart(TM) series of products including a combination contacted/contactless
smart card and two new families of terminals developed for public transit and
campus/ID (identification) markets. The business entered into a global strate-
gic alliance with ERG Ltd., a transit fare collection provider based in Aus-
tralia.
MESSAGING, INFORMATION AND MEDIA PRODUCTS
The Messaging, Information and Media Products segment businesses are primar-
ily comprised of the Messaging Systems Products Group and the Information Sys-
tems Group, and also includes newer businesses such as the Multimedia Group,
the Lexicus Division, and the Platform Software Division. The segment designs,
manufactures and distributes a variety of messaging products including pagers,
paging systems and services, wireless and wireline communication products, and
handwriting, voice recognition, and other communications software.
Segment sales declined 4% to $3.8 billion, orders declined 12% and operating
profits were lower for the year. The decline in sales was primarily attribut-
able to pricing pressures in the paging, messaging, and retail analog modem
businesses and inventory reduction by paging operators. The decline in operat-
ing profits was primarily driven by restructuring charges related to the seg-
ment's planned exit from the retail analog modem business. Segment geographic
market sales and orders increased in Europe and Asia. Sales and orders de-
clined in Pan America during 1997 as paging operators in the United States
continued to control inventories tightly in order to improve their financial
positions and cash flow.
In Asia during the second half of 1997, sales and orders declined primarily
due to the China paging market experiencing a larger-than-normal seasonal
downturn caused by a buildup of pager inventories in distribution channels
during
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the first half of 1997. Additionally during the fourth quarter, the deteriora-
tion of economic conditions in certain Asian markets had an impact in terms of
slowing the growth of sales. These factors also resulted in greater than nor-
mal price declines in Asian markets.
In 1997, the Messaging Systems Products Group (MSPG), which represents a ma-
jority of this segment's revenues, experienced lower sales and orders. During
the fourth quarter, MSPG sales and orders in Asia were significantly lower
than a year ago as pricing pressures increased. Average selling prices in the
Asia region have been under increasing pressure due to weak demand and cur-
rency devaluations in certain countries. These market conditions are expected
to continue into 1998. Improving sales and order patterns occurred in the
North American market during the fourth quarter and MSPG is cautiously opti-
mistic that this market will gradually return to a more normal pattern of de-
mand in 1998. Latin America continued to be a significant growth market for
MSPG paging and messaging products. Enhanced consumer services also helped the
continued growth in European markets, particularly in Eastern Europe.
Throughout 1997, MSPG continued its successful campaign to implement the
FLEX(TM) family of communication products as the de facto worldwide standard
for high-speed messaging technology. The FLEX(TM) family, including the
FLEX(TM), ReFLEX(R), and InFLEXion(TM) technologies of messaging protocol, has
been adopted by more than 150 carriers in 31 countries around the world. Dur-
ing the year, commercial service for MSPG's PageWriter(TM) employing ReFLEX(R)
two-way messaging technology and a standard QWERTY-type keyboard began for
both data messaging and two-way wireless messaging. Operators also introduced
voice paging services in two major North American metropolitan centers employ-
ing the Tenor(R) advanced voice pager which accepts, and stores voice messages
and operates like a portable answering machine.
Revenue and orders for the segment's Information Systems Group (ISG) de-
creased in 1997. ISG continued to experience significant pricing pressures es-
pecially in the consumer modem market. Additionally, operating profits were
negatively impacted due to a $62 million restructuring charge recorded in the
fourth quarter related to the decision to exit the retail analog modem busi-
ness.
In 1997, ISG announced its 56-kilobit, host-based software modem. In inde-
pendent testing, this "soft modem" consistently outperformed external, desktop
modems. Sales increased significantly in the Group's Corporate Networking
business. This included the Vanguard(R) series of Frame Relay Access Devices.
ISG announced the Vanguide Plus Open Networking Software for its MPRouter(R)
line of network access equipment, which enhances network services for greater
quality of service features and bandwidth management. TrueStream(TM) streaming
media software was also announced during the year. TrueStream delivers high-
quality audio and video over a range of transmission speeds, including dial-up
Internet access links.
OTHER PRODUCTS
The Other Products segment primarily includes the Automotive, Component,
Computer and Energy Sector, the Space and Systems Technology Group, and the
Flat Panel Display Division. Segment sales increased 6% to $4.3 billion and
there was an operating loss compared to an operating profit in 1996. The pri-
mary reasons for the operating loss were the special charge to exit the
MacOS(R)-compatible computer systems business and increased expenses in the
deployment of the IRIDIUM(R) global personal communications system and the
Flat Panel Display business.
AUTOMOTIVE, COMPONENT, COMPUTER AND ENERGY SECTOR
The Automotive, Component, Computer and Energy Sector (ACCES) designs, manu-
factures and sells products in four major businesses: automotive and indus-
trial electronics; printed circuit boards, ceramic and quartz electronic
components, and electronic fluorescent ballasts; multi-function embedded board
and computer system products; and energy storage products and systems.
For the year, Sector sales increased, orders were higher, and operating
profits were lower due entirely to the special charge mentioned above. Exclud-
ing the special charge, operating profits increased due to higher demand for
components and rechargeable batteries for cellular telephones along with con-
tinued solid performance in the automotive business.
Automotive and Industrial Electronics Group (AIEG) sales increased while or-
ders decreased versus the prior year. During the year, AIEG received awards
for an engine control module program and a body control module program from a
major U.S. automotive manufacturer. In addition, AIEG renewed its long-term
engine control supply agreement with a major automotive manufacturer. AIEG
also was awarded business by a German car manufacturer for engine control mod-
ules and North American telematics programs. AIEG also received an award of
diesel engine control business beginning in the year 2000 from a European
truck manufacturer.
The Energy Systems Group (ESG) experienced higher sales and higher orders.
The Power Electronics Division of ESG moved into high-volume production on
power supplies with manufacturing in the U.S., Europe and Asia. Additionally,
a new charger was introduced supporting a Motorola two-way radio product
launch. This charger, which has the normal charging and safety functions, also
provides an infrared link with its host device for data communications. ESG's
portable battery business increased production of lithium ion batteries for
cellular applications.
The Component Products Group (CPG) also had higher sales and orders. The
electronic fluorescent ballasts business achieved a market leadership position
in compact fluorescent lamp ballasts, began initial shipments to Europe, and
contracted with additional distributors in Hong Kong to address the Chinese
market.
Motorola Computer Group (MCG) sales for the year declined and orders were
higher. In the third quarter, MCG recorded a special charge of $95 million as-
sociated with exiting the MacOS(R)-compatible computer systems business. The
ongoing embedded computer product business had an increase in sales and orders
for the year. As a result of the acquisition of Pro-Log Corp., MCG offers sin-
gle-board embedded computers based on CompactPCI(R) bus architecture and
Intel's Pentium(R) processor, in addition to its PowerPC(TM) product line.
During the year, MCG announced two new
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Pentium processor-based motherboards for use in embedded computing applica-
tions. In 1998, MCG became part of the Automotive, Component, Computer and En-
ergy Sector.
SPACE AND SYSTEMS TECHNOLOGY GROUP
The Space and Systems Technology Group (SSTG) is engaged in the design, de-
velopment, production and integration of advanced electronic communication
systems and products for a variety of commercial and government customers
around the world. The Group's Satellite Communications Group (SCG) is develop-
ing the IRIDIUM(R) global personal communications system.
Group sales for the year declined due to lower sales by SCG, in accordance
with the planned milestone schedule of its contracts with Iridium LLC. Orders
were higher than a year ago and operating profits were lower as planned and
expected at the beginning of 1997, again due to the timing of contractual
milestones on the IRIDIUM system. Development of the IRIDIUM global personal
communications system continued on schedule, as Motorola met all contractual
milestones during the year and successfully manufactured and deployed 46 sat-
ellites of the 66-satellite constellation. Of the 46 satellites in orbit at
year end, 44 were operational. Additional launches for the 66-satellite con-
stellation are scheduled through May 1998. Initial testing of certain paging
and telephony functions has been successfully accomplished through orbiting
satellites. System testing will continue through the start of commercial serv-
ice, expected at the end of September 1998.
Iridium Operating LLC, a Delaware limited liability company and a wholly-
owned subsidiary of Iridium LLC, has a $450 million credit facility which Mo-
torola has guaranteed. The Company also has conditionally agreed with Iridium
Operating LLC to guarantee an additional $350 million under that guaranteed
facility or under another facility with the same terms, as long as the
borrowings are made by February 28, 1999.
Motorola's ownership percentage of Iridium LLC was approximately 20% at the
end of 1997. During the year, Motorola recorded an expense of approximately
$39 million in recognition of its share of Iridium LLC's net loss for the year
and the Company expects to recognize approximately $240 million of expenses as
its share of Iridium LLC's net loss in 1998. The increase in losses from the
1997 level is per plan and is related to higher depreciation on launched sat-
ellites, interest expense on high-yield debt raised in 1997, and increasing
operating expenses in preparation for commercial service.
Motorola has three contracts with Iridium Operating LLC for the construction
and operation of the global personal communications system, providing for a
total of approximately $6.6 billion in payments. Approximately $3.0 billion
has already been paid to Motorola as of the end of 1997. The Company has sig-
nificant subcontracts for portions of the system, for which it will generally
remain obligated even if Iridium Operating LLC is unable to satisfy the terms
of the contracts with Motorola. In addition to the $450 million credit facil-
ity guaranteed by Motorola, Iridium Operating LLC has an unsecured $1 billion
senior credit facility that has significant covenants and conditions on its
ability to draw funds. Those conditions primarily include achievement of in-
creasing levels of technical requirements and market access, and satisfaction
of financing goals. There can be no assurance that Iridium Operating LLC will
be able to satisfy the conditions to fully draw the $1 billion available under
the facility. If Iridium Operating LLC is not able to borrow under any of its
credit facilities, it would most likely not be able to satisfy its obligations
under its contracts with Motorola and others without funding. If such funding
were not available, this would have a material adverse effect on Motorola's
investment in Iridium LLC, in several Iridium gateway companies and ancillary
products.
In June 1997, Motorola's Advanced Systems Division (ASD) of SCG filed an ap-
plication with the Federal Communications Commission for the Celestri(TM) Low
Earth Orbit (LEO) system and in July 1997 filed for the Celestri Geostationary
Earth Orbit (GEO) system. The Celestri System is a planned global broadband
communications system that is intended to include a family of advanced commu-
nications satellites, ground stations, and customer premise equipment offering
instant access to broadband network infrastructure to virtually all of the
populated land masses in the world. Current plans call for the Celestri System
to be operational in the year 2003. However, Motorola is not currently under
contract and is in the early stages of development.
Advanced radio frequency communications equipment designed and developed by
Motorola's Government Space Systems Division (GSSD) was on board the Path-
finder that landed on Mars in July 1997. The Motorola tracking, telemetry, and
control transponder provided the data link between the spacecraft and the Na-
tional Aeronautics and Space Administration's (NASA's) Deep Space Network.
This transponder not only allows NASA to locate and command the spacecraft,
but also to transmit science and engineering data back to earth. The same
transponders were used on NASA's 1997 Cassini mission to Saturn. Motorola has
designed and developed communications equipment for nearly every manned and
the majority of unmanned missions since the birth of the U.S. government space
program. Motorola is presently developing a more advanced transponder that is
lighter and more compact to help NASA meet its needs for smaller and less ex-
pensive spacecraft.
FLAT PANEL DISPLAY DIVISION
The Flat Panel Display Division is developing a new generation of flat panel
display technology that is intended to enable people to optimize their produc-
tivity, entertainment and safety in numerous applications. This technology,
Field Emission Display (FED), is expected to be similar in picture quality to
the cathode ray tube currently used in most desktop computer monitors, but is
expected to be thin and lightweight like a liquid crystal display (LCD). Pro-
totypes are being provided for specific customers and first commercial product
shipments are anticipated in late 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $2.60 billion in 1997 compared with
$4.19 billion in 1996 and $3.27 billion in 1995. The decrease in 1997 was pri-
marily due to increases in accounts receivable and inventory balances. The
Company expects cash provided by operations to increase in 1998 when compared
to 1997.
The number of weeks that accounts receivable were outstanding was increased
to 7.5 in 1997 from 6.7 for 1996
F-6
<PAGE>
MANAGEMENT'S
DISCUSSION AND ANALYSIS
---------------------
and from 7.0 for 1995. Inventory turns, using the cost-of-sales calculation
method, declined to 4.9 in 1997 from 5.2 in 1996 and increased from 4.4 in
1995.
The Company's ratio of net debt to net debt plus equity was 12.4% at Decem-
ber 31, 1997 compared with 13.4% in 1996 and 19.9% in 1995. The lower ratio
for 1997 reflects the impact of lower capital expenditures compared with 1996
and 1995.
The Company and its finance subsidiary have one- and five-year revolving do-
mestic credit agreements with a group of banks for $1.5 billion. These agree-
ments contain various conditions, covenants and representations with which the
Company was in compliance at year-end 1997. At December 31, 1997, the
Company's total U.S. and non-U.S. credit facilities aggregated $3.7 billion,
of which $336 million were used and the remaining $3.4 billion were available
to back up outstanding commercial paper which totaled $989 million at December
31, 1997.
Capital expenditures decreased to $2.9 billion from $3.0 billion in 1996.
This decrease resulted from reduced expenditures in the Semiconductor Products
segment, which were largely offset by increased expenditures in other seg-
ments. The Semiconductor Products segment continues to comprise the largest
portion of capital expenditures, with approximately 40% of all such invest-
ments in 1997. The total 1995 capital expenditures were $4.2 billion. Capital
expenditures for 1998 are expected to increase, with most of the increase oc-
curring in the Semiconductor Products segment, where overall industry demand
for the next several years is expected to increase more rapidly than in 1997.
A discussion of the Company's commitments and contingencies is detailed in
Note 7 to the Consolidated Financial Statements and Notes in this Proxy State-
ment.
OTHER MATTERS
Environmental Matters: A discussion of the Company's environmental matters
is detailed in Note 7 to the Consolidated Financial Statements and Notes in
this Proxy Statement.
Research and Development: Expenditures increased to $2.7 billion in 1997, up
from $2.4 billion in 1996 and $2.2 billion in 1995. Over the past three years,
the Company has invested 8% to 9% of sales in product development and techno-
logical advances, and continues to believe that a strong commitment to re-
search and development is required to drive long-term growth.
Year 2000 Readiness: The Company has been aggressively addressing Year 2000
issues relating to the processing of date data at the turn of the century. A
company-wide task force has been formed, milestones have been established, and
detailed plans are actively being implemented so that Motorola research pro-
grams, products and internal computer, financial, manufacturing and other in-
frastructure systems are reviewed and the necessary changes made.
Additionally, Motorola customer and supplier relationships are being reviewed
to assess and address their Year 2000 issues. Motorola is requesting assur-
ances from its major suppliers that they are addressing this issue and that
the products procured by Motorola will function properly in the Year 2000.
While Motorola's efforts to address Year 2000 issues will involve additional
costs, the Company believes, based on currently available information, that it
will be able to manage its total Year 2000 transition without any material ad-
verse effect on the Company's future consolidated results of operations, li-
quidity and capital resources.
Restructuring Charges: A discussion of the Company's restructuring charges
is detailed in Note 10 to the Consolidated Financial Statements and Notes in
this Proxy Statement.
Recent Accounting Pronouncements: As of December 15, 1997, the Company im-
plemented Statement of Financial Accounting Standards (SFAS) No. 128, "Earn-
ings Per Share" and restated previously reported earnings per share as
required. As of January 1, 1998, the Company implemented SFAS No. 130, "Re-
porting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." These new accounting standards only
affect financial statement presentation and disclosure.
MARKET RISK FACTORS
INTEREST RATE MARKET RISK
The Company has fixed-income investments consisting of cash equivalents,
short-term investments, and long-term finance receivables. See Note 4 to the
Consolidated Financial Statements and Notes in this Proxy Statement for infor-
mation about the long-term finance receivables.
A portion of the long-term finance receivables is floating rate notes sub-
ject to periodic interest rate adjustments. The Company's practice is to fund
these receivables with commercial paper to minimize the effects of interest
rate changes. An immaterial amount of the Company's short-term debt instru-
ments are floating rate notes subject to interest rate resets. The principal
amount of the short-term fixed income investments and short-term debt (commer-
cial paper and notes to banks) are about equal. Management does not expect
gains or losses on these instruments to have a material effect on the
Company's financial results.
FOREIGN EXCHANGE MARKET RISK
See Note 1 to the Consolidated Financial Statements and Notes in this Proxy
Statement for a description of the Company's currency translation and transac-
tion accounting policies and Note 5 for information about the Company's cur-
rency exposure management policy and strategy.
Foreign exchange financial instruments that are subject to the effects of
currency fluctuations which may affect reported earnings include derivative
financial instruments, consisting primarily of forward contracts, and other
financial instruments which are not denominated in the currency of the legal
entity holding the instruments, consisting of cash, short-term deposits, long-
term financing receivables, equity investments, and notes as well as accounts
payable and receivable. Accounts payable and receivable are reflected at fair
value in the financial statements. The fair value of the remainder of the for-
eign exchange financial instruments would hypothetically decrease by $36 mil-
lion as of year-end 1997 if the U.S. dollar were to depreciate against all
other currencies by 10%. This hypothetical amount is suggestive of the effect
on future cash flows under the following conditions: a) all current payables
and receivables that are hedged were not realized, b) all hedged commitments
and antici-
F-7
<PAGE>
MANAGEMENT'S
DISCUSSION AND ANALYSIS
- ------------------
pated transactions were not realized or canceled, and c) hedges of these
amounts were not canceled or offset. The Company does not expect that any of
these conditions will be realized. The Company expects that gains and losses on
the derivative financial instruments should offset gains and losses on the as-
sets, liabilities and future transactions being hedged; if the hedged transac-
tions were included in the sensitivity analysis, the hypothetical change in
fair value would be immaterial. The foreign exchange financial instruments are
held for purposes other than trading.
EQUITY PRICE MARKET RISK
The value of the cost-based equity investments as defined by Statement of Fi-
nancial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" would change by $131 million as of year-end 1997
(net of deferred income taxes) if the price of the stock in each of the public-
ly-traded companies were to decrease by 10%. These equity securities are held
for purposes other than trading.
The analysis methods used by the Company to assess and mitigate risk dis-
cussed above should not be considered projections of future events.
BUSINESS RISK FACTORS
With the exception of historical facts, the statements in Management's Dis-
cussion and Analysis of Financial Condition and Results of Operations are for-
ward-looking statements based on current expectations that involve risks and
uncertainties. Forward-looking statements include, but are not limited to,
statements about expected sales growth, expected investments in Asia and stra-
tegic investments in technology, the impact of economic conditions in Asia,
1998 depreciation expense, the effect of the technology transition from analog
to digital, the expected impact of CDMA technology, the impact of market condi-
tions on MSPG products, the recognition of expenses in connection with the
Iridium investment, anticipated investments in and timing of construction of
new semiconductor facilities, anticipated shipment of products using FED tech-
nology, sufficiency of Iridium LLC's financing arrangements, launch of the
Celestri(TM) System, cash provided by operations in 1998, expected capital ex-
penditures, increased demand for semiconductor products, the impact of Year
2000 issues, and the effect of market risk factors.
Motorola wishes to caution the reader that the following important factors,
and those factors described elsewhere in the commentary or other Securities and
Exchange Commission filings, could affect (and in some cases have affected)
Motorola's actual results causing such results to differ materially from those
expressed in any forward-looking statement made by or on behalf of Motorola:
. The outcome of various efforts to stabilize economic conditions in Asia;
China's actions with respect to the valuation of its currency; the poten-
tial that the weak economic conditions in Southeast Asia could spread to
other countries where Motorola does a sizable amount of business, includ-
ing China and Japan;
. The ability of Motorola's cellular businesses to continue their transi-
tion to digital technologies and successfully compete in those businesses
and retain or gain market share;
. Pricing pressure on cellular phone products, cellular infrastructure
equipment, paging and messaging products and infrastructure and the im-
pact on gross margins for those products;
. The ability of Motorola's semiconductor business to compete in the highly
competitive semiconductor market. 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 facili-
ties; shortage of manufacturing capacity; start-up expenses, inefficien-
cies and delays, and increased depreciation costs in connection with the
capital investments in 1998 for facilities in Arizona, Virginia, Brazil,
China and Germany; 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
orders from Motorola's equipment businesses such as the Cellular Sub-
scriber Sector, Cellular Infrastructure Group, Land Mobile Products Sec-
tor and Messaging Systems Products Group;
. The ability of the Company to improve sales of MSPG's products in Asia,
develop the consumer paging/messaging market worldwide and the success at
making the FLEX(TM) family of communication protocols the de facto world-
wide standard in high-speed messaging technology;
. The risks related to the Company's significant investment in developing
and introducing new products such as two-way and voice paging, CDMA for
cellular and PCS systems, wireless local loop product, flat panel display
products, products for transmission of telephony and high-speed data over
hybrid fiber coaxial cable systems, integrated digital radios, smart
cards and other semiconductor products. Factors include difficulties and
delays in the development, production, testing and marketing of products;
customer acceptance of products, particularly as the Company's focus on
the consumer market increases; and the ability of the Company to differ-
entiate its products;
. The risks related to the IRIDIUM(R) project including: the ability of
gateway operators 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 suc-
cessful and timely operation of such satellites and related ground equip-
ment; the ability of Iridium LLC to meet its financing needs during at
least the next few years to continue to make contractual payments to Mo-
torola and to make debt payments and otherwise operate; the risks associ-
ated with the large IRIDIUM systems contracts and the financial risk to
Motorola under those contracts, including the difficulty in projecting
costs associated with those con-
F-8
<PAGE>
MANAGEMENT'S
DISCUSSION AND ANALYSIS
---------------------
tracts; the market acceptance (both on its own and when compared to possi-
ble competitors) of what is expected to be the first worldwide global sat-
ellite-based communication 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 sup-
port systems-related risks;
. The ability of the Company to recruit and retain engineers and other
highly-skilled personnel;
. Because more than half of the Company's sales are outside the U.S., the
Company's results could be significantly affected by weak economic condi-
tions in countries in which it does sizable business and emerging markets
in which there tend to be significant growth and by changes in foreign
currency exchange rates affecting those countries;
. Risks related to the trend towards increasingly large system contracts
for CIG, LMPS and SSTG infrastructure equipment and the resulting reli-
ance on large customers, the technological risks of such contracts, espe-
cially when the contracts involve new technology such as CDMA, and
financial risks to Motorola under these contracts, including the diffi-
culty of projecting costs associated with large contracts;
. Increasing demand for vendor financing of equipment sales, particularly
infrastructure equipment sold by CIG, LMPS and MSPG, and the ability of
these businesses to provide financing on competitive terms with other
vendors;
. The effect of, and change in, trade, monetary and fiscal policies, laws
and regulations, other activities of U.S. and non-U.S. governments, agen-
cies and similar organizations, and social and economic conditions, af-
fecting the Company's operations, including emerging markets in Asia and
Latin America and other emerging markets;
. Unanticipated impact of Year 2000 issues, particularly the failure of
products from major suppliers to function properly in the Year 2000;
. The risk that the actual adverse market conditions differ from the as-
sumed adverse market conditions that are utilized in the market risk fac-
tors discussion, causing actual future results to differ materially from
projected results; and
. The outcome of pending and future litigation and the protection and va-
lidity of patents and other intellectual property rights.
MacOS(R) is a registered trademark of Apple Computer, Inc.
IRIDIUM(R) is a registered trademark and service mark of Iridium LLC.
PowerPC(R) is a registered trademark of IBM Corporation.
JavaOS(TM) is a trademark of Sun Microsystems, Inc.
All other brand names mentioned are registered trademarks or trademarks of
their respective holders.
Celestri is a trademark of Motorola, Inc.
MOTOROLA, (M), (R), Reg. U.S. Patent and Trademark Office.
F-9
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------
FINANCIAL HIGHLIGHTS
(Dollars in millions, except as noted) Motorola, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Net sales $29,794 $27,973
Earnings before income taxes 1,816 1,775
% to sales 6.1% 6.3%
Net earnings 1,180 1,154
% to sales 4.0% 4.1%
Diluted earnings per common share (in dollars) 1.94 1.90
Research and development expenditures 2,748 2,394
Capital expenditures 2,874 2,973
Working capital 4,181 3,324
Current ratio 1.46 1.42
Return on average invested capital (1) 8.4% 8.4%
Return on average stockholders' equity 9.4% 10.0%
% of net debt to net debt plus equity (2) 12.4% 13.4%
Book value per common share (in dollars) 22.21 19.88
Year-end employment (in thousands) 150 139
- -----------------------------------------------------------------
</TABLE>
(1) Average invested capital is defined as stockholders' equity plus long and
short-term debt less short-term investments (including those short-term
investments categorized as cash equivalents).
(2) Net debt is defined as notes payable and current portion of long-term debt
plus long-term debt less short-term investments and cash equivalents.
F-10
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
MANAGEMENT'S RESPONSIBILITY FOR
FINANCIAL STATEMENTS
Management is responsible for the preparation, integrity and objectivity of
the consolidated financial statements and other financial information pre-
sented in this report. The accompanying consolidated financial statements were
prepared in accordance with generally accepted accounting principles, applying
certain estimates and judgments as required.
Motorola's internal controls are designed to provide reasonable assurance as
to the integrity and reliability of the financial statements and to adequately
safeguard, verify and maintain accountability of assets. Such controls are
based on established written policies and procedures, are implemented by
trained, skilled personnel with an appropriate segregation of duties and are
monitored through a comprehensive internal audit program. These policies and
procedures prescribe that the Company and all its employees are to maintain
the highest ethical standards and that its business practices throughout the
world are to be conducted in a manner which is above reproach.
KPMG Peat Marwick LLP, independent auditors, are retained to audit
Motorola's financial statements. Their accompanying report is based on audits
conducted in accordance with generally accepted auditing standards, which in-
clude the consideration of the Company's internal controls to establish a ba-
sis for reliance thereon in determining the nature, timing and extent of audit
tests to be applied.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management Board members. The Audit Committee meets periodically with the
independent auditors and with the Company's internal auditors, both privately
and with management present, to review accounting, auditing, internal controls
and financial reporting matters.
/s/ Christopher B. Galvin
Christopher B. Galvin
Chief Executive Officer
/s/ Carl F. Koenemann
Carl F. Koenemann
Executive Vice President
and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Motorola, Inc.:
We have audited the accompanying consolidated balance sheets of Motorola,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related con-
solidated statements of earnings, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1997. These consoli-
dated financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Motorola,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted account-
ing principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
January 12, 1998
F-11
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------
MOTOROLA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
(Dollars in millions, except per share amounts) 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $29,794 $27,973 $27,037
- ---------------------------------------------------------------------------
COSTS AND EXPENSES
Manufacturing and other costs of sales 20,003 18,990 17,545
Selling, general and administrative expenses 5,515 4,715 4,642
Depreciation expense 2,329 2,308 1,919
Interest expense, net 131 185 149
- ---------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 27,978 26,198 24,255
- ---------------------------------------------------------------------------
NET GAIN ON NEXTEL ASSET EXCHANGE (NOTE 1) -- -- 443
- ---------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES (1) 1,816 1,775 3,225
- ---------------------------------------------------------------------------
INCOME TAXES PROVIDED ON EARNINGS (1) 636 621 1,177
- ---------------------------------------------------------------------------
NET EARNINGS (1) $ 1,180 $ 1,154 $ 2,048
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE (1) $ 1.98 $ 1.95 $ 3.47
- ---------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE (1) $ 1.94 $ 1.90 $ 3.37
- ---------------------------------------------------------------------------
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 612.2 609.0 609.7
- ---------------------------------------------------------------------------
</TABLE>
(1)1995 earnings before income taxes, income taxes provided on earnings, net
earnings, basic earnings per common share and diluted earnings per common
share would have been $2,782, $1,001, $1,781, $3.02 and $2.93, respectively,
without the one-time gain on the exchange of 800 megahertz Specialized Mobile
Radio business, systems and licenses in the U.S. to Nextel Communications,
Inc. for shares of Nextel stock as described in Note 1.
MOTOROLA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
and Additional
Paid-in Capital Retained Earnings
--------------------- ----------------------
Years ended December 31
--------------------------------------------
(Dollars in millions, except per
share amounts) 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1 $3,185 $3,257 $3,138 $8,610 $7,728 $5,917
Net earnings -- -- -- 1,180 1,154 2,048
Conversion of zero coupon notes 7 7 23 -- -- --
Unrealized net gain (loss) on
certain investments 559 (103) 85 -- -- --
Stock options exercised and
other 17 24 11 -- -- --
Dividends declared ($.48 per
share in 1997, $.46 in 1996 and
$.40 in 1995) -- -- -- (286) (272) (237)
---------------------------------------------
Balances at December 31 $3,768 $3,185 $3,257 $9,504 $8,610 $7,728
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
MOTOROLA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
---------------
(Dollars in millions, except per share amounts) 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,445 $ 1,513
Short-term investments 335 298
Accounts receivable, net 4,847 4,035
Inventories 4,096 3,220
Deferred income taxes 1,726 1,580
Other current assets 787 673
---------------
Total current assets 13,236 11,319
---------------
Property, plant and equipment, net 9,856 9,768
Other assets 4,186 2,989
---------------
TOTAL ASSETS $27,278 $24,076
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 1,282 $ 1,382
Accounts payable 2,297 2,050
Accrued liabilities 5,476 4,563
---------------
Total current liabilities 9,055 7,995
---------------
Long-term debt 2,144 1,931
Deferred income taxes 1,522 1,108
Other liabilities 1,285 1,247
---------------
Stockholders' equity
Common stock, $3 par value
Authorized shares: 1997 and 1996, 1,400
Issued and outstanding shares: 1997, 597.4; 1996, 593.4 1,792 1,780
Preferred stock, $100 par value issuable in series
Authorized shares: 0.5 (none issued) -- --
Additional paid-in capital 1,976 1,405
Retained earnings 9,504 8,610
---------------
Total stockholders' equity 13,272 11,795
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,278 $24,076
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
- ------------------
MOTOROLA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
-------------------------
(Dollars in millions) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING
Net earnings $ 1,180 $ 1,154 $ 2,048
Add (deduct) non-cash items
Depreciation 2,329 2,308 1,919
Deferred income taxes (98) (160) (55)
Amortization of debt discount and issue costs 10 8 12
Gain on Nextel asset exchange -- -- (267)
Gain on disposition of investments in affiliated
companies (116) (78) (111)
Change in assets and liabilities, net of effects
of acquisitions and dispositions
Accounts receivable, net (812) 101 (653)
Inventories (880) 308 (856)
Other current assets (114) (69) (100)
Accounts payable and accrued liabilities 1,157 398 1,172
Other assets and liabilities (60) 220 156
------- ------- -------
Net cash provided by operating activities 2,596 4,190 3,265
- -----------------------------------------------------------------------------
INVESTING
Acquisitions and advances to affiliated companies (286) (346) (563)
Proceeds from dispositions of investments in af-
filiated companies 248 119 252
Capital expenditures (2,874) (2,973) (4,225)
Other changes to property, plant and equipment,
net 324 242 (11)
(Increase) decrease in short-term investments (37) 52 (32)
------- ------- -------
Net cash used for investing activities (2,625) (2,906) (4,579)
- -----------------------------------------------------------------------------
FINANCING
Net increase (decrease) in commercial paper and
short-term borrowings (100) (260) 686
Proceeds from issuance of debt 312 55 851
Repayment of debt (102) (37) (74)
Issuance of common stock 137 7 71
Payment of dividends (286) (261) (236)
------- ------- -------
Net cash provided by (used for) financing activi-
ties (39) (496) 1,298
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS $ (68) $ 788 $ (16)
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 1,513 $ 725 $ 741
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,445 $ 1,513 $ 725
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
MOTOROLA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW INFORMATION
<CAPTION>
Years ended December 31
-------------------------
(Dollars in millions) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PAID DURING THE YEAR FOR:
Interest $ 211 $ 237 $ 193
Income taxes $ 611 $ 506 $ 947
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
MOTOROLA, INC. AND SUBSIDIARIES NOTES TO
(Dollars in millions, except as noted) CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------- ---------------------------------
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND INVESTMENTS: The consolidated financial statements include
the accounts of Motorola, Inc. and all majority-owned subsidiaries (the Compa-
ny) in which it has control. The Company's investments in non-controlled enti-
ties in which it has the ability to exercise significant influence over
operating and financial policies are accounted for by the equity method. The
Company's investments in other entities are carried at their historical cost.
Certain of these cost-based investments are marked-to-market at the balance
sheet date to reflect their fair value with the unrealized gains and losses,
net of tax, included in a separate component of stockholders' equity.
CASH EQUIVALENTS: The Company considers all highly liquid investments pur-
chased with an original maturity of three months or less to be cash equiva-
lents.
REVENUE RECOGNITION: The Company uses the percentage-of-completion method to
recognize revenues and costs associated with most long-term contracts. For
contracts involving certain new technologies, revenues and profits or parts
thereof are deferred until technological feasibility is established, customer
acceptance is obtained and other contract-specific factors have been complet-
ed. 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.
INVENTORIES: Inventories are valued at the lower of average cost (which ap-
proximates computation on a first-in, first-out basis) or market (i.e., net
realizable value or replacement cost).
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost less accumulated depreciation. Depreciation is recorded principally using
the declining-balance method, based on the estimated useful lives of the as-
sets (buildings and building equipment, 5-40 years; machinery and equipment,
2-12 years).
FAIR VALUES OF FINANCIAL INSTRUMENTS: The fair values of financial instru-
ments are determined based on quoted market prices and market interest rates
as of the end of the reporting period.
FOREIGN CURRENCY TRANSLATION: The Company's European and Japanese operations
and certain non-consolidated affiliates use the respective local currencies as
the functional currency. For all other operations, the Company uses the U.S.
dollar as the functional currency. The effects of translating the financial
position and results of operations of local functional currency operations
into U.S. dollars are included in a separate component of stockholders' equi-
ty.
FOREIGN CURRENCY TRANSACTIONS: The effects of remeasuring the non-functional
currency assets or liabilities into the functional currency as well as gains
and losses on hedges of existing assets or liabilities are marked-to-market,
and the result is recorded within selling, general and administrative expenses
in the statement of earnings. Gains and losses on financial instruments which
hedge firm future commitments are deferred until such time as the underlying
transactions are recognized or recorded immediately when the transaction is no
longer expected to occur. Foreign exchange financial instruments which hedge
investments in foreign subsidiaries are marked-to-market, and the results are
included in stockholders' equity. Other gains or losses on financial instru-
ments which do not qualify as hedges are recognized immediately as income or
expense.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and lia-
bilities and disclosure of contingent assets and liabilities at the date of
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS AND RESTATEMENT: Certain amounts in prior years' financial
statements and related notes have been reclassified to conform to the 1997
presentation.
After discussions with the Securities and Exchange Commission regarding the
1995 sale of its U.S. 800 megahertz Specialized Mobile Radio business, systems
and licenses to Nextel Communications, Inc. for shares of Nextel stock, the
Company restated its 1995 historical financial statements and has made result-
ing reclassifications to the December 31, 1996 Consolidated Balance Sheet. As
a result, the Company has amended its Form 10-K for the year ending December
31, 1996 originally filed on March 25, 1997, to reflect the restatement and
reclassifications.
RECENT ACCOUNTING PRONOUNCEMENTS: The Company has adopted and retroactively
applied the requirements of Statement of Financial Accounting Standards (SFAS)
No. 128 "Earnings Per Share" to all periods presented. This change did not
have a material impact on the computation of the earnings per share data.
- -------------------------------------------------------------------------------
2.INCOME TAXES
Components of earnings before income taxes
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------
<S> <C> <C> <C>
United States $ 307 $ 433 $1,350
Other nations 1,509 1,342 1,875
<CAPTION>
--------------------
<S> <C> <C> <C>
Total $1,816 $1,775 $3,225
- -----------------------------------
</TABLE>
Components of income taxes provided on earnings
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------
<S> <C> <C> <C>
Current:
United States $305 $ 479 $ 632
Other nations 401 276 386
State income taxes (U.S.) 28 16 50
<CAPTION>
-------------------
<S> <C> <C> <C>
734 771 1,068
Deferred (98) (150) 109
<CAPTION>
-------------------
<S> <C> <C> <C>
Income taxes $636 $ 621 $1,177
- ----------------------------------------------
</TABLE>
Tax adjustments to shareholders' equity, which resulted primarily from fair
value adjustments related to cost basis investments, were $365 million, ($68)
million and $55 million for the years ended 1997, 1996 and 1995, respectively.
Except for certain earnings that the Company intends to
F-15
<PAGE>
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except as noted) MOTOROLA, INC. AND SUBSIDIARIES
- -------------------------------------- -------------------------------
reinvest indefinitely, provisions have been made for the estimated U.S. fed-
eral income taxes applicable to undistributed earnings of subsidiaries and af-
filiated companies. Undistributed earnings for which no U.S. income tax has
been provided aggregated $4.3 billion and $4.0 billion at December 31, 1997
and 1996, respectively. Should these earnings be distributed, foreign tax
credits may reduce the additional U.S. income tax which would be payable. In
cases where taxes are provided on such undistributed earnings, those taxes
have been included in U.S. income taxes.
At December 31, 1997, certain non-U.S. subsidiaries had loss carryforwards
for income tax reporting purposes of $187 million, with expiration dates
starting in 1998.
Differences between income tax expense computed at the U.S. federal statutory
tax rate of 35% and income taxes provided on earnings
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at statutory rate $636 $621 $1,129
Taxes on non-U.S. earnings 67 92 47
State income taxes (1) 7 61
Foreign Sales Corporation (65) (73) (45)
Tax credits (2) (10) (8)
Other 1 (16) (7)
------------------
Income taxes $636 $621 $1,177
- ---------------------------------------------------------
</TABLE>
Significant deferred tax assets (liabilities)
<TABLE>
<CAPTION>
December 31 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Inventory reserves $ 488 $ 440
Contract accounting methods 282 231
Employee benefits 260 291
Capitalized items 142 138
Tax basis differences on investments (176) (199)
Depreciation (209) (213)
Deferred taxes on non-U.S. earnings (673) (545)
Other 90 329
------------------------
Net deferred tax asset $ 204 $ 472
- ---------------------------------------------------
</TABLE>
Gross deferred tax assets were $2,792 million and $2,264 million at December
31, 1997 and 1996, respectively. Gross deferred tax liabilities were $2,588
million and $1,792 million at December 31, 1997 and 1996, respectively. The
net deferred tax asset is considered realizable given past income and esti-
mates of future income. These considerations include, but are not limited to,
carrybacks, earnings trends and tax planning strategies.
The Internal Revenue Service (IRS) has examined the federal income tax re-
turns for the Company through 1991 and has settled the respective returns
through 1987. The IRS has proposed certain adjustments to the Company's income
and tax credits for the years 1988 through 1991 which would result in addi-
tional tax. The Company disagrees with most of the proposed adjustments and is
contesting them. The IRS has recently started its examination of the 1992
through 1995 tax returns. In the opinion of the Company's management, the fi-
nal disposition of these matters, and proposed adjustments from other tax au-
thorities, will not have a material adverse effect on the consolidated
financial position, liquidity or results of operations of the Company.
- -------------------------------------------------------------------------------
3.DEBT AND CREDIT FACILITIES
Long-term debt
<TABLE>
<CAPTION>
December 31 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
7.5% debentures due 2025 $ 398 $ 397
6.5% debentures due 2025 (redeemable at the holders' option in
2005) 397 397
7.6% notes due 2007 300 300
6.5% debentures due 2008 199 199
5.22% debentures due 2097 225 0
Zero coupon notes due 2009 24 29
Zero coupon notes due 2013 337 330
8.4% debentures due 2031 (redeemable at the holders' option in
2001) 200 200
Other long-term debt 84 126
-------------
2,164 1,978
Less current maturities 20 47
-------------
Long-term debt $2,144 $1,931
- -----------------------------------------------------------------------------
</TABLE>
Short-term debt
<TABLE>
<CAPTION>
December 31 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Notes to banks $ 268 $ 360
Commercial paper 989 970
Other short-term debt 5 5
------------------------------------------
1,262 1,335
Add current maturities of long-term debt 20 47
------------------------------------------
Notes payable and current portion of long-term debt $1,282 $1,382
- --------------------------------------------------------------------
Weighted average interest rates on short-term borrowings
- --------------------------------------------------------------------
Commercial paper 5.5% 5.4%
Other short-term debt 7.3% 7.1%
- --------------------------------------------------------------------
</TABLE>
At December 31, 1997, the outstanding zero coupon notes due 2009, referred
to as Liquid Yield Option(TM) Notes (LYONs(TM)), had a face value at maturity
of $48 million. The 2009 LYONs were priced at a 6% yield to maturity and are
convertible into 18.268 shares of the Company's common stock for each $1,000
note. During 1997, various holders of the 2009 LYONs exercised conversion
rights for approximately 14,000 notes ($14 million face value; $7.2 million
net carrying value). The Company can call these notes at any time.
At December 31, 1997, the LYONs due 2013 had a face value of approximately
$479 million at maturity. The 2013 LYONs were priced at a 2.25% yield to matu-
rity and are convertible into 11.178 shares of the Company's common stock for
each $1,000 note. These notes are callable beginning in September, 1998.
The LYONs issues are subordinated to all existing and future senior indebt-
edness of the Company, rank on a parity with each other, and may be put back
to the Company at their carrying values by the holders on specific dates prior
to the stated maturities.
On October 10, 1997, the Company sold an aggregate face principal amount of
$300 million of 5.22% Debentures due October 1, 2097. The Debentures were is-
sued at a price
F-16
<PAGE>
MOTOROLA, INC. AND SUBSIDIARIES NOTES TO
(Dollars in millions, except as noted) CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------- ---------------------------------
to the public of 75.55% of their face value. The net proceeds to the Company
from the issue and sale of the Debentures were $224 million. The Company used
the proceeds to reduce short-term indebtedness and for other general corporate
purposes.
Aggregate requirements for debt maturities, in millions, during the next
five years are as follows: 1998, $21; 1999, $25; 2000, $4; 2001, $3; 2002, $1.
The Company and its finance subsidiary have one- and five-year revolving do-
mestic credit agreements with a group of banks for $1.5 billion. These domes-
tic credit agreements contain various conditions, covenants and
representations with which the Company was in compliance at December 31, 1997.
At December 31, 1997, the Company's total domestic and non-U.S. credit facili-
ties aggregated $3.7 billion, of which $336 million were used and the remain-
ing $3.4 billion were available to back up outstanding commercial paper which
totaled $989 million.
Outstanding letters of credit aggregated approximately $172 million and $175
million at December 31, 1997 and 1996, respectively.
LYONs is a trademark of Merrill Lynch & Co., Inc.
- -------------------------------------------------------------------------------
4. OTHER FINANCIAL DATA
STATEMENT OF EARNINGS INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Research and development $2,748 $2,394 $2,197
-----------------------------------
Foreign currency (gains)/losses 2 (8) 4
-----------------------------------
Interest expense, net:
Interest expense 216 249 213
Interest income (85) (64) (64)
-----------------------------------
Interest expense, net $ 131 $ 185 $ 149
- --------------------------------------------------------
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 128
"Earnings Per Share", the following table presents a reconciliation of the nu-
merators and denominators of basic and diluted earnings per common share for
the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Net earnings $1,180 $1,154 $2,048
Weighted average common shares outstanding 595.5 592.5 589.7
------------------------------------------------------
Per share amount $ 1.98 $ 1.95 $ 3.47
------------------------------------------------------
------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE
Net earnings $1,180 $1,154 $2,048
Add: Interest on zero coupon notes, net of taxes, and
effect of executive incentive and employee profit
sharing plans 5 4 7
------------------------------------------------------
Net earnings, as adjusted $1,185 $1,158 $2,055
------------------------------------------------------
Weighted average common shares outstanding 595.5 592.5 589.7
Add: Effect of dilutive securities
Stock options 10.4 9.9 12.8
Zero coupon notes 6.3 6.6 7.2
------------------------------------------------------
Diluted weighted average common shares outstanding 612.2 609.0 609.7
------------------------------------------------------
------------------------------------------------------
Per share amount $ 1.94 $ 1.90 $ 3.37
- ---------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except as noted) MOTOROLA, INC. AND SUBSIDIARIES
- -------------------------------------- -------------------------------
BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Inventories:
Finished goods $ 1,078 $ 830
Work-in-process and production materials 3,018 2,390
-------------------------------------------------
Total $ 4,096 $ 3,220
-------------------------------------------------
Property, plant and equipment:
Land $ 264 $ 261
Buildings 5,831 5,362
Machinery and equipment 15,285 13,975
-------------------------------------------------
21,380 19,598
Less accumulated depreciation (11,524) (9,830)
-------------------------------------------------
Total $ 9,856 $ 9,768
-------------------------------------------------
Other assets:
Equity-based investments in affiliated companies $ 848 $ 928
Cost-based investments in affiliated companies 1,208 1,133
Fair value adjustment of certain cost-based investments 881 (43)
Other 1,249 971
-------------------------------------------------
Total $ 4,186 $ 2,989
-------------------------------------------------
Accrued liabilities:
Dividends payable $ 72 $ 71
Contribution to employees' profit sharing funds 115 82
Income taxes payable 175 246
Taxes other than income taxes 223 185
Deferred revenue 231 218
Accrued warranties 337 314
Compensation 683 460
Customer reserves 1,160 816
Other 2,480 2,171
-------------------------------------------------
Total $ 5,476 $ 4,563
- --------------------------------------------------------------------------
</TABLE>
Contract field inventories, which are included in finished goods, are inven-
tories held by customers for which no sales have yet been recorded. At Decem-
ber 31, 1997 and 1996, contract field inventories were $136 million and $222
million, respectively.
Unbilled receivables which are included in accounts receivable but not yet
billed to the customers were $525 million and $304 million at December 31,
1997 and 1996, respectively.
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", requires the carrying value of
certain cost-based investments to be adjusted to fair value. The Company re-
corded an increase to stockholders' equity, other assets and deferred income
taxes of $533 million, $881 million and $348 million as of December 31, 1997;
and a decrease to stockholders' equity, other assets and deferred income taxes
of $26 million, $43 million and $17 million as of December 31, 1996.
FINANCE SUBSIDIARY
The Company's finance subsidiary purchases customer obligations under long-
term contracts from the Company at net carrying value.
The finance subsidiary's interest revenue is included in the Company's con-
solidated net sales. Interest expense totaled $13 million in 1997, $14 million
in 1996 and $15 million in 1995, and is included in manufacturing and other
costs of sales. In addition, long-term finance receivables of $353 million and
$289 million at December 31, 1997 and 1996 are included in other assets.
Financial Data of Consolidated Finance Subsidiary
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Total revenue $ 29 $ 36 $ 34
-------------------------------------
Net earnings 11 14 11
-------------------------------------
Total assets 457 341 369
-------------------------------------
Total debt (366) (261) (304)
-------------------------------------
Stockholder's investments and advances $ 91 $ 80 $ 65
- ------------------------------------------------------------
</TABLE>
LEASES
The Company owns most of its major facilities, but does lease certain of-
fice, factory and warehouse space, land, and data processing and other equip-
ment under principally noncancelable operating leases. Rental expense, net of
sublease income, was $308 million in 1997, $279 million in 1996 and $222 mil-
lion in 1995. At December 31, 1997, future minimum lease obligations, net of
minimum sublease rentals, for the next five years and beyond, in millions, are
as follows: 1998, $141; 1999, $116; 2000, $80; 2001, $51; 2002, $34; beyond,
$86.
- -------------------------------------------------------------------------------
5.RISK MANAGEMENT
DERIVATIVE FINANCIAL INSTRUMENTS
As a multinational company, the Company's transactions are denominated in a
variety of currencies. The Company uses financial instruments to hedge, and
therefore attempts to reduce, its overall exposure to the effects of currency
fluctuations on cash flows. The Company's policy is to not speculate in finan-
cial instruments for profit on the exchange rate price fluctuation, trade in
currencies for which there are no underlying exposures, or enter into trades
for any currency to intentionally increase the underlying exposure. Instru-
ments used as hedges must be effective at reducing the risk associated with
the exposure being hedged and must be designated as a hedge at the inception
of the contract. Accordingly, changes in market values of hedge instruments
must be highly correlated with changes in market values of underlying hedged
items both at inception of the hedge and over the life of the hedge contract.
The Company's strategy in foreign exchange exposure issues is to offset the
gains or losses of the financial instruments against losses or gains on the
underlying operational cash flows or investments based on the operating busi-
ness units' assessment of risk. Currently, the Company primarily hedges firm
commitments, including assets and liabilities currently on the balance sheet.
The Company expects that it may hedge anticipated transactions, forecasted
transactions or investments in foreign subsidiaries in the future.
Almost all of the Company's non-functional currency receivables and payables
which are denominated in major cur-
F-18
<PAGE>
MOTOROLA, INC. AND SUBSIDIARIES NOTES TO
(Dollars in millions, except as noted) CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------- ---------------------------------
rencies that can be traded on open markets are hedged. The Company uses for-
ward contracts and options to hedge these currency exposures. A portion of the
Company's exposure is to currencies which are not traded on open markets, such
as those in Latin America and China, and these are addressed, to the extent
reasonably possible, through managing net asset positions, product pricing,
and other means, such as component sourcing.
At December 31, 1997 and 1996, the Company had net outstanding foreign ex-
change contracts totaling $2.1 billion and $1.3 billion, respectively. Most of
the hedge contracts, which are over-the-counter instruments, mature within
three months with the longest maturity extending out two years. Management be-
lieves that these financial instruments should not subject the Company to un-
due risk due to foreign exchange movements because gains and losses on these
contracts should offset losses and gains on the assets, liabilities and trans-
actions being hedged. At December 31, 1997, deferred gains totaled $9.7 mil-
lion and deferred losses totaled $2.1 million. At December 31, 1996, deferred
gains totaled $1.5 million and deferred losses totaled $2.1 million. The fol-
lowing schedule shows the five largest net foreign exchange hedge positions as
of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Buy (Sell)
------------
December 31 1997 1996
- -------------------------------------
<S> <C> <C>
Japanese Yen $(795) $(258)
British Pound Sterling (481) (363)
Italian Lira (227) (115)
Taiwan Dollar (135) (40)
German Mark (91) 29
- -------------------------------------
</TABLE>
The Company is exposed to credit-related losses if counterparties to finan-
cial instruments fail to perform their obligations. However, it does not ex-
pect any counterparties, which presently have high credit ratings, to fail to
meet their obligations.
At December 31, 1997 and 1996, the Company had no outstanding interest rate
swaps, commodity derivatives, currency swaps or options relating to either its
debt instruments or investments. The Company does not have any derivatives to
hedge the value of its equity investments in affiliated companies.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash equivalents, short-term in-
vestments, accounts receivable, long-term finance receivables, accounts pay-
able, notes payable, long-term debt, foreign currency contracts and other
financing commitments. The fair values of these financial instruments were not
materially different than their carrying (or contract) values except for the
other financing commitments and the zero coupon notes due 2013. At December
31, 1997, the fair value of the other financing commitments could not be rea-
sonably estimated, and the fair value of the zero coupon notes was $227 mil-
lion compared to a carrying value of $337 million.
- -------------------------------------------------------------------------------
6.EMPLOYEE BENEFIT AND INCENTIVE PLANS
PENSION BENEFITS
The Company's noncontributory pension plan covers most U.S. employees after
one year of service. The benefit formula is dependent upon employee earnings
and years of service. The Company's policy is to fund the accrued pension cost
or the amount allowable based on the full funding limitations of the Internal
Revenue Code, if less. The Company has a noncontributory supplemental retire-
ment benefit plan for its elected officers. The plan contains provisions for
funding the participants' expected retirement benefits when the participants
meet the minimum age and years of service requirements.
Certain non-U.S. subsidiaries have varying types of retirement plans provid-
ing benefits for substantially all of their employees. Amounts charged to
earnings for all non-U.S. plans were $106 million in 1997, $103 million in
1996 and $82 million in 1995.
The Company uses a three-year, market-related asset value method of amortiz-
ing asset-related gains and losses. Net transition amounts and prior service
costs are being amortized over periods ranging from 10 to 15 years.
Benefits under all U.S. pension plans are valued based upon the projected
unit credit cost method. The assumptions used to develop the projected benefit
obligations for the plans for 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Discount rate for obligations 7.75% 7.75%
Future compensation increase rate 4.50% 4.50%
Investment return assumption (regular) 9.00% 9.00%
Investment return assumption (elected officers) 6.00% 6.00%
- ------------------------------------------------------------
</TABLE>
Accounting literature requires discount rates to be established based on
prevailing market rates for high-quality fixed-income instruments that, if the
pension benefit obligation was settled at the measurement date, would provide
the necessary future cash flows to pay the benefit obligation when due. At De-
cember 31, 1997, the investment portfolio was predominantly equity invest-
ments, which have historically realized annual returns at or significantly
above the assumed investment return rate. The Company believes that discount
rate fluctuations are short-term in nature and should not adversely affect the
measurement of the Company's long-term obligation.
F-19
<PAGE>
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except as noted) MOTOROLA, INC. AND SUBSIDIARIES
- -------------------------------------- -------------------------------
Components of net U.S. pension expense for the regular pension plan
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Service costs $ 157 $ 147 $ 126
Interest cost on projected obligation 146 124 107
Actual return on plan assets (418) (279) (334)
Net amortization and deferral 241 137 213
----- ----- -----
Net pension expense $ 126 $ 129 $ 112
- -----------------------------------------------------------
</TABLE>
The net U.S. pension expense for the elected officers' supplemental retire-
ment benefit plan was $46 million in 1997, $39 million in 1996 and $31 million
in 1995. The net U.S. pension expense for the Motorola Supplemental Pension
Plan was $2 million in 1997, the same as in 1996 and 1995.
U.S. funded pension plans
<TABLE>
<CAPTION>
1997 1996
December 31 ------------------ ------------------
ELECTED Elected
OFFICERS Officers
AND and
REGULAR OTHER (1) Regular Other (1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $(1,584) $ (68) $(1,329) $ (64)
-----------------------------
Accumulated benefit obligation (1,697) (133) (1,408) (119)
-----------------------------
Projected benefit obligation (2,165) (156) (1,863) (140)
Plan assets at fair value, primarily
bonds, stocks and cash equivalents 2,493 113 1,927 76
-----------------------------
Plan assets in excess of/(less than) the
projected benefit obligation 328 (43) 64 (64)
Unrecognized net (gain)/loss (286) 94 (69) 56
Unrecognized prior service cost -- 19 1 25
Unrecognized net transition
(asset)/liability (11) 3 (23) 5
Adjustment required to recognize minimum
liability -- (93) -- (65)
-----------------------------
Pension asset/(liability) recognized in
balance sheet $ 31 $ (20) $ (27) $ (43)
- -------------------------------------------------------------------------------
</TABLE>
(1) Includes the Motorola Supplemental Pension Plan which became effective
January 1, 1994. The Plan was established and will be maintained by the
Company for the purpose of providing supplemental benefits in excess of
the limitation imposed by the Internal Revenue Code on defined benefit
plans for certain of its employees (excluding elected officers) who par-
ticipate in the Motorola, Inc. Pension Plan.
POSTRETIREMENT HEALTH CARE BENEFITS
In addition to providing pension benefits, the Company provides certain
health care benefits to its retired employees. The majority of its domestic
employees may become eligible for these benefits if they reach normal retire-
ment age while working for the Company. The Company's policy is to fund the
maximum amount allowable based on funding limitations of the Internal Revenue
Code.
The assumptions used to develop the accumulated postretirement benefit obli-
gation for the retiree health care plan for 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------
<S> <C> <C>
Discount rate for obligations 7.75% 7.75%
Investment return assumption 9.00% 9.00%
- ------------------------------------------
</TABLE>
Net retiree health care expenses were $29 million in 1997, $32 million in
1996 and $29 million in 1995.
U.S. funded retiree health care plan
<TABLE>
<CAPTION>
December 31 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation $(413) $(385)
Plan assets at fair value, primarily stocks, bonds and cash
equivalents 263 185
Unrecognized prior service cost (1) (1)
Unrecognized net loss 41 72
------------------------------------------------
Retiree health care liability recognized in balance sheet $(110) $(129)
- ----------------------------------------------------------------------------
</TABLE>
The health care trend rate used to determine the pre-age 65 accumulated
postretirement benefit obligation was 7.67% for 1997, decreasing to 6.00% or
5.00% for medical
F-20
<PAGE>
MOTOROLA, INC. AND SUBSIDIARIES NOTES TO
(Dollars in millions, except as noted) CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------- ---------------------------------
benefits, depending on the option chosen, by the year 2002 and beyond. A flat
5% rate per year is used for the post-age 65 obligation. Changing the health
care trend rate by one percentage point would change the accumulated
postretirement benefit obligation by approximately $52 million at December 31,
1997, and would change the 1997 net retiree health care expense by $6 million.
There are no significant postretirement health care benefit plans outside of
the United States.
OTHER BENEFITS
Profit Sharing Plans: The Company and certain subsidiaries have profit shar-
ing plans, principally contributory, in which all eligible employees partici-
pate. The Company makes contributions to profit sharing plans in the United
States and other nations, which are generally based upon percentages of pretax
earnings, as defined, from those operations. Company contributions to all
profit sharing plans totaled $121 million, $118 million and $194 million in
1997, 1996 and 1995, respectively.
Motorola Executive Incentive Plan: The Company may provide up to 7% of its
annual consolidated pretax earnings after deducting 5% of capital employed,
each defined in the Motorola Executive Incentive Plan, for the payment of cash
incentive awards to key employees. During 1997, $56 million was provided for
incentive awards, as compared to $55 million and $137 million in 1996 and
1995, respectively.
Long Range Incentive Program: The Company has a Long Range Incentive Program
to reward participating elected officers for the Company's achievement of out-
standing long-range performance, based on four performance objectives measured
over four-year cycles. These objectives are benchmarked and evaluated against
both similar-industry companies and internal Motorola objectives. During 1997,
1996 and 1995, $21 million, $22 million and $51 million, respectively, were
provided for long-range incentive awards. Disbursements in 1997, 1996 and 1995
to qualifying individuals were $20 million, $18 million and $13 million, re-
spectively.
Stakeholders Incentive Program: This program replaced the RONA (Return On
Net Assets) incentive program and is available to eligible Motorola employees
who are not participating in the Motorola Executive Incentive Plan or certain
other incentive plans. Stakeholders awards are earned and paid annually to
participants and depend, first, on the Company and, in most cases, the major
business unit in which the participant works, exceeding a minimum return on
net assets percentage (as determined by the Company) during the calendar year
and, second, the extent to which such minimum was exceeded. Payments are made
50% in cash and 50% in the Company's common stock where legally permitted or
practicable, otherwise all in cash. The Company will acquire shares for the
program through open market cash purchases and will not issue new shares. Dur-
ing 1997, $188 million was provided for stakeholders awards, as compared to
the RONA incentive plan awards of $32 million and $234 million in 1996 and
1995, respectively.
Stock Options: Under the Company's stock option plan, shares of common stock
have been made available for grant to certain employees and non-employee di-
rectors. Each option granted has a grant price and an exercise price of 100%
of market value on the date of grant. The contractual life of each option is
10 years. Substantially all of the options vest in one year.
Pursuant to Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation", the Company has elected to account for its
stock option plan under the provisions of APB Opinion No. 25 "Accounting for
Stock Issued to Employees." Accordingly, no compensation cost has been recog-
nized for the stock option plan. The Company has evaluated the pro forma ef-
fects of Statement 123 and as such, net earnings, basic earnings per common
share and diluted earnings per common share would have been as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------
<S> <C> <C>
Net earnings
As reported $1,180 $1,154
Pro forma $1,114 $1,087
Basis earnings per common share
As reported $ 1.98 $ 1.95
Pro forma $ 1.87 $ 1.84
Diluted earnings per common share
As reported $ 1.94 $ 1.90
Pro forma $ 1.83 $ 1.79
- ------------------------------------------------
</TABLE>
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------
<S> <C> <C>
Risk-free interest rate 5.71% 6.25%
Dividend yield 0.77% 0.73%
Expected volatility 29.83% 26.30%
Expected life in years 5 5
- --------------------------------------
</TABLE>
F-21
<PAGE>
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except as noted) MOTOROLA, INC. AND SUBSIDIARIES
- -------------------------------------- -------------------------------
The plan has approximately 18,822 total current stock option holders. Stock
option activity was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
(In thousands, except SHARES WTD. AVG. Shares Wtd. avg. Shares Wtd. avg.
exercise price and SUBJECT TO EXERCISE subject to exercise subject to exercise
employee data) OPTIONS PRICE options price options price
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
January 1 30,646 $39 26,385 $34 24,104 $28
Additional options
granted 6,862 $65 6,295 $54 4,931 $59
Options exercised (3,867) $27 (1,846) $17 (2,535) $18
Options terminated,
cancelled or expired (368) $49 (188) $68 (115) $56
--------------------------------------------------------------
Options outstanding at
December 31 33,273 $46 30,646 $39 26,385 $34
- --------------------------------------------------------------------------------------
Options exercisable at
December 31 26,131 $41 24,337 $35 21,455 $29
- --------------------------------------------------------------------------------------
Approx. number of
employees granted
options 14,800 13,800 10,000
- --------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
----------------------------- -----------------
Wtd. avg.
Exercise Wtd. avg. contractual Wtd. avg.
price No. of exercise life (in No. of exercise
range: options price yrs.) options price
- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9-$40 10,013 $19 3.7 10,013 $19
$41-$83 23,260 $58 8.4 16,118 $54
------ ------
33,273 26,131
------ ------
</TABLE>
- -------------------------------------------------------------------------------
7.COMMITMENTS AND CONTINGENCIES
Financial: Iridium Operating LLC, a Delaware limited liability company and a
wholly owned subsidiary of Iridium LLC, has a $450 million credit facility
which the Company has guaranteed. The Company also has conditionally agreed
with Iridium Operating LLC to guarantee an additional $350 million under that
guaranteed facility or under another facility with the same terms, as long as
the borrowings are made by February 28, 1999.
At December 31, 1997, the Company owned approximately 20% of Iridium LLC.
The Company's equity and bond investment in Iridium LLC and its equity invest-
ments in several Iridium gateway companies aggregated approximately $500 mil-
lion and is included in the Consolidated Balance Sheet category "Other
Assets."
The Company has three contracts with Iridium Operating LLC for the construc-
tion and operation of the global communications system, providing for approxi-
mately $6.6 billion in payments. Approximately $3.0 billion has already been
paid to the Company. The Company has significant subcontracts for portions of
the system, for which it will generally remain obligated even if Iridium Oper-
ating LLC is unable to satisfy the terms of the contracts with the Company,
including funding. Iridium Operating LLC has in addition to the $450 million
credit facility a $1 billion bank senior credit facility that has significant
covenants and conditions. Those conditions include the achievement of techni-
cal requirements, the obtaining of regulatory approvals and the satisfaction
of financing goals. There can be no assurances that Iridium Operating LLC will
be able to satisfy the conditions under the facility. If Iridium Operating LLC
is not able to borrow under any of its credit facilities, it would most likely
not be able to satisfy its obligations under its contracts with the Company
and others without other funding. If such funding were not available, this
would have a material adverse effect on the Company's investment in Iridium
LLC, in several Iridium gateway companies and ancillary products.
At December 31, 1997, the Company's percentage interest in Nextel Communica-
tions, Inc. (Nextel) was approximately 21%. The cost basis and fair value of
the Nextel investment were $834 million and $1.4 billion, respectively, at De-
cember 31, 1997. The cost basis includes the one-time gain on the exchange of
800 megahertz Specialized Mobile Radio business, systems and licenses in the
U.S. for shares of Nextel stock retroactively recognized in 1995. The invest-
ment is included in the Consolidated Balance Sheet category "Other Assets".
The off-balance sheet commitment to Nextel for equipment financing aggre-
gated $755 million at December 31, 1997. Subsequent to year end, the commit-
ment has been reduced to $485 million as a result of a new Nextel bank credit
facility. This amount represents the maximum available commitment and may not
be completely utilized.
Except as noted above, the Company had no other significant concentrations
of credit risk as of December 31, 1997.
Excluding Iridium and Nextel, the Company has an off-balance sheet commit-
ment at December 31, 1997, to guarantee approximately $205 million of an af-
filiate's debt.
F-22
<PAGE>
MOTOROLA, INC. AND SUBSIDIARIES NOTES TO
(Dollars in millions, except as noted) CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------- ---------------------------------
Environmental and Legal: Under the Comprehensive Environmental Response Com-
pensation and Liability Act of 1980, as amended (CERCLA, or Superfund) and
equivalent state law, the Company has been designated as a potentially respon-
sible party by the United States Environmental Protection Agency with respect
to certain waste sites with which the Company may have had direct or indirect
involvement. Such designations are made regardless of the extent of the
Company's involvement. These claims are in various stages of administrative or
judicial proceedings. They include demands for recovery of past governmental
costs and for future investigations or remedial actions. In many cases, the
dollar amounts of the claims have not been specified and have been asserted
against a number of other entities for the same cost recovery or other relief
as was asserted against the Company. The Company accrues costs associated with
environmental matters when they become probable and reasonably estimable, and
these totaled $87 million both at December 31, 1997 and 1996, respectively.
The amount of such charges to earnings was $36 million, $29 million and $24
million in 1997, 1996 and 1995, respectively. However, due to their uncertain
nature, the amounts accrued could differ, perhaps significantly, from the ac-
tual costs that will be incurred. These amounts assume no substantial recovery
of costs from any insurer. The remedial efforts include environmental cleanup
costs and communication programs. These liabilities represent only the
Company's share of any possible costs incurred in environmental cleanup sites,
since in most cases, potentially responsible parties other than the Company
may exist.
The Company is a defendant in various suits, including environmental and
product-related suits, and is subject to various claims which arise in the
normal course of business. In the opinion of management, the ultimate disposi-
tion of these matters will not have a material adverse effect on the Company's
consolidated financial position, liquidity or results of operations.
- -------------------------------------------------------------------------------
8. INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC REGION
The Company operates predominantly in the wireless communication, semicon-
ductor technology and advanced electronics industries. Operations involve the
design, manufacture and sale of a diversified line of products, which include,
but are not limited to, cellular phones and systems; semiconductors, including
discrete semiconductors and integrated circuits; two-way radios, pagers, data
communication, personal communications equipment and systems; and automotive,
defense and space electronic products. As of and for the years ended December
31, 1997, 1996 and 1995, manufacturing and distribution operations in any one
non-U.S. country did not account for more than 10% of consolidated net sales
or total assets.
Sales and operating profits by geographical area are measured by the locale
of the revenue-producing operations. Operating profits (revenues less operat-
ing expenses) exclude general corporate expenses, net interest and income tax-
es. Intersegment and intergeographic transfers are accounted for on an arm's
length pricing basis.
Identifiable assets (excluding intersegment receivables) are the Company's
assets that are identified with classes of similar products or operations in
each geographic area. Corporate assets primarily include cash, marketable se-
curities, equity investments and the administrative headquarters of the Compa-
ny.
In 1997, 1996 and 1995, no single customer or group under common control
represented 10% or more of the Company's sales. The equity in net assets of
non-U.S. subsidiaries amounted to $7.3 billion at December 31, 1997 and $6.2
billion at December 31, 1996.
Information for 1996 and 1995 has been reclassified to reflect the realign-
ment of various business units. The Cellular Products segment includes the
Cellular Subscriber Sector, the Cellular Infrastructure Group and the Network
Management Group (formerly included in the General Systems segment). Results
of the Motorola Computer Group (formerly included in the General Systems seg-
ment) are now included in the Other Products segment. The results of Indala
Corp., formerly in the Other Products segment, have been moved to the Land Mo-
bile Products segment.
F-23
<PAGE>
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except as noted) MOTOROLA, INC. AND SUBSIDIARIES
- -------------------------------------- -------------------------------
Industry Segment Information
<TABLE>
<CAPTION>
Net Sales Operating Profit
------------------------- ---------------------------------------------
Years ended December 31 1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cellular Products $11,934 $10,804 $10,211 $1,398 11.7% $1,288 11.9% $1,278 12.5%
Semiconductor Products 8,003 7,858 8,539 332 4.2% 382 4.9% 1,218 14.3%
Land Mobile Products 4,926 4,008 3,618 588 11.9% 498 12.4% 316 8.7%
Messaging, Information
and Media Products 3,793 3,958 3,681 80 2.1% 90 2.3% 310 8.4%
Other Products 4,316 4,058 3,775 (41) (.9%) 80 2.0% 127 3.4%
Adjustments and
eliminations (3,178) (2,713) (2,787) (43) -- (29) -- (48) --
------- ------- ------- ------ ------ ------
Industry segment totals $29,794 $27,973 $27,037 2,314 7.8% 2,309 8.3% 3,201 11.8%
------- ------- -------
General corporate
expenses (367) (349) (270)
Net gain on Nextel asset
exchange -- -- 443
Interest expense, net (131) (185) (149)
------ ------ ------
Earnings before income
taxes $1,816 6.1% $1,775 6.3% $3,225 11.9%
- --------------------------------------------------------------------------------------------------
<CAPTION>
Assets Capital Expenditures Depreciation Expense
------------------------- ---------------------- ---------------------
Years ended December 31 1997 1996 1995 1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cellular Products $ 8,021 $ 6,314 $ 5,842 $ 900 $ 673 $ 731 $ 534 $ 474 $ 431
Semiconductor Products 7,947 7,889 7,938 1,153 1,416 2,530 1,169 1,160 909
Land Mobile Products 2,538 2,130 2,118 228 159 171 168 162 157
Messaging, Information
and Media Products 2,391 2,506 2,527 149 275 357 219 243 204
Other products 2,974 2,256 2,094 178 196 314 191 221 171
Adjustments and
eliminations (458) (262) (224) -- -- -- -- -- --
------- ------- ------- ------ ------ ------ ------ ------ ------
Industry segment totals 23,413 20,833 20,295 2,608 2,719 4,103 2,281 2,260 1,872
General corporate 3,865 3,243 2,443 266 254 122 48 48 47
------- ------- ------- ------ ------ ------ ------ ------ ------
Consolidated totals $27,278 $24,076 $22,738 $2,874 $2,973 $4,225 $2,329 $2,308 $1,919
- --------------------------------------------------------------------------------------------------
Geographic area information
<CAPTION>
Net Sales Operating Profit
------------------------- ---------------------------------------------
Years ended December 31 1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $21,809 $20,614 $19,187 $1,076 4.9% $1,249 6.1% $1,681 8.8%
Other nations 18,032 16,883 16,954 1,488 8.3% 1,430 8.5% 1,901 11.2%
Adjustments and
eliminations (10,047) (9,524) (9,104) (250) -- (370) -- (381) --
------- ------- ------- ------ ------ ------
Geographic totals $29,794 $27,973 $27,037 2,314 7.8% 2,309 8.3% 3,201 11.8%
------- ------- -------
General corporate
expenses (367) (349) (270)
Gain on Nextel asset
exchange -- -- 443
Interest expense, net (131) (185) (149)
------ ------ ------
Earnings before income
taxes $1,816 6.1% $1,775 6.3% $3,225 11.9%
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assets
-------------------------
December 31 1997 1996 1995
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $14,000 $12,797 $12,552
Other nations 10,064 8,604 8,197
Adjustments and
eliminations (651) (568) (454)
------- ------- -------
Geographic totals 23,413 20,833 20,295
General corporate assets 3,865 3,243 2,443
------- ------- -------
Consolidated totals $27,278 $24,076 $22,738
- -------------------------------------------------------
</TABLE>
F-24
<PAGE>
MOTOROLA, INC. AND SUBSIDIARIES NOTES TO
(Dollars in millions, except as noted) CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------- ---------------------------------
9. STOCKHOLDER RIGHTS PLAN
The Company has a stockholder rights plan which provides for the issuance of
a new series of authorized preferred stock to each common stockholder under
certain circumstances to prevent an unfriendly and non Board-approved takeover
of the Company. The rights have no voting power, expire in November 1998 and
may be redeemed for a nominal amount by the Company under certain circumstanc-
es.
10. REORGANIZATION OF BUSINESSES
The Company established various restructuring accruals for the purpose of
redirecting resources from businesses which have not met profitability objec-
tives. The special charges have been included in selling, general and adminis-
trative expenses in the Consolidated Statements of Earnings.
In the fourth quarter of 1997, the Company incurred a $62 million charge to
exit its modem business based in Huntsville, AL. The charge included the write
down of inventory and fixed assets, severance costs, and certain other costs
relating to the realignment process.
In the third quarter of 1997, the Company announced its decision to exit the
MacOS(R)-compatible computer systems business. As a result of this decision,
the Company incurred a $95 million charge primarily for the write down of in-
ventory and the cost of terminating contractual commitments.
In the second quarter of 1997, the Company announced its decision to phase
out its participation in the dynamic random access memory (DRAM) market. As a
result of this decision, the Company incurred a $170 million charge to write
off technology development costs and provide for the write down of manufactur-
ing equipment.
For 1997, these restructuring provisions totalled $327 million. At December
31, 1997, $159 million of the accruals had been utilized, and the remainder of
the restructuring accruals is expected to be used in 1998.
- -------------------------------------------------------------------------------
F-25
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY AND QUARTERLY AND OTHER FINANCIAL DATA
- ------------------------------------------------------------------
FIVE YEAR FINANCIAL SUMMARY
(Dollars in millions, except per share amounts and other data)
Motorola, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
OPERATING Net sales $29,794 $27,973 $27,037 $22,245 $16,963
Manufacturing and other
RESULTS costs of sales 20,003 18,990 17,545 13,760 10,351
Selling, general and
administrative expenses 5,515 4,715 4,642 4,381 3,776
Depreciation expense 2,329 2,308 1,919 1,525 1,170
Interest expense, net 131 185 149 142 141
Total costs and expenses 27,978 26,198 24,255 19,808 15,438
Net gain on Nextel asset
exchange -- -- 443 -- --
Earnings before income
taxes 1,816 1,775 3,225 2,437 1,525
Income taxes provided on
earnings 636 621 1,177 877 503
Net earnings $ 1,180 $ 1,154 $ 2,048 $ 1,560 $ 1,022
Net earnings as a
percent of sales 4.0% 4.1% 7.6% 7.0% 6.0%
- -------------------------------------------------------------------------------------
Diluted earnings per
PER SHARE common share $ 1.94 $ 1.90 $ 3.37 $ 2.66 $ 1.78
DATA (1) Diluted weighted average
common shares
outstanding 612.2 609.0 609.7 591.7 582.6
Dividends declared $ 0.480 $ 0.460 $ 0.400 $ 0.310 $ 0.220
- -------------------------------------------------------------------------------------
BALANCE Total assets $27,278 $24,076 $22,738 $17,495 $13,498
SHEET Working capital 4,181 3,324 2,717 3,008 2,324
Long-term debt 2,144 1,931 1,949 1,127 1,360
Total debt 3,426 3,313 3,554 2,043 1,915
Total stockholders'
equity $13,272 $11,795 $10,985 $ 9,055 $ 6,409
- -------------------------------------------------------------------------------------
OTHER DATA Current ratio 1.46 1.42 1.35 1.51 1.53
Return on average
invested capital 8.4% 8.4% 16.7% 17.5% 15.3%
Return on average
stockholders' equity 9.4% 10.0% 20.2% 21.1% 17.8%
Capital expenditures $ 2,874 $ 2,973 $ 4,225 $ 3,322 $ 2,187
% to sales 9.6% 10.6% 15.6% 14.9% 12.9%
Research and development
expenditures $ 2,748 $ 2,394 $ 2,197 $ 1,860 $ 1,521
% to sales 9.2% 8.6% 8.1% 8.4% 9.0%
Year-end employment (in
thousands) 150 139 142 132 120
- -------------------------------------------------------------------------------------
</TABLE>
(1)Per share data reflects the requirements of SFAS 128.
QUARTERLY AND OTHER FINANCIAL DATA
- -------------------------------------------------------------------------------
(Dollars in millions, except per share amounts; unaudited)
Motorola, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1997 1996
1ST 2ND 3RD 4TH 1st 2nd 3rd 4th
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING Net sales $6,642 $7,521 $7,353 $8,278 $6,955 $6,835 $6,498 $7,685
RESULTS Gross profit 2,258 2,502 2,367 2,664 2,237 2,250 2,009 2,487
Net earnings 325 268 266 321 384 326 206 238
Net earnings as a
percent of sales 4.9% 3.6% 3.6% 3.9% 5.5% 4.8% 3.2% 3.1%
- --------------------------------------------------------------------------------------------
PER SHARE Basic earnings per
common share $ 0.55 $ 0.45 $ 0.44 $ 0.54 $ 0.65 $ 0.55 $ 0.35 $ 0.40
DATA Diluted earnings per
(IN DOLLARS) common share $ 0.53 $ 0.44 $ 0.44 $ 0.53 $ 0.63 $ 0.54 $ 0.34 $ 0.39
--------------------------------------------------------------------------------------
Dividends declared $0.120 $0.120 $0.120 $0.120 $0.100 $0.120 $0.120 $0.120
Dividends paid $0.120 $0.120 $0.120 $0.120 $0.100 $0.100 $0.120 $0.120
Stock prices
High $69.75 $78.94 $90.44 $75.19 $59.00 $67.13 $68.50 $63.63
Low $54.00 $54.88 $66.00 $54.13 $45.00 $50.63 $46.75 $44.13
- --------------------------------------------------------------------------------------------
</TABLE>
The number of stockholders of record of Motorola common stock on
January 31, 1998 was 67,085.
F-26
<PAGE>
MOTOROLA INCENTIVE PLAN OF 1998
-----------------------------------
1. NAME AND PURPOSE
----------------
1.1 Name. The name of this plan is the Motorola Incentive Plan of 1998
----
(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 of Directors 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) Agreement. The document, if any, which evidences the grant of
---------
any Benefit under the Plan and which sets forth the Benefit and the terms,
conditions and provisions of, and restrictions relating to, such Benefit.
(c) Benefit. Any benefit granted to, or received by, a Participant
-------
under the Plan.
(d) Board. The Board of Directors of Motorola, Inc.
-----
(e) Cash Award. A Benefit Awarded to a Participant under Section 11
----------
of the Plan.
(f) Change in Control. The events described in Section 17.2.
-----------------
(g) Code. The Internal Revenue Code of 1986, as amended, and
----
the regulations promulgated pursuant thereto.
(h) Committee. The Compensation Committee of the Board.
---------
1
<PAGE>
(i) Common Stock. Motorola's common stock, $3 par value per
------------
Share.
(j) Compensation. All cash remuneration payable to a Non-Employee
------------
Director for services to Motorola as a Non-Employee Director other than
reimbursement for expenses, and shall include retainer fees for service on
the Board, fees for serving as chairman of a committee of the Board, fees
for attendance at meetings of the Board and any committees thereof,
compensation for work performed in connection with service on a committee
of the Board or at the request of the Board, any committee thereof or a
member of Motorola's Chief Executive Office or the Chairman of the Board
and any other kind or category of fees or payments which may be put into
effect in the future.
(k) Directors. Members of the Board of Motorola.
---------
(l) Effective Date. The date that the Plan is approved by both the
--------------
directors of Motorola and the stockholders of Motorola, and if not approved
by both on the same day, the date of the last approval.
(m) Employee. Any person employed by Motorola or a Subsidiary on
--------
a full or part-time basis.
(n) Employee Stock Options. Stock Options granted to an Employee
----------------------
under Article 4 of the Plan, including both NSOs and ISOs, as defined
below.
(o) Exchange Act. The Securities Exchange Act of 1934, as
------------
amended.
(p) Fair Market Value. The average of the high and low sale prices of
-----------------
2
<PAGE>
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.
(q) ISO. An incentive stock option that meets the requirements of
---
Section 422 (or any successor section) of the Code.
(r) Motorola. Motorola, Inc. or any successor.
--------
(s) NSO. A stock option that does not qualify as an ISO.
---
(t) Non-Employee Director. Is defined in Section 1.2.
---------------------
(u) Non-Employee Stock Option Period. Is defined in Section 6.3.
---------------------------------
(v) Non-Employee Stock Option. Is defined in Section 6.1.
-------------------------
(w) Non-Exercise Period. The period, for each Employee Stock Option
-------------------
and each Stock Appreciation Right, 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 or Stock Appreciation Right.
(x) Optionee. An Employee who has been granted an Employee Stock
---------
Option under the Plan.
(y) Participant. An individual who is granted a Benefit under or
-----------
otherwise participates in the Plan. Benefits, other than Non-Employee Stock
Options,may be granted only to Employees.
(z) Performance Share. A Benefit awarded to a Participant under
-----------------
Section 8 of the Plan.
(aa) Plan. The Motorola Incentive Plan of 1998 and all amendments and
----
supplements thereto.
(bb) Plan Year. The calendar year.
---------
(cc) Restricted Stock. Shares issued under Article 5 of the Plan.
----------------
(dd) Rule 16b-3. Rule 16b-3 promulgated by the SEC, as amended, or
----------
3
<PAGE>
any successor rule in effect from time to time.
(ee) SEC. The Securities and Exchange Commission.
---
(ff) Share. A share of Common Stock.
-----
(gg) Stock Appreciation Right. A Benefit awarded to a Participant
------------------------
under Section 9 of the Plan.
(hh) Stock Award. A Benefit awarded to a Participant under Section 10
-----------
of the Plan.
(ii) Stock Options. Employee Stock Options and Non-Employee Stock
-------------
Options.
(jj) 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.
(kk) Successor-in-Interest. Is defined in Section 4.5(a)(ii).
---------------------
(ll) 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 in any Agreement may be defined elsewhere in
the Plan or in such Agreement.
3. SHARES SUBJECT TO PLAN
----------------------
3.1 Number of Shares. The number of Shares which may be issued or sold or
----------------
for which Benefits may be granted or received under the Plan, for which
Compensation may be paid to Non-Employee Directors in Common Stock and
restricted Common Stock under the Motorola Non-Employee Directors Stock Plan and
for which awards and grants payable in Common Stock and restricted Common Stock
may be made under the Motorola Long Range Incentive Plan of 1994 and the
Motorola Executive Incentive Plan shall be (i) 12,500,000 Shares, plus (ii) the
total number of Shares with respect to which no options have been granted under
Motorola's Share Option Plan of 1996 on the Effective Date, plus (iii) the
number of Shares as to which
4
<PAGE>
options granted under Motorola's Share Option Plan of 1996 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 Participant may receive (i) Stock
Options relating to more than 300,000 Shares in any Plan Year (as adjusted
pursuant to Section 3.3), (ii) Restricted Stock relating to more than 100,000
Shares in any Plan Year (as adjusted pursuant to Section 3.3), (iii) Stock
Appreciation Rights relating to more than 50,000 Shares in any Plan Year (as
adjusted pursuant to Section 3.3) or (iv) Performance Shares relating to more
than 20,000 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 or if Restricted Stock, Performance
Shares or a Stock Appreciation Right is forfeited or terminates without the
issuance of all of the Shares subject thereto, the Shares covered by such
Benefits shall again be available for use under the Plan. Shares covered by a
Benefit granted under the Plan shall not be counted as used unless and until
they are actually and unconditionally issued and delivered to a Participant.
The number of Shares which are transferred to Motorola by a Participant to pay
the exercise or purchase price of a Benefit shall be subtracted from the number
of Shares issued with respect to such Benefit for the purpose of counting Shares
used. Shares withheld to pay withholding taxes in connection with the exercise
or payment of a Benefit shall not be counted as used. Shares covered by a
Benefit granted under the Plan which is settled in cash shall not be counted as
used.
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 and grants or purchases
of Restricted Stock, Performance Shares, Stock Appreciation Rights and Stock
Awards, the number of Shares to be automatically granted under Section 6.1
hereof and the number of Shares subject to outstanding Stock Options,
Performance Shares, Stock Appreciation Rights and Restricted Stock, 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
5
<PAGE>
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 expiration of ten (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.
6
<PAGE>
(b) Payment for Shares purchased upon exercise of an Employee Stock
Option shall be paid in full as permitted by Section 19.1 for all Shares
purchased at the time of purchase. No fractional Shares may be purchased.
4.4 Non-Exercise Period. Except as provided herein for Optionees who die
-------------------
while in the employ of Motorola or any Subsidiary or for a Change in Control, no
Employee Stock Option granted under the Plan may be exercised prior to the
expiration of the Non-Exercise Period. No Employee Stock Option may be
exercised after expiration of its stated term.
4.5 Effect of Termination of Employment on Employee Stock Options:
--------------------------------------------------------------
(a) Termination of Employment During the Non-Exercise Period.
--------------------------------------------------------
(i) Except for a Change in Control and except for a disability
leave of absence as provided in Section 4.5(a)(iii) hereof, if, during
the Non-Exercise Period, the Optionee's employment with Motorola and
its Subsidiaries shall terminate for any reason (including retirement)
other than death, transfer to an Affiliate and other than Total and
Permanent Disability (as that term is defined in the Motorola Profit
Sharing and Investment Plan) of the Optionee, as determined by the
Committee or its designee, the Optionee's right to exercise the
Employee Stock Option shall terminate and all rights thereunder shall
cease; provided, however, if the Optionee's employment terminates by
reason of the transfer of such Optionee to an Affiliate, the Committee
shall have the power and authority, in its discretion, to determine
whether or not any or all of the Employee Stock Options held by the
Optionee shall terminate or shall continue in effect (in which case
such Options shall be subject to all of the conditions of the Plan,
including this Section 4.5, and such other conditions as the Committee
may impose, with "termination of employment," "employment is
terminated" or "employment shall have been terminated" or words of
like import or intent meaning termination of employment with the
Affiliate.)
(ii) If, during the Non-Exercise Period, an Optionee dies while
in the employ of Motorola or any Subsidiary, the deceased Optionee's
Successor-in-Interest shall have the right to exercise, in whole or in
part, at any time during the remainder of the term of such Employee
Stock Option, the entire amount of the Shares subject to such Employee
Stock Option (without regard to any installment limitation on the
exercise of the Employee Stock Option). For purposes of the Plan, the
term "Successor-in-Interest" shall mean the deceased Optionee's death
beneficiary, personal representative, or any person who acquired the
right to exercise such Employee Stock Option by bequest or inheritance
or by reason of the laws of descent and distribution.
7
<PAGE>
(iii) If, during the Non-Exercise Period, an Optionee's
employment with Motorola and its Subsidiaries shall terminate because
of the Total and Permanent Disability of the Optionee or if the
Optionee shall be put on disability leave of absence status because of
the Total and Permanent Disability of the Optionee, each Employee
Stock Option held by such an Optionee which has a Non-Exercise Period
in effect at the time of termination of employment or commencement of
the disability leave of absence shall become exercisable at the time
the applicable Non-Exercise Period elapses or terminates, and the
Optionee shall then have the right to exercise, in whole or in part,
each such Employee Stock Option for the entire amount of Shares
subject to each such Employee Stock Option (without regard to any
installment limitation on exercise of the Employee Stock Option) at
any time during the remainder of the term of the Employee Stock
Option. The unexercised portion of each Employee Stock Option shall
terminate upon expiration of the term of such Stock Option, and any
unexercised portion shall terminate immediately if and when the
Optionee is employed by a competitor of Motorola or any Subsidiary
without written consent of the Committee.
(b) Termination of Employment After the Non-Exercise Period.
-------------------------------------------------------
(i) By Termination of Employment Without Cause.
------------------------------------------
If the Non-Exercise Period shall have elapsed or terminated and
the Optionee's employment with Motorola and its Subsidiaries shall
have been terminated thereafter by Motorola or any Subsidiary without
cause, the Optionee shall have the right to exercise the then
presently exercisable unexercised portion of the Employee Stock Option
at any time during a period of twelve (12) months after the date of
termination of employment. The unexercised portion of the Employee
Stock Option may be exercised, in whole or in part, for the number of
Shares which were or would have become exercisable to the extent the
Optionee could have exercised such Employee Stock Option had the
Optionee remained in the employ of Motorola or any Subsidiary during
the twelve (12) month period immediately following the date of
termination of employment. Except as otherwise provided in Section
4.5(b)(vii) hereof, the unexercised and/or unexercisable portion of
each Employee Stock Option shall terminate twelve (12) months after an
Optionee's employment with Motorola and its Subsidiaries shall have
been so terminated, and any unexercised and/or unexercisable portion
shall terminate immediately if and when the Optionee is employed by a
competitor of Motorola or any Subsidiary without the written consent
of the Committee.
(ii) By Termination of Employment for Cause.
--------------------------------------
8
<PAGE>
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.
---------------------------------
9
<PAGE>
If the Non-Exercise Period shall have elapsed or terminated, and
the Optionee's employment with Motorola and its Subsidiaries shall
have been terminated because of the Total and Permanent Disability of
the Optionee or if the Optionee shall be put on disability leave of
absence status because of the Total and Permanent Disability of the
Optionee, the Optionee shall have the right to exercise, in whole or
in part, the unexercised portion of any Employee Stock Option held by
such Optionee for the entire amount of Shares subject to such Employee
Stock Option (without regard to any installment limitation on exercise
of the Employee Stock Option) at any time during the remainder of the
term of the Employee Stock Option. The unexercised portion of each
Employee Stock Option shall terminate upon expiration of the term of
each such Employee Stock Option, and any unexercised portion shall
terminate immediately if and when the Optionee is employed by a
competitor of Motorola or any Subsidiary without the written consent
of the Committee.
(vi) By Death.
--------
If the Non-Exercise Period shall have elapsed or terminated and
the Optionee dies while in the employ of Motorola or any Subsidiary,
the unexercised portion of the Employee Stock Option may be exercised,
in whole or in part, at any time during the remainder of the term of
the Employee Stock Option by the Optionee's Successor-in-Interest, for
the entire number of Shares subject to the Employee Stock Option
(without regard to any installment limitation on exercise of the
Employee Stock Option).
(vii) Effect of Death After Termination of Employment Without
-----------------------------------------------
Cause or Retirement.
-------------------
If the Non-Exercise Period shall have elapsed or terminated and
the Optionee dies during the twelve (12) month period immediately
following the Optionee's termination of employment by Motorola or any
Subsidiary without cause and at the time of death such Optionee is not
employed by a competitor of Motorola or any Subsidiary (or while
employed by a competitor of Motorola or any Subsidiary with the
written consent of the Committee), the unexercised portion of the
Employee Stock Option may be exercised by the Optionee's Successor-in-
Interest at any time during the remainder of the term of the Employee
Stock Option, in whole or in part, for the number of Shares which were
or would have become exercisable had the Optionee survived for the
remainder of the term of the Employee Stock Option, without regard to
the requirement of exercise within twelve (12) months after
termination of employment without cause.
10
<PAGE>
If the Non-Exercise Period shall have elapsed or terminated and
the Optionee dies after retirement prior to the expiration of the term
of the Employee Stock Option, and, if at the time of death such
Optionee is not employed by a competitor of Motorola or any Subsidiary
(or while employed by a competitor of Motorola or any Subsidiary with
the written consent of the Committee), the unexercised portion of the
Employee Stock Option may be exercised for the entire number of Shares
subject to such Employee Stock Option (without regard to any
installment limitation on exercise of the Employee Stock Option), by
the Optionee's Successor-in-Interest at any time during the remainder
of the term of the Employee Stock Option.
(viii) By Transfer of Optionee to an Affiliate.
---------------------------------------
If the Non-Exercise Period shall have elapsed or terminated and
the Optionee's employment with Motorola and its Subsidiaries shall
terminate by reason of the transfer of such Optionee to an Affiliate,
the Committee shall have the power and authority, in its discretion,
to determine whether or not any or all of the Employee Stock Options
held by the Optionee shall continue in effect for the remainder of the
term of such Employee Stock Option or for the period otherwise
applicable under the provisions of the Plan. Any Employee Stock Option
which the Committee permits to continue in effect beyond the period
otherwise applicable under the Plan shall be subject to all of the
terms and conditions of the Plan, including this Section 4.5 and such
other conditions as the Committee may impose (with "termination of
employment", "employment shall terminate", "terminates employment",
"employment is terminated" or "employment shall have been terminated"
or words of like import or intent meaning termination of employment
with the Affiliate).
(c) Procedure on Death. No transfer of an Employee Stock Option by an
------------------
Optionee 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
11
<PAGE>
Optionee, whether exercisable or non-exercisable, shall be suspended at
such time, but the period of time during which the Optionee is on leave of
absence shall be counted in determining when the Non-Exercise Period
elapses. If an Optionee is placed on lay-off status by Motorola or any
Subsidiary, any then non-exercisable Employee Stock Option shall terminate
and any then exercisable Employee Stock Option may be exercised during the
period of twelve (12) months from the date the Optionee is placed on lay-
off status and shall be suspended thereafter to the extent not exercised.
In any case, the unexercised portion of each suspended Employee 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. RESTRICTED STOCK
----------------
5.1 Grants of Restricted Stock. The Committee may grant Benefits in Shares
--------------------------
available under Article 3 of the Plan as Restricted Stock. Restricted Stock
consists of Shares of Common Stock which are transferred without payment, or
sold at a specified price, as determined by the Committee, by Motorola to a
Participant, but subject to a substantial risk of forfeiture and to restrictions
on their sale or other transfer by the Participant. The Committee shall
determine the eligible Employees to whom, and the time or times at which, grants
of Restricted Stock will be made, the number of Shares to be granted, the price
to be paid, the time or times within which the Shares covered by such grants
shall be subject to forfeiture, the time or times at which the restrictions will
terminate, and all other terms and conditions of the grants.
5.2 Price, Agreement, Stock Certificates, Escrow. The recipient of a
--------------------------------------------
Restricted Stock grant shall not have any rights with respect to such grant
unless and until such recipient has executed and delivered to Motorola an
Agreement evidencing the grant. The purchase price, if any, for Shares of
Restricted Stock shall be paid in cash and in full for all Shares of Restricted
Stock then to be delivered. Grants of Restricted Stock must be accepted within
such period after the grant date as the Committee may specify at the time of
grant, by executing an Agreement and paying the price required. Each
Participant receiving a Restricted Stock grant may be issued a stock certificate
in respect of such Shares of Restricted Stock. Such certificate, if issued,
shall be registered in the name of such Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such grant. The Committee may require that the stock certificates
evidencing such Shares be held in escrow by Motorola until the restrictions
thereon shall have terminated, and
12
<PAGE>
that, as a condition of any Restricted Stock grant, the Participant shall have
delivered to Motorola a stock power, endorsed in blank, relating to the
Restricted Stock covered by such grant.
5.3 Restrictions. All Shares of Restricted Stock shall be subject to such
------------
restrictions and conditions as the Committee may determine, including, without
limitation, any or all of the following restrictions and conditions:
(a) a prohibition against the sale, assignment, transfer, pledge or
encumbrance of the Shares of Restricted Stock, such prohibition to
terminate at such time or times (including the passage of time only) as the
Committee shall determine, whether in installments or otherwise, or at the
time of death, Total and Permanent Disability or retirement, or based on
service, of the holder of such Shares, or otherwise as the Committee may
provide;
(b) a provision that the holder of Shares of Restricted Stock
forfeit, or in the case of Shares sold to a Participant, resell back to
Motorola at the price the Participant paid, all or part of such Shares in
the event of termination of his or her employment for any reason other than
death, Total and Permanent Disability or retirement during any period in
which such Shares are subject to restrictions; or a provision vesting such
Shares in the event of termination of employment; or
(c) a provision that the holder of Shares of Restricted Stock
forfeit, or in the case of Shares sold to a Participant, resell back to
Motorola at the price the Participant paid, such Shares in the event the
Participant 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 unless otherwise determined by
the Committee. The determination of whether a Participant 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 Committee, and such determination shall be conclusive and
binding upon all parties.
The Committee shall have the right at any time to accelerate, reduce or
terminate any restrictions, in whole or in part, in its sole discretion.
5.4 Termination of Restrictions. Promptly after the termination of the
---------------------------
restrictions, by lapse of time or otherwise, without a prior forfeiture, with
respect to Shares of Restricted Stock, a certificate for such Shares shall be
delivered free of all restrictions and legends together with deferred dividends,
if any, to the Participant or to the Participant's Successor-in-Interest. If a
stock certificate was previously delivered to the Participant, the replacement
certificate will not be delivered to the Participant until the previously
delivered certificate is returned to Motorola in a form acceptable for transfer,
free and clear of all liens, claims and encumbrances.
13
<PAGE>
5.5 Stockholder Rights. Subject to the applicable restrictions, the
------------------
Participant may be given, with respect to the Shares of Restricted Stock, any or
all rights of a stockholder of Motorola, including the right to vote the Shares,
and the right to receive any cash or stock dividends. The Committee, in its
sole discretion, as determined at the time of grant, may permit or require the
payment of cash dividends to be deferred and, if the Committee so determines,
reinvested in additional Restricted Stock to the extent Shares are available
under Article 3 or otherwise be reinvested. The Committee may require that
stock dividends issued with respect to Restricted Stock shall be treated as
additional shares of Restricted Stock that are subject to the same restrictions
and other terms and conditions that apply to the Shares with respect to which
such dividends are issued.
5.6 Payment for Employee Stock Option. The Committee may, at any time, and
---------------------------------
in its sole discretion, allow a Participant to use his or her Restricted Stock
during the period the restrictions are in effect as payment of the Employee
Stock Option exercise price for Employee Stock Options which he or she has been
granted. In such an event, a number of the Shares issued upon the exercise of
the Employee Stock Option, equal to the number of Shares of Restricted Stock
used as payment therefor, shall be subject to the same restrictions as the
Restricted Stock so used, plus any additional restrictions that may be imposed
by the Committee.
5.7 Substitution of Rights. Prior to the end of the period the
----------------------
restrictions are in effect with respect to any Shares of Restricted Stock
granted to a Participant, the Committee may, with the consent of the
Participant, substitute an unsecured obligation of Motorola to pay cash or stock
(on such reasonable terms and conditions as the Committee may, in its sole
discretion, determine) in lieu of its obligations under this Article 5 to
deliver unrestricted Shares plus accrued dividends, if any.
5.8 Cash Awards and Restricted Stock. The Committee, at the time it grants
--------------------------------
Restricted Stock to a Participant or at anytime thereafter, may grant a
corresponding Cash Award which will entitle the Participant to receive cash as
of the date as of which the Restricted Stock is transferred to him or her
pursuant to paragraph 5.4, in an amount specified by the Committee. Any such
Cash Award shall be in addition to the Participant's rights to the Shares of
Restricted Stock and shall be subject to such additional terms and conditions,
if any, as the Committee determines which are not inconsistent with the terms
and conditions of the Plan. The Committee may, at any time, grant unrestricted
Shares (in lieu of such a Cash Award and subject to the limitations thereof) to
any Participant under the Plan subject to such terms and conditions as the
Committee may determine.
6. NON-EMPLOYEE STOCK OPTIONS
--------------------------
6.1 Automatic Grant of Non-Employee Stock Options. On June 1, 1998 and on
---------------------------------------------
June 1 of each Plan Year after 1998 in which the Plan is in effect, each
individual elected, re-elected or continuing as a Non-Employee Director shall
automatically
14
<PAGE>
receive a NSO covering 2,500 Shares, or such greater number of Shares as shall
be determined by the Board (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 NSOs 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.
6.2 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.
6.3 Exercisability. A Non-Employee Stock Option granted under the Plan
--------------
shall become exercisable twelve (12) months after the date of grant (except as
otherwise provided in Section 6.6 for retirement and Section 6.7 for death which
occurs during such period and in Article 17 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").
6.4 Payment. The Non-Employee Stock Option exercise price shall be paid in
-------
full as permitted by Section 19.1 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.
6.5 Termination. Upon cessation of services as a Non-Employee Director
-----------
(for reasons other than retirement as defined in Section 6.6 hereof or death)
only those Non-Employee Stock Options immediately exercisable at the date of
cessation of service shall be exercisable by the Non-Employee Director. Such
Non-Employee Stock Options must be exercised within 30 days after cessation of
service (but in no event after the expiration of the Non-Employee Stock Option
Period) or they shall be forfeited. If, however, the Non-Employee Director
during or after his or her service on the Board, engages, directly or
indirectly, in any activity which is in competition with any activity of
Motorola or any Subsidiary or in any action or conduct which is in any manner
adverse or in any way contrary to the interests of Motorola, or any Subsidiary,
any unexercised portion of such Non-Employee Stock Options shall immediately
terminate, unless otherwise determined by the Chief Executive Officer of
Motorola. The determination of whether a Director is or has engaged in any
competitive activity or in any action or
15
<PAGE>
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.
6.6 Retirement. As used in this Article 6, 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.
6.7 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.
6.8 Amendments. 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.
6.9 Interpretation. The Chief Executive Officer of Motorola shall
--------------
administer, construe and interpret this Article 6, 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 6, 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 6. Non-Employee Stock
Options may be evidenced by certificates or Agreements, at the option of the
Chief Executive Officer of Motorola.
7. MOTOROLA LONG RANGE INCENTIVE PLAN OF 1994, MOTOROLA EXECUTIVE INCENTIVE
--------------------------------------------------------------
PLAN AND MOTOROLA NON-EMPLOYEE DIRECTORS STOCK PLAN
- -------------------------------------------------------------
Awards and grants made under the Motorola Long Range Incentive Plan of 1994
and the Motorola Executive Incentive Plan which are payable in Common Stock or
restricted Common Stock, or both, shall be paid from the Shares reserved or
available for issuance under Section 3 of the Plan. Compensation of Non-Employee
Directors which is payable in Common Stock or restricted Common Stock, or both,
under the Motorola Non-Employee Directors Stock Plan shall be paid from Shares
reserved or available for issuance under Section 3 of the Plan.
8. PERFORMANCE SHARES
------------------
8.1 Description. Performance Shares are the right of a Participant to whom a
-----------
16
<PAGE>
grant of such Shares is made to receive Shares or cash or a combination of
Shares and cash equal to the Fair Market Value of such Shares at a future date
in accordance with the terms of such grant.
8.2 Grant. The Committee may grant an award of Performance Shares. The
-----
award shall be subject to such terms and conditions as the Committee deems
appropriate. The number of Performance Shares and the terms and conditions of
the grant shall be set forth in the applicable Agreement.
8.3 Performance Objectives. Each Performance Share shall be subject to
----------------------
conditions established by the Committee, which may include, but are not limited
to, achievement of specific business objectives, attainment of growth rates,
attainment of profit and/or other performance objectives for Motorola or one of
its operating units to be achieved by the end of a specified period or other
measurements of performance. If the established performance objectives are
achieved, the Participant shall be paid in Shares of Common Stock equal to the
number of Performance Shares initially granted to that Participant or in cash
equal to the Fair Market Value of such Shares as specified in the Agreement or
in a combination of Shares and cash. If such objectives are not met, each award
of Performance Shares may provide for lesser payments in accordance with
formulas established in the award.
8.4 Not Stockholder. The award of Performance Shares to a Participant shall
---------------
not create any rights in such Participant as a stockholder of Motorola until the
issuance of Shares of Common Stock with respect to an award.
8.5 No Adjustments. No adjustment shall be made in Performance Shares
--------------
awarded on account of cash or stock dividends which may be paid or other rights
which may be issued to the holders of Common Stock prior to the end of any
period for which performance objectives were established and Common Stock or
cash is issued to the Participant.
8.6 Nontransferability. Performance Shares may not be transferred, assigned
------------------
or pledged by the holder thereof except as may be provided in the Agreement.
9. STOCK APPRECIATION RIGHTS
-------------------------
9.1 Grant of Stock Appreciation Rights. The Committee shall have authority
----------------------------------
to grant Stock Appreciation Rights to Employees. The Committee shall determine
the number of Shares subject to each Stock Appreciation Right, the term of the
Stock Appreciation Right, the time or times at which the Stock Appreciation
Right may be exercised and all other terms and conditions of the Stock
Appreciation Right. A Stock Appreciation Right is a right, denominated in
Shares, to receive, upon exercise of the right, in whole or in part, without
payment to Motorola, an amount, payable in Shares, in cash (in U.S. dollars, or
the currency of the country of the Employee's citizenship or of the country in
which the Employee resides, at the election of Motorola), or a combination of
Shares and cash (in U.S. dollars, or the currency of the country of the
17
<PAGE>
Employee's citizenship or of the country in which the Employee resides, at the
election of Motorola) as the Committee shall determine at the time the right is
exercised) that is equal to the excess of (i) the Fair Market Value of Common
Stock on the date of exercise of the right over (ii) the Fair Market Value of
Common Stock on the date of grant of the right multiplied by the number of
Shares for which the right is exercised.
9.2 Non-Exercise Period. Except as provided in Section 9.3 hereof, no Stock
-------------------
Appreciation Right granted under the Plan may be exercised prior to the
expiration of the Non-Exercise Period. No Stock Appreciation Right may be
exercised after expiration of its stated term.
9.3 Application of Certain Terms and Conditions to Stock Appreciation
-----------------------------------------------------------------
Rights. The terms and conditions of Section 4.5 of the Plan applicable to
- ------
Employee Stock Options shall also apply to Stock Appreciation Rights with the
term "Optionee" changed to "grantee", the term "Employee Stock Option" changed
to "Stock Appreciation Right" and with such other changes as may be necessary to
conform the language of Section 4.5 to apply to Stock Appreciation Rights.
10. STOCK AWARDS
------------
A Stock Award consists of the transfer by Motorola to an Employee of Shares
of Common Stock, without payment therefor, as additional compensation for his or
her services to the Company or a Subsidiary. The number of Shares to be awarded
and transferred to any Employee shall be determined by the Committee.
11. CASH AWARDS
-----------
A Cash Award consists of a monetary payment made by Motorola to an Employee
as additional compensation for his or her services to the Company or a
Subsidiary. A Cash Award may be made in tandem with another Benefit or may be
made independently of any other Benefit. The amount of any monetary payment
constituting a Cash Award shall be determined by the Committee in its sole
discretion. Cash Awards may be subject to other terms and conditions, which may
vary from time to time and among Employees, as the Committee determines to be
appropriate.
12. ELIGIBILITY
-----------
The Participants and the Benefits they receive under the Plan shall be
determined by the Committee, except for Non-Employee Stock Options which shall
be automatically granted to Non-Employee Directors under Article 6 and except to
the extent authority has been delegated under Section 13.1 hereof. In making
its determinations, the Committee shall consider past, present and expected
future contributions of Employees to Motorola and its Subsidiaries.
13. ADMINISTRATION
--------------
18
<PAGE>
13.1 Committee. The Plan (except for Article 6 and the Non-Employee Stock
---------
Options automatically granted thereunder) shall be administered by the
Committee; provided, however, if at any time Rule 16b-3 and Section 162(m) of
the Code, and any implementing regulations (and any successor provisions
thereof), so permit without adversely affecting the ability of the Plan to
comply with the conditions for exemption from Section 16 of the Exchange Act (or
any successor provision) provided by Rule 16b-3 and the exemption from the
limitations on the deductibility of certain executive compensation provided by
Section 162(m), the Committee may delegate the administration of the Plan in
whole or in part, on such terms and conditions, to such other person or persons
as it may determine in its discretion. References to the Committee hereunder
shall include the Board where appropriate. The membership of the Committee or
such successor committee shall be constituted so as to comply at all times with
the applicable requirements of Rule 16b-3 and Section 162(m).
13.2 Authority. Subject to the terms of the Plan, and except for the Non-
---------
Employee Stock Options granted under Article 6 (over which the Committee shall
have no discretion), the Committee shall have complete power and authority to:
(a) determine the individuals to whom Benefits are granted, the type
and amounts of Benefits to be granted and the time of all such grants;
(b) determine the terms, conditions and provisions of, and
restrictions relating to, each Benefit granted;
(c) administer, interpret and construe the Plan, the Benefits and all
Agreements;
(d) prescribe, amend and revoke rules and regulations relating to the
Plan;
(e) determine the content and form of all Agreements;
(f) maintain accounts, records and ledgers relating to Benefits;
(g) maintain records concerning its decisions and proceedings;
(h) employ agents, attorneys, accountants or other persons for such
purposes as the Committee considers necessary or desirable;
(i) take, at any time, any action permitted by Section 17.1
irrespective of whether any Change in Control has occurred or is imminent;
and
(j) do and perform all acts which it may deem necessary or appropriate
for the administration of the Plan and carry out the purposes of the Plan.
(k) determine all questions relating to Benefits under the Plan.
19
<PAGE>
13.3 Replacement. The Committee may permit a Participant to elect to
-----------
surrender a Benefit in exchange for a new Benefit, excluding the replacement of
a Stock Option with a Stock Option at a lower price than the Stock Option
surrendered.
13.4 Tandem Awards. Benefits may be granted by the Committee singly or in
-------------
combination or tandem with other Benefits.
13.5 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.
14. 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 6 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 Benefit 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.
15. TERM AND TERMINATION
--------------------
15.1 Term. The Plan shall commence as of the Effective Date and, subject to
----
the terms of the Plan, including those in Section 20.8 requiring stockholder
approval for implementation or limiting the period over which ISOs or any other
Benefits may be granted, shall continue in full force and effect until five (5)
years from the Effective Date, unless sooner terminated by the Board.
15.2 Termination. The Plan may be terminated at any time by the Board.
-----------
Termination shall not in any manner impair or adversely affect any Benefit
outstanding at the time of termination.
16. MODIFICATION OR TERMINATION
---------------------------
16.1 General. Subject to the provisions of Section 16.2, the amendment or
-------
termination of the Plan shall not impair or adversely affect a Participant's
right to any Benefit granted prior to such amendment or termination.
16.2 Committee's Right. Any Benefit granted may be converted, modified,
-----------------
20
<PAGE>
forfeited or canceled, in whole or in part, by the Committee if and to the
extent permitted in the Plan or applicable Agreement or with the consent of the
Participant to whom such Benefit was granted. The Committee may grant Benefits
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 and regulations of any foreign jurisdiction, to assure the
viability of Benefits granted and to enable Participants, regardless of where
employed, to receive Benefits under the Plan and such laws and regulations.
17. CHANGE IN CONTROL
-----------------
17.1 Benefit Vesting and Payment.
---------------------------
(a) Stock Options. 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.
(b) Restricted Stock. Upon the occurrence of a Change in Control, the
----------------
restrictions on all Shares of Restricted Stock outstanding on the date on
which the Change in Control occurs shall be automatically terminated and each
Participant holding Restricted Stock shall have the right to receive
unrestricted Shares in substitution for the Shares of Restricted Stock or, at
his or her election made during a period of sixty (60) days following the
date on which the Change in Control occurs, the right to have Motorola
purchase any or all Shares of Restricted Stock for an immediate lump-sum cash
payment equal to the product of (1) 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
and (2) the number of Shares of such Restricted Stock, plus the value of any
related Cash Award relating to such Restricted Stock.
21
<PAGE>
(c) Performance Shares. Upon the occurrence of a Change in Control,
------------------
any performance objectives with respect to any Performance Shares previously
granted, but still considered outstanding (as a right to receive Shares at a
future date and any related Cash Award) shall be deemed to have been attained
to the full and maximum extent, and Shares of Common Stock and any related
Cash Award shall be paid to the Participant in an amount or amounts
determined in accordance with the terms and conditions set forth in the
applicable Agreement.
(d) Stock Appreciation Rights. Upon the occurrence of a Change in
-------------------------
Control, each Stock Appreciation Right 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 a Stock Appreciation Right
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 Appreciation Rights for an immediate
lump-sum cash payment equal to the product of (1) 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 and (2) the number of Shares covered by each such Stock
Appreciation Right.
(e) Other Benefits. Upon the occurrence of a Change in Control, any
--------------
terms and conditions with respect to other Benefits previously granted under
the Plan, shall be deemed to be fully satisfied and the Benefits shall be
paid out immediately to the Participants in amounts determined in accordance
with the terms and conditions set forth in the applicable grant, award or
Agreement.
17.2 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
22
<PAGE>
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.
18. AGREEMENTS AND TRANSFER OF BENEFITS
-----------------------------------
18.1 Grant Evidenced by Agreement. The grant of any Benefit under the Plan
----------------------------
may be evidenced by, and as required by Sections 5.2 and 8.2 hereof shall be
evidenced by, an Agreement which describes the specific Benefit granted and
describes or refers to the terms and conditions of the Benefit. The granting of
any Benefit may be subject to, and conditioned upon, the recipient's execution
of any Agreement required by the Committee or the Plan. Except as otherwise
provided in an Agreement, all capitalized terms used in the Agreement shall have
the same meaning as in the Plan, and each Agreement shall be subject to all of
the terms of the Plan.
18.2 Provisions of Agreement. Each Agreement shall contain such provisions
-----------------------
that the Committee or Chief Executive Officer of Motorola, as appropriate, shall
determine to be necessary, desirable and appropriate for the Benefit granted.
ISOs may be evidenced by Incentive Stock Option certificates and NSOs may be
evidenced by Non-Qualified Stock Option certificates. Each Agreement may
include, but shall not be limited to, the following with respect to any Benefit:
description of the type of Benefit; the Benefit's duration; its transferability;
if a Stock Option, the exercise price, the exercise period, the Non-Exercise
Period and the person or persons who may exercise the Stock Option; the effect
upon such Benefit of the Participant's death or other termination of employment;
the Benefit's conditions; when, if, and how any Benefit may be forfeited,
converted into another Benefit, modified, exchanged for another Benefit, or
replaced; and the restrictions on any Shares purchased by, received by, or
granted to, a Participant under the Plan.
18.3 Transfer of Benefits. Except as set forth in the next sentence of this
--------------------
Section 18.3, a Benefit 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
23
<PAGE>
to provide, as a term of any NSO, 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.
19. PAYMENT AND DEFERRAL
--------------------
19.1 Payment. Upon the exercise of a Stock Option or in the case of any
-------
other Benefit that requires a payment to Motorola, 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.
(e) as provided in Section 5.6 hereof;
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 Agreement.
19.2 Deferral. The right to receive any Benefit (other than Non-Employee
--------
Stock Options) under the Plan may, at the written request of the Participant and
in the sole discretion of the Committee, be deferred for such period and upon
such terms as the Committee shall determine, which may include crediting of
interest on deferrals of cash and crediting of dividends on deferrals
denominated in Shares.
20. GENERAL
-------
20.1 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 any award or grant of any Benefit or the
exercise of any Stock Option or the distribution or receipt of Common Stock
under the Plan, 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
24
<PAGE>
including Common Stock that is part of the Benefit that gives rise to the
withholding requirement. At any time when a Participant is required to pay to
Motorola an amount required to be withheld under applicable tax laws in
connection with an award or grant, a distribution or receipt of Common Stock or
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, may suspend, condition, restrict or terminate the
right to make Elections, or may provide with respect to any Benefit that the
right to make Elections shall not apply to such Benefit. An Election is
irrevocable, unless revocation is approved by the Committee.
20.2 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 Benefit or the issuance
of any Shares of Common Stock pursuant to any Benefit, require the recipient of
the Benefit, 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 Benefit 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 Benefit 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
award of any Benefit, the issuance of Shares of Common Stock pursuant thereto or
the removal of any restrictions imposed on such Shares, such Benefit shall not
be awarded or such Shares of Common Stock shall not be issued or such
restrictions shall not be removed, 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 Benefit or terminate, withhold, condition,
restrict or limit the issuance or delivery of any Shares of Common Stock if it
determines that such Benefit or the issuance or delivery of Shares violates, or
is prohibited or restricted or made impractical or administratively burdensome
by, any applicable laws, rules or regulations, including but not limited to,
those of any foreign jurisdiction, stock exchange or Rule 16b-3.
25
<PAGE>
20.3 Leaves of Absence and Lay-Offs. Except as provided in Sections
-------------------------------
4.5(a)(iii), 4.5(b)(v) and 4.5(d), whether a leave of absence or lay-off shall
constitute termination of employment for purposes of the Plan or any Employee
Stock Option or Benefit granted under and pursuant to the Plan to Employees
shall be determined by the Committee, in its sole discretion, subject to then
currently applicable law. The Committee shall adopt such rules, in its sole
discretion, as to the time, any installment limitations, restrictions and manner
of the exercise or vesting of Benefits held by Employees who are placed on leave
of absence or lay-off status by the Company or any Affiliate, except as provided
in Sections 4.5(a)(iii), 4.5(b)(v) and 4.5(d).
20.4 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 the Company 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.
20.5 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.
20.6 Governing Law. The Plan and all Agreements under it 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.
20.7 Employment Rights. Nothing in the Plan or in any Agreement or grant or
-----------------
26
<PAGE>
award of any Benefit 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.
20.8 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.
20.9 Implementation of the Plan and Grant of Employee Stock Options Under
--------------------------------------------------------------------
1996 Plan. If this Plan is implemented pursuant to Section 20.8, except as
- ---------
herein provided, no further options will be granted under the Share Option Plan
of 1996. If the Board of Directors terminates this Plan after it has been
implemented, stock options may be granted under the Share Option Plan of 1996,
but not as to any Shares issued or subject to Benefits under this Plan.
27
<PAGE>
<TABLE>
<S> <C> <C>
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............................................................ 4
3. SHARES SUBJECT TO PLAN.............................................................. 4
3.1 Number of Shares............................................................. 4
3.2 Reusage...................................................................... 4
3.3 Adjustments.................................................................. 5
4. EMPLOYEE STOCK OPTIONS.............................................................. 5
4.1 Grant of Employee Stock Options.............................................. 5
4.2 NSOs and ISOs................................................................ 5
4.3 Exercise of Employee Stock Options; Payment.................................. 6
4.4 Non-Exercise Period.......................................................... 6
4.5 Effect of Termination of Employment on Employee Stock Options................ 6
5. RESTRICTED STOCK.................................................................... 11
5.1 Grants of Restricted Stock................................................... 11
5.2 Price, Agreement, Stock Certificates, Escrow................................. 12
5.3 Restrictions................................................................. 12
5.4 Termination of Restrictions.................................................. 13
5.5 Stockholder Rights........................................................... 13
5.6 Payment for Employee Stock Option............................................ 13
5.7 Substitution of Rights....................................................... 13
5.8 Cash Awards and Restricted Stock............................................. 14
6. NON-EMPLOYEE STOCK OPTIONS.......................................................... 14
6.1 Automatic Grant of Non-Employee Stock Options................................ 14
6.2 Price........................................................................ 14
6.3 Exercisability............................................................... 14
6.4 Payment...................................................................... 14
6.5 Termination.................................................................. 15
6.6 Retirement................................................................... 15
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
6.7 Death........................................................................ 15
6.8 Amendments................................................................... 15
6.9 Interpretation............................................................... 15
7. MOTOROLA LONG RANGE INCENTIVE PLAN OF 1994, MOTOROLA EXECUTIVE INCENTIVE
PLAN AND MOTOROLA NON-EMPLOYEE DIRECTORS STOCK PLAN................................. 16
8. PERFORMANCE SHARES.................................................................. 16
8.1 Description.................................................................. 16
8.2 Grant........................................................................ 16
8.3 Performance Objectives....................................................... 16
8.5 No Adjustments............................................................... 16
8.6 Nontransferability........................................................... 17
9. STOCK APPRECIATION RIGHTS........................................................... 17
9.1 Grant of Stock Appreciation Rights........................................... 17
9.2 Non-Exercise Period.......................................................... 17
9.3 Application of Certain Terms and Conditions to Stock Appreciation
Rights....................................................................... 17
10. STOCK AWARDS........................................................................ 17
11. CASH AWARDS......................................................................... 17
12. ELIGIBILITY......................................................................... 18
13. ADMINISTRATION...................................................................... 18
13.1 Committee.................................................................... 18
13.2 Authority.................................................................... 18
13.3 Replacement.................................................................. 19
13.4 Tandem Awards................................................................ 19
13.5 Determinations............................................................... 19
14. AMENDMENT........................................................................... 19
15. TERM AND TERMINATION................................................................ 19
15.1 Term......................................................................... 19
15.2 Termination.................................................................. 20
16. MODIFICATION OR TERMINATION......................................................... 20
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
16.1 General..................................................................... 20
16.2 Committee's Right........................................................... 20
17. CHANGE IN CONTROL.................................................................. 20
17.1 Benefit Vesting and Payment................................................. 20
17.2 Change in Control........................................................... 21
18. AGREEMENTS AND TRANSFER OF BENEFITS................................................ 22
18.1 Grant Evidenced by Agreement................................................ 22
18.2 Provisions of Agreement..................................................... 22
18.3 Transfer of Benefits........................................................ 23
19. PAYMENT AND DEFERRAL............................................................... 23
19.1 Payment..................................................................... 23
19.2 Deferral.................................................................... 23
20. GENERAL............................................................................ 24
20.1 Tax Withholding............................................................. 24
20.2 Compliance with Legal Requirements.......................................... 24
20.3 Leaves of Absence and Lay-Offs.............................................. 25
20.4 Indemnification and Exculpation............................................. 25
20.5 Headings.................................................................... 26
20.6 Governing Law............................................................... 26
20.7 Employment Rights........................................................... 26
20.8 Approval by Stockholders.................................................... 26
20.9 Implementation of the Plan and Grant of Employee Stock Options
Under 1996 Plan............................................................. 26
</TABLE>
30
<PAGE>
1998
P [LOGO OF MOTOROLA]
R
O
X THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Y FOR ANNUAL MEETING OF STOCKHOLDERS, MAY 4, 1998
The undersigned hereby appoints Christopher B. Galvin, Robert L. Growney, Carl
F. Koenemann, Garth L. Milne and Kenneth J. Johnson, and each of them, as the
undersigned's Proxies (with power of substitution) to represent and to vote all
the shares of common stock of Motorola, Inc., which the undersigned would be
entitled to vote, at the annual meeting of stockholders of Motorola, Inc. to be
held May 4, 1998 and at any adjournments thereof, subject to the directions
indicated on the reverse side hereof.
In their discretion, the Proxies are authorized to vote upon any other matter
that may properly come before the meeting or any adjournments thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE, BUT IF NO
CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED
AND FOR PROPOSAL 2.
---
IMPORTANT--This Proxy must be signed and dated on the reverse side.
- --------------------------------------------------------------------------------
Dear Stockholder:
On the reverse side of this card are instructions on how to vote by telephone.
Please consider voting by telephone. Your vote is recorded as if you mailed in
your proxy card. We believe telephone voting is convenient and it also saves the
Company money.
We also ask you to notify the Company if you are receiving multiple copies of
the Summary Annual Report at your household. You can do so by checking the box
under the signature block of the proxy card if you are mailing in your proxy
card, or by following the prompt if you are voting by telephone. If you do so
the Company can save money by reducing the number of Summary Annual Reports it
must print and mail.
Thank you for your attention to these matters.
- --------------------------------------------------------------------------------
N NEW LOCATION FOR THE ANNUAL MEETING OF STOCKHOLDERS
/ \ MAP TO THE HYATT REGENCY WOODFIELD
W--|--E 1800 E. GOLF ROAD, SCHAUMBURG, ILLINOIS 60173, (847) 605-1234
|
S
[LOGO OF MAP APPEARS HERE]
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED BELOW AND FOR
--- ---
PROPOSAL 2. [X]
[ ]
For All
1. ELECTION OF DIRECTORS-- For Withheld Except
Nominees: R. Chan, H. Fuller, C. Galvin, [_] [_] [_]
R. Galvin, R. Growney, A. Jones,
D. Jones, J. Lewent, W. Massey, T. Murrin,
N. Negroponte, J. Pepper, Jr., S. Scott
III, G. Tooker, B. West, J. White
- --------------------------------------------------------------------------------
(Except nominee(s) written above)
2. ADOPTION OF THE MOTOROLA INCENTIVE PLAN OF 1998-- For Against Abstain
[_] [_] [_]
-----------------------------------------
Signature Date
-----------------------------------------
Signature if jointly held Date
Please vote, date, sign and mail promptly
this proxy in the enclosed envelope. When
there is more than one owner, each should
sign. When signing as an attorney,
administrator, executor, guardian or
trustee, please add your title as such.
If executed by a corporation, the full
corporation name should be given, and
this proxy should be signed by a duly
authorized officer, showing his or her
title.
[_] Do not mail future Summary Annual
Reports for this account. Another
household member receives one.
IF YOU WISH TO VOTE BY TELEPHONE PLEASE SEE INSTRUCTION CARD BELOW
- --------------------------------------------------------------------------------
- -------------
- -------------
[LOGO OF MOTOROLA]
Dear Stockholder:
Motorola, Inc. offers you a convenient way to vote your shares. By following
the instructions below, your vote can now be counted over the telephone. We
encourage you to take advantage of this new feature which eliminates the need to
return the proxy card but authorizes the named proxies in the same manner as if
you marked, signed and dated your proxy card.
TELEPHONE VOTING INSTRUCTIONS
On a touch-tone telephone call the TOLL-FREE NUMBER 1-888-457-2960, 24 HOURS
PER DAY, SEVEN DAYS A WEEK. You will hear these instructions:
Please enter your 6-digit Personal Identification Number found in the box
above.
Press 1 to vote FOR the recommendations of the Board of Directors, or press
9 to WITHHOLD if you do not wish to vote for the recommendations of the
Board of Directors.
And, if you receive more than one Summary Annual Report in your household,
and do not wish to receive a Summary Annual Report on this account Press 1,
or press 0 to conclude this phone call and to cast your vote. HOWEVER, if you
wish to withhold authority to vote or vote against some but not all of the
recommendations of the Board of Directors, you must do so by signing, dating
and returning the proxy card in the envelope provided.
IF YOU VOTE BY TELEPHONE, THERE IS NO NEED FOR YOU TO
MAIL BACK YOUR PROXY.
THANK YOU FOR VOTING
- --------------------------------------------------------------------------------
ADMISSION TICKET TO MOTOROLA'S 1998 ANNUAL MEETING OF STOCKHOLDERS
[LOGO OF MOTOROLA]
This is your Admission ticket to gain access to Motorola's 1998 Annual Meeting
of Stockholders to be held at the Hyatt Regency Woodfield, 1800 E. Golf Road,
Schaumburg, Illinois on Monday, May 4, 1998, at 5:00 P.M. A map showing
directions to the meeting site is shown on the reverse side of this admission
ticket. Please present this ticket at one of the registration stations. Please
note that a large number of stockholders may attend the meeting, and seating is
on a first come, first served basis.
THIS TICKET IS NOT TRANSFERABLE
