ZEBRA TECHNOLOGIES CORP/DE, 10-K, 1998-03-26

ZEBRA TECHNOLOGIES CORP/DE
10-K, 1998-03-26
GENERAL INDUSTRIAL MACHINERY & EQUIPMENT

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997
Commission File Number 0-19406

ZEBRA TECHNOLOGIES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 36-2675536
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

333 CORPORATE WOODS PARKWAY, VERNON HILLS, ILLINOIS 60061
(Address of principal executive offices) (zip code)

Registrant's telephone number, including area code: (847) 634-6700

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No/ /

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /

As of March 6, 1998, the aggregate market value of each of the
registrant's Class A Common Stock and Class B Common Stock held by
non-affiliates was approximately $673,573,845 and $1,340,780, respectively.
The closing price of the Class A Common Stock on March 6, 1998, as reported
on the Nasdaq National Market, was $35.00. Because no market exists for the
Class B Common Stock and the shares of Class B Common Stock are convertible
on a one-for-one basis into shares of Class A Common Stock, the registrant
has assumed for purposes hereof that each share of Class B Common Stock has a
market value equal to one share of Class A Common Stock.

As of March 6, 1998, the number of shares outstanding of the
registrant's Class A Common Stock, par value $.01 per share, and of the
registrant's Class B Common Stock, par value $.01 per share, was 19,421,019,
and 4,890,609, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the registrant's Notice of Annual Meeting of
Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be
held on May 5, 1998, as described in the Cross-Reference Sheet and Table of
Contents included herewith, are incorporated by reference into Part III of
this report.

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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
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PAGE NUMBER
OR REFERENCE (1)
<S> <C>
PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6

PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 11

PART III
Item 10. Directors and Executive Officers of the Registrant 12(2)
Item 11. Executive Compensation 12(3)
Item 12. Security Ownership of Certain Beneficial Owners and Management 12(4)
Item 13. Certain Relationships and Related Transactions 12(3)

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13

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(1) Certain information is incorporated by reference, as indicated below,
from the registrant's Notice of Annual Meeting of Stockholders and Proxy
Statement for its Annual Meeting of Stockholders to be held on May 5,
1998 (the "Proxy Statement").
(2) Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."
(3) Proxy Statement section entitled "Executive Compensation and Certain
Transactions."
(4) Proxy Statement section entitled "Security Ownership of Management and
Certain Beneficial Owners."

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ZEBRA TECHNOLOGIES CORPORATION
333 CORPORATE WOODS PARKWAY
VERNON HILLS, ILLINOIS 60061
(847)634-6700
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PART I
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ITEM 1. BUSINESS

THE COMPANY
Zebra Technologies Corporation (the "Company" or "Zebra") provides bar
code labeling solutions, principally to manufacturing and service entities,
for use in automatic identification and data collection systems. The Company
designs, manufactures, sells and supports a broad line of computerized label
printing systems, related specialty supplies and PC-based label design
software on a world-wide basis. The Company's equipment is designed to
operate at the user's location to produce and dispense high quality bar coded
labels in time-sensitive and physically demanding environments. Zebra's
solutions approach integrates the Company's applications expertise,
computerized printing systems, specialty supplies and software. Applications
for the Company's systems are extremely diverse. They include any
application where bar coding is used to identify or track objects or
information, particularly in situations that require high levels of data
accuracy and where speed and reliability are critical variables. Applications
for the Company's technology cut across all industries and geographies. They
include, but are not limited to: inventory control, automated warehousing,
JIT (Just-In-Time) manufacturing, employee time and attendance records, file
management systems, hospital information systems, shop floor control, library
systems, pharmaceutical laboratories and scientific experimentation. As of
December 31, 1997, management estimates that over 290,000 Zebra bar code
printing systems are installed at approximately 30,000 user sites in
approximately 80 countries throughout the world.

The Company anticipates that its future growth will be enhanced by two
continuing trends: bar code label standardization programs and the focus of
businesses worldwide on improving quality and productivity. Industry
mandated standardization has been a major catalyst in the rapid development
of bar coding, and Zebra believes that the mandate of standards will continue
to proliferate. Zebra also believes that increasing demands for improvements
in productivity and quality in commercial and service organizations will lead
to increased use of automatic identification systems.

The Company completed an initial public offering in August 1991. The
Company is organized under the laws of the State of Delaware. The Company's
principal offices are located at 333 Corporate Woods Parkway, Vernon Hills,
Illinois 60061, and its telephone number is (847) 634-6700.

THE COMPANY'S PRODUCTS
The Company's products consist of a broad line of
computerized demand bar code label printers and print engines, specialty bar
code labeling/ticketing materials, ink ribbons and bar code label design
software. These products are integrated to provide automatic identification
labeling solutions for manufacturing, business and industrial applications.
The Company's equipment and supplies are designed for operating at the user's
location to produce bar coded labels in extremely time-sensitive and
physically demanding environments. The Company works closely with its
distributors, other resellers and the end users of its products to fashion
labeling solutions that meet the technical demands of the end user. To
achieve this, the Company provides its customers with the ability to
configure printing systems with various options available on the Company's
systems. Additionally, the Company will select and, if necessary, create
appropriate labeling stock, ink ribbons and adhesives to suit the particular
intended use. In-house engineering personnel with years of experience in the
disciplines of software, mechanical, electronic and chemical engineering all
participate in the creation and realization of bar code solutions for
particular applications.

LABEL PRINTING SYSTEMS. The Company produces a broad range of "on
demand" thermal transfer and direct thermal bar code label printers with, the
Company believes, more models, options and features than any of its
competitors. Zebra manufactures thirteen bar code label printers, which
range in list price from $425 to $7,495, and a high performance print engine
for label applicator systems. Zebra's printing systems include hundreds of
optional configurations that can be selected as necessary to meet particular
customer needs. The Company believes that this breadth of product is a
unique and significant competitive strength because it allows the Company to
satisfy the huge variety of printing applications in its target market.

Zebra's printer product line is organized into multiple series: each
with unique price/performance characteristics. At the low end, the Company's
A-Series and T-Series printers have list prices of under $1,000 and are
well-suited to low volume desktop applications. At the high end, the
Company's XIII Series printers, which consist of four models, are targeted at
applications that require continuous operation in high output, mission
critical operations. These units provide a wide variety of

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option configurations, features, print widths, dot densities and speeds. The
Company's Stripe and S Series printers are targeted at distributed printing
applications where heavy duty cycles are less important. These units have
fewer option configurations and features, but are offered at a significantly
lower price. The Company's high performance 170PAX print engine is targeted
at manufacturers of high speed automatic label applicator systems. In
comparison to competitive offerings, the 170PAX provides increased print
speeds, reduced formatting times, and improved image resolution.

In the fourth quarter of 1997, the Company introduced a new printer
platform, the Z Series, consisting of two models, the Z4000 and Z6000. The Z
Series printers are targeted at the industrial market and are characterized
by modular design and substantial improvements in ease of use features. Both
characteristics make these printers attractive to the Company's channel
partners and end-users alike. Modular design is a feature that enables all
printer options to be installed in the field, a characteristic that is
unique in the industry. This feature substantially reduces inventory risk
for the reseller, and simplifies the purchasing decision of the end-user.
Ease of use features substantially reduce the cost of training and
installation.

In addition to use in demand printing situations, the Company's products
can also be used to meet customers' needs for on-site production of small or
large quantities of custom bar code labels and other graphics. This
capability results in shorter lead times, reduced inventory, and more
flexibility than can be provided with traditional off-site printing.
Management believes that of the major on-site printing technologies, thermal
transfer is best suited for most industrial applications. Thermal transfer
printing produces dark and solid blacks and sharply defined lines that are
important for printing readily scannable bar codes. These images can be
printed on a variety of labeling materials which enables users to adhere bar
code labels to virtually any object. This capability is very important in the
industrial and service markets served by the Company.

Thermal transfer printing creates an image by applying an electrically
heated printhead onto a ribbon that releases ink onto labeling stock. It is
a relatively low cost way to address the special needs of the Company's
target market because it results in excellent image quality, can be used with
a wide variety of materials so long as they are smooth-surfaced, requires no
specially coated or otherwise specially formulated labeling/ticketing stock
and permits the use of certain inks which are not viable with alternative
printing technologies. Direct thermal printing creates an image by applying
the heated printhead directly to specially treated paper that changes color
when heated. Direct thermal technology is preferable where image durability
is less critical, and where the application does not require
specialty-labeling materials such as plastics or metal foils. All printer
products, with the exception of the A-100 and A-300 printers, are optimized
for thermal transfer printing. The A-100 and A-300 operate in direct thermal
mode only. However, the Company's thermal transfer printers also operate
effectively in direct thermal mode simply by removing the ink ribbon and
utilizing direct thermal labeling materials.

The Company's printing systems incorporate Company-designed computer
hardware, electro-mechanisms and software, which operate the printing
functions of the system and communicate with the host computer. All Zebra
printing systems, except the A-100 personal printer, operate using Zebra
Programming Language ("ZPL-Registered Trademark-") and Zebra Programming
Language II ("ZPL II-Registered Trademark-"), proprietary printer driver
languages which were designed by the Company and are compatible with
virtually all computer operating systems, including UNIX, MS/DOS and Windows.
Because the Company guarantees backward compatibility, ZPL-Registered
Trademark- and ZPL II-Registered Trademark- allow users to replace older
Zebra printers with newer equipment without costly reprogramming of label
design programs. This compatibility also allows users to operate multiple
Zebra printers in different applications using standardized programs and to
integrate these printers into a local area network. Management believes that
ZPL-Registered Trademark- and ZPL II-Registered Trademark- give the Company a
competitive strength by ensuring compatibility across the full family of the
Company's present and future printer products and by facilitating system
upgrades and customer loyalty to Zebra products. Certain independent
software vendors have written label preparation programs with ZPL-Registered
Trademark- and ZPL II-Registered Trademark- drivers specifically for Zebra
printers. ZPL-Registered Trademark- and ZPL II-Registered Trademark-label
format programs can be run on a personal computer with ordinary word
processing programs, making ZPL-Registered Trademark- and ZPL II-Registered
Trademark- particularly adaptable to PC-based systems.

Sales of the Company's printers accounted for $146,239,000 of the
Company's net sales in 1997, $120,889,000 in 1996, and $106,778,000 in 1995.
These sales amounted to 76.1%, 73.7%, and 73.5% of the Company's total net
sales in each of the last three years, respectively.

SUPPLIES. The Company sells label/ticketing stock, custom labels and
tags, and thermal transfer ribbons worldwide, to support its printing systems
and systems users. Zebra supplies are selected for a particular user's needs
based on the specific application and environment in which the labeling
system must operate. Critical criteria include levels of abrasion, possible
exposure to chemicals and liquids, variations in both the environment (such
as temperature or humidity) in which the labels will be used and the surfaces
to which the labels will be affixed. These factors are all taken into
account in selecting the type of ribbon, the type of labeling material and
the adhesive to be used. Zebra supplies include proprietary ribbon
formulations developed according to Company specifications. Zebra develops
its printers and supplies contemporaneously, as if they were a single unit,
to optimize performance of Zebra printers and genuine Zebra supplies.
Performance is typically measured as a function of both print speed and print
quality and both of these factors can be adversely affected by the use of
supplies that are

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not suited to particular printers. Because of the close relationship between
the printing system, the supplies and the specific applications, the Company
sells supplies together with printing systems. In addition, the Company
sells supplies to existing users of its printing systems. Zebra promotes the
use of Zebra supplies with Zebra equipment. Management believes that owners
of Zebra's printing systems purchase Zebra supplies to attain peak
performance and optimum print quality and to minimize costly downtime and
malfunctions in their automatic identification systems. Sales of the
Company's supplies in 1997, 1996, and 1995 were $41,079,000, $39,537,000, and
$36,033,000, respectively, amounting to 21.4%, 24.1%, and 24.8% of total net
sales, respectively, in each of the past three years.

SOFTWARE. In February 1996, the Company acquired the intellectual
property of a UK-based partnership, Fenestra Computer Services, which
provides a high performance label design and integration software package
specifically designed to optimize the performance of Zebra printers. Known
as BAR-ONE-TM-, this software provides the capability to design and integrate
sophisticated labels from standalone or legacy applications through a
powerful, easy to use Windows interface. In late 1997, the Company signed an
exclusive alliance agreement with JetForm Corporation, a leading worldwide
provider of electronic forms, workflow and output management software
applications. Zebra's BAR-ONE product will ship with a special version of
JetForm's premier multi-platform, output management product, JetForm
Central-TM-. This will enable Zebra printers to receive output directly from
most of the popular software packages on the market without the need to write
costly software interfaces.

During 1997, the Company discontinued the operation of Zebra
Technologies VTI ("Zebra VTI"), a provider of bar code label design software
targeted at the small business market and distributed through PC distributors
and catalogs. The Company originally acquired Zebra VTI in July of 1995.

MAINTENANCE SERVICES. The Company also provides service for its
printing systems with depot repair at its Vernon Hills, Illinois facility and
its distributors' locations, in addition to on-site service, which is
provided by distributors and Wang Laboratories, Inc. ("Wang"). Under a
service support agreement, Wang and the Company share the revenue for on-site
service contracts sold by Wang for Zebra printing systems installed in the
United States. The Company in turn provides maintenance parts as needed to
repair units under contract. This technical support is available to end-users
and to the Company's distributors and resellers. The Company's distributors
in each country handle international maintenance service, either directly or
through service agents. Zebra provides service and technical support
assistance from in-house support personnel located in the United States, the
United Kingdom, and Singapore who are available by telephone hotline five
days a week during regular business hours. The Company also provides
interactive technical support via the internet, which can be accessed through
the Company's web page, HTTP:// WWW.ZEBRA.COM, 24 hours a day, seven days a
week.

WARRANTIES. All Zebra printing equipment is warranted against defects
in material and workmanship for twelve months. Zebra supplies are warranted
against defects in material and workmanship for the stated shelf life or
twelve months, whichever occurs first. Defective equipment and supplies may
be returned to the Company for repair, replacement or refund during the
applicable warranty periods.

SALES AND MARKETING
SALES. The Company sells its products in the United States and
internationally through a multi-channel distribution system including
distributors, value-added resellers ("VAR's"), original equipment
manufacturers ("OEM's") and international accounts. This multi-channel
distribution system purchases, warehouses, and sells a variety of automatic
identification components including printers, supplies, scanners, and
application software, and brings system integration expertise to the end
users. Two of the Company's distributors are classified as National
Distributors because of their broad territorial representation within the
United States. Other distributors have qualified for Zebra Solution Center
("ZSC") status. ZSC's carry the full range of Zebra printers and supplies,
and focus on providing a Zebra bar code solution to their customers. VAR's,
OEMs and systems integrators provide customers with a variety of automatic
identification components including scanners, accessories, applications
software and systems integration expertise, and, in the case of some OEM's,
then resell the products under their own logos. The Company believes that
the breadth of this indirect channel network, both in terms of variety and
geographic scope, is a material competitive advantage.

The Company obtains a significant portion of its sales from outside of
the Unites States, distributing its products in approximately 80 countries
throughout the world. For 1997, 1996, and 1995, sales to international
customers comprised 45.5%, 45.0%, and 44.5%, respectively, of the Company's
total net sales. Management believes that international sales have the
potential to grow faster than domestic sales due to the lower penetration of
bar code systems outside the United States. As a result, the Company has
invested substantial resources to support its international growth and
currently operates facilities and sales offices in the United Kingdom,
Germany, and Singapore.

Because of the wide variety of applications for Zebra's printing systems
and because these printers are frequently integrated with products from other
manufacturers to form a complete automatic identification system, management
believes that it is more

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effective to sell printing systems through multiple distributors and
resellers with defined market niche expertise and presence rather than
directly to end users. By forming relationships with distributors who serve
various submarkets and types of end users and who have existing customers and
in-place sales and distribution networks that identify new customers and
sales opportunities, the Company is able to reach end users throughout the
world in a variety of industries. The Company may designate a customer as a
key account when purchases of Company products reach certain levels. Zebra
sales personnel, together with the Company's distribution partners, manage
these accounts to ensure their complete needs are met, including consistent
support for projects and applications around the world.

MARKETING. The Company's marketing operations include product
management, marketing communications, technical services, training, market
research and market development functions. The product management group
specifies new products and product enhancements that create customer value,
and manages product positioning and introductions.

The marketing services group operates as an internal advertising and
public relations resource. This group, working with advertising agencies and
contractors, creates advertising, brochures and documentation, manages trade
show exhibits and places articles highlighting applications of Zebra products
in trade and industry publications.

The technical services group offers technical support to the Company's
distribution channels and end users of the Company's products. These
services include, among other things, a hotline staffed by experienced
technical personnel and, when necessary, trips to customer sites.

The Company's market research group is a strategic planning,
research-oriented group that focuses on market definition and analysis of
Company's relative strengths and weaknesses versus its competition. This
group identifies and analyzes market opportunities for current, planned and
potential products, and gathers and analyzes competitive and market
intelligence.

The market development group is responsible for the development of new
market opportunities and relationships with key customers, vendors and
government regulatory and industry standards committees. This group also
prepares speeches, application training programs and seminars which are
presented around the world to industry and customer groups.

CUSTOMERS
The Company estimates that it has over 290,000 bar code printing systems
installed at approximately 30,000 user sites around the world. Sales to the
Peak Technologies Group, Inc. ("Peak Technologies"), one of the Company's
National Distributors, accounted for approximately 17% of the Company's total
net sales in the year ended December 31, 1997.

PRODUCTION AND MANUFACTURING
The Company's strategy is to create and produce production designs that
optimize product performance, quality, reliability, durability and
versatility. These designs utilize cost-efficient materials sourcing and
assembly methods with high standards of workmanship. The Company has
aggressively pursued a manufacturing strategy of increasing control over the
manufacture of its hardware products by developing in-house capability to
produce all mechanical and electronic assemblies, and it has designed many of
its own tools, fixtures and test equipment. The Company's manufacturing
engineering staff is dedicated to co-engineering new products in coordination
with Zebra's new product engineers and vendors. This collaborative effort
creates products that are highly manufacturable specifying and designing
manufacturing processes and facilities simultaneously with product design.

RESEARCH AND DEVELOPMENT
The Company devotes significant resources to developing new products to
serve the needs of targeted markets, providing bar code solutions to users of
the Company's printing systems and developing new and reliable products that
have a high degree of manufacturability. The Company's research and
development expenditures were $10,784,000, $9,615,000, and $7,771,000, in
1997, 1996, and 1995, respectively.

COMPETITION
The Company considers its direct competition to be the providers of
thermal transfer and direct thermal printing systems and supplies to the
"demand printing" market. This excludes the larger group of companies
engaged in the design, manufacture and marketing of standard computer and
label printers. It also excludes manufacturers of other equipment for
automated data collection systems, such as scanners or data collection
devices. Management believes that the ability to compete effectively in the
thermal transfer and direct thermal market depends on a number of factors.
These factors include the reliability, quality and reputation of the
manufacturer and its products, as well as hardware innovations and
specifications, information systems connectivity, price, level of technical
support, supplies and applications support offered by the manufacturer,
available distribution channels, and financial resources to support new
product design and innovation.

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The Company has a number of important competitors in the thermal
transfer and direct thermal bar code printing systems and supplies markets,
some with substantially greater resources than the Company. These
competitors include: UNOVA Corporation, a 1997 spin-off from Western Atlas,
which manufactures bar code readers, scanning wands, laser scanners, labels
and label printers; and Sato, a manufacturer of thermal transfer bar code
printers and printer supplies. Also included in this group are Tokyo Electric
Corporation, a subsidiary of Toshiba, which manufactures a broad range of
electronic products including bar code printers; Datamax Corporation, a
manufacturer of mid-range thermal transfer printers; and Eltron
International, a manufacturer of low cost thermal and thermal transfer
printers.

ALTERNATIVE TECHNOLOGIES
Various other methods of bar code printing exist, including ink jet,
laser, impact dot matrix and direct thermal, but the Company believes that
thermal transfer printing will be the technology of choice in Zebra's target
markets for the foreseeable future. Among the many advantages of thermal
transfer printing is its ability to print high-resolution images on a wide
variety of label materials at a relatively low cost compared to alternative
printing technologies. Although there is no assurance that a new technology
will not supplant thermal transfer printing, the Company is not aware of any
developing technology that offers the advantages of thermal transfer printing
for the Company's target markets.

INTELLECTUAL PROPERTY RIGHTS
The Company, through its subsidiary Zebra Domestic Intangibles, Inc.,
currently holds US trademarks on the words "STRETCH", "Value-Line",
"Performance Line", "220XiII", "170XiII", "140XiII", and "90XiII" and holds
US registered trademarks on the Company's Zebra head logo and the words or
marks "Zebra", "ZPL", "ZPL II", "STRIPE", "Element Energy Equalizer", "E ",
and "Z- Ultimate". The Company, through its subsidiary Zebra International
Intangibles, Inc., holds trademarks on the word "Zebra" and the Company's
Zebra head logo in France, Canada, Germany, the United Kingdom, Sweden, and
China. The Company actively protects these trademarks. Zebra relies on a
combination of trade secrets, copyright laws and contractual rights to
establish and protect its proprietary rights in its products. For example,
the firmware in Zebra's printing systems is copyrighted and the Company's
specifications for certain inks and supplies are treated by the Company as
trade secrets and disclosed subject to confidentiality agreements. The
Company does not believe that the legal protections afforded to its
intellectual property rights are fundamental to its success.

Other trademarks mentioned in this report include IBM, which is a
registered trademark of International Business Machines Corporation; UNIX,
which is a registered trademark of UNIX Systems Laboratories, Inc.; MS/DOS
and Windows, which are registered trademarks of Microsoft Corporation; and
Jet Form Central, which is a registered trademark of Jet Form Corporation.

EMPLOYEES

As of February 1, 1998, the Company employed approximately 745
persons. None of these employees are members of a union. The Company
considers its relationship with its employees to be excellent.

ITEM 2. PROPERTIES

The Company conducts its operations from a custom-designed facility in
Vernon Hills, Illinois (north suburban Chicago), which provides approximately
167,628 square feet of space. Approximately 61,528 square feet have been
allocated to office and laboratory functions with 106,100 square feet
allocated to manufacturing and warehouse functions. This facility was
constructed for the Company in 1989, expanded in 1993, 1995, and 1996, and is
owned and leased to the Company, under a lease terminating on March 31, 2008,
by Unique Building Corporation, a corporation owned in part by Edward Kaplan
and Gerhard Cless, both executive officers and directors of the Company.

An additional 2.8 acre parcel of land adjacent to the Company's facility
is also owned by Unique Building Corporation and available to the Company for
expansion.

The Company leases 6,092 square feet of office space in Vernon Hills,
Illinois that is occupied by the Company's Personal Printer Division. The
lease extends through June of 1998.

The Company established a branch in the United Kingdom in late 1990,
which was incorporated as a subsidiary in 1993. This subsidiary, Zebra
Technologies Europe Limited, moved in 1995 to a new facility at High Wycombe
outside London in the United Kingdom. This facility, which consists of
18,400 square feet leased by the Company, serves as a sales office, product
distribution point and service center for sales in the United Kingdom and as
headquarters for all European operations.

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The Company purchased the assets of a label conversion company in
Preston, England, incorporating it as a subsidiary under the name Zebra
Technologies Preston Limited in September 1993. In 1995, Zebra Technologies
Preston moved to a larger facility in Preston, occupying 23,000 square feet
of leased manufacturing and office space. In October of 1997, the Company
committed to the purchase of a 37,124 square foot manufacturing and office
facility for $1,100,000 which will replace the current facility. The Company
plans to begin transferring its operations to this facility in September
1998.

ITEM 3. LEGAL PROCEEDINGS

As of June 28, 1997, the Company settled litigation between Zebra and
Messrs. David Carter and William Flury, former officers of Zebra VTI. The
legal actions, which were initiated in March of 1996, have been settled out
of court. Terms are confidential and all payments have been completed. In
connection with the settlement of the litigation, the Company reduced
long-term liabilities by $1,999,000 and paid-in capital by $1,372,000.

In addition to the matter described above, the Company presently is
involved in various lawsuits which are incidental to the ordinary conduct of
its business. The Company does not believe that any such matters will have a
material adverse impact on the Company's business, financial condition, or
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the
fourth quarter of 1997.

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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

STOCK INFORMATION: PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the Nasdaq National Market under
the symbol ZBRA. The following table shows the high and low closing prices
for each fiscal quarter in 1997 and 1996 as reported by Nasdaq.

FISCAL 1997 HIGH LOW FISCAL 1996 HIGH LOW
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First Quarter $27.25 $21.38 First Quarter $35.25 $25.25
Second Quarter 32.00 21.50 Second Quarter 27.88 17.75
Third Quarter 35.00 27.19 Third Quarter 26.25 15.50
Fourth Quarter 37.88 29.75 Fourth Quarter 31.50 23.13

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At March 6, 1998, the last reported sale price for the Class A Common
Stock was $35.00 and there were 572 and 14 holders of record of the Company's
Class A Common Stock and Class B Common Stock, respectively.

Since the Company's initial public offering in 1991, the Company has not
declared any cash dividends or distributions on its capital stock. The
Company currently intends to retain its earnings to finance future growth and
therefore does not anticipate paying any cash dividends in the foreseeable
future.

ITEM 6. SELECTED FINANCIAL DATA

(Dollars in thousands, except
per share amounts) 1997 1996(1) 1995(1) 1994 1993
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<S> <C> <C> <C> <C> <C>
Net sales $192,071 $163,980 $145,348 $107,103 $87,456
Gross profit $98,200 $78,678 $69,107 $52,023 $43,567
Operating income $52,775 $41,031 (2) $39,981 $30,343 $24,897
Net income from continuing
operations $42,810 $30,853 (2) $29,574 $21,073 $18,255
Net income $40,155 $28,915 (2) $22,564 (3) $21,073 $18,255

Basic earnings per share
from continuing operations $1.77 $1.27 (2) $1.23 $0.88 $0.76
Diluted earnings per share
from continuing operations $1.76 $1.27 (2) $1.22 $0.87 $0.76
Basic earnings per share $1.66 $1.19 (2) $0.94 (3) $0.88 $0.76
Diluted earnings per share $1.65 $1.19 (2) $0.93 (3) $0.87 $0.76

Total assets $203,584 $164,386 $131,071 $95,043 76,697
Long-term obligations $263 $2,326 $2,177 $236 $293

</TABLE>

(1) Revised to reflect the discontinuance of operations of Zebra VTI. See
the Company's consolidated financial statements Note 11 - Discontinued
Business Operations.
(2) Reflects a pre-tax charge for acquired in-process technology of $1,117
relating to the Company's acquisition of Fenestra Computer Services.
(3) Reflects a pre-tax charge for acquired in-process technology of $6,028
relating to the Company's acquisition of Zebra VTI.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS
REVENUES. During 1997 Zebra's net sales were $192,071,000, increasing by
17.1% from net sales of $163,980,000 in 1996. Net sales in 1995 were
$145,348,000. Net sales growth in both 1997 and 1996 is attributed to unit
growth, as the average unit price of the Company's printer products declined
due to product mix changes and price reductions on certain products.

PRINTERS VS. SUPPLIES. Zebra sells printer products, software and related
supplies, which consist of self-adhesive labels and thermal transfer ribbons.
In 1997, printer sales were $146,239,000 (76.1% of net sales), supplies sales
were $41,079,000 (21.4% of net sales), and software and service sales were
$4,753,000 (2.5% of net sales). In 1996, printer sales were $120,889,000
(73.7% of net sales), supplies sales were $39,537,000 (24.1% of net sales),
and software and service sales were $3,551,000 (2.2% of net sales). In 1995,
printer sales were $106,778,000 (73.5% of net sales), supplies sales were
$36,033,000 (24.8% of net sales), and software and service sales were
$2,537,000 (1.7% of net sales). Management believes that the decline in
supplies revenues as a percentage of total net sales is partially due to the
shift in the Company's installed base of printers to lower cost printers,
which consume smaller quantities of supplies per unit. Contributing factors
also include the overcapacity in ribbon coating worldwide, which is forcing
ribbon manufacturers to be more aggressive in marketing their output directly
to the Company's distribution channel partners and end users than in prior
periods. Also, label sales were adversely affected in 1997 due to the
acquisition of a significant customer, Peak Technologies, by Moore
Corporation. Moore Corporation is a major provider of self-adhesive labels.
See "- Significant Customer."

INTERNATIONAL SALES. Zebra products are sold through an international
network of resellers in approximately 80 countries. International sales in
1997 were $87,428,000, an increase of 18.4% over 1996 international sales of
$73,853,000. International sales comprised 45.5% of net sales in 1997 and
45.0% in 1996. In 1995, international sales were 44.5% of net sales, or
$64,631,000. Management believes that international sales have the potential
to grow faster than domestic sales due to the lower penetration of bar code
systems outside the United States. The Company is expanding its operations
outside the United States in order to take advantage of these favorable
growth opportunities. Sales offices were opened in Germany and Singapore in
1997.

GROSS MARGINS. Gross margins increased significantly in 1997 to 51.1% of
net sales, compared to 48.0% of net sales in 1996. Margins were 47.5% in
1995. The increase in gross margins in 1997 is attributed to decreased
material costs of high volume printer parts plus favorable product mix.
Supplies sales, which were a lower portion of total sales in 1997, provide a
lower gross margin than the printer and software product lines.

SALES AND MARKETING. Total sales and marketing expenses increased by
$4,506,000 or 29.2% in 1997, to $19,951,000 or 10.4% of net sales, compared
to 1996 expenses of $15,445,000 or 9.4% of net sales. In 1995, the Company
incurred $12,421,000 of sales and marketing costs, or 8.5% of net sales. The
increasing trend in sales and marketing expenses as a percentage of net sales
over the past three years is principally the result of expenses related to
expansion of the Company's sales infrastructure needed to support
international sales. In 1996, the Company opened a sales office in Miami,
Florida to serve its markets in Central and South America. In addition, the
Company opened several domestic sales offices to improve service to its
customers in the United States. Marketing expenses have also increased as a
percent of sales (3.5% in 1995, 3.7% in 1996, 4.2% in 1997) to support the
Company's expanded distribution channel structure in various international
markets. In late 1997, the Company incurred significant advertising and
promotional expenses related to the introduction of the Z Series platform of
printers, which was introduced at the Scan Tech trade show in November 1997.

RESEARCH AND DEVELOPMENT. Research and development expenses increased by
12.1% in 1997, to $10,784,000, from $9,615,000 in 1996, and $7,771,000 in
1995. As a percentage of net sales, these expenses decreased to 5.6% in 1997
compared to 5.9% in 1996, and 5.3% in 1995. The change in research and
development expenses was primarily the result of increased staffing to
support new product development in its European and each of its Vernon Hills
facilities. As a percent of sales, research and development expenses in 1996
were higher than 1995 or 1997 due to the quantity of new product development
projects then in progress. The Company will continue to invest significant
amounts in new product development as management believes that a steady
stream of new products is vitally important to the Company's future sales
growth.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
28.1% to $14,690,000 or 7.6% of net sales in 1997, compared to $11,470,000, or
7.0% of net sales in 1996. In 1995, general and administrative expenses were
$8,934,000, or 6.1% of net sales. The increased level of general and
administrative expenses in 1997 and 1996 was caused

<PAGE>

principally by higher staffing levels plus increased usage of professional
services. In addition, 1997 and 1996 expenses include increased information
systems costs related to the Company's enterprise-wide software
implementation project.

ACQUIRED IN-PROCESS TECHNOLOGY. The charge for acquired in-process
technology in 1996 relates to the Company's acquisition of software
technologies as part of the acquisition of Fenestra Computer Services in the
first quarter of 1996. This acquisition was accounted for under the purchase
method, which requires that the purchase price be allocated to the fair value
of the assets acquired. Among these assets was in-process technology
(projects that had not reached technological feasibility and had no
alternative future use) that was valued at $1,117,000. Accounting rules
require that this asset be immediately expensed. Intangible assets and
goodwill resulting from the acquisition are being amortized over periods of
between three and ten years.

OTHER INCOME. Other income, which consists of investment income and gains
on the sales of securities (net of interest expense), increased by 119.5% in
1997 to $13,959,000, from $6,358,000 in 1996. The substantial increase in
investment income is the result of a one-time gain of $5,458,000 during the
first quarter of 1997 from the sale of 350,000 shares of Norand Corporation
common stock, which was purchased in October of 1995 when Management briefly
considered Norand a possible acquisition candidate. Without this gain on
securities, other income was up 33.7% as a result of larger investment
balances. Other income in 1996 was up 16.8% from $5,444,000 in 1995, again,
principally due to gains on the Company's investment portfolio. The pretax
return on average cash invested for 1997, 1996, and 1995, excluding the gain
from the sale of Norand stock, was 7.5%, 8.8%, and 9.8%, respectively.

INCOME BEFORE INCOME TAXES. Income before income taxes for 1997 was
$66,734,000, or 34.7% of net sales, an increase of 40.8% from $47,389,000, or
28.9% of net sales, in the previous year. In 1995, income before income
taxes was $45,425,000, or 31.3% of net sales.

PROVISION FOR INCOME TAXES. The provision for income taxes in 1997 was
$23,924,000, or 35.8% of income before income taxes. The provision for
income taxes in 1996 was $16,536,000, or 34.9% of income before income taxes.
In 1995, the provision for income taxes was $15,851,000, representing 34.9%
of income before income taxes.

NET INCOME FROM CONTINUING OPERATIONS. Net income from continuing
operations in 1997 was $42,810,000, or $1.77 per basic share and $1.76 per
diluted share. In 1996, net income from continuing operations was
$30,853,000, or $1.27 per basic share and $1.27 per diluted share. In 1995,
net income from continuing operations was $29,574,000, or $1.23 per basic
share and $1.22 per diluted share. Outstanding shares have all been adjusted
for the two-for-one stock split effective December 28, 1995. Net income from
continuing operations, as a percentage of net sales, increased in 1997 to
22.3% of net sales compared to 18.8% in 1996, and 20.3% in 1995. 1996 and
1995 earnings per share have been restated in accordance with Statement of
Financial Accounting Standards No. 128, which the Company adopted during the
fourth quarter of 1997.

DISCONTINUED OPERATIONS
As of June 28, 1997, the Company made the decision to discontinue the
operations of Zebra VTI, a subsidiary of the Company. The discontinuance of
Zebra VTI and the related PC retail channel was completed during the third
quarter of 1997. A one-time charge of $2,363,000, before income tax
benefits, was recorded in the second quarter and was related to the
discontinuance of VTI and the Company's presence in the PC retail channel.
The one-time charge includes a provision for expected product returns from
present retail channel partners, provision for slow moving/obsolete product,
and provisions for estimated contingent liabilities. As part of recording
the provisions and charges, the related remaining goodwill and intangible
assets were written off as part of the discontinued operations charge. The
transition of remaining products and the business records and
responsibilities was made during the third quarter of 1997 to appropriate
personnel at the Company's Vernon Hills facility. Due to the discontinuance
of Zebra VTI, the Company's 1995 and 1996 financial statements have been
revised to reflect such discontinuance.

LIQUIDITY AND CAPITAL RESOURCES
Internally generated funds from operations are the primary source of
liquidity for the Company. The Company has long-term obligations of $263,000
as of December 31, 1997, which consist of $212,000 of deferred payouts owed
to the former shareholders of Fenestra Computer Services and $51,000 of
deferred rent and capitalized lease obligations. As of December 31, 1997,
the Company had $128,853,000 in cash and marketable securities compared to
$94,540,000 at the end of 1996. The Company has a $6,000,000 unsecured line
of credit plus an additional $4,000,000 unsecured revocable line of credit
with its bank. These credit facilities are priced at either the prime rate
or 150 basis points over the London Inter-bank Offer Rate (LIBOR), at the
Company's discretion. As of December 31, 1997, the Company had outstanding
borrowings of $137,000 under its lines of credit. Capital expenditures in
1997 were $5,272,000, compared to $5,994,000 in 1996, and $4,333,000 in 1995.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements.

<PAGE>

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 130, ("Statement 130") "Reporting Comprehensive
Income", beginning with financial statements issued for 1998. Statement 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. Management believes that the adoption of
Statement 130 will not have a significant impact on the Company's financial
statements.

The Company will implement the provisions of Statement of Financial
Accounting Standards No. 131, ("Statement 131") "Disclosures about Segments
of an Enterprise and Related Information," for financial statements issued
for periods after December 15, 1997. Statement 131, which is based on the
management approach to segment reporting, includes requirements to report
selected segment information, quarterly and entity-wide, disclosures about
products and services, major customers, and the material countries in which
the entity holds assets and reports revenues. Management believes that the
adoption of Statement 131 will not have a significant impact in the
Company's financial statements.

YEAR 2000 CONSIDERATIONS
The Company initiated an enterprise-wide system
conversion in 1994 to meet changing business needs, using the Baan system.
This system is year 2000 compliant and its implementation is planned to be
completed in the second quarter of 1998 for Vernon Hills and completed by
year-end 1998 for the United Kingdom location. In addition, the Company's
payroll system, not covered by the Baan system, will also be replaced by the
end of 1998. The payroll system will integrate payroll with the Company's
human resources software and will be year 2000 compliant. To date,
expenditures on the Baan project have aggregated $4,870,000, of which
$3,702,000 have been capitalized. At completion, total expenditures are
estimated to be $8,800,000, of which $7,100,000 are estimated to be
capitalized.

SIGNIFICANT CUSTOMER
Sales to Peak Technologies accounted for more than 20% of the Company's total
net sales in the fiscal year ended December 31, 1996 and 17% in the fiscal year
ended December 31, 1997. Peak Technologies was acquired by Moore Corporation in
June 1997. Management recognizes Moore Corporation is a major provider of
labels which could have an adverse affect on Zebra sales of this product to Peak
Technologies. Sales to Peak Technologies of labels accounted for 2% of the
Company's total net sales in the fiscal year ended December 31, 1997 and 3% in
the fiscal year ended December 31, 1996.

SAFE HARBOR
Forward looking statements contained in this filing are subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995 and are
highly dependent upon a variety of important factors which could cause actual
results to differ materially from those reflected in such forward looking
statements. These factors include the acceptance of the Company's printer and
software products by the market, and product offerings made by its competitors.
Profits will be affected by the Company's ability to control manufacturing and
operating costs. Due to the Company's large investment portfolio, interest
rate conditions will also have an impact on results, as will foreign exchange
rates due to the large percentage of the Company's sales in international
markets. When used in this document and documents referenced hereby, the words
"anticipate", "believe", "estimate", and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward looking statements. Readers of this release are referred to prior
filings with the Securities and Exchange Commission, including the information
contained in the "Risk Factors" section of Zebra's prospectus of September 4,
1997, for further discussions of factors that could affect Zebra's future
results.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and schedule of the Company are annexed to this Report
as pages F-1 through F-14. An index to such materials appears on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

<PAGE>

- -------------------------------------------------------------------------------
PART III
- -------------------------------------------------------------------------------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information in response to this item is incorporated by reference
from the Proxy Statement sections entitled "Election of Directors" and
"Executive Officers."

ITEM 11. EXECUTIVE COMPENSATION

The information in response to this item is incorporated by reference
from the Proxy Statement section entitled "Executive Compensation and Certain
Transactions."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information in response to this item is incorporated by reference
from the Proxy Statement section entitled "Security Ownership of Management and
Certain Beneficial Owners."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in response to this item is incorporated by reference
from the Proxy Statement section entitled "Executive Compensation and Certain
Transactions."

<PAGE>

- -------------------------------------------------------------------------------
PART IV
- -------------------------------------------------------------------------------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The financial statements and schedule filed as part of this report are
listed in the accompanying Index to Financial Statements and Schedule. The
exhibits filed as a part of this report are listed in the accompanying Index to
Exhibits. No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 6th day of
March, 1998.

ZEBRA TECHNOLOGIES CORPORATION

By: /s/ EDWARD L. KAPLAN
-------------------------
Edward L. Kaplan,
CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.

SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ EDWARD L. KAPLAN Chief Executive Officer March 6, 1998
- ----------------------- and Chairman (Principal
Edward L. Kaplan Executive Officer)

/s/ GERHARD CLESS Executive Vice President March 6, 1998
- ---------------------- and Director
Gerhard Cless

/s/ CHARLES R. WHITCHURCH Chief Financial Officer and March 6, 1998
- -------------------------- Treasurer (Principal
Charles R. Whitchurch Financial and Accounting
Officer)

/s/ CHRISTOPHER G. KNOWLES Director March 6, 1998
- ---------------------------
Christopher G. Knowles

/s/ DAVID P. RILEY Director March 6, 1998
- ----------------------
David P. Riley

/s/ MICHAEL A. SMITH Director March 6, 1998
- -----------------------
Michael A. Smith

</TABLE>
14

<PAGE>

<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<C> <C> <S>
3.1 (1) Certificate of Incorporation of the Registrant.
3.2 (2) Bylaws of the Registrant.
3.3 (4) Amendment to Bylaws of the Registrant.
4.0 (2) Specimen stock certificate representing Class A Common
Stock.
10.2 (3) Stock Purchase Plan (as Amended and Restated). +
10.3 (2) Form of Indemnification Agreement between the Registrant and
each of its directors.
10.4 (2) Lease between the Registrant and Unique Building Corporation
for the Registrant's facility in Vernon Hills, Illinois, as
amended.
10.5 (2) Employment Agreement between the Registrant and John H.
Kindsvater, Jr. +
10.7 (2) Employment Agreement between the Registrant and Clive P.
Hohberger. +
10.8 (2) Guaranty by the Registrant of certain obligations.
10.9 (2) Forms of Distributor Agreement.
10.10 Directors' Stock Option Plan. +
10.11(4) Employment Agreement between the Registrant and Charles R.
Whitchurch. +
10.13(4) Form of Authorized Zebra Solution Center Agreement.
10.14(4) Credit Agreement with American National Bank and Trust
Company of Chicago.
10.15(4) Description of Executive Officer Bonus Plan. +
10.16(5) Amendment to the lease between the Registrant and Unique
Building Corporation for the Registrant's facility in Vernon
Hills, Illinois, dated April 1, 1993.
10.17(6) Amendment to the lease between the Registrant and Unique
Building Corporation for the Registrant's facility in Vernon
Hills, Illinois, dated December 1, 1994.
10.18(8) Amendment to the lease between the Registrant and Unique
Building Corporation for the Registrant's facility in Vernon
Hills, Illinois, dated June 1, 1996.
10.19(8) Amendment to the lease between the Registrant and Unique
Building Corporation for the Registrant's facility in Vernon
Hills, Illinois, dated June 2, 1996.
10.20(7) Employment Agreement between the Registrant and Thomas C.
Beusch.+
10.21(7) Employment Agreement between the Registrant and Jeffrey K.
Clements.+
10.22(7) Employment Agreement between the Registrant and Jack A.
LeVan.+
10.23 1997 Stock Option Plan
21.0 Subsidiaries of the Registrant.
23.0 Report and Consent of KPMG Peat Marwick LLP, independent
auditors (included on page F-18 of this Annual Report on
Form 10-K).
27.1 Financial Data Schedule--Fiscal Year Ended December 31,
1997.
27.2 Restated Financial Data Schedule--Fiscal Years Ended
December 31, 1996 and 1995.
</TABLE>

- -------------------------------------------------------------------------------
(1) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form S-3, File No.
333-33315, and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form S-1, as
amended, File No. 33-41576, and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form S-8, as
amended, File No. 33-44706, and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992, and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, and incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, and incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and incorporated herein by reference.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form 10-K.

(b) Reports on Form 8-K

<PAGE>

The Company did not file any reports on Form 8-K during the last quarter of the
period covered by this Annual Report on Form 10-K.

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

PAGE
----

<S> <C>
(1) Financial Statements:

Independent Auditors' Report F-2

Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3

Consolidated Statements of Earnings for the years ended December 31, 1997, 1996, and 1995 F-4

Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995 F-5

Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996,
and 1995. F-6

Notes to Consolidated Financial Statements F-7

(2) Financial Statement Schedule:

The following financial statement schedule is included herein:

Schedule II - Valuation and Qualifying Accounts F-17

</TABLE>

ALL OTHER FINANCIAL STATEMENT SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT
APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE CONSOLIDATED
FINANCIAL STATEMENTS OR NOTES THERETO.

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Zebra Technologies Corporation:

We have audited the accompanying consolidated balance sheets of Zebra
Technologies Corporation and Subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated 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
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Zebra Technologies Corporation 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 accounting principles.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP
Chicago, Illinois
February 27, 1998

F-2

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, December 31,
(Dollars in thousands, except per share data) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $7,155 $5,168
Investments and marketable securities 121,698 89,372
Accounts receivable, net of allowance of $1,788 in 1997
and $960 in 1996 31,032 31,631
Inventories 22,443 21,503
Prepaid expenses 843 1,322
Deferred income taxes 4,307 1,250
--------------------------------------
Total current assets 187,478 150,246
--------------------------------------
Machinery and equipment at cost, less accumulated depreciation and amoritization 12,753 11,328
Other assets 3,353 2,812
--------------------------------------
TOTAL ASSETS $203,584 $164,386
--------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,141 $12,200
Accrued liabilities 6,900 4,180
Short-term note payable 137 1
Current portion of obligation under capital lease with related
party, less current portion 65 62
Income taxes payable 4,329 3,750
--------------------------------------
Total current liabilities 22,572 20,193
--------------------------------------
Obligation under capital lease with related party, less current portion 51 115
Long-term obligations 212 2,211
Other 287 308
Deferred income taxes 911 1,103
--------------------------------------
Total liabilities 24,033 23,930
--------------------------------------
Shareholders' equity:
Preferred stock, $.01 par value: 10,000,000 shares authorized. None
outstanding - -

Class A Common stock, $.01 par value: 50,000,000 shares authorized,
19,413,933 and 16,924,973 shares issued and outstanding in 1997
and 1996, respectively 194 169

Class B Common stock, $.01 par value: 28,358,189 shares authorized,
4,890,609 and 7,315,404 shares issued and outstanding in 1997
and 1996, respectively 49 73

Additional paid-in capital 29,984 30,386
Retained earnings 148,779 108,624
Unrealized holding loss on investments - (6)
Cumulative translation adjustment 545 1,210
-------------------------------------
Total shareholders' equity 179,551 140,456
--------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $203,584 $164,386
--------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-3

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

Year Ended
--------------------------------------------------
December 31, December 31, December 31,
(In thousands, except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $192,071 $163,980 $145,348
Cost of sales 93,871 85,302 76,241
--------------------------------------------------
Gross profit 98,200 78,678 69,107
--------------------------------------------------
Operating expenses:
Sales and marketing 19,951 15,445 12,421
Research and development 10,784 9,615 7,771
General and administrative 14,690 11,155 8,934
Merger costs - 315 -
Acquired in-process technology - 1,117 -
--------------------------------------------------
Total operating expenses 45,425 37,647 29,126
--------------------------------------------------
Operating income 52,775 41,031 39,981
--------------------------------------------------
Other income (expense):
Investment income 13,288 6,189 5,207
Interest expense (35) (87) (59)
Other, net 706 256 296
--------------------------------------------------
Total other income 13,959 6,358 5,444
--------------------------------------------------
Income from continuing operations before income taxes 66,734 47,389 45,425
Income taxes 23,924 16,536 15,851
--------------------------------------------------
Net income from continuing operations 42,810 30,853 29,574
--------------------------------------------------
Discontinued operations:

Loss from discontinued operations (less applicable
income tax benefit of $372, $815, and $442) (1,692) (1,938) (7,010)
Loss on disposal of discontinued operations including
provision for operating losses during phase-out period
(less applicable income tax benefit of $615) (963) - -
--------------------------------------------------
Net income $40,155 $28,915 $22,564
--------------------------------------------------
--------------------------------------------------

Basic earnings per share from continuing operations $1.77 $1.27 $1.23
Diluted earnings per share from $1.76 $1.27 $1.22

Basic earnings per share $1.66 $1.19 $0.94

Diluted earnings per share $1.65 $1.19 $0.93

Weighted average shares outstanding 24,255 24,203 24,113
Weighted average and equivalent 24,318 24,241 24,166

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-4

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended
--------------------------------------------------
December 31, December 31, December 31,
(Dollars In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

Cash flows from operating activities:
Net income $40,155 $28,915 $22,564
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,275 3,839 2,219
Acquired in-process technology - 1,117 6,028
Appreciation in market value of (5,973) (2,483) (2,061)
Discontinued operations (3,371) - -
(Increase) decrease in accounts 599 (6,744) (7,295)
(Increase) in inventories (940) (1,138) (3,193)
(Increase) decrease in other assets (968) 132 (1,884)
Increase (decrease) in accounts (1,059) 932 3,867
Increase in accrued expenses 2,699 355 1,003
Increase (decrease) in income taxes 579 (317) 1,791
(Decrease) in deferred taxes (3,249) (484) (815)
Net increase (decrease) in other (186) 1,491 927
Net (purchases) of investments and (37,853) (24,153) (11,460)
----------------------------------------------
Net cash provided by (used in) operating (5,292) 1,462 11,691
----------------------------------------------

Cash flows from investing activities:
Purchases of machinery and equipment (5,273) (5,994) (4,333)
Payment for acquisition - (962) (2,550)
Proceeds from sales/ (purchases) of investments
and marketable securities 11,506 265 (6,147)
----------------------------------------------
Net cash provided by (used in) investing activities 6,233 (6,691) (13,030)
----------------------------------------------

Cash flows from financing activities:
Proceeds from exercise of stock 971 476 324
Proceeds from sales of common stock - - 631
Issuance (repayment) of short-term notes payable 136 (37) 37
Payments for obligation under capital lease (61) (59) (57)
----------------------------------------------
Net cash provided by financing activities 1,046 380 935
----------------------------------------------

Net increase (decrease) in cash and cash equivalents 1,987 (4,849) (404)
Cash and cash equivalents at beginning of year 5,168 10,017 10,421
Cash and cash equivalents at end of year $ 7,155 $ 5,168 $10,017
----------------------------------------------
----------------------------------------------

Supplemental disclosures of cash flow information:
Interest paid $35 $87 $59
Income taxes paid $23,858 $16,763 $13,626

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-5

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Unrealized
Class A Class B Additional Holding Cumulative
Common Common Paid-in Retained Loss On Translation
(Dollars in thousands) Stock Stock Capital Earnings Investments Adjustment Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>

BALANCE AT DECEMBER 31, 1994 $76 $44 $25,313 $57,145 $(395) $(151) $82,032
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of 117,388 shares of
Class A Common stock 1 -- 2,453 -- -- -- 2,454

Conversion of 1,391,712 shares of
Class B Common stock to 1,391,712
shares of Class A Common stock 7 (7) -- -- -- -- --

Adjustments for stock split 85 36 (121) -- -- -- --

VTI acquisition -- -- 2,000 -- -- -- 2,000

Net income -- -- -- 22,564 -- -- 22,564

Cumulative translation adjustment -- -- -- -- -- (73) (73)

Unrealized holding loss on
investments -- -- -- -- (771) -- (771)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 169 73 29,645 79,709 (1,166) (224) 108,206
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of 56,815 shares of Class A
Common stock -- -- 741 -- -- -- 741

Conversion of 2,658 shares of Class B
Common stock to 2,658 shares of
Class A Common stock -- -- -- -- -- -- --

Net income -- -- 28,915 -- -- 28,915

Cumulative translation adjustment -- -- -- -- -- 1,434 1,434

Unrealized holding gain on
investments -- -- -- -- 1,160 -- 1,160
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 169 73 30,386 108,624 (6) 1,210 140,456
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of 64,165 shares of Class A
Common Stock 1 -- 970 -- -- -- 971

Conversion of 2,424,795 shares of
Class B Common Stock to 2,424,795
shares of Class A Common Stock 24 (24) -- -- -- -- --

Settlement of litigation - Zebra VTI -- -- (1,372) -- -- -- (1,372)

Net income -- -- -- 40,155 -- -- 40,155

Cumulative translation adjustment -- -- -- -- -- (665) (665)

Unrealized holding gain on
investments -- -- -- -- 6 -- 6
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $194 $49 $29,984 $148,779 $0 $545 $179,551
- ----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-6
<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 DESCRIPTION OF BUSINESS
Zebra Technologies Corporation and its wholly-owned subsidiaries (the
"Company") design, manufacture, sell, and support a broad line of computerized
on-demand bar code label printers, specialty bar code labeling materials,
thermal transfer ribbons, and PC-based bar code software, which provides bar
code labeling solutions targeted primarily at industrial and service
organizations worldwide.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying financial statements have been
prepared on a consolidated basis to include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts, transactions,
and unrealized profit have been eliminated in consolidation.

RESEARCH AND DEVELOPMENT COSTS. Research and development costs are expensed
as incurred.

CASH EQUIVALENTS. Cash equivalents consist primarily of short-term treasury
securities. For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid instruments with original maturities of
three months or less to be cash equivalents.

INVESTMENTS AND MARKETABLE SECURITIES. Investments and marketable securities
at December 31, 1997 consisted of U.S. Treasury, mortgaged-backed, and corporate
debt and equity securities. The Company applies the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (Statement 115). Under Statement 115, the Company
classifies its debt and marketable equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term. Held-to-
maturity securities are those securities which the Company has the ability and
intent to hold until maturity. All securities not included in trading or held-
to-maturity are classified as available-for-sale.

Trading and available-for-sale securities are recorded at fair value. Held-
to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of discounts or premiums. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of shareholders'
equity until realized. Transfers of securities between categories are recorded
at fair value at the date of transfer. Unrealized holding gains and losses are
recognized in earnings for transfers into trading securities.

INVENTORIES. Inventories are stated at the lower of cost or market, and cost
is determined by the first-in, first-out (FIFO) method.

MACHINERY AND EQUIPMENT. Machinery and equipment is stated at cost.
Depreciation and amortization is computed primarily using the straight-line
method over the estimated useful lives of the various classes of machinery and
equipment, which range from 3 to 10 years. Machinery and equipment held under a
capital lease is amortized using the straight-line method over the shorter of
the lease term or estimated useful life of the asset.

INCOME TAXES. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Statement 109). Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

EARNINGS PER SHARE. For the years ended December 31, 1997, 1996, and 1995,
earnings per share was computed in accordance with Statement of Financial
Accounting Standards No. 128, which the Company adopted during the fourth

F-7
<PAGE>

quarter of 1997. Weighted-average and equivalent shares outstanding include
the dilutive effect of common stock options aggregating 63,435, 37,724, and
53,402, for the years ended December 31, 1997, 1996, and 1995, respectively.

FOREIGN CURRENCY TRANSLATION. The balance sheets of the Company's foreign
subsidiaries are translated into U.S. dollars using the year-end exchange rate,
and sales and expenses are translated using the average exchange rate for the
year. The resulting translation gains or losses are recorded as a separate
component of shareholders' equity as a cumulative translation adjustment.

NOTE 3 INVESTMENTS AND MARKETABLE SECURITIES
Investments and marketable securities consist of (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Trading, at fair value $121,698 $83,334
Available-for-sale, at fair value - 6,038
------------------------
$121,698 $89,372

</TABLE>

The amortized cost, gross unrealized holding gains, gross unrealized holding
losses, and fair value for available-for-sale investments and marketable
securities as of December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>

Gross Unrealized Holding
Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------
<C> <C> <C> <C>
$6,047 - $(9) $6,038
</TABLE>

Proceeds from the sale of an available-for-sale security during 1997 were
$11,506,000, resulting in a gross realized gain of $5,458,000.

NOTE 4 RELATED-PARTY TRANSACTIONS
Unique Building Corporation (Unique), an entity controlled by certain
officers and shareholders of the Company, leases a facility and equipment to the
Company under a lease described in Note 9. Management believes that the lease
payments are substantially consistent with amounts which could be negotiated
with third parties on an arm's-length basis.

Interest expense and lease payments related to the leases were included in
the consolidated financial statements as follows (in thousands):

<TABLE>
<CAPTION>
Unique Operating Lease Interest Expense on Unique
Payments Capital Lease
- -------------------------------------------------------------------------------
<S> <C> <C>
1997 $1,261 $7
1996 1,227 10
1995 1,114 12
</TABLE>

NOTE 5 INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------------------
<S> <C> <C>
Raw material $14,651 $10,750
Work in process 1,273 325
Finished goods 6,519 10,428
-------------------------------------------
Total inventories $22,443 $21,503

</TABLE>
F-8
<PAGE>

NOTE 6 MACHINERY AND EQUIPMENT
Machinery and equipment, which includes assets under capital leases, is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
-----------------------------
<S> <C> <C>
Machinery, equipment, and tooling $12,129 $11,091
Machinery and equipment under capital leases 574 591
Furniture and office equipment 2,512 2,259
Computers and related equipment 10,834 6,943
Automobiles 505 536
Leasehold improvements 843 704
-----------------------------
27,397 22,124
Less accumulated depreciation and amoritization 14,644 10,796
-----------------------------
Net machinery and equipment $12,753 $11,328
</TABLE>

Unamortized computer software costs were approximately $1,800,000 and
$1,700,000 at December 31, 1997 and December 31, 1996, respectively.

NOTE 7 INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>

1997 1996 1995
----------------------------
<S> <C> <C> <C>
Current:
Federal $21,217 $12,914 $12,365
State 2,446 1,412 1,192
Foreign 2,523 1,879 1,037
Deferred:
Federal (2,974) (240) 289
State (391) (244) 64
Foreign 116 - 462
----------------------------
Total $22,937 $15,721 $15,409
</TABLE>

The provision for income taxes differs from the amount computed by applying
the U.S. statutory Federal income tax rate of 35%. The reconciliation of
statutory and effective income taxes is presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------
<S> <C> <C> <C>

Provision computed
statutory rate $22,091 $15,623 $13,291
State income tax (net of
Federal tax benefit) 1,336 759 816
Tax-exempt interest and
dividend income (493) (280) (211)
Tax benefit of exempt
foreign trade income (441) (585) (670)
Acquisition related items 109 259 2,213
Other 335 (55) (30)
---------------------------
Provision for income
taxes $22,937 $15,721 $15,409

</TABLE>
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Based on management's assessment, it is more
likely than not that the deferred tax assets will be realized through future
taxable earnings.

F-9
<PAGE>

Temporary differences which give rise to deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>

December 31, December 31,
1997 1996
----------------------------
<S> <C> <C>
Deferred tax assets:
Deferred rent--building $103 $104
Capital equipment lease 46 70
Accrued vacation 340 276
Inventory items 1,484 951
Allowance for doubtful
accounts 577 275
Other accruals 2,085 569
Acquisition related items 404 435
----------------------------
Total deferred tax assets 5,039 2,680
Deferred tax liabilities:
Unrealized gain on
securities (179) (821)
Depreciation (897) (979)
Acquisition of VTI (451) (451)
Other (116) (282)
----------------------------
Total deferred tax liabilities (1,643) (2,533)
----------------------------
Net deferred tax asset $3,396 $147

</TABLE>

The valuation allowance was zero as of December 31, 1997 and 1996.

NOTE 8 401(k) SAVINGS AND PROFIT SHARING PLANS
The Company has a Retirement Savings and Investment Plan (the "401(k) Plan")
that is intended to qualify under Section 401(k) of the Internal Revenue Code.
Qualified employees may participate in the Company's 401(k) Plan by contributing
up to 15% of their gross earnings to the plan subject to certain Internal
Revenue Service restrictions. The Company matches each participant's
contribution of up to 6% of gross earnings at the rate of 50%. The Company may
contribute additional amounts to the 401(k) Plan at the discretion of the Board
of Directors, subject to certain legal limits.

The Company has a discretionary profit-sharing plan for qualified employees,
to which it contributed 3.318% of eligible earnings for 1997, 2.925% for 1996,
and 3.4% for 1995. Participants are not permitted to make contributions under
the profit-sharing plan.

Company contributions to these plans, which were charged to operations,
approximated the following (in thousands):
<TABLE>
<CAPTION>
401(k) Profit sharing Total
------------------------------------------------
<S> <C> <C> <C>
1997 $522 $847 $1,369
1996 398 513 911
1995 324 453 777

</TABLE>
NOTE 9 COMMITMENTS AND CONTINGENCIES
(a) Leases
In September 1989, the Company entered into a lease agreement for its Vernon
Hills facility and certain machinery, equipment, furniture and fixtures with
Unique Building Corporation. The facility portion of the lease is treated as an
operating lease. An amendment to the lease dated June 1996 extended the term of
the lease through March 31, 2008. The lease agreement includes a modification to
the base monthly rental which goes into effect if the prescribed rent payment is
less than the aggregate principal and interest payments required to be made by
Unique under an Industrial Revenue Bond (IRB). Under the portion of the lease
agreement with Unique which is accounted for as a capital lease, the Company
leases machinery, equipment, furniture and fixtures at a monthly rental of
$5,725 for a ten-year period. Assets under these leases are as follows (in
thousands):
<TABLE>
<CAPTION>

December 31, December 31,
1997 1996
--------------------------------
<S> <C> <C>
Assets under capital leases $553 $592
Less accumulated amortization 553 578
- ------------------------------------------------------------------------------
Net leased machinery and equipment under
capital leases - $14
</TABLE>
F-10
<PAGE>

Minimum future obligations under noncancelable operating leases and future
minimum capital lease payments as of December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Operating
Lease Leases
-------------------------
<S> <C> <C>
1998 $69 $1,297
1999 52 1,349
2000 - 1,417
2001 - 1,384
2002 - 1,384
Thereafter - 8,000
-------------------------
Total minimum lease payments 121 $14,831
Less amount representing interest 5
-----------
Present value of minimum payments 116
Less current portion of obligation under 65
capital lease
-----------
Long-term portion of obligation under capital
lease $51
</TABLE>

Rent expense for operating leases charged to operations for the years
ended December 31, 1997, 1996, and 1995 was $1,932,000, $1,750,000, and
$1,348,000, respectively.

(b) Manufacturing and Office Facility
In October 1997, the Company committed to the purchase of a 37,124
square foot manufacturing and office facility for its Preston, England
operations which will replace its current facility. The Company plans to
begin transferring its operations to this facility in September 1998.

(c) Letter of credit
In connection with the lease agreements described above, the Company has
guaranteed Unique's full and prompt payment under Unique's letter of credit
agreement with a bank. The liability of the Company under this guaranty as of
December 31, 1997 is $700,000, which is the limit of the Company's guaranty
throughout the term of the IRB.

(d) Lines of credit
In December 1992, the Company established a $6,000,000 unsecured line of
credit and an additional $4,000,000 unsecured revocable line with a bank.
Borrowings under these lines bear interest indexed at either the prime rate or
150 basis points over the LIBOR rate, at the Company's discretion. The Company
had $137,000 outstanding at December 31, 1997. The lines of credit expire on
February 28, 1999.

(e) Derivative Instruments
In the normal course of business, portions of the Company's expenses are
subject to fluctuations in currency values. The Company addresses these risks
through a controlled program of risk management that includes the use of
derivative financial instruments. To some degree, the Company is exposed to
credit-related losses in the event of nonperformance by counterparties to
financial instruments, but management does not expect any counterparties to
fail to meet their obligations given their high credit ratings.

The Company enters into foreign exchange forward contracts to manage exposure
to fluctuations in foreign exchange rates to the funding of its United Kingdom
operations. The Company accounts for such contracts by recording any unrealized
gains or losses in income each reporting period. At December 31, 1997, the
Company had entered into foreign exchange forward contracts which provide for
purchases of approximately 1,227,038 pounds sterling per month through March
1998. At December 31, 1997 and 1996, the notional principal amounts of
outstanding forward contracts were $6,211,000 and $9,858,000, respectively.

NOTE 10 SEGMENT DATA AND EXPORT SALES
The Company operates in one industry segment. The Company generated sales to
foreign customers of approximately $87,428,000, $73,853,000, and $64,631,000
for the years ended December 31, 1997, 1996, and 1995, respectively.

For the year ended December 31, 1997, the Company's wholly-owned subsidiaries
located in the United Kingdom had net sales, net income, and total assets of
$55,029,000, $5,818,000, and $23,066,000, respectively. For the year ended
December 31, 1996, the subsidiaries' had net sales, net income, and total assets
of $44,518,000, $3,532,000, and $21,015,000, respectively.

F-11

<PAGE>

NOTE 11 DISCONTINUED BUSINESS OPERATIONS
As of June 28, 1997, the Company made the decision to discontinue the
operations of its subsidiary, Zebra Technologies VTI ("Zebra VTI"). The
discontinuance of Zebra VTI and its related PC-retail channel resulted in a one-
time charge of $2,363,000 before income tax benefits, which was recorded in the
second quarter of 1997. The one-time charge includes a provision for expected
product returns from the present retail channel partners, provision for slow
moving/ obsolete product, and provisions for estimated contingent liabilities.
Additionally, the remaining goodwill and intangible assets of $1,833,000 were
written off as part of the charge to discontinued operations.

NOTE 12 SHAREHOLDERS' EQUITY
Holders of Class A Common Stock are entitled to one vote per share. Holders
of Class B Common Stock are entitled to 10 votes per share. All actions
submitted to a vote of shareholders are voted on by holders of Class A and Class
B Common Stock voting together as a single class, except in certain
circumstances. If at any time the number of outstanding shares of Class B Common
Stock represents less than 10% of the total number of outstanding shares of both
classes of common stock, then at that time such outstanding shares of Class B
Common Stock will automatically convert into an equal number of shares of Class
A Common Stock.

Class A Common Stock has no conversion rights. A holder of Class B Common
Stock may convert his Class B Common Stock into Class A Common Stock, in whole
or in part, at any time and from time to time on the basis of one share of Class
A Common Stock for each share of Class B Common Stock.

Holders of Class A and Class B Common Stock are entitled to receive cash
dividends equally on a per share basis if and when such dividends are declared
by the Board of Directors of the Company from funds legally available therefore.
In the case of any dividend paid in stock, holders of Class A Common Stock are
entitled to receive the same percentage dividend (payable in shares of Class A
Common Stock) as the holders of Class B Common Stock receive (payable in shares
of Class B Common Stock).

Holders of Class A and Class B Common Stock share with each other on a
ratable basis as a single class in the net assets of the Company available for
distribution in respect of Class A and Class B Common Stock in the event of
liquidation.

The Company has authorized 10,000,000 shares of Preferred Stock. No shares of
Preferred Stock have been issued.

In 1997, the Board of Directors and the shareholders of the Company approved
an amendment to the Company's Certificate of Incorporation which increased the
total authorized Class A Common Stock of the Company from 35,000,000 shares to
50,000,000.

NOTE 13 STOCK OPTION AND PURCHASE PLANS
As of December 31, 1997, the Company has five stock option and stock
purchase plans, described below.

The Board of Directors and shareholders adopted the Zebra Technologies
Corporation Stock Option Plan (the "1991 Plan"), effective as of August 1,
1991. A total of 400,000 shares of Class A Common Stock have been authorized
and reserved for issuance under the 1991 Plan. Under this plan, the Company
has granted only nonqualified stock options. These options have an exercise
price equal to the closing market price of the Company's stock on the date of
grant. Typically, the options vest in annual installments of 15% on the
first anniversary, 17.5% on the second anniversary, 20% on the third
anniversary, 22.5% on the fourth anniversary, and 25% on the fifth
anniversary of the grant date. Upon vesting, the options have a legal life of
two years from the date of vesting. The specific provisions of any grant are
determined by the Board of Directors.

The Board of Directors and shareholders also adopted a Directors' Stock
Option Plan, which reserves 80,000 shares of Class A Common Stock for issuance
under the plan. All options granted under this plan are exercisable immediately
upon grant at a price per share equal to the closing market price of the
Company's Class A Common on the date of grant. Options granted to the Board of
Directors carry a seven year expiration period, however, should a member of the
board discontinue service on the Board of Directors, they are limited to a two
year period to exercise all outstanding options.

In addition, the Board of Directors and shareholders adopted an employee
stock purchase plan ("Stock Purchase Plan") and have reserved 300,000 shares of
Class A Common Stock for issuance thereunder. Under this plan, employees who
work a minimum of 20 hours per week may elect to withhold up to 8.5% of their
cash compensation through regular payroll deductions to purchase shares of Class
A Common Stock from the Company over a period not to exceed 12 months at a
purchase price per share equal to the lesser of: (1) 85% of the fair market
value of the shares as of the date of the grant, or (2)

F-12

<PAGE>

85% of the fair market value of the shares as of the date of purchase. As of
December 31, 1997, 125,870 shares have been purchased under the plan.

In general, the options granted under the Stock Purchase Plan during 1997
and 1996 have similar provisions. Under this plan, the Company has granted only
nonqualified stock options. These options are granted either on January 1 or
July 1 of the current year and expire at the end of the year. Therefore, the
options have a legal life of six months to one year, and typically vest upon
grant. The specific provisions of any grant are determined by the Board of
Directors.

The Company's Board of Directors adopted the 1997 Stock Option Plan,
effective February 11, 1997. The Company has reserved 531,500 shares of Common
Stock for issuance under the plan. The 1997 Stock Option Plan is a flexible
plan that provides the Option Committee broad discretion to fashion the terms of
the awards to provide eligible participants with stock-based incentives,
including: (i) non-qualified and incentive stock options for the purchase of the
Company's Class A Common Stock and (ii) dividend equivalents. The persons
eligible to participate in the 1997 Stock Option Plan are directors, officers,
and employees of the Company or any subsidiary of the Company who, in the
opinion of the Option Committee, are in a position to make contributions to the
growth, management, protection and success of the Company or its subsidiaries.

The options granted under the 1997 Stock Option Plan have an exercise
price equal to the closing market price of the Company's stock on the date of
grant. Typically, the options vest in annual installments of 15% on the first
anniversary, 17.5% on the second anniversary, 20% on the third anniversary,
22.5% on the fourth anniversary, and 25% on the fifth anniversary of the grant
date. The options have a legal life of ten years from the date of grant. The
specific provisions of any grant are determined by the Board of Directors.

The Company's Board of Directors adopted the 1997 Director Plan,
effective February 11, 1997. The 1997 Director Plan provides for the
issuance of options to purchase up to 77,000 shares of Class A Common Stock,
which shares are reserved and available for purchase upon the exercise of
options granted under the 1997 Director Plan. Only directors who are not
employees or officers of the Company are eligible to participate in the 1997
Director Plan. Under the 1997 Director Plan, each non-employee director was
granted, on the effective date of the plan, an option to purchase 15,000
shares of Class A Common Stock, and each non-employee director subsequently
elected to the Board will be granted an option to purchase 15,000 shares of
Class A Common Stock on the date of his or her election. Options granted
under the 1997 Director Plan provide for the purchase of Class A Common Stock
at a price equal to the fair market value on the date of grant. If there are
not sufficient shares remaining and available to all non-employee directors
eligible for an automatic grant at the time at which an automatic grant would
otherwise be made, then each eligible non-employee director shall receive an
option to purchase a pro rata number of shares.

Unless otherwise provided in an option agreement, options granted under
the 1997 Director Plan shall become exercisable in five equal increments on the
date of the grant and on each of the first four anniversaries thereof. All
options expire on the earlier to occur of (a) ten years following the grant date
or (b) the second anniversary of the termination of the non-employee director's
directorship for any reason other than due to death or Disability (as defined in
the 1997 Director Plan).

The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its plans. No
compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan. Had compensation cost for the Company's stock option and
stock purchase plans been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(Statement 123), the Company's 1997 net income and diluted earnings per share
would have been as follows:

<TABLE>
<S> <C>
Net income:
As reported $40,155
Pro forma 39,638
Diluted earnings
per share:
As reported $1.65
Pro forma 1.63
</TABLE>

Net income and earnings per share were affected by less than 1% in 1996
and 1995.

For purposes of calculating the compensation cost consistent with
Statement 123, the fair value of each stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for stock option grants in 1997, 1996, and
1995, respectively: option price, which equals the fair market value at the
date of grant; expected dividend yield of 0% for each period; expected
volatility of 42.08%, 41.21%, and 41.21%; risk free interest rate of 6.36%,
6.45%, and 6.36%; and expected weighted-average life of 6.00 years, 5.25 years,
and 5.25 years.

F-13

<PAGE>

The fair value of the employees' purchase rights pursuant to the Stock
Purchase Plan are estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for purchase rights granted in
1997, 1996, and 1995, respectively: fair market value of $23.63, $22.11, and
$20.20; option price of $20.09, $18.79, and $17.17; expected dividend yield of
0% for each period; expected volatility of 48%, 44%, and 30%; risk-free interest
rate of 5.49%, 5.55%, and 5.55%; and expected lives of six months to one year.

Stock option activity for the years ended December 31, 1997, 1996, and 1995
was as follows:

<TABLE>
<CAPTION>
1997 1996 1995
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of 187,500 $19.70 174,000 $15.19 176,000 $12.02
Year
Granted 336,500 24.70 57,000 27.11 56,000 19.36
Exercised (22,400) 14.63 (38,500) 9.01 (38,500) 8.42
Canceled -- -- (5,000) 29.25 (19,500) 11.91
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end
of year 501,600 23.28 187,500 19.70 174,000 15.19
Options exercisable
At end of year 90,450 19.92 78,700 18.19 63,500 15.63

</TABLE>

The following table summarizes information about fixed stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------- -------------------------------
Range of Number Weighted-Average Remaining Weighted-Average Number Weighted-Average
Exercise Prices of Shares Contractual Life Exercise Price of Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9.88-$20.50 108,600 2.63 years $16.54 52,575 $15.57
$ 24.50-$24.50 331,500 9.12 years 24.50 9,000 24.50
$ 25.19-$37.63 61,500 4.19 years 28.60 28,875 26.42

</TABLE>

F-14
<PAGE>

NOTE 14 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
1997 (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $41,009 $47,844 $49,889 $53,329 $192,071
Cost of sales 20,603 23,546 24,878 24,844 93,871
-----------------------------------------------------------------------------
Gross profit 20,406 24,298 25,011 28,485 98,200
Total operating expenses 9,234 11,768 11,360 13,063 45,425
-----------------------------------------------------------------------------
Operating income 11,172 12,530 13,651 15,422 52,775
Total other income 7,231 2,236 1,888 2,604 13,959
-----------------------------------------------------------------------------
Income from continuing operations before
income taxes 18,403 14,766 15,539 18,026 66,734
Income taxes 6,876 5,121 5,594 6,333 23,924
-----------------------------------------------------------------------------
Net income from continuing operations 11,527 9,645 9,945 11,693 42,810
Loss from discontinued operation (292) (1,400) - - (1,692)
Loss on disposal of discontinued operation - (963) - - (963)
-----------------------------------------------------------------------------
Net income $11,235 $7,282 $9,945 $11,693 $40,155
-----------------------------------------------------------------------------
Basic earnings per share from continuing
operations $0.48 $0.40 $0.41 $0.48 $1.77
Diluted earnings per share from continuing
operations $0.48 $0.40 $0.41 $0.48 $1.76
Basic earnings per share $0.46 $0.30 $0.41 $0.48 $1.66
Diluted earnings per share $0.46 $0.30 $0.41 $0.48 $1.65
Basic weighted-average shares outstanding 24,240 24,244 24,257 24,278 24,255
Diluted weighted-average and equivalent shares
outstanding 24,268 24,293 24,338 24,373 24,318

1996 (2) (2) (2) (2) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $36,526 $38,920 $41,858 $46,676 $163,980
Cost of sales 18,961 20,468 21,763 24,110 85,302
-----------------------------------------------------------------------------
Gross profit 17,565 18,452 20,095 22,566 78,678
Total operating expenses 10,236 (1) 9,759 8,345 9,307 37,647
-----------------------------------------------------------------------------
Operating income 7,329 (1) 8,693 11,750 13,259 41,031
Total other income 1,282 1,529 1,399 2,148 6,358
-----------------------------------------------------------------------------
Income before income taxes 8,611 (1) 10,222 13,149 15,407 47,389
Income taxes 2,903 3,440 4,526 5,667 16,536
-----------------------------------------------------------------------------
Net income from continuing operations 5,708 (1) 6,782 8,623 9,740 30,853
Loss from discontinued operation (459) (522) 92 (1,049) (1,938)
Loss on disposal of discontinued operation - - - - -
-----------------------------------------------------------------------------
Net income $5,249 (1) $6,260 $8,715 $8,691 $28,915
-----------------------------------------------------------------------------
Basic earnings per share from continuing
operations $0.24 (1) $0.28 $0.36 $0.40 $1.27
Diluted earnings per share from continuing
operations $0.23 (1) $0.28 $0.36 $0.40 $1.27
Basic earnings per share $0.22 (1) $0.26 $0.36 $0.36 $1.19
Diluted earnings per share $0.22 (1) $0.26 $0.36 $0.36 $1.19
Basic weighted-average shares outstanding 24,189 24,198 24,203 24,223 24,203
Diluted weighted-average and equivalent shares
outstanding 24,242 24,237 24,228 24,257 24,241
</TABLE>

(1) Reflects a pre-tax charge for acquired-in-process technology of $1,117
relating to the Company's acquisition of Fenestra Computer Services.
(2) Revised to reflect the discontinuance of operations of Zebra Technologies
VTI. (See Note 11 - Discontinued Business Operations).

NOTE 15 MAJOR CUSTOMERS

One customer represents revenues of 17% and 21% in the fiscal years ended
December 31, 1997, and December 31, 1996, respectively. Consolidated sales
to Peak Technology amounted to $31,762,000 in 1997 and $36,310,000 in 1996.
No
F-15
<PAGE>

other customer accounted for 10% or more of consolidated sales. Peak
Technologies was acquired by Moore Corporation in 1997. Management
recognizes Moore Corporation is a major provider of labels which could have
an adverse affect on Zebra sales of this product to Peak Technologies. Sales
to Peak Technologies of labels accounted for 2% of the Company's total net
sales in the fiscal year ended December 31, 1997 and 3% in the fiscal year
ended December 31, 1996.

F-16
<PAGE>

ZEBRA TECHNOLOGIES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

(Dollars in Thousands)

<TABLE>
<CAPTION>
Balance at Charged to Costs Balance at
Description Beginning of Period and Expenses Deductions End of Period
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Valuation account for
accounts receivable:

Year ended December 31, 1997 $960 $911 $83 $1,788
Year ended December 31, 1996 $349 $611 $0 $960
Year ended December 31, 1995 $349 $0 $0 $349

Valuation account for
inventory:

Year ended December 31, 1997 $2,734 $2,376 $1,801 $3,309
Year ended December 31, 1996 $969 $1,945 $180 $2,734
Year ended December 31, 1995 $677 $1,351 $1,059 $969
</TABLE>

F-17
<PAGE>

REPORT AND CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Zebra Technologies Corporation:

Under date of February 27, 1998, we reported on the consolidated balance
sheets of Zebra Technologies Corporation and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, as contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. In connection with our
audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule listed under Item 14. The
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

We consent to incorporation by reference in the registration statements
(No. 33-4706 and No. 33-72774) on Form S-8 of Zebra Technologies Corporation
of our reports relating to the consolidated balance sheets of Zebra
Technologies Corporation and Subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997, and related financial statement schedule, as contained herein. These
consolidated financial statements and the related financial statement
schedule and our reports thereon are included herein.

/s/ KPMG Peat Marwick LLP

-------------------------
KPMG Peat Marwick LLP
Chicago, Illinois
March 23, 1998

F-18

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

Effective February 11, 1997

<PAGE>

TABLE OF CONTENTS

Page

ARTICLE I ESTABLISHMENT . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 "Agreement" or "Option Agreement". . . . . . . . . . . . . . . 1
2.3 "Board of Directors" or "Board". . . . . . . . . . . . . . . . 1
2.4 "Change in Control . . . . . . . . . . . . . . . . . . . . . . 1
2.5 "Code" or "Internal Revenue Code". . . . . . . . . . . . . . . 2
2.6 "Commission" . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 "Committee". . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8 "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . 2
2.9 "Company". . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10 "Director" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.11 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.12 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . 3
2.13 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . 3
2.14 "Fair Market Value". . . . . . . . . . . . . . . . . . . . . . 3
2.15 "Grant Date" . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.16 "NASDAQ" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.17 "Option" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.18 "Option Period". . . . . . . . . . . . . . . . . . . . . . . . 4
2.19 "Option Price" . . . . . . . . . . . . . . . . . . . . . . . . 4
2.20 "Participant". . . . . . . . . . . . . . . . . . . . . . . . . 4
2.21 "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.22 "Public Offering". . . . . . . . . . . . . . . . . . . . . . . 4
2.23 "Representative" . . . . . . . . . . . . . . . . . . . . . . . 4
2.24 "Rule 16b-3" or "Rule 16a-1(c)(3)" . . . . . . . . . . . . . . 5
2.25 "Securities Act" . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE III ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . 5
3.1 Committee Structure and Authority. . . . . . . . . . . . . . . 5

ARTICLE IV STOCK SUBJECT TO PLAN . . . . . . . . . . . . . . . . . . 6
4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Release of Shares. . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Restrictions on Shares . . . . . . . . . . . . . . . . . . . . 6
4.4 Reasonable Efforts To Register . . . . . . . . . . . . . . . . 7
4.5 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . 7

<PAGE>

Page

4.6 Limited Transfer During Offering . . . . . . . . . . . . . . . 7

ARTICLE V OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Grant and Exercise . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Terms and Conditions . . . . . . . . . . . . . . . . . . . . . 8
5.4 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE VI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 10
6.1 Amendments and Termination . . . . . . . . . . . . . . . . . . 10
6.2 General Provisions . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Special Provisions Regarding a Change in Control . . . . . . . 12
6.4 Delay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 13
6.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 13

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

ARTICLE I

ESTABLISHMENT

1.1 PURPOSE. The Zebra Technologies Corporation Non-employee
Directors' Stock Option Plan ("Plan") is hereby established by Zebra
Technologies Corporation ("Company"), effective February 11, 1997 ("Effective
Date"). The purpose of the Plan is to promote the overall financial
objectives of the Company and its stockholders by motivating directors of the
Company who are not employees, to further align the interests of such
directors with those of the stockholders of the Company and to achieve
long-term growth and performance of the Company. The Plan and the grant of
Options hereunder are expressly conditioned upon the Plan's approval by the
stockholders of the Company to the extent required for an application of Rule
16b-3 of the Securities Exchange Act of 1934, as amended, and if such
approval is not obtained, then the Plan and all Options granted thereunder
shall be null and void AB INITIO.

ARTICLE II

DEFINITIONS

For purposes of the Plan, the following terms are defined as set forth
below:

2.1 "AFFILIATE" means any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
association or other entity (other than the Company) that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company, including, without limitation, any
member of an affiliated group of which the Company is a common parent
corporation as provided in Section 1504 of the Code.

2.2 "AGREEMENT" or "OPTION AGREEMENT" means, individually or collectively,
any agreement entered into pursuant to this Plan pursuant to which an Option is
granted to a Participant.

2.3 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the
Company.

2.4 "CHANGE IN CONTROL" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned

<PAGE>

subsidiary of the Company or any of its subsidiaries, an employee benefit
plan (or related trust) sponsored or maintained by the Company, or a
"Permitted Transferee" (as "Permitted Transferee" is defined the Company's
Certificate of Incorporation)), including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of stock representing more than the greater of (i)
twenty-five percent (25%) of the combined voting power of the Company's then
outstanding securities or (ii) the percentage of the combined voting power of
the Company's then outstanding securities which equals (A) ten percent (10%)
plus (B) the percentage of the combined voting power of the Company's
outstanding securities held by such corporation, person or entity on the
Effective Date; (b)(i) the stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into another
corporation other than a majority-owned subsidiary of the Company, or to sell
or otherwise dispose of all or substantially all of the Company's assets, and
(ii) the persons who were the members of the Board of Directors of the
Company prior to such approval do not represent a majority of the directors
of the surviving, resulting or acquiring entity or the parent thereof; (c)
the stockholders of the Company approve a plan of liquidation of the Company;
or (d) within any period of 24 consecutive months, persons who were members
of the Board of Directors of the Company immediately prior to such 24-month
period, together with any persons who were first elected as directors (other
than as a result of any settlement of a proxy or consent solicitation contest
or any action taken to avoid such a contest) during such 24-month period by
or upon the recommendation of persons who were members of the Board of
Directors of the Company immediately prior to such 24-month period and who
constituted a majority of the Board of Directors of the Company at the time
of such election, cease to constitute a majority of the Board.

2.5 "CODE" or "INTERNAL REVENUE CODE" means the Internal Revenue Code
of 1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.

2.6 "COMMISSION" means the Securities and Exchange Commission or any
successor agency.

2.7 "COMMITTEE" means the person or persons appointed by the Board of
Directors to administer the Plan, as further described in the Plan.

2.8 "COMMON STOCK" means the shares of the Class A Common Stock, par
value $.01 per share, of the Company, whether presently or hereafter issued,
and any other stock or security resulting from adjustment thereof as
described hereinafter or the common stock of any successor to the Company
which is designated for the purpose of the Plan.

2.9 "COMPANY" means Zebra Technologies Corporation and includes any
successor or assignee corporation or corporations into which the Company may be

<PAGE>

merged, changed or consolidated; any corporation for whose securities the
securities of the Company shall be exchanged; and any assignee of or
successor to substantially all of the assets of the Company.

2.10 "DIRECTOR" means each and any director who serves on the Board and
who is not an officer or employee of the Company or any of its Affiliates.

2.11 "DISABILITY" means a mental or physical illness that renders a
Participant totally and permanently incapable of performing the Participant's
duties for the Company or an Affiliate. Notwithstanding the foregoing, a
Disability shall not qualify under the Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii)
an injury or disease contracted, suffered, or incurred, while participating
in a criminal offense. The determination of Disability shall be made by the
Committee. The determination of Disability for purposes of the Plan shall
not be construed to be an admission of disability for any other purpose.

2.12 "EFFECTIVE DATE" means February 11, 1997.

2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

2.14 "FAIR MARKET VALUE" means the value determined on the basis of the
good faith determination of the Committee, without regard to whether the
Common Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:

(a) if the Common Stock is listed on a national securities exchange
or quoted on NASDAQ, the closing price of the Common Stock on the relevant
date (or, if such date is not a business day or a day on which quotations
are reported, then on the immediately preceding date on which quotations
were reported), as reported by the principal national exchange on which
such shares are traded (in the case of an exchange) or by NASDAQ, as the
case may be;

(b) if the Common Stock is not listed on a national securities
exchange or quoted on NASDAQ, but is actively traded in the over-the-
counter market, the average of the closing bid and asked prices for the
Common Stock on the relevant date (or, if such date is not a business day
or a day on which quotations are reported, then on the immediately
preceding date on which quotations were reported), or the most recent
preceding date for which such quotations are reported; and

(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (a) or (b), the value determined in good faith
by the Committee.

<PAGE>

2.15 "GRANT DATE" means the date as of which an Option is granted
pursuant to the Plan.

2.16 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq
National Market.

2.17 "OPTION" means the right to purchase the number of shares of Common
Stock specified by the Plan at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the
Committee imposes.

2.18 "OPTION PERIOD" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article V.

2.19 "OPTION PRICE" means the price at which the Common Stock may be
purchased under an Option as provided in Section 5.3.

2.20 "PARTICIPANT" means a Director to whom an Option has been granted
under the Plan, and in the event a Representative is appointed for a
Participant or another person becomes a Representative, then the term
"Participant" shall mean such appointed Representative. The term shall also
include a trust for the benefit of the Participant, the Participant's
parents, spouse or descendants; a partnership the interests in which are for
the benefit of the Participant, the Participant's parents, spouse or
descendants; or a custodian under a uniform gifts to minors act or similar
statute for the benefit of the Participant's descendants, to the extent
permitted by the Committee and not inconsistent with an application of Rule
16b-3. Notwithstanding the foregoing, the term "Termination of Directorship"
shall mean the Termination of Directorship of the Director.

2.21 "PLAN" means the Zebra Technologies Corporation Non-employee
Directors' Stock Option Plan, as herein set forth and as may be amended from
time to time.

2.22 "PUBLIC OFFERING" means the initial public offering of shares of
Common Stock under the Securities Act.

2.23 "REPRESENTATIVE" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of
the Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or
(d) any person to whom an Option has been permissibly transferred by the
Committee; provided that only one of the foregoing shall be the
Representative at any point in time as determined under applicable law and
recognized by the Committee.

<PAGE>

2.24 "RULE 16B-3" or "RULE 16A-1(C)(3)" mean Rule 16b-3 and Rule
16a-1(c)(3), as promulgated under the Exchange Act, as amended from time to
time, or any successor thereto, in effect and applicable to the Plan and
Participants.

2.25 "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.

ARTICLE III

ADMINISTRATION

3.1 COMMITTEE STRUCTURE AND AUTHORITY. The Plan shall be administered
by the Committee which, except as provided herein, shall be comprised of one
or more persons. The Committee shall be the Option Committee of the Board of
Directors, unless such committee does not exist or the Board establishes
another committee whose purpose is the administration of the Plan. In the
absence of an appointment, the Board shall be the Committee; provided that
only those members of the Compensation Committee of the Board who participate
in the decision relative to Options under the Plan shall be deemed to be part
of the "Committee" for purposes of the Plan. A majority of the Committee
shall constitute a quorum at any meeting thereof (including telephone
conference) and the acts of a majority of the members present, or acts
approved in writing by a majority of the entire Committee without a meeting,
shall be the acts of the Committee for purposes of the Plan. The Committee
may authorize any one or more of its members or an officer of the Company to
execute and deliver documents on behalf of the Committee. A member of the
Committee shall not exercise any discretion respecting himself or herself
under the Plan. The Board shall have the authority to remove, replace or
fill any vacancy of any member of the Committee upon notice to the Committee
and the affected member. Any member of the Committee may resign upon notice
to the Board. The Committee may allocate among one or more of its members,
or may delegate to one or more of its agents, such duties and
responsibilities as it determines.

The Committee shall have the authority, subject to (i) the terms of the
Plan and (ii) the limitations of Rule 16b-3, to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Option issued under the Plan and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Options granted at different times or
to different Participants.

<PAGE>

Any determination made by the Committee pursuant to the provisions of
the Plan shall be made in its sole discretion. All decisions made by the
Committee pursuant to the provisions of the Plan shall be final and binding
on all persons, including the Company and Participants. Any determination
shall not be subject to DE NOVO review if challenged in court.

ARTICLE IV

STOCK SUBJECT TO PLAN

4.1 NUMBER OF SHARES. Subject to the adjustment under Section 4.5, the
total number of shares of Common Stock reserved and available for issuance
pursuant to Options under the Plan shall be seventy-seven thousand (77,000)
shares of Common Stock authorized for issuance on the Effective Date. Such
shares may consist, in whole or in part, of authorized and unissued shares or
treasury shares.

4.2 RELEASE OF SHARES. The Committee shall have full authority to
determine the number of shares of Common Stock available for Stock Options,
and in its discretion may include (without limitation) as available for
distribution any shares of Common Stock that have ceased to be subject to
Stock Options, any shares of Common Stock subject to any Stock Options that
are forfeited, any Stock Options that otherwise terminate without issuance of
shares of Common Stock being made to the Participant, or any shares (whether
or not restricted) of Common Stock that are received by the Company in
connection with the exercise of a Stock Option, including the satisfaction of
any tax liability or the satisfaction of a tax withholding obligation. If
any shares could not again be available for Options to a particular
Participant under applicable law, such shares shall be available exclusively
for Options to Participants who are not subject to such limitations.

4.3 RESTRICTIONS ON SHARES. Shares of Common Stock issued upon
exercise of an Option shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee
in its discretion may determine or provide in the Option Agreement. The
Company shall not be required to issue or deliver any certificates for shares
of Common Stock, cash or other property prior to (i) the listing of such
shares on any stock exchange, NASDAQ or other public market on which the
Common Stock may then be listed (or regularly traded), (ii) the completion of
any registration or qualification of such shares under federal or state law,
or any ruling or regulation of any government body which the Committee
determines to be necessary or advisable, and (iii) the satisfaction of any
applicable withholding obligation in order for the Company or an Affiliate to
obtain a deduction with respect to the exercise of an Option. The Company
may cause any certificate for any share of Common Stock to be delivered to be
properly marked with a legend or other notation reflecting the limitations on
transfer of such Common Stock as

<PAGE>

provided in the Plan or as the Committee may otherwise require. The
Committee may require any person exercising an Option to make such
representations and furnish such information as it may consider appropriate
in connection with the issuance or delivery of the shares of Common Stock in
compliance with applicable law or otherwise. Fractional shares shall not be
delivered, but shall be rounded to the next lower whole number of shares.

4.4 REASONABLE EFFORTS TO REGISTER. The Company will register under
the Securities Act the Common Stock delivered or deliverable pursuant to
Options on Commission Form S-8 if available to the Company for this purpose
(or any successor or alternate form that is substantially similar to that
form to the extent available to effect such registration), in accordance with
the rules and regulations governing such forms, as soon as such forms are
available for registration to the Company for this purpose. The Company will
use its reasonable efforts to cause the registration statement to become
effective as soon as possible and will file such supplements and amendments
to the registration statement as may be necessary to keep the registration
statement in effect until the earliest of (a) one year following the
expiration of the Option Period of the last Option outstanding, (b) the date
the Company is no longer a reporting company under the Exchange Act and (c)
the date all Participants have disposed of all shares delivered pursuant to
any Option. The Company may delay the foregoing obligation if the Committee
reasonably determines that any such registration would materially and
adversely affect the Company's interests or if there is no material benefit
to Participants.

4.5 ADJUSTMENTS. In the event of a stock dividend, stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale
by the Company of all or a substantial portion of its assets (measured on
either a stand-alone or consolidated basis), reorganization, rights offering,
a partial or complete liquidation, or any other corporate transaction,
Company stock offering or event involving the Company and having an effect
similar to any of the foregoing, then the Committee shall adjust or
substitute, as the case may be, the number of shares of Common Stock
available for Options under the Plan, the number of shares of Common Stock
covered by outstanding Options, the exercise price per share of outstanding
Options, and any other characteristics or terms of the Options as the
Committee shall deem necessary or appropriate to reflect equitably the
effects of such changes to the Participants; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated by
rounding to the next lower whole number of shares with appropriate payment
for such fractional share as shall reasonably be determined by the Committee.

4.6 LIMITED TRANSFER DURING OFFERING. In the event there is an
effective registration statement under the Securities Act pursuant to which
shares of Common

<PAGE>

Stock shall be offered for sale in an underwritten offering, a Participant
shall not, during the period requested by the underwriters managing the
registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Option.

ARTICLE V

OPTIONS

5.1 ELIGIBILITY. Each Director shall be granted Options to purchase
shares of Common Stock as provided herein.

5.2 GRANT AND EXERCISE. Each person who is a Director on the effective
date of a Public Offering shall become a Participant and shall be granted an
Option to purchase fifteen thousand (15,000) shares of Common Stock without
further action by the Board or the Committee. Each person who is
subsequently elected as a Director shall become a Participant and shall, on
his date of election and on each anniversary thereof for so long as such
person remains a Director, without further action by the Board or the
Committee, be granted an option to purchase fifteen thousand (15,000) shares
of Common Stock. If the number of shares of Common Stock available to grant
under the Plan on a scheduled date of grant is insufficient to make all
automatic grants required to be made pursuant to the Plan on such date, then
each eligible Director shall receive an Option to purchase a pro rata number
of the remaining shares of Common Stock available under the Plan; provided
further, however, that if such proration results in fractional shares of
Common Stock, then such Option shall be rounded down to the nearest number of
whole shares of Common Stock. If there is no whole number of shares
remaining to be granted, then no grants shall be made under the Plan. Each
Option granted under the Plan shall be evidenced by an Agreement, in a form
approved by the Committee, which shall embody the terms and conditions of
such Option and which shall be subject to the express terms and conditions
set forth in the Plan. Such Agreement shall become effective upon execution
by the Participant.

5.3 TERMS AND CONDITIONS. Options shall be subject to such terms and
conditions as shall be determined by the Committee, including in each case
the following:

(a) OPTION PERIOD. The Option Period of each Option shall be ten (10)
years.

(b) OPTION PRICE. The Option Price per share of the Common Stock
purchasable under an Option shall be the Fair Market Value as of the Grant
Date.

<PAGE>

(c) EXERCISABILITY. Unless an alternative time is specified in an
Agreement, and subject to the provisions of Section 6.3, Options shall become
exercisable in five equal annual installments on the Grant Date and each of
the first four anniversaries thereof. An Option only shall be exercisable
during the Option Period.

(d) METHOD OF EXERCISE. Subject to the provisions of this Article V, a
Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Except when waived by the Committee, such notice shall be
accompanied by payment in full of the purchase price by cash or check or such
other form of payment as the Company may accept. If approved by the
Committee (including approval at the time of exercise), payment in full or in
part may also be made (i) by delivering Common Stock already owned by the
Participant having a total Fair Market Value on the date of such delivery
equal to the Option Price; (ii) by the execution and delivery of a note or
other evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee and permitted in accordance with Section
5.3(e); (iii) by authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Option having a total
Fair Market Value on the date of delivery equal to the Option Price; (iv) by
the delivery of cash or the extension of credit by a broker-dealer to whom
the Participant has submitted a notice of exercise or otherwise indicated an
intent to exercise an Option (in accordance with Part 220, Chapter II, Title
12 of the Code of Federal Regulations, so-called "cashless" exercise); or (v)
by certifying ownership of shares of Common Stock by the Participant to the
satisfaction of the Committee for later delivery to the company as specified
by the committee; or (vi) by any combination of the foregoing or by any other
method permitted by the Committee.

(e) NONTRANSFERABILITY OF OPTIONS. Except as provided herein or in an
Agreement, no Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution,
and all Options shall be exercisable during the Participant's lifetime only
by the Participant. If and to the extent transferability is permitted by
Rule 16b-3 and except as otherwise provided herein or by an Agreement, every
Option granted hereunder shall be freely transferable, but only if such
transfer does not result in liability under Section 16 of the Exchange Act to
the Participant or other Participants and is consistent with registration of
the Option and sale of Common Stock on Form S-8 (or a successor form) or the
Committee's waiver of such condition.

5.4 TERMINATION. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant ceases to be a Director due to
death, any unexpired and unexercised Stock Option held by such Participant
shall thereafter be fully exercisable for a period of ninety (90) days
following the date of the appointment of

<PAGE>

a Representative (or such other period or no period as the Committee may
specify) or until the expiration of the Option Period, whichever period is
the shorter. Unless otherwise provided in an Agreement or determined by the
Committee, if a Participant ceases to be a Director due to a Disability, any
unexpired and unexercised Stock Option held by such Participant shall
thereafter be fully exercisable by the Participant for the period of ninety
(90) days (or such other period or no period as the Committee may specify)
immediately following the date the Participant ceases to be a Director or
until the expiration of the Option Period, whichever period is shorter, and
the Participant's death at any time following the date the Participant ceases
to be a Director due to Disability shall not affect the foregoing.

Unless otherwise provided in an Agreement or determined by the
Committee, if a Participant's directorship is terminated for any reason other
than due to Participant's death or Disability, any Option held by such
Participant shall terminate upon the second anniversary of the date the
Participant first ceased to hold the position of Director. Unless otherwise
provided in an Agreement, the death or Disability of a Participant after a
termination of Directorship otherwise provided herein shall not extend the
exercisability of the time permitted to exercise an Option.

ARTICLE VI

MISCELLANEOUS

6.1 AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under a Stock Option theretofore granted, without the Participant's consent,
except such an amendment (a) made to avoid an expense charge to the Company
or an Affiliate, (b) made to cause the Plan to qualify for the exemption
provided by Rule 16b-3, (c) to prevent the Plan from being disqualified from
the exemption provided by Rule 16b-3, or (d) made to permit the Company or an
Affiliate a deduction under the Code. In addition, no such amendment shall
be made without the approval of the Company's stockholders to the extent such
approval is required by law or agreement.

The Committee may amend the Plan at any time subject to the same
limitations (and exceptions to limitations) as applied to the Board and
further subject to any approval or limitations the Board may impose.

The Committee may amend the terms of any Stock Option theretofore
granted, prospectively or retroactively, but no such amendment shall impair
the rights of any Participant without the Participant's consent or reduce an
Option Price, except such an amendment made to cause the Plan or Award to
qualify for the exemption provided by Rule 16b-3, avoid an expense charge to
the Company or an Affiliate or qualify for

<PAGE>

a deduction. The Committee's discretion to amend the Plan or Agreement shall
be limited to the Plan's constituting a plan described in section (c)(2)(ii)
of Rule 16b-3.

Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would
cause a transaction to be ineligible for pooling of interest accounting that
would, but for the right hereunder, be eligible for such accounting
treatment, the Committee may modify or adjust the right so that pooling of
interest accounting is available.

6.2 GENERAL PROVISIONS.

(a) REPRESENTATION. The Committee may require each person purchasing
or receiving shares pursuant to an Option to represent to and agree with the
Company in writing that such person is acquiring the shares without a view to
the distribution thereof in violation of the Securities Act. The
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.

(b) WITHHOLDING. If determined to be required to protect the Company,
no later than the date as of which an amount first becomes includible in the
gross income of the Participant for Federal income tax purposes with respect
to any Option, the Participant shall pay to the Company (or other entity
identified by the Committee), or make arrangements satisfactory to the
Company or other entity identified by the Committee regarding the payment of,
any Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Committee, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Option that gives rise to the
withholding requirement, provided that any applicable requirements under
Section 16 of the Exchange Act are satisfied. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment otherwise due to the
Participant.

(c) CONTROLLING LAW. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws of
the State of Illinois (other than its law respecting choice of law). The
Plan shall be construed to comply with all applicable law, and to avoid
liability to the Company, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.

<PAGE>

(d) OFFSET. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value of
any shares of Common Stock, cash or other thing of value under the Plan or an
Agreement to be transferred to the Participant, and no shares of Common
Stock, cash or other thing of value under the Plan or an Agreement shall be
transferred unless and until all disputes between the Company and the
Participant have been fully and finally resolved and the Participant has
waived all claims to such against the Company or an Affiliate.

(e) FAIL-SAFE. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3). To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall
be deemed null and void, to the extent permitted by law and deemed advisable
by the Committee. Moreover, in the event the Plan does not include a
provision required by Rule 16b-3 or Rule 16a-1(c)(3) to be stated therein,
such provision (other than one relating to eligibility requirements, or the
price and amount of Options) shall be deemed to be incorporated by reference
into the Plan with respect to Participants subject to Section 16.

6.3 SPECIAL PROVISIONS REGARDING A CHANGE IN CONTROL. Notwithstanding
any other provision of the Plan to the contrary, unless otherwise provided in
an Agreement, in the event of a Change in Control:

(a) Any Stock Options outstanding as of the date of such Change in
Control and not then exercisable shall become fully exercisable to the full
extent of the original grant;

(b) The Committee shall have full discretion, notwithstanding anything
herein or in an Option Agreement to the contrary, to do any or all of the
following with respect to an outstanding Stock Option:

(1) To cause any Stock Option to be cancelled, provided notice
of at least 15 days thereof is provided before the date of
cancellation;

(2) To provide that the securities of another entity be
substituted hereunder for the Common Stock and to make
equitable adjustment with respect thereto;

(3) To grant the Participant by giving notice during a pre-set
period to surrender all or part of a Stock Option to the
Company and to receive cash in an amount equal to the amount
by which the "Change in Control Price" (as defined in
Section 6.3(c)) per share of Common Stock on the date of
such election shall exceed the amount which the

<PAGE>

Participant must pay to exercise the Option per share of
Common Stock under the Option (the "Spread") multiplied by
the number of shares of Common Stock granted under the
Option;

(4) To require the assumption of the obligation of the Company
under the Plan subject to appropriate adjustment; and

(5) To take any other action the Committee determines to take.

(c) For purposes of this Section, "Change in Control Price" means the
higher of (i) the highest reported sales price of a share of Common Stock in
any transaction reported on the principal exchange on which such shares are
listed or on NASDAQ during the sixty (60)-day period prior to and including
the date of a Change in Control, or (ii) if the Change in Control is the
result of a corporate transaction, the highest price per share of Common
Stock paid in such tender or exchange offer or a corporate transaction. To
the extent that the consideration paid in any such transaction described
above consists all or in part of securities or other non-cash consideration,
the value of such securities or other non-cash consideration shall be
determined in the sole discretion of the Committee.

6.4 DELAY. If at the time, the Participant is subject to "short-swing"
liability under Section 16 of the Exchange Act, any time period provided for
under the Plan, to the extent necessary to avoid the imposition of liability,
shall be suspended and delayed during the period the Participant would be
subject to such liability.

6.5 HEADINGS. The headings contained in the Plan are for reference
purposes only and shall not affect the meaning or interpretation of the Plan.

6.6 SEVERABILITY. If any provision of the Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and the Plan shall be construed
as if such invalid or unenforceable provision were omitted.

6.7 SUCCESSORS AND ASSIGNS. The Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.

6.8 ENTIRE AGREEMENT. The Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided
that in the event of any inconsistency between the Plan and the Agreement,
the terms and conditions of the Plan shall control.

<PAGE>

Executed on this 11th day of February, 1997.

ZEBRA TECHNOLOGIES CORPORATION

By: /s/ Edward L. Kaplan
-------------------------
Edward L. Kaplan
Chief Executive Officer

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION

1997

STOCK OPTION PLAN

<PAGE>

TABLE OF CONTENTS

Page

ARTICLE I ESTABLISHMENT. . . . . . . . . . . . . . . . . . . . . . P-1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . P-1

ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . P-1
2.1 "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . P-1
2.2 "Agreement" . . . . . . . . . . . . . . . . . . . . . . . . P-1
2.3 "Beneficiary". . . . . . . . . . . . . . . . . . . . . . . . P-1
2.4 "Board of Directors" or "Board". . . . . . . . . . . . . . . P-2
2.5 "Cause". . . . . . . . . . . . . . . . . . . . . . . . . . . P-2
2.6 "Change in Control" and "Change in Control Price". . . . . . P-2
2.7 "Code" or "Internal Revenue Code". . . . . . . . . . . . . . P-2
2.8 "Commission" . . . . . . . . . . . . . . . . . . . . . . . . P-2
2.9 "Committee". . . . . . . . . . . . . . . . . . . . . . . . . P-2
2.10 "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . P-2
2.11 "Company". . . . . . . . . . . . . . . . . . . . . . . . . . P-3
2.12 "Covered Employee" . . . . . . . . . . . . . . . . . . . . . P-3
2.13 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . P-3
2.14 "Dividend Equivalent". . . . . . . . . . . . . . . . . . . . P-3
2.15 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . P-3
2.16 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . P-3
2.17 "Fair Market Value". . . . . . . . . . . . . . . . . . . . . P-3
2.18 "Grant Date" . . . . . . . . . . . . . . . . . . . . . . . . P-4
2.19 "Incentive Stock Option" . . . . . . . . . . . . . . . . . . P-4
2.20 "NASDAQ" . . . . . . . . . . . . . . . . . . . . . . . . . . P-4
2.21 "Non-Qualified Stock Option" . . . . . . . . . . . . . . . . P-4
2.22 "Option Period". . . . . . . . . . . . . . . . . . . . . . . P-4
2.23 "Option Price" . . . . . . . . . . . . . . . . . . . . . . . P-4
2.24 "Participant". . . . . . . . . . . . . . . . . . . . . . . . P-4
2.25 "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . P-5
2.26 "Representative" . . . . . . . . . . . . . . . . . . . . . . P-5
2.27 "Retirement" . . . . . . . . . . . . . . . . . . . . . . . . P-5
2.28 "Rule 16b-3" and "Rule 16a-1(c)(3)". . . . . . . . . . . . . P-5
2.29 "Securities Act" . . . . . . . . . . . . . . . . . . . . . . P-5
2.30 "Stock Option" or "Option" . . . . . . . . . . . . . . . . . P-5
2.31 "Termination of Employment". . . . . . . . . . . . . . . . . P-5
2.32 "Transfer" . . . . . . . . . . . . . . . . . . . . . . . . . P-6

ARTICLE III ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . P-6
3.1 Committee Structure and Authority. . . . . . . . . . . . . . P-6

<PAGE>

ARTICLE IV STOCK SUBJECT TO PLAN . . . . . . . . . . . . . . . . . P-9
4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . P-9
4.2 Release of Shares. . . . . . . . . . . . . . . . . . . . . . P-9
4.3 Restrictions on Shares . . . . . . . . . . . . . . . . . . . P-9
4.4 Stockholder Rights . . . . . . . . . . . . . . . . . . . . . P-10
4.5 Best Efforts To Register . . . . . . . . . . . . . . . . . . P-10
4.6 Anti-Dilution. . . . . . . . . . . . . . . . . . . . . . . . P-10

ARTICLE V ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . P-11
5.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . P-11

ARTICLE VI STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . P-11
6.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . P-11
6.2 Grant and Exercise . . . . . . . . . . . . . . . . . . . . . P-11
6.3 Terms and Conditions . . . . . . . . . . . . . . . . . . . . P-12
6.4 Termination by Reason of Death . . . . . . . . . . . . . . . P-14
6.5 Termination by Reason of Disability. . . . . . . . . . . . . P-14
6.6 Other Termination. . . . . . . . . . . . . . . . . . . . . . P-14
6.7 Cashing Out of Option. . . . . . . . . . . . . . . . . . . . P-15
6.8 Dividend Equivalents . . . . . . . . . . . . . . . . . . . . P-15

ARTICLE VII PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE
PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . P-15
7.1 Limited Transfer During Offering . . . . . . . . . . . . . . P-15
7.2 Committee Discretion . . . . . . . . . . . . . . . . . . . . P-16
7.3 No Company Obligation. . . . . . . . . . . . . . . . . . . . P-16

ARTICLE VIII CHANGE IN CONTROL PROVISIONS . . . . . . . . . . . . . . P-16
8.1 Impact of Event. . . . . . . . . . . . . . . . . . . . . . . P-16
8.3 Change in Control Price. . . . . . . . . . . . . . . . . . . P-18

ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . P-18
9.1 Amendments and Termination . . . . . . . . . . . . . . . . . P-18
9.2 Stand-Alone, Additional, Tandem, and Substitute Options. . . P-19
9.3 Form and Timing of Payment Under Options; Deferrals. . . . . P-19
9.4 Status of Options Under Code Section 162(m). . . . . . . . . P-20
9.5 Unfunded Status of Plan; Limits on Transferability . . . . . P-20
9.6 General Provisions . . . . . . . . . . . . . . . . . . . . . P-20
9.7 Mitigation of Excise Tax . . . . . . . . . . . . . . . . . . P-22
9.8 Rights with Respect to Continuance of Employment . . . . . . P-22
9.9 Options in Substitution for Options Granted by Other
Corporations . . . . . . . . . . . . . . . . . . . . . . . . P-22

<PAGE>

Page

9.10 Procedure for Adoption . . . . . . . . . . . . . . . . . . . P-23
9.11 Procedure for Withdrawal . . . . . . . . . . . . . . . . . . P-23
9.12 Delay. . . . . . . . . . . . . . . . . . . . . . . . . . . . P-23
9.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . P-23
9.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . P-23
9.15 Successors and Assigns . . . . . . . . . . . . . . . . . . . P-24
9.16 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . P-24

iii

<PAGE>

ZEBRA TECHNOLOGIES CORPORATION 1997 STOCK OPTION PLAN

ARTICLE I

ESTABLISHMENT

1.1 PURPOSE.

The Zebra Technologies Corporation 1997 Stock Option Plan ("Plan") is
hereby established by Zebra Technologies Corporation ("Company"). The
purpose of the Plan is to promote the overall financial objectives of the
Company and its stockholders by motivating those persons selected to
participate in the Plan to achieve long-term growth in stockholder equity in
the Company and by retaining the association of those individuals who are
instrumental in achieving this growth. The Plan is intended to qualify
certain compensation awarded under the Plan for tax deductibility under
Section 162(m) of the Code (as defined herein) to the extent deemed
appropriate by the Committee (as defined herein). The Plan and the grant of
awards hereunder are expressly conditioned upon the Plan's approval by the
stockholders of the Company. If such approval is not obtained, then this
Plan and all Options (as defined herein) hereunder shall be null and void AB
INITIO. The Plan is adopted, subject to stockholder approval, effective as
of February 11, 1997.

ARTICLE II

DEFINITIONS

For purposes of the Plan, the following terms are defined as set forth
below:

2.1 "AFFILIATE" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, the Company including, without limitation, any member of an affiliated
group of which the Company is a common parent corporation as provided in
Section 1504 of the Code.

2.2 "AGREEMENT" means, individually or collectively, any Stock Option
Agreement entered into pursuant to the Plan.

2.3 "BENEFICIARY" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Options or
other rights are transferred if and to the

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extent permitted hereunder. If, upon a Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or
the laws of descent and distribution to receive such benefits.

2.4 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the
Company.

2.5 "CAUSE" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in
such agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause"
or a substantially equivalent term, then Cause shall mean (a) any act or
omission which the Company believes is of a criminal nature, and the result
of which the Company believes is detrimental to the interests of the Company
or an Affiliate; (b) the material breach of a fiduciary duty owing to the
Company, including without limitation, fraud and embezzlement' or (c)
conduct or the omission of conduct on the part of the Participant which
constitutes a material breach of any statutory or common-law duty of loyalty
to the Company or its Affiliate.

2.6 "CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE" have the meanings
set forth in Sections 8.2 and 8.3, respectively.

2.7 "CODE" or "INTERNAL REVENUE CODE" means the Internal Revenue Code
of 1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.

2.8 "COMMISSION" means the Securities and Exchange Commission or any
successor agency.

2.9 "COMMITTEE" means the Option Committee of the Board and/or such
other Board committee as may be designated by the Board to administer the
Plan; PROVIDED, HOWEVER, that insofar as a Committee is responsible for
granting Options to Participants hereunder, it shall consist solely of two or
more directors, each of whom is a "Non-Employee Director" within the meaning
of Rule 16b-3 and each of whom is also an "outside director" under Section
162(m) of the Code.

2.10 "COMMON STOCK" means the shares of the Company's Class A Common
Stock, $.01 par value, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter
or the common stock of any successor to the Company which is designated for
the purpose of the Plan.

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2.11 "COMPANY" means Zebra Technologies Corporation and includes any
successor or assignee corporation or corporations into which the Company may
be merged, changed or consolidated; any corporation for whose securities the
securities of the Company shall be exchanged; and any assignee of or
successor to substantially all of the assets of the Company.

2.12 "COVERED EMPLOYEE" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.

2.13 "DISABILITY" means a mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan
or the Participant is not an employee of the Company or an Affiliate, a
mental or physical illness that renders a Participant totally and permanently
incapable of performing the Participant's duties for the Company or an
Affiliate. Notwithstanding the foregoing, a Disability shall not qualify
under this Plan if it is the result of (i) a willfully self-inflicted injury
or willfully self-induced sickness; or (ii) an injury or disease contracted,
suffered, or incurred while participating in a criminal offense. The
determination of Disability shall be made by the Committee. The
determination of Disability for purposes of this Plan shall not be construed
to be an admission of disability for any other purpose.

2.14 "DIVIDEND EQUIVALENT" means a right, granted to a Participant under
Section 6.8, to receive cash, Common Stock, other Options or other property
equal in value to dividends paid with respect to a specified number of shares
of Common Stock.

2.15 "EFFECTIVE DATE" means February 11, 1997.

2.16 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

2.17 "FAIR MARKET VALUE" means the value determined on the basis of the
good faith determination of the Committee, without regard to whether the
Common Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:

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(b) if the Common Stock is not listed on a national securities
exchange or quoted on NASDAQ, but is actively traded in the over-the-
counter market, the average of the closing bit and asked prices for the
Common Stock on the relevant date (or, if such date is not a business day
or a day on which quotations are reported, then on the immediately
preceding date on which quotations wee reported), or the most recent
preceding date for which such quotations are reported; and

(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (a) or (b), the value determined in good faith
by the Committee.

2.18 "GRANT DATE" means the date as of which an Agreement is entered
into pursuant to the Plan.

2.19 "INCENTIVE STOCK OPTION" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422
of the Code.

2.20 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq
National Market.

2.21 "NON-QUALIFIED STOCK OPTION" means an Option to purchase Common
Stock in the Company granted under the Plan, the taxation of which is
pursuant to Section 83 of the Code.

2.22 "OPTION PERIOD" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.

2.23 "OPTION PRICE" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).

2.24 "PARTICIPANT" means a person who satisfies the eligibility
conditions of Article V and with whom an Agreement has been entered into
under the Plan, and in the event a Representative is appointed for a
Participant or another person becomes a Representative, then the term
"Participant" shall mean such Representative. The term shall also include a
trust for the benefit of the Participant, the Participant's parents, spouse
or descendants, or a custodian under a uniform gifts to minors act or similar
statute for the benefit of the Participant's descendants, to the extent
permitted by the Committee and not inconsistent with Rule 16b-3.
Notwithstanding the foregoing, the term "Termination of Employment" shall
mean the Termination of Employment of the person to whom the Option was
originally granted.

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2.25 "PLAN" means the Zebra Technologies Corporation 1997 Stock Option
Plan, as herein set forth and as may be amended from time to time.

2.26 "REPRESENTATIVE" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of
the Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or
(d) any person to whom an Option has been permissibly transferred; provided
that only one of the foregoing shall be the Representative at any point in
time as determined under applicable law and recognized by the Committee.

2.27 "RETIREMENT" means the Participant's Termination of Employment
after attaining either the normal retirement age or the early retirement age
as defined in the principal (as determined by the Committee) tax-qualified
plan of the Company or an Affiliate, if the Participant is covered by such a
plan, or if the Participant is not covered by such a plan, then age 65, or
age 55 with the accrual of 10 years of service.

2.28 "RULE 16b-3" and "RULE 16a-1(c)(3)" mean Rule 16b-3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Commission under Section 16 of the Exchange
Act.

2.29 "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

2.30 "STOCK OPTION" or "OPTION" means a right, granted to a Participant
under Section 6.1 hereof, to purchase Common Stock at a specified price
during specified time periods.

2.31 "TERMINATION OF EMPLOYMENT" means the occurrence of any act or
event, whether pursuant to an employment agreement or otherwise, that
actually or effectively causes or results in the person's ceasing, for
whatever reason, to be an officer, independent contractor, director or
employee of the Company or of any subsidiary of the Company, or to be an
officer, independent contractor, director or employee of any entity that
provides services to the Company or a subsidiary of the Company, including,
without limitation, death, Disability, dismissal, severance at the election
of the Participant, Retirement, or severance as a result of the
discontinuance, liquidation, sale or transfer by the Company or its
subsidiaries of all businesses owned or operated by the Company or its
subsidiaries. With respect to any person who is not an employee with respect
to the Company or a subsidiary of the Company, the Agreement shall establish
what act or event shall constitute a Termination of Employment for purposes
of the Plan. A transfer of employment from the Company

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to a subsidiary, or from a subsidiary to the Company, will not be a
Termination of Employment, unless expressly determined by the Committee. A
Termination of Employment shall occur for an employee who is employed by a
subsidiary of the company if the subsidiary shall cease to be a subsidiary
and the Participant shall not immediately thereafter become an employee of
the Company or a subsidiary of the Company.

2.32 "TRANSFER" means any sale, gift, assignment, distribution,
conveyance, pledge, hypothecation, encumbrance or other transfer of title,
whether by operation of law or otherwise.

In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.

ARTICLE III

ADMINISTRATION

3.1 COMMITTEE STRUCTURE AND AUTHORITY. The Plan shall be administered
by a committee (the "Committee") of the Board of Directors composed of no
fewer than two directors designated by the Board of Directors. For purposes
of this Plan, (a) "Non-Employee" has the meaning under the tests for the
Plan under the rules and regulations adopted by the Securities and Exchange
Commission under Section 16 of the Securities Exchange Act of 1934 and (b)
"outside" has the meaning under the tests for "outside director" under the
Regulations adopted by the Internal Revenue Service relating to Section
162(m) of the Code, or any successor provision, including all of the
transition rules thereunder. A majority of the Committee shall constitute a
quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by all of the members,
shall be the acts of the Committee. This Plan is intended to qualify for
exemption from Section 16(b) of the Securities Exchange Act of 1934 and to
qualify as performance-based compensation under Section 162(m) of the Code
and shall be interpreted in such a way as to result in such qualification.
The Committee may authorize any one or more of its members or an officer of
the Company to execute and deliver documents on behalf of the Committee. A
member of the Committee shall not exercise any discretion respecting himself
or herself under the Plan. The Board shall have the authority to remove,
replace or fill any vacancy of any member of the Committee upon notice to the
Committee and the affected member. Any member of the Committee may resign
upon notice to the Board. The Committee may allocate among one or more of
its members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.

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Among other things, the Committee shall have the authority, (i) subject
to the terms of the Plan, and (ii) subject to the approval of the Board (to
the extent required to qualify an option granted hereunder for exemption
under Section 16(b) of the Exchange Act and as "performance-based
compensation" under Section 162(m) of the Code):

(a) to select those persons to whom Options may be granted from time
to time;

(b) to determine whether and to what extent Options are to be granted
hereunder;

(d) to determine the terms and conditions of any Option granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration, forfeiture or waiver regarding any Option, any shares of
Common Stock relating thereto, any performance criteria and the
satisfaction of each criteria);

(e) to adjust the terms and conditions, at any time or from time to
time, of any Option, subject to the limitations of Section 9.1;

(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Option shall be
deferred;

(g) to determine under what circumstances an Option may be settled in
cash or Common Stock;

(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;

(i) to determine whether a Participant has a Disability or a
Retirement;

(j) to determine what securities law requirements are applicable to
the Plan, Options and the issuance of shares of Common Stock under the Plan
and to require of a Participant that appropriate action be taken with
respect to such requirements;

(k) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Options;

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(l) to interpret and make final determinations with respect to the
remaining number of shares of Common Stock available under this Plan;

(m) to require, as a condition of the exercise of an Option or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any Federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;

(n) to determine whether and with what effect a Participant has
incurred a Termination of Employment;

(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;

(p) to determine the restrictions or limitations on the transfer of
Common Stock;

(q) to determine whether an Option is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;

(r) to determine the permissible methods of Option exercise and
payment, including cashless exercise arrangements;

(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and

(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.

The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Option issued under the Plan (and any
Agreement) and to otherwise supervise the administration of the Plan. The
Committee's policies and procedures may differ with respect to Options
granted at different times or to different Participants.

Any determination made by the Committee pursuant to the provisions of
the Plan shall be made in its sole discretion, and in the case of any
determination relating to an Option, may be made at the time of the grant of
the Option or, unless in contravention of any express term of the Plan or an
Agreement, at any time thereafter. All decisions made by the Committee
pursuant to the provisions of the Plan shall be

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final and binding on all persons, including the Company and Participants. No
determination shall be subject to DE NOVO review if challenged in court.

ARTICLE IV

STOCK SUBJECT TO PLAN

4.1 NUMBER OF SHARES. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for
distribution pursuant to Options under the Plan shall be 531,500 shares of
Common Stock authorized for issuance on the Effective Date. Such shares may
consist, in whole or in part, of authorized and unissued shares or treasury
shares.

4.2 RELEASE OF SHARES. Subject to Section 6.3(f), if any shares of
Common Stock that are subject to any Option cease to be subject to an Option
or are forfeited, if any Option otherwise terminates without issuance of
shares of Common Stock being made to the Participant, or if any shares
(whether or not restricted) of Common Stock are received by the Company in
connection with the exercise of an Option, including the satisfaction of tax
withholding, such shares, in the discretion of the Committee, may again be
available for distribution in connection with Options under the Plan.

4.3 RESTRICTIONS ON SHARES. Shares of Common Stock issued as or in
conjunction with an Option shall be subject to the terms and conditions
specified herein and to such other terms, conditions and restrictions as the
Committee in its discretion may determine or provide in an Agreement. The
Company shall not be required to issue or deliver any certificates for shares
of Common Stock, cash or other property prior to (i) the listing of such
shares on any stock exchange or NASDAQ (or other public market) on which the
Common Stock may then be listed (or regularly traded), (ii) the completion of
any registration or qualification of such shares under Federal or state law,
or any ruling or regulation of any government body which the Committee
determines to be necessary or advisable, and (iii) the satisfaction of any
applicable withholding obligation in order for the Company or an Affiliate to
obtain a deduction with respect to the exercise of an Option. The Company
may cause any certificate for any share of Common Stock to be delivered to be
properly marked with a legend or other notation reflecting the limitations on
transfer of such Common Stock as provided in this Plan or as the Committee
may otherwise require. The Committee may require any person exercising an
Option to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the
shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next
lower whole number of shares.

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4.4 STOCKHOLDER RIGHTS. No person shall have any rights of a
stockholder as to shares of Common Stock subject to an Option until, after
proper exercise of the Option or other action required, such shares shall
have been recorded on the Company's official stockholder records as having
been issued or transferred. Upon exercise of the Option or any portion
thereof, the Company will have thirty (30) days in which to issue the shares,
and the Participant will not be treated as a stockholder for any purpose
whatsoever prior to such issuance. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date such
shares are recorded as issued or transferred in the Company's official
stockholder records, except as provided herein or in an Agreement.

4.5 BEST EFFORTS TO REGISTER. The Company will register under the
Securities Act the Common Stock delivered or deliverable pursuant to Options
on Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules
and regulations governing such forms, as soon after stockholder approval of
the Plan as the Committee, in its sole discretion, shall deem such
registration appropriate. The Company will use its best efforts to cause the
registration statement to become effective and will file such supplements and
amendments to the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a) one year following
the expiration of the Option Period of the last Option outstanding, (b) the
date the Company is no longer a reporting company under the Exchange Act and
(c) the date all Participants have disposed of all shares delivered pursuant
to any Option.

4.6 ANTI-DILUTION. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale
by the Company of all or a substantial portion of its assets (measured on
either a stand-alone or consolidated basis), reorganization, rights offering,
a partial or complete liquidation, or any other corporate transaction,
Company stock offering or event involving the Company and having an effect
similar to any of the foregoing, then the Committee shall adjust or
substitute, as the case may be, the number of shares of Common Stock
available for Options under the Plan, the number of shares of Common Stock
covered by outstanding Options, the exercise price per share of outstanding
Options, and performance conditions and any other characteristics or terms of
the Options as the Committee shall deem necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided, however,
that the Committee may limit any such adjustment so as to maintain the
deductibility of the Options under Section 162(m) and that any fractional
shares resulting from such adjustment shall be eliminated by rounding to the
next lower whole number of shares with appropriate payment for such
fractional shares as shall reasonably be determined by the Committee.

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ARTICLE V

ELIGIBILITY

5.1 ELIGIBILITY. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Options shall be those
persons who are directors, officers, and employees of the Company or any
subsidiary of the Company, who shall be in a position, in the opinion of the
Committee, to make contributions to the growth, management, protection and
success of the Company and its subsidiaries. Of those persons described in
the preceding sentence, the Committee may, from time to time, select persons
to be granted Options and shall determine the terms and conditions with
respect thereto. In making any such selection and in determining the form of
the Option, the Committee may give consideration to the person's functions
and responsibilities, the person's contributions to the Company and its
subsidiaries, the value of the individual's service to the Company and its
subsidiaries and such other factors deemed relevant by the Committee. The
Committee may designate in writing any person who is not eligible to
participate in the Plan if such person would otherwise be eligible to
participate in this Plan (and members of the Committee are expressly excluded
from participation in the Plan).

ARTICLE VI

STOCK OPTIONS

6.1 GENERAL. The Committee shall have authority to grant Stock Options
under the Plan at any time or from time to time. Stock Options may be either
Incentive Stock Options or Non-Qualified Stock Options. An Option shall
entitle the Participant to receive shares of Common Stock upon exercise of
such Option, subject to the Participant's satisfaction in full of any
conditions, restrictions or limitations imposed in accordance with the Plan
or an Option Agreement (the terms and provisions of which may differ from
other Agreements), including, without limitation, payment of the Option
Price. During any calendar year, Options to purchase no more than 100,000
shares of Common Stock shall be granted to any Participant.

6.2 GRANT AND EXERCISE. The grant of a Stock Option shall occur as of
the date the Committee determines. Each Option granted under this Plan shall
be evidenced by an Agreement, in a form approved by the Committee, which
shall embody the terms and conditions of such Option and which shall be
subject to the express terms and conditions set forth in the Plan. Such
Agreement shall become effective upon execution by the Participant. Only a
person who is a common-law employee of the Company, any parent corporation of
the Company or a subsidiary (as such terms are defined in Section 424 of the
Code) on the date of grant shall be

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eligible to be granted an Option which is intended to be and is an Incentive
Stock Option. To the extent that any Stock Option is not designated as an
Incentive Stock Option or even if so designated does not qualify as an
Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be exercised, so
as to disqualify the Plan under Section 422 of the Code or, without the
consent of the Participant affected, to disqualify any Incentive Stock Option
under such Section 422.

6.3 TERMS AND CONDITIONS. Stock Options shall be subject to such terms
and conditions as shall be determined by the Committee, including the
following:

(a) OPTION PERIOD. The Option Period of each Stock Option shall be
fixed by the Committee; provided that no Stock Option shall be exercisable
more than ten (10) years after the date the Stock Option is granted. In
the case of an Incentive Stock Option granted to an individual who owns
more than ten percent (10%) of the combined voting power of all classes of
stock of the Company, a corporation which is a parent corporation of the
Company or any subsidiary of the Company (each as defined in Section 424 of
the Code), the Option Period shall not exceed five (5) years from the date
of grant. No Option which is intended to be an Incentive Stock Option
shall be granted more than ten (10) years from the date the Plan is adopted
by the Company or the date the Plan is approved by the stockholders of the
Company, whichever is earlier.

(b) OPTION PRICE. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Committee; provided,
however, that the Option Price per share shall be not less than the Fair
Market Value per share on the date the Option is granted. If such Option
is intended to qualify as an Incentive Stock Option and is granted to an
individual who owns or who is deemed to own stock possessing more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company, a corporation which is a parent corporation of the Company or any
subsidiary of the Company (each as defined in Section 424 of the Code), the
Option Price per share shall not be less than one hundred ten percent
(110%) of such Fair Market Value per share.

(c) EXERCISABILITY. Subject to Section 7.1, Stock Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that
any Stock Option is exercisable only in installments, the Committee may, to
the extent such waiver will not cause the Option income to fail to be
deductible under Section 162 (m), at any time waive such installment
exercise provisions, in whole or in part, and, subject to the foregoing,
may at any time accelerate

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the exercisability of any Stock Option. If the Committee intends that
an Option be an Incentive Stock Option, the Committee may, in its
discretion, provide that the aggregate Fair Market Value (determined
at the Grant Date) of the Common Stock as to which such Incentive Stock
Option which is exercisable for the first time during any calendar year
shall not exceed $100,000.

(d) METHOD OF EXERCISE. Subject to the provisions of this Article
VI, a Participant may exercise Stock Options, in whole or in part, at any
time during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Such notice shall be accompanied by payment in full of
the purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the Committee, payment in full or in
part may also be made (i) by delivering Common Stock already owned by the
Participant having a total Fair Market Value on the date of such delivery
equal to the Option Price; (ii) by the execution and delivery of a note or
other evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee and permitted in accordance with
Section 6.3(e); (iii) by authorizing the Company to retain shares of Common
Stock which would otherwise be issuable upon exercise of the Option having
a total Fair Market Value on the date of delivery equal to the Option
Price; (iv) by the delivery of cash or the extension of credit by a broker-
dealer to whom the Participant has submitted a notice of exercise or
otherwise indicated an intent to exercise an Option (in accordance with
Part 220, Chapter II, Title 12 of the Code of Federal Regulations,
so-called "cashless" exercise); or (v) by any combination of the foregoing.
In the case of an Incentive Stock Option, the right to make a payment in
the form of already owned shares of Common Stock of the same class as the
Common Stock subject to the Stock Option may be authorized only at the time
the Stock Option is granted. No shares of Common Stock shall be issued
until full payment therefor, as determined by the Committee, has been made.

(e) COMPANY LOAN OR GUARANTEE. Upon the exercise of any Option and
subject to the pertinent Agreement and the discretion of the Committee, the
Company may at the request of the Participant:

(i) lend to the Participant an amount equal to such portion of
the Option Price as the Committee may determine; or

(ii) guarantee a loan obtained by the Participant from a third-
party for the purpose of tendering the Option Price.

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The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except that
no extension of credit or guarantee shall obligate the Company for an
amount to exceed the lesser of the aggregate Fair Market Value per share of
the Common Stock on the date of exercise, less the par value of the shares
of Common Stock to be purchased upon the exercise of the Option, or the
amount permitted under applicable laws or the regulations and rules of the
Federal Reserve Board and any other governmental agency having
jurisdiction.

(f) NON-TRANSFERABILITY OF OPTIONS. Except as provided herein or in
an Agreement, no Stock Option or interest therein shall be transferable by
the Participant other than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable during the
Participant's lifetime only by the Participant. If and to the extent
transferability is permitted by Rule 16b-3 or does not result in liability
to any Participant and except as otherwise provided by an Agreement, every
Option granted hereunder shall be freely transferable, but only if such
transfer is consistent with the use of Form S-8 (or the Committee's waiver
of such condition) and consistent with an Option's intended status as an
Incentive Stock Option (as applicable).

6.4 TERMINATION BY REASON OF DEATH. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of ninety
(90) days following the date of the appointment of a Representative (or such
other period or no period as the Committee may specify) or until the expiration
of the Option Period, whichever period is the shorter.

6.5 TERMINATION BY REASON OF DISABILITY. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of ninety (90) days (or such other period or no
period as the Committee may specify) immediately following the date of such
Termination of Employment or until the expiration of the Option Period,
whichever period is shorter, and the Participant's death at any time following
such Termination of Employment due to Disability shall not affect the foregoing.
In the event of Termination of Employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.

6.6 OTHER TERMINATION. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of
Employment due

P-14

<PAGE>

to Retirement, or the Termination of Employment is involuntary on the part of
the Participant (but is not due to death or Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the ninety (90) day period commencing with the date of such
Termination of Employment or until the expiration of the Option Period. If
the Participant incurs a Termination of Employment which is voluntary on the
part of the Participant (and is not due to Retirement) the Option shall
terminate 30 days after such Termination. If the Participant's Termination
of Employment is for Cause, the Option shall terminate immediately. The
death or Disability of a Participant after a Termination of Employment
otherwise provided herein shall not extend the time permitted to exercise an
Option.

6.7 CASHING OUT OF OPTION. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of any Stock
Option with respect to which Option at least six months have elapsed since
the Grant Date (provided that such limitation shall not apply to an Option
granted to a Participant who has subsequently died) to be exercised by paying
the Participant an amount, in cash or Common Stock, equal to the excess of
the Fair Market Value of the Common Stock that is subject to the Option over
the Option Price times the number of shares of Common Stock subject to the
Option on the effective date of such cash-out. Cash-outs relating to Options
held by Participants who are actually or potentially subject to Section 16(b)
of the Exchange Act shall comply with the provisions of Rule 16b-3, to the
extent applicable, and, in the case of cash-outs of Non-Qualified Stock
Options held by such Participants, the Committee may determine Fair Market
Value under the pricing rule set forth in the Plan.

6.8 DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Common Stock, or other property equal in value to dividends paid with
respect to a specified number of shares of Common Stock under Option. The
Committee may provide that Dividend Equivalents will be paid or distributed
when accrued or will be deemed to have been reinvested in additional Common
Stock, or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.

ARTICLE VII

PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN

7.1 LIMITED TRANSFER DURING OFFERING. In the event there is an
effective registration statement under the Securities Act pursuant to which
shares of Common Stock shall be offered for sale in an underwritten offering,
a Participant shall not, during the period requested by the underwriters
managing the registered public

P-15

<PAGE>

offering, effect any public sale or distribution of shares received directly
or indirectly pursuant to an exercise of an Option.

7.2 COMMITTEE DISCRETION. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a
Participant's shares of Common Stock received upon the exercise of an Option
(including the purchase of any unexercised Options which have not expired),
or may obligate a Participant to sell shares of Common Stock to the Company,
upon such terms and conditions as the Committee may determine and set forth
in an Agreement. The provisions of this Article VII shall be construed by
the Committee in its sole discretion, and shall be subject to such other
terms and conditions as the Committee may from time to time determine.
Notwithstanding any provision herein to the contrary, the Company may upon
determination by the Committee assign its right to purchase shares of Common
Stock under this Article VII, whereupon the assignee of such right shall have
all the rights, duties and obligations of the Company with respect to
purchase of the shares of Common Stock.

7.3 NO COMPANY OBLIGATION. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Common Stock or an Option, and such holder
shall have no right to be advised of, any material information regarding the
Company or any Affiliate at any time prior to, upon or in connection with
receipt or the exercise of an Option or the Company's purchase of Common
Stock or an Option from such holder in accordance with the terms hereof.

ARTICLE VIII

CHANGE IN CONTROL PROVISIONS

8.1 IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, unless otherwise provided in an Agreement, in the event of a
Change in Control (as defined in Section 8.2):

(a) Any Stock Options outstanding as of the date of such Change in
Control and not then exercisable shall become fully exercisable to the full
extent of the original grant;

(b) Notwithstanding any other provision of the Plan, unless the
Committee shall provide otherwise in an Agreement, a Participant shall have
the right, whether or not the Option is fully exercisable or may be
otherwise realized by the Participant, by giving notice during the 60-day
period from and after a Change in Control to the Company, to elect to
surrender all or part of an Option to the Company and to receive cash,
within 30 days of such notice,

P-16

<PAGE>

in an amount equal to the amount by which the "Change in Control Price"
(as defined in Section 8.3) per share of Common Stock on the date of
such election shall exceed the amount which the Participant must pay to
exercise the Option per share of Common Stock under the Option (the
"Spread") multiplied by the number of shares of Common Stock granted
under the Option as for which the right shall have been exercised;
provided, however, that if the end of such 60-day period from and
after a Change in Control is within six months of the date of grant of
the Option held by a Participant (except a Participant who has died during
such six-month period) who is an officer or director of the Company (within
the meaning of Section 16(b) of the Exchange Act), such Option shall be
cancelled in exchange for a payment to the Participant, effective on the
day which is six months and one day after the date of grant of such Option,
equal to the Spread multiplied by the number of shares of Common Stock
granted under the Option, plus interest on such amount at the prime rate as
reported from time to time in THE WALL STREET JOURNAL, compounded annually
and determined from time to time. With respect to any Participant who is
an officer or director of the Company (within the meaning of Section 16(b)
of the Exchange Act), the 60-day period shall be extended, if necessary, on
or after the date of the Change in Control, and the Committee shall have
sole discretion, if necessary, to approve the Participant's exercise
hereunder and the date on which the Spread is calculated may be adjusted,
if necessary, to a later date if necessary to avoid liability to such
Participant under Section 16(b).

8.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Plan, a
"Change in Control" shall be deemed to have occurred if (a) any corporation,
person or other entity (other than the Company, a majority-owned subsidiary
of the Company or any of its subsidiaries, an employee benefit plan (or
related trust) sponsored or maintained by the Company, or a "Permitted
Transferee" (as "Permitted Transferee" is defined the Company's Certificate
of Incorporation)), including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, becomes the beneficial owner of
stock representing more than the greater of (i) twenty-five percent (25%) of
the combined voting power of the Company's then outstanding securities or
(ii) the percentage of the combined voting power of the Company's then
outstanding securities which equals (A) ten percent (10%) plus (B) the
percentage of the combined voting power of the Company's outstanding
securities held by such corporation, person or entity on the Effective Date;
(b)(i) the stockholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation other than
a majority-owned subsidiary of the Company, or to sell or otherwise dispose
of all or substantially all of the Company's assets, and (ii) the persons who
were the members of the Board of Directors of the Company prior to such
approval do not represent a majority of the directors of the surviving,
resulting or acquiring entity or the parent thereof; (c) the stockholders of
the Company approve a plan of liquidation of the Company; or (d) within any
period of 24 consecutive

P-17

<PAGE>

months, persons who were members of the Board of Directors of the Company
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a
proxy or consent solicitation contest or any action taken to avoid such a
contest) during such 24-month period by or upon the recommendation of persons
who were members of the Board of Directors of the Company immediately prior
to such 24-month period and who constituted a majority of the Board of
Directors of the Company at the time of such election, cease to constitute a
majority of the Board.

8.3 CHANGE IN CONTROL PRICE. For purposes of the Plan, "Change in
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on the principal exchange
on which such shares are listed or on NASDAQ during the 60-day period prior
to and including the date of a Change in Control or (b) if the Change in
Control is the result of a tender or exchange offer, merger, consolidation,
liquidation or sale of all or substantially all of the assets of the Company
(in each case a "Corporate Transaction"), the highest price per share of
Common Stock paid in such Corporate Transaction, except that, in the case of
Incentive Stock Options relating to Incentive Stock Options, such price shall
be based only on the Fair Market Value of the Common Stock on the date any
such Incentive Stock Option is exercised. To the extent that the
consideration paid in any such Corporate Transaction consists all or in part
of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Committee.

ARTICLE IX

MISCELLANEOUS

9.1 AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would (a) impair the rights of a
Participant under a Stock Option, theretofore granted without the
Participant's consent, except such an amendment made to cause the Plan to
qualify for the exemption provided by Rule 16b-3 or (b) disqualify the Plan
from the exemption provided by Rule 16b-3. In addition, no such amendment
shall be made without the approval of the Company's stockholders to the
extent such approval is required by law or agreement.

The Committee may amend the Plan at any time provided that (a) no
amendment shall impair the rights of any Participant under any Option
theretofore granted without the Participant's consent, (b) no amendment shall
disqualify the Plan from the exemption provided by Rule 16b-3, and (c) any
amendment shall be subject to the approval or rejection of the Board.

P-18

<PAGE>

The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights
of any Participant without the Participant's consent or reduce an Option
Price, except such an amendment made to cause the Plan or Option to qualify
for the exemption provided by Rule 16b-3.

Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Options which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would
cause a transaction to be ineligible for pooling of interest accounting that
would, but for the right hereunder, be eligible for such accounting
treatment, the Committee may modify or adjust the right so that pooling of
interest accounting shall be available, including the substitution of Common
Stock having a Fair Market Value equal to the cash otherwise payable
hereunder for the right which caused the transaction to be ineligible for
pooling of interest accounting.

9.2 STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE OPTIONS. Options
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Option or any Option granted under another plan of
the Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Such additional, tandem, and
substitute or exchange Options may be granted at any time. If an Option is
granted in substitution or exchange for another Option or award, the
Committee shall require the surrender of such other Option or award in
consideration for the grant of the new Option. In addition, Options may be
granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any subsidiary, in which the Fair
Market Value of Common Stock subject to the Option is equivalent in value to
the cash compensation, or in which the exercise price, grant price or
purchase price of the Option in the nature of a right that may be exercised
is equal to the Fair Market Value of the underlying Common Stock minus the
value of the cash compensation surrendered.

9.3 FORM AND TIMING OF PAYMENT UNDER OPTIONS; DEFERRALS. Subject to
the terms of the Plan and any applicable Agreement, payments to be made by
the Company or an Affiliate upon the exercise of an Option or settlement of
an Option may be made in such forms as the Committee shall determine,
including, without limitation, cash, Common Stock, other Options or other
property, and may be made in a single payment or transfer, in installments,
or on a deferred basis. The settlement of any Option may be accelerated, and
cash paid in lieu of Common Stock in connection with such settlement, in the
discretion of the Committee or upon occurrence of one or more specified
events (in addition to a Change in Control).

P-19

<PAGE>

Installment or deferred payments may be required by the Committee (subject to
Section 9.1 of the Plan) or permitted at the election of the Participant.
Payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or the
granting or crediting of Dividend Equivalents in respect of installment or
deferred payments denominated in Common Stock.

9.4 STATUS OF OPTIONS UNDER CODE SECTION 162(m). It is the intent of
the Company that Options granted to persons who are Covered Employees within
the meaning of Code Section 162(m) shall constitute "qualified
performance-based compensation" satisfying the requirements of Code Section
162(m). Accordingly, the provisions of the Plan shall be interpreted in a
manner consistent with Code Section 162(m). If any provision of the Plan or
any agreement relating to such an Option does not comply or is inconsistent
with the requirements of Code Section 162(m), such provision shall be
construed or deemed amended to the extent necessary to conform to such
requirements.

9.5 UNFUNDED STATUS OF PLAN; LIMITS ON TRANSFERABILITY. It is intended
that the Plan be an "unfunded" plan for incentive and deferred compensation.
The Committee may authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver Common Stock or make
payments; provided, however, that, unless the Committee otherwise determines,
the existence of such trusts or other arrangements is consistent with the
"unfunded" status of the Plan. Unless otherwise provided in this Plan or in
an Agreement, no Option shall be subject to the claims of a Participant's
creditors and no Option may be transferred, assigned, alienated or encumbered
in any way other than by will or the laws of descent and distribution or to a
Representative upon the death of the Participant.

9.6 GENERAL PROVISIONS.

(a) REPRESENTATION. The Committee may require each person purchasing
or receiving shares pursuant to an Option to represent to and agree with
the Company in writing that such person is acquiring the shares without a
view to the distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.

(b) NO ADDITIONAL OBLIGATION. Nothing contained in the Plan shall
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.

(c) WITHHOLDING. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Option, the Participant shall pay
to the Company

P-20

<PAGE>

(or other entity identified by the Committee), or make arrangements
satisfactory to the Company or other entity identified by the Committee
regarding the payment of, any Federal, state, local or foreign taxes of
any kind required by law to be withheld with respect to such amount
required in order for the Company or an Affiliate to obtain a current
deduction. If the Participant disposes of shares of Common Stock
acquired pursuant to an Incentive Stock Option in any transaction
considered to be a disqualifying transaction under the Code, the
Participant must give written notice of such transfer and the Company shall
have the right to deduct any taxes required by law to be withheld from any
amounts otherwise payable to the Participant. Unless otherwise determined
by the Committee, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Option that gives rise to the
withholding requirement, provided that any applicable requirements under
Section 16 of the Exchange Act are satisfied. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the Participant.

(d) REINVESTMENT. The reinvestment of dividends in additional Common
Stock at the time of any dividend payment shall be permissible only if
sufficient shares of Common Stock are available under the Plan for such
reinvestment (taking into account then outstanding Options).

(e) REPRESENTATION. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.

(f) CONTROLLING LAW. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Illinois (other than its law respecting choice of law).
The Plan shall be construed to comply with all applicable law and to avoid
liability to the Company, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.

(g) OFFSET. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.

P-21

<PAGE>

(h) FAIL SAFE. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Options) shall be deemed to be
incorporated by reference into the Plan with respect to Participants
subject to Section 16.

9.7 MITIGATION OF EXCISE TAX. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 9.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the
largest amount or greatest right that will result in no portion of the amount
payable or right accruing under the Plan being subject to an excise tax under
Section 4999 of the Code or being disallowed as a deduction under Section
280G of the Code. The determination of whether any reduction in the rights or
payments under this Plan is to apply shall be made by the Committee in good
faith after consultation with the Participant, and such determination shall
be conclusive and binding on the Participant. The Participant shall
cooperate in good faith with the Committee in making such determination and
providing the necessary information for this purpose. The foregoing
provisions of this Section 9.7 shall apply with respect to any person only
if, after reduction for any applicable Federal excise tax imposed by Section
4999 of the Code and Federal income tax imposed by the Code, the Total
Payments accruing to such person would be less than the amount of the Total
Payments as reduced, if applicable, under the foregoing provisions of the
Plan and after reduction for only Federal income taxes.

9.8 RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT. Nothing
contained herein shall be deemed to alter the relationship between the
Company or an Affiliate and a Participant, or the contractual relationship
between a Participant and the Company or an Affiliate if there is a written
contract regarding such relationship. Nothing contained herein shall be
construed to constitute a contract of employment between the Company or an
Affiliate and a Participant. The Company or an Affiliate and each of the
Participants continue to have the right to terminate the employment or
service relationship at any time for any reason, except as provided in a
written contract.

9.9 OPTIONS IN SUBSTITUTION FOR OPTIONS GRANTED BY OTHER CORPORATIONS.
Options may be granted under the Plan from time to time in substitution for
awards held by employees, directors or service providers of other
corporations who are about

P-22

<PAGE>

to become officers, directors or employees of the Company or an Affiliate as
the result of a merger or consolidation of the employing corporation with the
Company or an Affiliate, or the acquisition by the Company or an Affiliate of
the assets of the employing corporation, or the acquisition by the Company or
Affiliate of the stock of the employing corporation, as the result of which
it becomes a designated employer under the Plan. The terms and conditions of
the Options so granted may vary from the terms and conditions set forth in
this Plan at the time of such grant as the majority of the members of the
Committee may deem appropriate to conform, in whole or in part, to the
provisions of the awards in substitution for which they are granted.

9.10 PROCEDURE FOR ADOPTION. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the
Board of Directors and subject to such conditions as may be imposed by the
Board of Directors, adopt the Plan for the benefit of its employees as of the
date specified in the board resolution.

9.11 PROCEDURE FOR WITHDRAWAL. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such Affiliate, with the
consent of the Board of Directors and subject to such conditions as may be
imposed by the Board of Directors, terminate its adoption of the Plan.

9.12 DELAY. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in
Control, the Participant is subject to "short-swing" liability under Section
16 of the Exchange Act, any time period provided for under the Plan or an
Agreement to the extent necessary to avoid the imposition of liability shall
be suspended and delayed during the period the Participant would be subject
to such liability, but not more than six (6) months and one (1) day and not
to exceed the Option Period, whichever is shorter. The Company shall have
the right to suspend or delay any time period described in the Plan or an
Agreement if the Committee shall determine that the action may constitute a
violation of any law or result in liability under any law to the Company, an
Affiliate or a stockholder of the Company until such time as the action
required or permitted shall not constitute a violation of law or result in
liability to the Company, an Affiliate or a stockholder of the Company. The
Committee shall have the discretion to suspend the application of the
provisions of the Plan required solely to comply with Rule 16b-3 if the
Committee shall determine that Rule 16b-3 does not apply to the Plan.

9.13 HEADINGS. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.

9.14 SEVERABILITY. If any provision of this Plan shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and this Plan shall be construed
as if such invalid or unenforceable provision were omitted.

P-23

<PAGE>

9.15 SUCCESSORS AND ASSIGNS. This Plan shall inure to the benefit of
and be binding upon each successor and assign of the Company. All
obligations imposed upon a Participant, and all rights granted to the Company
hereunder, shall be binding upon the Participant's heirs, legal
representatives and successors.

9.16 ENTIRE AGREEMENT. This Plan and the Agreement constitute the
entire agreement with respect to the subject matter hereof and thereof,
provided that in the event of any inconsistency between the Plan and the
Agreement, the terms and conditions of this Plan shall control.

P-24

<PAGE>

Executed on this 11th day of February, 1997.

ZEBRA TECHNOLOGIES CORPORATION

By: /s/ Edward L. Kaplan
-------------------------
Edward L. Kaplan
Chief Executive Officer

P-25

<PAGE>
EXHIBIT 21

SUBSIDIARIES OF REGISTRANT

Zebra Technologies Corporation, V.I. Ltd., a U.S. Virgin Islands corporation

ZIH Corp., a Delaware corporation

Zebra Technologies Europe Limited, a U.K. limited liability company

Zebra Technologies Preston Limited, a U.K. limited liability company

Zebra International Intangibles, Inc., a Delaware corporation

Zebra Domestic Intangibles, Inc., a Delaware corporation

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZEBRA
TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT
DECEMBER 31, 1997 AND CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7155
<SECURITIES> 121698
<RECEIVABLES> 32820
<ALLOWANCES> (1788)
<INVENTORY> 22443
<CURRENT-ASSETS> 187478
<PP&E> 27397
<DEPRECIATION> (14644)
<TOTAL-ASSETS> 203584
<CURRENT-LIABILITIES> 22572
<BONDS> 0
0
0
<COMMON> 243
<OTHER-SE> 179308
<TOTAL-LIABILITY-AND-EQUITY> 203584
<SALES> 188895
<TOTAL-REVENUES> 192071
<CGS> 92678
<TOTAL-COSTS> 93871
<OTHER-EXPENSES> 44566
<LOSS-PROVISION> 859
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 66734
<INCOME-TAX> 23924
<INCOME-CONTINUING> 42810
<DISCONTINUED> (2655)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40155
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.65

</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY INFORMATION EXTRACTED FROM ZEBRA
TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT
DECEMBER 31, 1996 AND 1995, AND CONSOLIDATED STATEMENTS OF EARNINGS FOR THE
YEARS ENDED DECEMBER 31, 1996 AND 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS.
</LEGEND>
<RESTATED>

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 5168 10017
<SECURITIES> 89372 61841
<RECEIVABLES> 32591 25237
<ALLOWANCES> (960) (350)
<INVENTORY> 21503 20365
<CURRENT-ASSETS> 150246 119276
<PP&E> 22124 16016
<DEPRECIATION> (10796) (7697)
<TOTAL-ASSETS> 164386 131071
<CURRENT-LIABILITIES> 20193 19443
<BONDS> 0 0
0 0
0 0
<COMMON> 242 242
<OTHER-SE> 140214 107765
<TOTAL-LIABILITY-AND-EQUITY> 164386 131071
<SALES> 161024 142877
<TOTAL-REVENUES> 163980 145348
<CGS> 84273 75213
<TOTAL-COSTS> 85302 76241
<OTHER-EXPENSES> 37044 29054
<LOSS-PROVISION> 603 72
<INTEREST-EXPENSE> 11 (3)
<INCOME-PRETAX> 47389 45425
<INCOME-TAX> 16536 15851
<INCOME-CONTINUING> 30853 29574
<DISCONTINUED> (1938) (7010)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 28915 22564
<EPS-PRIMARY> 1.19 .94
<EPS-DILUTED> 1.19 .93

</TABLE>