EX-99.1 2 dex991.htm PRELIMINARY INFORMATION STATEMENT OF MOTOROLA SPINCO HOLDINGS CORPORATION Preliminary Information Statement of Motorola SpinCo Holdings Corporation
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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

Preliminary Information Statement

(Subject to Completion, Dated July 1, 2010)

Information Statement

Distribution of Common Stock of

Motorola SpinCo Holdings Corporation

by

MOTOROLA, INC.

to Motorola, Inc. Stockholders

This Information Statement is being furnished in connection with Motorola, Inc.’s distribution of all of the shares of Motorola SpinCo Holdings Corporation (“Motorola SpinCo Holdings Corporation,” “Motorola SpinCo” or the “Company”) common stock owned by Motorola, Inc., which will be 100% of Motorola SpinCo’s common stock outstanding immediately prior to the distribution. Motorola SpinCo is a wholly owned subsidiary of Motorola, Inc. that at the time of the distribution will hold, through its subsidiaries, the assets and liabilities associated with Motorola, Inc.’s mobile devices (“Mobile Devices”) and home (“Home”) businesses. The main U.S. operating subsidiary of Motorola SpinCo will be Motorola Mobility, Inc. To implement the distribution, Motorola, Inc. will distribute the shares of Motorola SpinCo common stock on a pro rata basis to the holders of Motorola, Inc. common stock. Each of you, as a holder of Motorola, Inc. common stock, will receive [] share of common stock of Motorola SpinCo for each share of Motorola, Inc. common stock that you held at the close of business on [], 201[], the record date for the distribution. The distribution will be made in book-entry form. Motorola, Inc. will not distribute any fractional shares of Motorola SpinCo. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing rates and distribute the net cash from proceeds from the sales pro rata to each holder who would otherwise have been entitled to receive fractional shares in the distribution.

The distribution will be effective as of [], 201[]. Immediately after the distribution is completed, Motorola SpinCo will be an independent, publicly traded company. It is expected that the distribution will be tax-free to Motorola, Inc. stockholders for U.S. federal income tax purposes, except to the extent cash is received in lieu of fractional shares.

Please refer to the “Note Regarding the Use of Certain Terms” for a description of how we refer to Motorola, Inc. and Motorola SpinCo in this Information Statement.

We are not asking you for a proxy and you are requested not to send us a proxy.

No vote of Motorola, Inc. stockholders is required in connection with this distribution. You are not required to send us a proxy card. Motorola, Inc. stockholders will not be required to pay any consideration for the shares of Motorola SpinCo common stock they receive in the distribution, and they will not be required to surrender or exchange shares of their Motorola, Inc. common stock or take any other action in connection with the distribution. From and after the distribution, certificates representing Motorola, Inc. common stock will continue to represent Motorola, Inc. common stock, which at that point will include the remaining businesses of Motorola, Inc.

All of the outstanding shares of Motorola SpinCo’s common stock are currently owned by Motorola, Inc. Accordingly, there currently is no public trading market for our common stock. We intend to file an application to list our common stock under the ticker symbol “[]” on the New York Stock Exchange (“NYSE”). Assuming that Motorola SpinCo’s common stock is approved for listing, we anticipate that a limited market, commonly known as a “when-issued” trading market, for Motorola SpinCo’s common stock will develop on or shortly before the record date for the distribution and will continue up to and including through the distribution date, and we anticipate that the “regular-way” trading of Motorola SpinCo’s common stock will begin on the first trading day following the distribution date.

In reviewing this Information Statement, you should carefully consider the matters described in the section entitled “ Risk Factors” beginning on page 13 of this Information Statement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of any of the securities of Motorola SpinCo Holdings Corporation or determined whether this Information Statement is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

This Information Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 

 

The date of this Information Statement is                    , 2010.

This Information Statement was first mailed to Motorola, Inc. stockholders on or about                , 2010.

 

 


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TABLE OF CONTENTS

 

     Page

Summary

   1

Our Business

   1

The Separation

   2

Questions and Answers About Motorola SpinCo and the Separation

   3

Summary of the Separation and Distribution

   8

Selected Financial Data

   12

Risk Factors

   13

Risks Relating to Our Business

   13

Risks Relating to the Separation

   29

Risks Relating to Our Common Stock

   35

Forward-Looking Statements

   37

The Separation

   39

General

   39

Reasons for the Separation

   39

Formation of a Holding Company Prior to Our Distribution

   40

The Number of Shares You Will Receive

   40

Treatment of Fractional Shares

   40

When and How You Will Receive the Dividend

   41

Treatment of Equity-Based Compensation

   41

Treatment of 401(k) Shares for Current and Former Employees

   42

Results of the Distribution

   43

Certain U.S. Federal Income Tax Consequences of the Distribution

   43

Market for Common Stock

   45

Trading Between the Record Date and Distribution Date

   45

Conditions to the Distribution

   46

Reason for Furnishing This Information Statement

   47

Dividend Policy

   47

Capitalization

   48

Business

   49

General

   49

Business Segments

   50

Other Information

   57

Legal Proceedings

   61

Management

   64

Compensation Discussion and Analysis

   71

Named Executive Officer Compensation

   93

Employment Contracts, Termination of Employment and Change in Control Arrangements

   103

Security Ownership of Management, Directors and Principal Stockholders

   112

Certain Relationships and Related Party Transactions

   114

The Separation from Motorola, Inc.

   114

Related Party Transactions

   114

Agreements with Motorola, Inc.

   115

Description of Capital Stock

   122


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     Page

Where You Can Find More Information

   126

Unaudited Pro Forma Condensed Combined Financial Statements

   127

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   132

Introduction

   132

Separation from Motorola, Inc.

   132

Executive Overview

   133

Looking Forward

   136

Basis of Presentation

   137

Results of Operations

   138

Three Months Ended April 3, 2010 and April 4, 2009

   138

Combined Business Results

   138

Segment Results

   140

Reorganization of Businesses

   142

Liquidity and Capital Resources

   145

Years Ended December 31, 2009, 2008 and 2007

   149

Combined Business Results

   149

Segment Results

   154

Reorganization of Businesses

   158

Liquidity and Capital Resources

   161

Critical Accounting Policies

   166

Quantitative and Qualitative Disclosures About Market Risk

   176

Index to Financial Statements

   F-1


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NOTE REGARDING THE USE OF CERTAIN TERMS

We use the following terms to refer to the entities indicated:

“We,” “us,” “our,” “our Company,” “the Company” and “Motorola SpinCo” refer to Motorola SpinCo Holdings Corporation, the entity that at the time of the distribution will hold, through its subsidiaries, the assets and liabilities associated with the Mobile Devices and Home businesses of Motorola, Inc. and whose shares will be distributed in the distribution. Where appropriate in context, the foregoing terms also include the subsidiaries of this entity.

“Motorola Mobility, Inc.” is the main U.S. wholly owned operating subsidiary of Motorola SpinCo Holdings Corporation.

“Separation” or “separation” refers to the separation of the Mobile Devices and Home businesses from the Enterprise Mobility Solutions and Networks businesses of Motorola, Inc. and the creation of an independent, publicly traded company holding the Mobile Devices and Home businesses through a distribution of Motorola SpinCo Holdings Corporation shares to the Motorola, Inc. stockholders as of the record date.

“Distribution” or “distribution” refers to the distribution of all of the shares of Motorola SpinCo Holdings Corporation common stock owned by Motorola, Inc. to stockholders of Motorola, Inc. as of the record date.

“Distribution Date” means the date on which the Distribution occurs.

For reference, acronyms used in this document are defined in the below table.

 

2G

   Second Generation Cellular

3G

   Third Generation Cellular

3D-TV

   Three Dimensional Television

4G

   Fourth Generation Cellular

802.11

   Wireless Local Area Network Set of Standards

ARPU

   Average Revenue Per User

ASP

   Average Selling Price

ATSC

   Advanced Television Systems Committee

CAGR

   Compound Annual Growth Rate

CD&A

   Compensation Discussion and Analysis

CDMA

   Code Division Multiple Access

CMTS

   Cable Modem Termination System

CPE

   Customer Premises Equipment

DGCL

   Delaware General Corporation Law

DOCSIS

   Data Over Cable Service Interface Specification

DRM

   Digital Rights Management

DSL

   Digital Subscriber Line

DSU

   Deferred Stock Units

DVR

   Digital Video Recorder

EMEA

   Europe, Middle East and Africa

ESP

   Estimated Selling Price

ExSP

   Executive Severance Plan

EVDO

   Evolution Data Optimized

FASB

   Financial Accounting Standards Board

FCC

   Federal Communications Commission

FOU

   Field of Use

Gbps

   Gigabits per second

GSM

   Global System for Mobile Communications (cellular telephone standard based on European specifications; ETSI 2nd generation standard)


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H.264

   Standard for Video Compression

HD

   High Definition

HD DVR

   High Definition Digital Video Recorder

HDTV

   High Definition Television

HSDPA

   High Speed Downlink Packet Access

HSUPA

   High Speed Uplink Packet Access

HSOPA

   High Speed Orthogonal Frequency—Division Multiplexing Packet Access

HSxPA

   A generic term referencing either HSDPA, HSUPA, or HSOPA

iDEN

   Integrated Digital Enhanced Network

IMS

   IMS Research

IRD

  

Integrated Receiver Decoder

IP

   Internet Protocol

IPTV

   Internet Protocol Television

IRS

   Internal Revenue Service

ITC

   International Trade Commission

LRIP

   Long-Range Incentive Plan

LTE

   Long-Term Evolution

LTI

   Long-Term Incentive Compensation

Mbps

   Megabits Per Second

MDb

   Mobile Devices business

MIP

   Motorola, Inc. Incentive Plan

MotoDEV

   Motorola Developer Network

MSPP

   Motorola Supplemental Pension Plan

MP3

   Moving Picture Experts Group Format for Audio Layer 3

MPEG

   Moving Picture Experts Group

MPEG-2

   A standard developed by MPEG

MPEG-4

   A standard developed by MPEG

MVPD

   Multichannel Video Programming Distributor

NEO

   Named Executive Officer

NFC

   Near Field Communication

NYSE

   New York Stock Exchange

ODM

   Original Design Manufacturer

OLT

   Optical Line Terminal

OMA

   Open Mobile Alliance

OTT

   Over-the-Top

PON

   Passive Optical Networks

R&D

   Research and Development

RF

  

Radio Frequency

RSU

  

Restricted Stock Unit

SAR

   Stock Appreciation Right

SD

   Standard Definition

SEC

   Securities and Exchange Commission

SG&A

   Selling, General and Administrative

TPE

   Third-Party Evidence of Selling Price

TSR

   Total Shareholder Return

TV

   Television

UI

   User Interface

UK

   United Kingdom

U.S.

   United States

USPTO

   United States Patent and Trademark Office

VIE

   Variable Interest Entity

VOD

   Video-on-Demand

VSOE

   Vendor-Specific Objective Evidence of Selling Price

WiFi

   Wireless Fidelity


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TRADEMARKS AND SERVICE MARKS

Motorola SpinCo Holdings Corporation and Motorola, Inc. logos and the other trademarks, trade names, and service marks mentioned in this Information Statement are currently the property of, and are used with the permission of, Motorola, Inc. Prior to the Separation, certain logos and other trademarks, trade names and service marks, including “MOTOROLA” and the Stylized M logo, and all derivatives and formatives such as “MOTO,” (“Motorola Marks”) as well as other trademarks used exclusively by Motorola SpinCo will be transferred to, and become the property of, Motorola SpinCo Holdings Corporation or its subsidiaries. Motorola, Inc. will retain the exclusive right, pursuant to a trademark license agreement, to use the Motorola Marks on a royalty-free basis for use in connection with its business. Motorola, Inc. will also retain ownership of certain other trademarks used exclusively by Motorola, Inc.

MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. DROID is a trademark of Lucasfilm Ltd. and its related companies. Used under license. GOOGLE and ANDROID are trademarks of Google Inc. All other product or service names are the property of their respective owners. © 2010, Motorola, Inc. All rights reserved.

INDUSTRY AND MARKET DATA

In this Information Statement, we rely on and refer to information and statistics regarding the wireless mobile device and home industries. We obtained this data from independent publications or other publicly available information. Although we believe these sources are reliable, we have not independently verified and do not guarantee the accuracy and completeness of this information.

All industry and statistical information included in this Information Statement, other than information derived from our financial and accounting records, is presented as of June 30, 2010, unless otherwise indicated.


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SUMMARY

This summary highlights selected information from this Information Statement relating to Motorola SpinCo, Motorola SpinCo’s separation from Motorola, Inc. and the distribution of Motorola SpinCo common stock by Motorola, Inc. to its stockholders. For a more complete understanding of our businesses and the separation and distribution, you should read this Information Statement carefully.

Except as otherwise indicated or unless the context otherwise requires, the information included in this Information Statement, including the combined financial statements of the Mobile Devices and Home businesses of Motorola, Inc., which comprise the assets and liabilities involved in managing and operating the Mobile Devices and Home businesses of Motorola, Inc., assumes the completion of all the transactions referred to in this Information Statement in connection with the separation and distribution.

Our Business

Motorola SpinCo Holdings Corporation is a leading provider of innovative technologies, products and services that enable a broad range of mobile and wireline, digital communication, information and entertainment experiences. The Company’s integrated products and platforms deliver rich multimedia content, such as video, voice, messaging and Internet-based applications and services to multiple screens, such as mobile devices, televisions and personal computers (“multi-screens”). Our product portfolio primarily includes mobile devices, wireless accessories, set-top boxes and video distribution systems, and wireline broadband infrastructure products and associated customer premises equipment. We are focused on developing differentiated, innovative products to meet the expanding needs of consumers to communicate, to collaborate and to discover, consume, create and share content at a time and place of their choosing on multiple devices.

Motorola SpinCo Holdings Corporation has the following businesses:

 

   

The Mobile Devices segment is a provider of mobile devices and related products and services designed to deliver mobile communications, such as voice, messaging, push-to-talk and video, and to deliver mobile Internet access and content, including multimedia, social networking, navigation and other mobile applications. We have a long history of innovation in wireless communications including the development of the world’s first portable cellular phone. Mobile Devices net revenues represented 65% and 66% of Motorola SpinCo’s combined net revenues in 2009 and the first quarter of 2010, respectively.

 

   

The Home segment is a provider of products and services to cable and wireline telecommunications service providers that enable the delivery of video, voice and data services to consumers. Our product portfolio primarily includes interactive set-top boxes, end-to-end digital video and Internet protocol television (“IPTV”) distribution systems, broadband access infrastructure platforms, and associated data and voice customer premises equipment. Home net revenues represented 35% and 34% of Motorola SpinCo’s combined net revenues in 2009 and the first quarter of 2010, respectively.

Motorola SpinCo Holdings Corporation is a recently formed company organized in 2010 that will, prior to the distribution, receive and hold, through its subsidiaries, all of the assets and liabilities of the Mobile Devices and Home businesses. Motorola SpinCo’s headquarters is located at 600 North US Highway 45, Libertyville, Illinois 60048 and its general telephone number is (847) 523-5000.

Later in this Information Statement we describe the Mobile Devices and Home businesses that will be separated from Motorola, Inc. Following the distribution, Motorola SpinCo will be an independent, publicly traded company, and Motorola, Inc. will not retain any ownership interest in Motorola SpinCo. In connection with the distribution, Motorola SpinCo and Motorola, Inc. will enter into a number of agreements that will govern the relationship between Motorola SpinCo and Motorola, Inc. following the distribution.

Our business is subject to various risks. For a description of these risks, see the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Information Statement.

 

 

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The Separation

Overview

On [], 2010, the Board of Directors of Motorola, Inc. approved the distribution of all of the shares of common stock of Motorola SpinCo Holdings Corporation (“Motorola SpinCo”) owned by Motorola, Inc. Motorola SpinCo is a wholly owned subsidiary of Motorola, Inc. that at the time of the distribution will hold, through its subsidiaries, the assets and liabilities associated with the Mobile Devices and Home businesses. Immediately following the distribution, Motorola, Inc. stockholders as of the record date will own 100% of the outstanding shares of common stock of Motorola SpinCo.

Before Motorola SpinCo’s separation from Motorola, Inc., Motorola SpinCo and Motorola Mobility, Inc. will enter into a Master Separation and Distribution Agreement and several other agreements with Motorola, Inc. to effect the separation and distribution. These agreements will provide for the allocation between Motorola SpinCo and Motorola, Inc. of Motorola, Inc.’s assets, liabilities and obligations and will govern the relationship between Motorola SpinCo and Motorola, Inc. after the separation (including with respect to transition services, employee benefits, intellectual property rights, trademark license and tax matters). Motorola SpinCo and Motorola, Inc. will also enter into several commercial agreements that will provide for, among other things, cooperation with respect to integrated digital enhanced network (“iDEN”) mobile devices and infrastructure products and services, as well as the ongoing sale and support of various other products and services.

The Motorola, Inc. Board of Directors believes that separating the Mobile Devices and Home businesses from Motorola, Inc.’s Enterprise Mobility Solutions and Networks businesses through the distribution is in the best interests of Motorola, Inc. and its stockholders and has concluded that the separation will provide each company with a number of opportunities and benefits, including the following:

 

   

Strategic Focus. Allow each independent company to design and implement corporate strategies and policies that are based on the industries that it serves and its specific business characteristics, including customers, sales cycles and product life cycles.

 

   

Management Focus. Allow management of each independent company to concentrate that company’s resources wholly on its particular markets, customers and core business opportunities. Motorola SpinCo is uniquely suited to address the convergence of mobility, media and the Internet. This creates an opportunity for new devices, applications and services that deliver common functionality, content and mobility to consumers in their home or on the go. Motorola, Inc. is well positioned to focus on its government and enterprise customers, with a broad portfolio of end-to-end mission- and business-critical enterprise systems, products and related services, and on its wireless networks and related telecommunication customers.

 

   

Recruiting and Retaining Employees. Allow each independent company to recruit and retain employees with expertise directly applicable to its needs and pursuant to compensation policies that are appropriate for its specific lines of business. In particular, following the distribution, the value of equity-based incentive compensation arrangements reflected in each company’s stock price should be more closely aligned with the performance of its businesses. Such equity-based compensation arrangements should provide enhanced incentives for employee performance and improve the ability of each company to attract, retain and motivate qualified personnel at all levels of the organization, including those key employees considered essential to that company’s future success.

 

   

Access to Capital. Remove the need for the businesses to compete internally for capital. Instead, both companies will have direct access to the capital markets to fund their respective growth strategies and to establish an appropriate capital structure for their business needs.

 

 

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Strategic Flexibility. Provide each independent company increased strategic flexibility to make acquisitions and form partnerships and alliances in its target markets, unencumbered by considerations of the potential impact on the businesses of the other company; and allow each company to effect future acquisitions utilizing common stock for all or part of the consideration, the value of which will be more closely aligned with the performance of its businesses.

 

   

Investor Choice. Provide investors in each company with a more targeted investment opportunity with different investment and business characteristics, including different opportunities for growth, capital structure, business models and financial returns. This will allow investors to evaluate the separate and distinct merits, performance and future prospects of each company.

A discussion of other opportunities and benefits that the Motorola, Inc. Board of Directors considered in approving the separation is included elsewhere in this Information Statement.

The Motorola, Inc. Board of Directors also considered a number of potentially negative factors in evaluating the separation, including risks relating to the creation of a new independent, publicly traded company and possible increased risks and costs, and concluded that notwithstanding these potentially negative factors, separation would be in the best interests of Motorola, Inc. and its stockholders. For more information, see the section entitled “The Separation—Reasons for the Separation” included elsewhere in this Information Statement.

The distribution of our common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions. For more information, see the sections entitled “The Separation—Conditions to the Distribution” and “Risk Factors—Risks Relating to the Separation” included elsewhere in this Information Statement.

Motorola SpinCo Holdings Corporation is a recently formed company that will, prior to the distribution receive and hold, through its subsidiaries, all of the assets and liabilities of the Mobile Devices and Home businesses. Motorola SpinCo’s headquarters is located at 600 North US Highway 45, Libertyville, Illinois 60048 and its general telephone number is (847) 523-5000. We intend to establish an Internet site at http://www.[].com. Our website and the information contained on that site, or connected to that site, are not incorporated by reference into this Information Statement.

Questions and Answers About Motorola SpinCo and the Separation

 

How will the separation of Motorola SpinCo be implemented?

The separation will be accomplished through a series of transactions in which the assets, liabilities and operations of the Mobile Devices and Home businesses on a global basis will be transferred to Motorola SpinCo or entities that are or will become prior to the distribution subsidiaries of Motorola SpinCo and the common stock of Motorola SpinCo will be distributed by Motorola, Inc. to its stockholders as of the record date.

 

Why is the separation of Motorola SpinCo structured as a distribution?

Motorola, Inc. believes that a distribution of shares of Motorola SpinCo to the Motorola, Inc. stockholders is a tax-efficient way to separate the Mobile Devices and Home businesses from the Enterprise Mobility Solutions and Networks businesses in a manner that is intended to enhance long-term value for Motorola, Inc. stockholders.

 

 

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What will I receive in the distribution?

Each Motorola, Inc. stockholder will receive [] share of Motorola SpinCo common stock for each share of Motorola, Inc. common stock held at the close of business on the record date.

 

What is the record date for the distribution?

Record ownership will be determined at the close of business on [], 201[], which we refer to as the record date.

 

When will the distribution occur?

We expect that the distribution agent, acting on behalf of Motorola, Inc., will distribute the shares of Motorola SpinCo common stock on [], 201[], which we refer to as the Distribution Date.

 

What do stockholders need to do to participate in the distribution?

Nothing, but we urge you to read this document carefully. Stockholders who hold Motorola, Inc. common stock as of the record date will not be required to take any action to receive Motorola SpinCo’s common stock in the distribution. No stockholder approval of the distribution is required or sought. We are not asking you for a vote and we are not requesting you to send us a proxy card. You will not be required to make any payment, surrender or exchange of your shares of Motorola, Inc. common stock or to take any other action to receive your shares of Motorola SpinCo common stock.

 

How will Motorola, Inc. distribute shares of Motorola SpinCo common stock?

If you own Motorola, Inc. common stock as of the close of business on the record date, Motorola, Inc., with the assistance of the distribution agent, will electronically issue whole shares of Motorola SpinCo common stock to you or to your brokerage firm on your behalf by way of direct registration in book-entry form. Motorola SpinCo will not issue paper stock certificates. If you are a registered stockholder (meaning you own your stock directly through an account with Motorola, Inc.’s transfer agent, BNY Mellon Shareowner Services (“Mellon” or the “transfer agent”)), Mellon will mail you a book-entry account statement that reflects the number of whole shares of Motorola SpinCo you own. If you own your Motorola, Inc. shares through a bank or brokerage account, your bank or brokerage firm will credit your account with the Motorola SpinCo shares. From and after the distribution, certificates representing Motorola, Inc. common stock will continue to represent Motorola, Inc. common stock, which at that point will include only the Enterprise Mobility Solutions and Networks businesses.

Following the distribution, stockholders whose shares are held at the transfer agent may request that their shares of either Motorola, Inc. or Motorola SpinCo be transferred to a brokerage or other account at any time. You should consult your broker if you wish to transfer your shares.

 

How will fractional shares be treated in the distribution?

No fractional shares will be distributed in connection with the distribution. Instead, the distribution agent, BNY Mellon Shareowner Services (“Mellon” or the “distribution agent”) will aggregate all

 

 

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fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each Motorola, Inc. stockholder who would otherwise have been entitled to receive a fractional share in the distribution. See the section entitled “The Separation—Treatment of Fractional Shares” of this Information Statement for a more detailed explanation.

 

What are the U.S. federal income tax consequences of the distribution to Motorola, Inc. stockholders?

The distribution is conditioned upon, among other matters, Motorola, Inc.’s receipt of either a ruling by the Internal Revenue Service (“IRS”) or an opinion of counsel to the effect that the distribution, together with certain related transactions, will qualify as a reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (“Code”), and such ruling or opinion shall be in form and substance satisfactory to Motorola, Inc., in its sole discretion.

 

  Motorola, Inc. expects to receive an opinion from counsel that the distribution will so qualify. Assuming the distribution so qualifies, for U.S. federal income tax purposes, no gain or loss will be recognized by you, and no amount will be included in your income, upon the receipt of shares of Motorola SpinCo’s common stock pursuant to the distribution, except with respect to any cash received in lieu of fractional shares. For more information regarding the tax opinion and the potential U.S. federal income tax consequences to you of the distribution, see the section entitled “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” included elsewhere in this Information Statement.

 

How will I determine the tax basis I will have in the Motorola SpinCo shares I receive in the distribution?

Generally, for U.S. federal income tax purposes, your aggregate basis in the stock you hold in Motorola, Inc. and the new Motorola SpinCo shares received in the distribution (including any fractional share interests in Motorola SpinCo for which cash is received) will equal the aggregate basis of Motorola, Inc. common stock held by you immediately before the distribution. This aggregate basis should be allocated between your Motorola, Inc. common stock and the Motorola SpinCo common stock you receive in the distribution (including any fractional share interests in Motorola SpinCo for which cash is received) in proportion to the relative fair market value of each immediately following the distribution. See the section entitled “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” included elsewhere in this Information Statement for more information.

 

  You should consult your tax advisor about how this allocation will work in your situation (including a situation where you have purchased Motorola, Inc. shares at different times or for different amounts) and regarding any particular consequences of the distribution to you, including the application of state, local and foreign tax laws.

 

 

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Does Motorola SpinCo plan to pay dividends?

We presently intend to retain future earnings, if any, to finance our business. As a result, we do not expect to pay any cash dividends for the foreseeable future. All decisions regarding the payment of dividends by our Company will be made by our Board of Directors from time to time in accordance with applicable law.

 

What will the relationship between Motorola, Inc. and Motorola SpinCo be following the separation?

Before our separation from Motorola, Inc., we will enter into a Master Separation and Distribution Agreement and several other agreements with Motorola, Inc. to effect the separation and distribution, and provide a framework for our relationship with Motorola, Inc. after the separation. These agreements will provide for the allocation between Motorola SpinCo and Motorola, Inc. of Motorola, Inc.’s assets, liabilities and obligations and will govern the relationships between Motorola SpinCo and Motorola, Inc. subsequent to the separation (including with respect to transition services, as well as employee benefits, intellectual property rights, trademark license and tax matters). Motorola SpinCo and Motorola, Inc. will also enter into several commercial agreements which will provide for, among other things, cooperation with respect to iDEN mobile devices and infrastructure products and services, as well as the ongoing sale and support of various other products and services. We cannot assure you that these agreements will be on terms as favorable to Motorola SpinCo or to Motorola, Inc. as agreements with unaffiliated third-parties. For more information, see the section entitled “Certain Relationships and Related Party Transactions” included elsewhere in this Information Statement.

 

What if I want to sell my Motorola, Inc. common stock or my Motorola SpinCo common stock?

Neither Motorola, Inc. nor Motorola SpinCo makes any recommendations on the purchase, retention or sale of shares of Motorola, Inc. common stock or the Motorola SpinCo common stock to be distributed. You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.

 

  If you decide to sell any shares of Motorola, Inc. common stock after the record date, but before the Distribution Date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Motorola, Inc. common stock, the Motorola SpinCo common stock you will be entitled to receive in the distribution or both. If you sell your Motorola, Inc. common stock prior to the record date or sell your entitlement to receive shares of Motorola SpinCo common stock in the distribution on or prior to the Distribution Date, you will not receive any shares of Motorola SpinCo common stock in the distribution.

 

Where will I be able to trade shares of Motorola SpinCo common stock?

There is not currently a public market for Motorola SpinCo’s common stock. We intend to apply to list Motorola SpinCo’s common stock on the New York Stock Exchange (“NYSE”), under the symbol “[].” We anticipate that trading in shares of Motorola SpinCo’s common stock will begin on a “when-issued” basis on or shortly before the record date and will continue up to and including

 

 

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through the Distribution Date and that “regular-way” trading in shares of Motorola SpinCo’s common stock will begin on the first trading day following the Distribution Date. If trading begins on a “when- issued” basis, you may purchase or sell Motorola SpinCo’s common stock up to and including through the Distribution Date, but your transaction will not settle until after the Distribution Date. We cannot predict the trading prices for Motorola, Inc.’s or Motorola SpinCo’s common stock before, on or after the Distribution Date. For more information regarding “regular-way” trading and “when-issued” trading, see the section entitled “The Separation—Trading Between the Record Date and Distribution Date” included elsewhere in this Information Statement.

 

Will the distribution of the common stock of Motorola SpinCo affect the market price of my Motorola, Inc. shares?

Yes. As a result of the distribution, the trading price of shares of Motorola, Inc. common stock immediately following the distribution is expected to change from the trading price immediately prior to the distribution because the trading price will no longer reflect the value of the Mobile Devices and Home businesses. Furthermore, until the market has fully analyzed the value of Motorola, Inc. after the separation of the Mobile Devices and Home businesses, Motorola, Inc. may experience more stock price volatility than usual. It is possible that the combined trading prices of Motorola, Inc. common stock and Motorola SpinCo common stock after the distribution will be less than the trading price of shares of Motorola, Inc. common stock before the distribution.

 

Are there risks to owning Motorola SpinCo common stock?

Yes. Motorola SpinCo’s business is subject to both general and specific risks relating to our business, the separation (including our relationship with Motorola, Inc.) and our operation as an independent, publicly traded company. These risks are described in the section entitled “Risk Factors” included elsewhere in this Information Statement. We encourage you to read that section carefully.

 

Can Motorola, Inc. decide to cancel the distribution of the common stock even if all the conditions have been met?

Yes. The distribution is subject to the satisfaction or waiver of certain conditions. For more information, see the section entitled “The Separation—Conditions to the Distribution” included elsewhere in this Information Statement. However, Motorola, Inc. has the right to terminate the distribution at any time prior to the Distribution Date, even if all of the conditions are satisfied, if at any time the Board of Directors of Motorola, Inc. determines that the distribution is not in the best interests of Motorola, Inc. and its stockholders.

 

What is the role of BNY Mellon Shareowner Services (“Mellon”) in the distribution?

Mellon has three roles in the distribution. Mellon currently serves and will continue to serve as Motorola, Inc.’s transfer agent and registrar. Mellon also will serve as the distribution agent in the distribution and will assist Motorola, Inc. in the distribution of the stock of Motorola SpinCo to Motorola, Inc. stockholders. In addition, Mellon will serve as Motorola SpinCo’s transfer agent and registrar following the distribution.

 

 

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Where can Motorola, Inc. stockholders get more information?

Before the separation, if you have any questions relating to the separation, you should contact:

 

  Motorola, Inc.
  Investor Relations
  1303 East Algonquin Road
  Schaumburg, Illinois 60196
  Tel: (847) 538-7367
  Email: investors@motorola.com

Website: www.Motorola.com/investor

 

  After the separation, if you have any questions relating to Motorola SpinCo common stock, you should contact:

 

  Motorola SpinCo Holdings Corporation
  Investor Relations
  600 North US Highway 45
  Libertyville, Illinois 60048
  Tel: (847) 523-[]
  Email: [].com

Website: www.[].com

 

  After the separation, if you have any questions relating to the distribution of our shares, you should contact:

 

  Motorola SpinCo Holdings Corporation
  c/o BNY Mellon Shareowner Services
  P.O. Box 3316
  S. Hackensack, NJ 07606
  Tel: (888) 647-8889

Summary of the Separation and Distribution

The following is a summary of the material terms of the separation, distribution and other related transactions.

 

Distributing company

Motorola, Inc., a Delaware corporation. After the distribution, Motorola, Inc. will not own any shares of Motorola SpinCo common stock.

 

Distributed company

Motorola SpinCo Holdings Corporation (referred to in this Information Statement as “Motorola SpinCo” or the “Company”), a Delaware corporation, is a wholly owned subsidiary of Motorola, Inc. that was formed in 2010 and that at the time of the distribution will hold, through its subsidiaries, all of the assets and liabilities of the Mobile Devices and Home businesses. After the distribution, Motorola SpinCo will be an independent, publicly traded company.

 

Distributed company structure

Motorola SpinCo is a holding company. It owns, directly or indirectly, the shares of a number of subsidiaries operating its global business. The main U.S. operating company is Motorola Mobility, Inc.

 

 

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Distribution ratio

Each holder of Motorola, Inc. common stock will receive [] share of Motorola SpinCo common stock for each share of Motorola, Inc. common stock held on [], 201[], the record date.

 

Distributed securities

Motorola, Inc. will distribute all of the shares of Motorola SpinCo common stock owned by Motorola, Inc., which will be 100% of Motorola SpinCo’s common stock outstanding immediately prior to the distribution. Based on the approximately [] shares of Motorola, Inc. common stock outstanding on [], 201[], and applying the distribution ratio of [] share of Motorola SpinCo common stock for each share of Motorola, Inc. common stock, approximately [] million shares of Motorola SpinCo common stock will be distributed to Motorola, Inc. stockholders who hold Motorola, Inc. common stock as of the record date.

 

Fractional shares

The distribution agent will not distribute any fractional shares of Motorola SpinCo common stock to Motorola, Inc. stockholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds, net of brokerage fees and other costs, from the sales pro rata to each holder who would otherwise have been entitled to receive a fractional share in the distribution. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient stockholders as described in “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” in this Information Statement.

 

Record date

The record date for the distribution is the close of business on [], 201[].

 

Distribution method

Motorola SpinCo common stock will be issued only in book-entry form. No paper stock certificates will be issued.

 

Distribution date

The Distribution Date is [], 201[].

 

Conditions to the distribution

The distribution of Motorola SpinCo common stock is subject to the satisfaction or waiver (if permissible under the Master Separation and Distribution Agreement) by Motorola, Inc. of the following conditions, among other conditions described in this Information Statement in “The Separation—Conditions to the Distribution”:

 

   

the Securities and Exchange Commission (“SEC”) will have declared effective our registration statement on Form 10, of which this Information Statement is a part, with no stop order relating to the registration statement being in effect and the Information Statement will have been mailed to Motorola, Inc.’s stockholders;

 

   

any required actions and filings with regard to state securities and blue sky laws of the U.S. (and any comparable laws

 

 

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under any foreign jurisdictions) will have been taken and, where applicable, have become effective or been accepted;

 

   

the Motorola SpinCo common stock will have been accepted for listing on the NYSE, on official notice of issuance;

 

   

Motorola, Inc. will have received either a ruling by the IRS or an opinion of counsel to the effect that the distribution, together with certain related transactions, will qualify as a tax-free reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, and such ruling or opinion will be in form and substance satisfactory to Motorola, Inc. in its sole discretion;

 

   

no order, injunction, decree or regulation issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution will be in effect;

 

   

the Master Separation and Distribution Agreement will not have been terminated;

 

   

any government approvals and other material consents necessary to consummate the distribution will have been obtained and be in full force and effect; and

 

   

Motorola, Inc. will have received, in form and substance satisfactory to it, (i) an opinion of counsel, among other things, regarding the appropriateness of the determination by the Motorola, Inc. Board of Directors that Motorola, Inc. has sufficient surplus under Delaware law to permit the distribution, (ii) an opinion from its financial advisors with respect to the ability of Motorola, Inc. and Motorola SpinCo to finance their respective operating and capital requirements through a specified date based on conditions in the capital markets as of the date of such opinion, and (iii) certificates from Motorola, Inc. and Motorola SpinCo with respect to factual matters required by the advisors to render the opinions referenced in (i) and (ii).

 

  The fulfillment of the foregoing conditions does not create any obligations on Motorola, Inc.’s part to effect the distribution, and the Motorola, Inc. Board of Directors has reserved the right, in its sole discretion, to abandon, modify or change the terms of the distribution, including by accelerating or delaying the timing of the consummation of all or part of the distribution, at any time prior to the Distribution Date.

 

 

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Stock exchange listing

We intend to file an application to list our shares of common stock on the NYSE under the ticker symbol “[].”

 

Risks relating to ownership of our common stock and the distribution

Your ownership of common stock of Motorola SpinCo and the distribution are subject to both general and specific risks and uncertainties relating to our business, the separation (including our relationship with Motorola, Inc.) and our operations as an independent, publicly traded company. You should carefully read the section entitled “Risk Factors” included elsewhere in this Information Statement.

 

U.S. federal income tax consequences

Assuming the distribution, together with certain related transactions, qualifies as a reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, no gain or loss will be recognized by a stockholder of Motorola Inc., and no amount will be included in the income of a stockholder of Motorola Inc., upon the receipt of shares of our common stock pursuant to the distribution, except with respect to any cash received in lieu of fractional shares. For more information regarding the potential U.S. federal income tax consequences to you of the distribution, see the section entitled “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” included elsewhere in this Information Statement.

 

 

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Selected Financial Data

The combined operating and balance sheet data included in the following selected financial data reflect the combined operations of Motorola SpinCo Holdings Corporation (“Motorola SpinCo”) and its subsidiaries. We derived the combined operating data for the years ended December 31, 2009, 2008 and 2007, and the combined balance sheet data as of December 31, 2009 and 2008, as set forth below, from Motorola SpinCo Holdings Corporation’s audited combined financial statements, which are included elsewhere in this Information Statement. We derived the combined operating data for the quarters ended April 3, 2010 and April 4, 2009 and the combined balance sheet data as of April 3, 2010 from Motorola SpinCo Holdings Corporation’s unaudited condensed combined financial statements, which are included elsewhere in this Information Statement. We derived the combined operating data for the years ended December 31, 2006 and December 31, 2005, and the combined balance sheet data as of April 4, 2009, December 31, 2007, December 31, 2006 and December 31, 2005, from Motorola SpinCo Holdings Corporation’s unaudited combined financial statements. In management’s opinion, the unaudited condensed combined financial statements have been prepared on substantially the same basis as the audited combined financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the combined financial information for the periods presented. The historical results do not necessarily indicate results expected for any future period.

The selected combined financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and accompanying notes included elsewhere in this Information Statement.

 

     Three Months Ended  
(Dollars in millions)    April 3,
2010
    April 4,
2009
 

Combined Operating Results

    

Net revenues

   $ 2,480      $ 2,826   

Gross margin

     595        395   

Operating loss

     (172     (542

Net loss

     (211     (611

Net loss attributable to Motorola SpinCo Holdings Corporation

     (212     (614
   

Combined Balance Sheet Data

    

Total assets

   $ 5,431      $ 7,314   
   

Other Data

    

Intangible amortization expense

   $ 13      $ 14   

Share-based compensation expense

     38        41   

Capital expenditures

     19        17   

Research and development expenditures

     367        437   
   

 

     Years Ended December 31,
(Dollars in millions)    2009     2008     2007     2006    2005

Combined Operating Results

           

Net revenues

   $ 11,050      $ 17,099      $ 23,373      $ 31,810    $ 24,447

Gross margin

     2,153        2,819        4,483        7,724      6,093

Operating earnings (loss)

     (1,211     (2,040     (1,131     2,593      2,258

Net earnings (loss)

     (1,335     (2,972     (648     1,852      1,576

Net earnings (loss) attributable to Motorola SpinCo Holdings Corporation

     (1,342     (2,969     (656     1,847      1,571
 

Combined Balance Sheet Data

           

Total assets

   $ 5,858      $ 7,167      $ 11,096      $ 12,736    $ 9,901
 

Other Data

           

Intangible amortization expense

   $ 57      $ 64      $ 88      $ 60    $ 34

Share-based compensation expense

     166        147        157        133      8

Capital expenditures

     67        151        195        183      155

Research and development expenditures

     1,591        2,358        2,550        2,259      1,861
 

 

 

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RISK FACTORS

You should carefully consider each of the following risk factors and all of the other information set forth in this Information Statement. The risk factors generally have been separated into three groups: (1) risks relating to our business, (2) risks relating to the separation, and (3) risks relating to our common stock. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our Company in each of these categories of risks. However, the risks and uncertainties our Company faces are not limited to those set forth in the risk factors described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. In addition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on our business, financial condition or results of operations. In such case, the trading price of our common stock could decline.

Risks Relating to Our Business

We have had substantial operating losses in each of the last three years and may continue to incur losses.

In each of the last three years, Motorola SpinCo had substantial operating losses as a result of the financial performance of our Mobile Devices business. While we have plans in place intended to improve the performance of this business, we cannot be certain that we will return to profitability in the near-term.

In 2009, the telecommunication and cable industries were impacted by the global reduction in capital and consumer spending and our financial performance could be negatively impacted if capital and consumer spending does not substantially improve.

In 2009, the telecommunications and cable industries were impacted by the global reduction in capital spending and consumer spending. As a result, both industries contracted. Our financial plans anticipate the wireless mobile device market to grow in 2010 and some continued contraction in the cable industry. Our financial performance could be negatively impacted if our expectations for our industries are not correct.

We operate in an extremely competitive environment and our success depends in part on our timely introduction of new competitive products and technologies and effective investment in new products, technologies and services.

We operate in an extremely competitive environment and the markets for our products are characterized by rapidly changing technologies, frequent new product introductions, short product life cycles and evolving industry standards. The convergence of the telecommunication, data and media industries which is driven by technological development related to Internet protocol (“IP”) based communications is driving rapid change in our industries. Product life cycles can be short and new products are expensive to develop and bring to market. Our success depends, in substantial part, on the timely and successful introduction of new products, services and upgrades of current products to comply with emerging industry standards and to address competing technological and product developments by our competitors. The research and development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and investment, as well as the accurate anticipation of technology, market trends and customer needs. We may focus our resources on technologies that do not become widely accepted, are not timely released or are not commercially viable. In addition, our products may contain defects or errors that are detected only after deployment. If our products are not competitive or do not work properly, our business could suffer and our financial performance could be negatively impacted.

Our results are subject to risks related to our significant investment in developing and introducing new products and services, such as advanced wireless mobile devices, including smartphones, and products for transmission of telephony and high speed data over hybrid fiber coaxial cable systems. These risks include: (1) difficulties and delays in the development, production, testing and marketing of products, (2) customer

 

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acceptance of products, (3) the development of, approval of and compliance with industry standards, (4) the significant amount of resources we must devote to the development of new technologies, and (5) the ability to differentiate our products and compete with other companies in the same markets.

We have several large customers and the loss of, or a significant reduction in revenue from, one or more of these customers could have a negative impact on our business.

During 2009, approximately 17% of our net revenues were from Verizon Communications Inc. (including Verizon Wireless) (“Verizon”) and approximately 13% of our net revenues were from Sprint Nextel Corporation (“Sprint Nextel”). In 2009, Verizon was the single largest customer of both of our businesses. It may be difficult to replace or find new large customers, especially in the U.S. where there are a limited numbers of carriers. If any significant customer, particularly Verizon or Sprint Nextel or other large customers, such as Comcast, stopped doing business with us, or significantly reduced the level of business they do with us, our financial results could be negatively impacted.

We have lost significant market share in our Mobile Devices business and such loss has negatively impacted our performance and could continue to negatively impact our financial results.

Our share of the worldwide wireless mobile device market has declined significantly in the last several years. While we reduced our costs during this period of time, our significantly lower sales volume and the resulting market share declines have had a negative impact on our financial results. Although our primary focus is profitable growth, if our global market share of smartphone shipments does not increase, our strategy to return our Mobile Devices business to profitability could be negatively impacted.

If our current product strategy and operating system strategy are not successful, our Mobile Devices business could be negatively impacted.

Our current strategy is to concentrate our mobile devices portfolio on smartphones and to use third-party and/or open-source operating systems and associated application ecosystems, predominantly the Google Android operating system (a royalty-free open-source platform) and marketplace, in our wireless products. As a result, we are dependent on third-parties’ continued development of operating systems, software application ecosystem infrastructures and such third-parties’ approval of our implementations of their operating system and associated applications. If we had to change our strategy, our financial results could be negatively impacted because a resulting shift away from using Android and the associated applications ecosystem could be costly and difficult. A strategy shift could increase the burden of development on Motorola SpinCo and potentially create a gap in our portfolio for a period of time, which could competitively disadvantage Motorola SpinCo.

We are at risk if Android-based smartphones do not remain competitive in the marketplace. Even if Android-based smartphones remain competitive, the Android operating system is an open-source platform and many other companies sell competing Android-based smartphones. If the Android-based smartphones of our competitors are more successful than ours, our financial results could be negatively impacted. It is also critical to the success of the Android operating system that third-party developers continue to develop and offer applications for this operating system that are competitive with applications developed for other operating systems. From an overall risk perspective, the industry is currently engaged in an extremely competitive phase with respect to operating system platforms, applications and software generally. If Android does not to continue to gain operator and/or developer adoption, or any updated versions or new releases of Google’s Android operating system or applications are not made available to Motorola SpinCo in a timely fashion, Motorola SpinCo could be competitively disadvantaged and Motorola SpinCo’s financial results could be negatively impacted.

As part of our ongoing effort to improve the product portfolio of our Mobile Devices business, we also have been rationalizing our hardware platforms to reduce the complexity of our product platforms and system architecture. This allows us to lower our costs to develop and produce mobile devices and to enable richer consumer

 

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experiences. Failure to continue to execute on these rationalization plans in a timely and effective manner could cause us to be competitively disadvantaged in many areas, including but not limited to, cost, time-to-market and the ability to ramp-up production in a timely fashion with acceptable quality and improved/additional features.

We have identified priority markets as we introduce our new smartphone products and rebuild our business and our Mobile Devices business could be negatively impacted if we are not successful in these priority markets or are unable to succeed in other markets.

Our current priority markets for our new smartphones are North America and China, followed by Western Europe, Latin America and other parts of Asia. Our ability to rebuild our business so that we can expand into more markets and achieve the scale we need to be profitable is highly dependent on our initial success in North America and China. While North America has traditionally been our strongest market and we have been successful in China, we face intense competition in both markets, and there can be no assurance that we can achieve the levels of sales and profitability in these markets that we will need to continue to rebuild our business and expand our markets.

Our future financial results may be negatively impacted if we do not execute on our Original Design Manufacturer (“ODM”) strategy of delivering low- to mid-tier voice-centric products.

We rely on ODMs to develop and manufacture our low- to mid-tier voice-centric mobile products. However, customer demand for these products in these locations could exceed the ODMs’ development capabilities, manufacturing capacity and/or material availability which could negatively impact our operating results. A significant quality issue could disrupt plans to launch products into these markets and result in cancelled orders and missed sales opportunities. In addition, commercial terms with our ODMs could be less favorable on future devices making these products more expensive to produce and, consequently, less competitive in these markets, negatively impacting our sales and operating results.

The effects of Federal Communications Commission (“FCC”) regulations requiring separation of security functionality from set-top boxes could negatively impact our sales of set-top boxes to cable providers.

Historically, reception of digital television (“TV”) programming from a cable broadband network required a set-top box with security technology. Traditionally, cable service providers leased their set-top boxes to their customers. This security technology limited the availability of set-top boxes to those manufactured by a few cable network manufacturers, including Motorola SpinCo. In 2007, FCC regulations requiring separation of security functionality from set-top boxes became effective. This has increased competition for sales of set-top boxes to cable operators and enabled retail distribution of set-top boxes. Moreover, it also enabled retail distribution of televisions with other video devices capable of accessing encrypted cable programming. Several major cable operators are working to support full two-way security interface architecture that allows retail customers access to all programming available on a cable operator’s network without the need for a set-top box. In addition, a few television and video device manufacturers have begun shipping or are developing such devices. If either of these strategies achieve a meaningful volume of sales it could negatively impact Motorola SpinCo’s sales of set-top boxes.

The AllVid/Smart Video Notice of Inquiry currently in process by the FCC is exploring standardization of interfaces, protocols and operations related to set-top boxes and gateways. While the process is in its infancy and no decisions have been made, future rules adopting some or all of the proposed standards could negatively impact our set-top box business.

We have taken significant cost-reduction actions, which may expose us to additional production risk and could have a negative impact on our sales, profitability and ability to attract and retain employees.

We have been reducing costs and simplifying our product portfolios in our businesses, with sizable reductions in our Mobile Devices business. We have discontinued product lines, consolidated manufacturing

 

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operations, increased reliance on third-parties, reduced our employee population and changed our compensation and benefits programs.

The impact of these cost-reduction actions on our sales and profitability may be influenced by many factors, including, but not limited to: (1) our ability to successfully complete these ongoing efforts, (2) our ability to generate the remaining level of cost savings we expect, (3) delays in implementing anticipated workforce reductions in highly regulated locations outside the U.S., particularly in Europe, (4) decline in employee morale and the potential inability to meet operational targets due to the loss of employees, (5) our ability to retain or recruit key employees, (6) the adequacy of our manufacturing capacity, including capacity provided by third-parties, (7) the performance of other parties under contract manufacturing arrangements on which we rely for the manufacture of certain products, parts and components, and (8) possible litigation or other third-party intervention.

Our business has consolidated or exited certain facilities and our products are manufactured in fewer facilities than in the past. While we have business continuity and risk management plans in place in case capacity is significantly reduced or eliminated at a given facility, the reduced number of alternative facilities could cause the duration of any manufacturing disruption to be longer or more severe. As a result, we could have difficulties fulfilling our orders and our sales and profits could decline.

We face many risks relating to intellectual property rights.

Our business could be harmed if: (1) we, our customers and/or our suppliers are found to have infringed intellectual property rights of third-parties, (2) the intellectual property indemnities in our supplier agreements are inadequate to cover damages and losses we suffer due to infringement of third-party intellectual property rights by our suppliers’ products, (3) we are required to indemnify our customers for significant amounts under agreements providing for intellectual property indemnities that have been entered into with some of our customers, (4) our intellectual property protection is inadequate to protect our proprietary rights, (5) the indemnity rights passed through by our customers are insufficient, or (6) our competitors negotiate significantly more favorable terms for licensed intellectual property. We may be harmed if we are forced to make publicly available, under the relevant open-source licenses, certain internally developed software related intellectual property as a result of either our use of open-source software code or the use of third-party software that contains open-source code. Our intellectual property protection could be limited due to the use of such open-source software code in our products.

Intellectual Property Infringement Risks

Because our products are comprised of complex technology, we are often involved in or impacted by assertions, including both requests to take licenses and litigation, regarding infringement of patent and other intellectual property rights of third-parties. Third-parties have asserted, and in the future may assert, intellectual property infringement claims against us and against our customers and suppliers. These assertions against us and our customers and suppliers have become more frequent as the complexity of our products has increased. Increasingly, many of these assertions are brought by non-practicing entities whose principal business model is to secure patent licensing based revenue from product manufacturing companies. The patent holders often make broad and sweeping claims regarding the applicability of their patents to our products and the products of our customers and suppliers, seeking a percentage of sales or a percentage of downstream customer revenues as license fees, or seeking injunctions to pressure us, our customers and suppliers into taking a license, or a combination thereof. Defending claims, including pursuant to indemnity obligations, may be expensive and divert the time and efforts of our management and employees. Increasingly, third-parties have sought broad injunctive relief by filing claims in the International Trade Commission (“ITC”) which could limit our ability to sell our products in the U.S. or elsewhere if our products or those of our customers or suppliers are found to infringe the intellectual property subject to the claims. If we do not succeed in such litigation, we could be required to expend significant resources to pay damages, to develop non-infringing products or to obtain licenses

 

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to the intellectual property that is the subject of such litigation, each of which could have a negative impact on our financial results. We cannot be certain that any such licenses, if available at all, will be available to us on commercially reasonable terms. In some cases, we might be forced to stop delivering certain products if we or our customers or suppliers are subject to a final injunction.

Intellectual Property Indemnity Risks

We attempt to negotiate favorable intellectual property indemnities with our suppliers for infringement by their products of third-party intellectual property rights. However, there is no assurance that we will be successful in our negotiations, that a supplier’s indemnity will cover all damages and losses suffered by us and our customers due to any infringing products, or that a supplier may choose to accept a license or modify or replace its products with non-infringing products which would otherwise mitigate such damages and losses. Further, we may not be able to participate in intellectual property litigation involving a supplier and may not be able to influence any ultimate resolution or outcome that could negatively impact our sales if a court enters an injunction against the supplier’s products or if the ITC issues an exclusionary order that blocks our products from importation into the U.S. that contain their components.

In addition, our customers increasingly demand that we indemnify them broadly from damages and losses resulting from intellectual property litigation against them relating to our products. Customers may also demand third-party content without providing sufficient pass-through indemnities. Because our customers often derive much larger revenue streams by reselling or leasing our products than we generate from the sale of our products to them, these indemnity claims by our customers have the potential to expose us to damages that are much higher than we would be exposed to if we were sued directly.

Intellectual Property Protection Risks

Our patent and other intellectual property rights are important competitive tools that we use to generate income under license agreements or to give us a competitive advantage over our competitors. We regard our intellectual property as proprietary and attempt to protect it with patents, copyrights, trademarks, trade secret laws, confidentiality agreements and other methods. We also generally restrict access to and distribution of our proprietary information. Despite these precautions, it may be possible for a third-party to obtain and use our proprietary information or develop similar technology independently. In the course of litigation, courts may also invalidate our intellectual property rights. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries. Unauthorized use of our intellectual property rights by third-parties and the cost of any litigation necessary to enforce our intellectual property rights could have a negative impact on our business.

Intellectual Property Competition Risks

As we expand our business, including through acquisitions, and compete with new competitors in new markets, the breadth and strength of our intellectual property portfolio in those new areas may not be as developed as in our longer standing businesses. This may expose us to a heightened risk of litigation and other challenges from competitors in these new markets. Further, competitors may be able to negotiate significantly more favorable terms for licensed intellectual property than we are able to, which would put them at a competitive advantage.

Intellectual Property Separation Risks

As a business segment of Motorola, Inc., we are the beneficiary of certain of Motorola, Inc.’s intellectual property licensing arrangements with respect to technology incorporated in our products and used to operate our

 

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businesses, including cross-licensing arrangements with leading telecommunications equipment companies, various royalty bearing license agreements, and other licensing agreements entered into with third-parties. Some of these agreements are assignable unilaterally by Motorola, Inc., while the assignment of others may be subject to consent or other conditions. We expect to seek assignments as required, as well as to enter into our own agreements and arrangements with certain third-parties, with respect to intellectual property and technology that is important to our business and that was previously licensed through Motorola, Inc. It is possible that some third-parties may use the requirement of a consent to seek to obtain more favorable contractual terms. In addition, there may be third-parties who have refrained from asserting intellectual property infringement claims against our products while we were a business segment of Motorola, Inc. that elect to pursue such claims against us after our separation from Motorola, Inc. Failure to retain or secure licenses on terms and conditions as favorable as those secured by our competitors could put us at a competitive disadvantage.

Motorola SpinCo’s reliance on marks owned by third-parties presents additional business risks.

Motorola, Inc. has licensed, or has otherwise obtained the rights from third-parties to use, certain trademarks in connection with our products, including ANDROID, DROID and CLIQ. Such third-party ownership rights may be challenged by other third-parties. In the event that such third-party licensor is successfully challenged, our continued use of such trademarks could result in an injunction barring the sale of our products, and if such third-party licensor refuses or fails to indemnify the Company, we could be liable for payment of damages resulting from trademark infringement, thereby disrupting our continued and/or long-term use of such trademarks. We are aware that ANDROID is currently the subject of a trademark infringement lawsuit between Google and Android Data Corporation, and that the latter’s ANDROID DATA registration has initially been cited by the United States Patent and Trademark Office (“USPTO”) against the owner of the pending application for DROID.

The occurrence or perception of a breach of our security or privacy policies, or inappropriate disclosure of end-user confidential or personal information could harm our business.

MOTOBLUR, our service platform, handles the transmission of personally identifiable and other confidential information and data from end-users (“User Information”), and as such, provides the Company with access to such User Information. In addition, information stored in our smartphone products is subject to virus and security attacks related to the wireless transmission of data. In the event that the security measures implemented by us, our customers or our third-party service providers are breached, or if there is an inappropriate disclosure of User Information, including as a result of a security breach relating to either MOTOBLUR or our smartphones, we could be exposed to litigation or regulatory action, which may result in significant liability or other sanctions. Even if we are not held liable, a security breach or inappropriate disclosure of User Information could harm our reputation, and even the perception of security vulnerabilities or risks associated with our products could lead some customers to reduce or delay future purchases, or to purchase competing products or services. In addition, we may be required to invest additional resources to protect the Company against these actual or perceived disruptions or security breaches in the future.

The collection, storage, transmission, use and distribution of User Information and other personally identifiable information could give rise to liabilities or additional costs as a result of laws, governmental regulations or carrier and other customer requirements or differing views of personal privacy rights.

We collect, store and transmit large volumes of data, including User Information and other personally identifiable information, including employee and consumer information, in the course of supporting our internal operating systems and procedures as well as our MOTOBLUR service and smartphone products and related services. This information is increasingly subject to legislation and regulations in numerous jurisdictions around the world. Governmental regulations are typically intended to protect the privacy and security of such User

 

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Information and other personally identifiable information as well as to regulate the collection, storage, transmission, transfer, use and distribution of such information.

We could be adversely affected if domestic or international legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business. If we are required to allocate significant resources to modify our internal operating systems and procedures as well as our MOTOBLUR service or smartphones to enable enhanced security of User Information that we transmit and store, our business results could be adversely affected.

In addition, because various foreign jurisdictions have different laws and regulations concerning the storage and transmission of User Information and other personally identifiable information, we may face requirements that pose compliance challenges in new international markets that we seek to enter. Such variation could subject us to costs, liabilities or negative publicity that could impair our ability to expand our operations into some countries and therefore limit our future growth.

Our wireless carrier or other customers may have differing expectations or impose particular requirements for the collection, storage, processing and transmittal of User Information and other personally identifiable information in connection with our MOTOBLUR service, or smartphone product and service offerings. Such expectations or requirements could subject us to costs, liabilities or negative publicity, and limit our future growth. If we are required to allocate significant resources to modify our MOTOBLUR service or smartphone product and service offerings to meet such requirements, we may incur additional costs to meet such requirements, and our time-to-market with various product and service offerings could be negatively affected.

Our customers, suppliers, employees and facilities are located throughout the world and, as a result, we face risks that other non-global companies may not face.

Our customers and suppliers are located throughout the world and in 2009 approximately 42% of our Mobile Devices business sales and 29% of our Home business sales were made to customers outside the U.S. In addition, we have many manufacturing, research and development, administrative and sales facilities outside the U.S. and more than half of our employees are employed outside the U.S. Most of our suppliers’ operations are outside the U.S. and all of our products (other than some prototypes) are manufactured outside the U.S.

As with all companies that have sizeable sales and operations outside the U.S., we are exposed to risks that could negatively impact sales or profitability, including but not limited to: (1) import/export regulations, tariffs, trade barriers and trade disputes, customs classifications and certifications, including but not limited to changes in classifications or errors or omissions related to such classifications and certifications, (2) patent infringement actions in the ITC, (3) changes in U.S. and non-U.S. rules related to trade, the environment, health and safety, technical standards and consumer protection, (4) longer payment cycles, (5) tax issues, such as tax law changes, variations in tax laws from country to country and as compared to the U.S., obligations under tax incentive agreements, and difficulties in repatriating cash generated or held abroad in a tax-efficient manner, (6) currency fluctuations, particularly in the Chinese renminbi, euro, Brazilian real, Taiwan dollar, and Korean won which could negatively impact our revenues and profits, (7) foreign exchange regulations, which may limit Motorola SpinCo’s ability to convert or repatriate foreign currency, (8) challenges in collecting accounts receivable, (9) cultural and language differences, (10) employment regulations and local labor conditions, (11) difficulties protecting intellectual property in foreign countries, (12) instability in economic or political conditions, including inflation, recession and actual or anticipated military or political conflicts, including war and other hostilities, (13) natural disasters, (14) public health issues or outbreaks, (15) changes in laws or regulations that negatively impact benefits, such as tax benefits, being received by Motorola SpinCo, (16) the impact of each of the foregoing on our outsourcing and procurement arrangements, and (17) litigation in foreign judicial systems and foreign administrative proceedings.

We also face additional challenges in emerging markets, including creating demand for our products and the negative impact of changes in the law or interpretation of the law in those countries.

 

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We also are subject to risks that our operations outside the U.S. could be conducted by our employees, contractors, service providers, representatives or agents in ways that violate the Foreign Corrupt Practices Act or other similar anti-bribery laws. While we have polices and procedures to comply with these laws, our employees, contractors, service providers, representatives and agents may take actions that violate our policies. Any such violations could have a negative impact on our business. Moreover, we face additional risks that our anti-bribery policy and procedures may be violated by third-party sales representatives or other agents that help sell our products or provide other services, because such representatives or agents are not our employees and it may be more difficult to oversee their conduct.

Our products are manufactured outside the U.S., primarily in China, Taiwan and Brazil, and our performance could be negatively impacted if manufacturing is disrupted or as a result of unique risks of doing business in these countries.

Our products are manufactured outside the U.S. primarily in China, Taiwan and Brazil. If our manufacturing in these regions is disrupted, our overall capacity could be significantly reduced and sales or profitability could be negatively impacted. Furthermore, the legal systems in these countries are still developing and we face risks related to the negative impact of changes in the laws, or the interpretation of the laws, in these countries. In China and elsewhere, we face risks that our proprietary information may not be afforded the same protection under law as it is in countries with well-developed intellectual property laws similar to those in the U.S. Also in China, certain China-based competitors are acquiring very large portfolios of Chinese patents and may use those patents to interfere with our China-based manufacturing operations.

In Brazil, we face additional risks related to that country’s complex tax, labor, trade compliance and consumer protection laws and regulations. In Brazil, we manufacture and sell products and employ over 1,000 people. In connection with those activities we have had and continue to have legal disputes and controversies, including labor, trade compliance, tax controversies and legal cases that take many years to resolve. We incur legal and other costs in managing and defending these matters and expect to continue to incur such costs. Based on our assessment of these cases, we have recorded reserves on only a small portion of the total potential exposure, and/or in court cases, we have had to deposit cash in escrow accounts or provide surety bonds or letters of credit in some of the matters. It is, however, very difficult to predict the outcome of legal disputes and controversies, including litigation in Brazil, and our ultimate exposure may be significantly greater than our current assessments. Our operations in Brazil could be negatively impacted if we are deemed to be in violation of laws or regulations and we may be subject to substantial fines, taxes, judgments and litigation costs. We also face additional challenges in Brazil due to frequent changes in laws that may impact our operations and market strategy.

If the quality of our products does not meet our customers’ expectations or our products are found to be defective, then our sales and operating earnings, and ultimately our reputation, could be negatively impacted.

The products we sell may have quality issues resulting from the design or manufacture of the product, or from the software used in the product. Sometimes, these issues may be caused by components we purchase from other manufacturers or suppliers. Often these issues are identified prior to the shipment of the products and may cause delays in shipping products to customers, or even the cancellation of orders by customers. Sometimes, we discover quality issues in the products after they have been shipped to our customers, distributors or end-users, requiring us to resolve such issues in a manner that is the least disruptive to our customers. Such pre-shipment and post-shipment quality issues can have legal and financial ramifications, including delays in the recognition of revenue, loss of revenue or future orders, customer imposed penalties for failure to meet our contractual requirements, penalties from regulatory agencies, increased costs associated with repairing or replacing products, a negative impact on our goodwill and brand name reputation, warranty claims and litigation, including class action litigation.

In some cases, if the quality issue affects the product’s safety or regulatory compliance, then such a “defective” product may need to be recalled or be subject to other actions in the field. Depending on the nature of the defect and the number of products in the field, it could cause us to incur substantial recall or field action costs, in addition to the costs associated with the potential loss of future orders and the damage to our goodwill or brand reputation. In

 

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addition, we may be required, under certain customer contracts, to pay damages for failed performance that might exceed the revenue that we receive from the contracts. Recalls involving regulatory agencies could also result in fines and additional costs and trigger indemnification obligations. Finally, product defects could result in third-party litigation, including class action litigation by persons alleging common harm resulting from the purchase of the products.

If the volume of our sales decreases or does not reach projected targets, we could face increased materials and manufacturing costs that could make our products less competitive.

We have negotiated favorable pricing terms with many of our suppliers, some of which have volume-based pricing. Under such pricing arrangements, we may experience higher than anticipated costs if current volume-based purchase projections are not met. Some contracts have minimum purchase commitments and we may incur financial liabilities or price increases if these commitments are not met. We also may have unused production capacity if our current volume projections are not met, increasing our production cost per unit. In the future, as we establish new pricing terms, our volume demand could negatively impact future pricing from suppliers. All of these outcomes may result in our products being more costly per unit to manufacture and therefore less competitive or could negatively impact our financial results.

Failure to meet supply demands could negatively impact our relationship with customers and results of operations.

A failure to meet the supply demands of our customers can lead customers to drop or otherwise restrict our products from promotions and key product placements. This could negatively impact our relationship with customers and our financial results.

Our future operating results depend on our ability to purchase a sufficient amount of materials, parts and components to meet the demands of our customers.

Our ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from our suppliers. We have experienced shortages in the past driven by raw material availability, manufacturing capacity, labor shortages, industry allocations, natural disasters and significant changes in the financial or business conditions of our suppliers that have negatively impacted our operations. Although we work closely with our suppliers to avoid shortages, there can be no assurance that we will not encounter shortages in the future or that such shortages will not negatively impact our operations. Furthermore, certain of our components are available only from a single source or limited sources. We may not be able to diversify sources in a timely manner. A reduction or interruption in supplies or a significant increase in the price of supplies could have a negative impact on our business.

Many of our components and products are designed or manufactured by third-parties. If third-party manufacturers lack sufficient quality control or if there are significant changes in the financial or business condition of such third-party manufacturers, it could have a negative impact on our business.

We rely on third-party manufacturers to manufacture many of our assemblies and finished products. If we are not able to engage such manufacturers with the capabilities or capacities required by our business, or if such third-parties lack sufficient quality control or if there are significant changes in the financial or business condition of such third-parties, it could have a negative impact on our business. We also have third-party arrangements for the design or manufacture of certain products, parts and components, including batteries. If we are not able to engage such parties with the capabilities or capacities required by our business, or if these third-parties fail to deliver quality products, parts and components on time and at reasonable prices, we could have difficulties fulfilling our orders and that could have a negative impact on our sales and results of operations.

Failure of our suppliers, business partners and customers to use acceptable ethical business practices could negatively impact our business.

It is our policy to require our suppliers, business partners and customers to operate in compliance with applicable laws, rules and regulations and our code of business conduct regarding working conditions, employment practices, environmental

 

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compliance and trademark and copyright licensing. However, we do not control their labor and other business practices. If one of our suppliers violates labor or other laws or implements labor or other business practices that are regarded as unethical, the shipment of finished products to us could be interrupted, orders could be canceled, relationships could be terminated and our reputation could be damaged. If one of our suppliers fails to procure necessary license rights to trademarks, copyrights or patents owned by third-parties, legal action could be taken against us that could impact the salability of our products and expose us to financial obligations to third-parties. Any of these events could have a negative impact on our sales and results of operations.

Our success is dependent, in part, upon our ability to form successful strategic alliances. If these arrangements do not develop as expected, our business could be negatively impacted.

We currently form alliances with industry leaders to meet customer product and service requirements and to develop innovative advances in design and technology. Some of our alliances allow us to supplement internal manufacturing capacity and share the cost of developing next-generation technologies. Other alliances allow us to offer more services and features to our customers. If such arrangements do not develop as expected, our business could be negatively impacted.

We rely on third-party distributors, representatives and retailers to sell certain of our products.

In addition to our own sales force, we offer our products through a variety of third-party distributors, representatives and retailers. Certain of our distributors, representatives or retailers may also market other products that compete with our products. The loss or termination of one or more of our distributors, representatives or retailers, the failure of one or more of our distributors or representatives to effectively promote our products, or changes in the financial or business condition of these distributors or representatives could affect our ability to bring products to market.

Our future financial results could be negatively impacted if we are not successful in licensing our intellectual property.

As part of our business strategy we generate revenue through the licensing of intellectual property rights. The licensed rights include those that are essential to telecommunications standards, such as the global system for mobile communications (“GSM”), third generation cellular (“3G”) and fourth generation cellular (“4G”) standards. Previously agreed-upon terms of some of our long-standing license agreements have reduced our royalty revenue over the past several years and may continue to reduce that revenue. As an independent legal entity we may no longer receive certain licensing revenue that was allocated to us when we were part of Motorola, Inc. or if we do receive such revenue the accounting treatment of that revenue may be different than it was when we were part of Motorola, Inc. Uncertainty in the legal environment makes it difficult to assure that we will be able to enter into new license agreements that will be sufficient to offset that reduction in our revenue.

Copyright levies in numerous countries for the sale of products could negatively impact our business.

Motorola SpinCo faces the possibility of substantial copyright levies from collecting societies in numerous countries for the sale of products that might be used for the private copying of copyright protected works such as mobile phones, memory cards and set-top boxes. The collecting societies argue that such levies should apply to such products because they include audio/video recording functionality, such as a Moving Picture Experts Group Format for Audio Layer 3 (“MP3”) player or a digital video recorder (“DVR”) or storage capability, despite the fact that such products are not primarily intended to act as a recording device. We are currently working with other major companies who are subject to copyright levies to challenge the applicability of these levies to our products, and are also engaged in aggressive efforts against the levies in general in the European Union. However, if levies are imposed upon our products, our financial results could be negatively impacted.

 

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Industry consolidation in the telecommunications and cable industries could negatively impact our business because there would be fewer network operators and it could be more difficult to replace any lost customers.

The telecommunications and cable industries have experienced consolidation to gain efficiencies and economics of scale and this trend may continue. The convergence of video, voice and data service offerings may cause network operators to further consolidate across wireline, wireless and satellite delivery platforms. Consolidation by or among our customers could result in delays of purchases or in the selection of new suppliers by the merged companies, and negatively impact equipment suppliers, including our business. Due to continuing concentration within the cable industry worldwide, a small number of operators own a majority of cable TV systems and account for a significant portion of the capital spending made by cable telecommunication systems operators. Customer concentration has resulted in a smaller number of telecommunications customers making it more difficult to diversify our customer base.

The uncertainty of current economic and political conditions makes budgeting and forecasting difficult and could reduce demand for our products.

Current conditions in the domestic and world economies remain very uncertain. The global financial crisis, U.S. unemployment levels and ongoing political conflicts in the Middle East and elsewhere have created many economic and political uncertainties that have impacted worldwide markets. As a result, it is difficult to estimate changes in various parts of the world economy, including the markets in which we participate. Because all components of our budgeting and forecasting are dependent upon estimates of demand for our products, the prevailing economic uncertainties render estimates of future income and expenditures difficult.

The potential for future terrorist attacks, increased global conflicts and the escalation of existing conflicts and public health issues have created worldwide uncertainties that have negatively impacted, and could continue to negatively impact, demand for certain of our products.

Changes in our operations or sales outside the U.S. markets could result in lost benefits in impacted countries and increase our cost of doing business.

Motorola, Inc. has entered into agreements, and we may enter into new agreements from time to time, with non-U.S. governments, agencies or similar organizations under which we have received or may receive certain benefits relating to our operations and/or sales in the jurisdiction. If our circumstances change and operations or sales are not at levels originally anticipated, we could be at risk of losing some or all of these benefits and increasing our cost of doing business. In addition, certain of the benefits we enjoyed while part of Motorola, Inc. and its subsidiaries may no longer be available to us as an independent company.

We may not generate sufficient future taxable income, which could require additional deferred tax asset valuation allowances.

If we are unable to generate sufficient future taxable income in certain non-U.S. jurisdictions, or if there are significant changes in tax laws or in the actual effective tax rates or the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowances against our deferred tax assets resulting in an increase in our effective tax rate and a negative impact on future operating results.

The outcome of currently ongoing and future examinations of our income tax returns by the IRS and other tax authorities could impact our financial results.

We are subject to continued examination of the income tax returns filed by certain of our subsidiaries by the IRS and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuing examinations will not have a negative impact on future operating results.

 

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We may be required to record additional goodwill or other long-lived asset impairment charges, which could result in additional significant charges to earnings.

Under generally accepted accounting principles, we review our long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment at least annually. Factors that may be considered in assessing whether goodwill or intangible assets may not be recoverable include a decline in our stock price or market capitalization, reduced estimates of future cash flows and slower growth rates in our industry.

While part of Motorola, Inc., our businesses have incurred goodwill impairments and asset impairments. The goodwill impairment charges resulted from lower asset values in the overall market and the impact of the macroeconomic environment on our near-term forecasts. The intangible asset impairments resulted from a change in a technology platform strategy. Further declines in our stock price or reductions in our future cash flow estimates and future operating results may require us to record significant additional goodwill or other long-lived asset impairment charges in our financial statements in future periods, which could negatively impact our financial results.

We may make strategic acquisitions of other companies or businesses and these acquisitions would introduce significant risks and uncertainties, including risks related to integrating the acquired businesses and achieving benefits from the acquisitions.

In order to position ourselves to take advantage of growth opportunities, we may make strategic acquisitions that involve significant risks and uncertainties. These risks and uncertainties include: (1) the difficulty in integrating newly acquired businesses and operations in an efficient and effective manner, (2) the challenges in achieving strategic objectives, cost savings and other anticipated benefits from acquisitions, (3) the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets, (4) the potential loss of key employees of the acquired businesses, (5) the risk of diverting the attention of senior management from our operations, (6) the risks of entering new markets in which we have limited experience, (7) risks associated with integrating financial reporting and internal control systems, (8) difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses, and (9) future impairments of goodwill of an acquired business.

Acquisition candidates in the industries in which we participate may carry higher relative valuations (based on their earnings) than we do. This is particularly evident in software and services businesses. Acquiring a business that has a higher relative valuation than Motorola SpinCo may be dilutive to our earnings, especially if the acquired business has little or no revenue. In addition, we may not pursue opportunities that are highly dilutive to near-term earnings and have, in the past, foregone certain of these acquisition opportunities.

Key employees of acquired businesses may receive substantial value in connection with a transaction in the form of change in control payments, acceleration of stock options and the lifting of restrictions on other equity- based compensation rights. To retain such employees and integrate the acquired business, we may offer additional retention incentives, but it could still be costly and difficult to retain certain key employees.

It may be difficult for us to recruit and retain the types of engineers and other highly skilled employees that are necessary to remain competitive.

Competition for key technical personnel in high technology industries is intense. We believe that our future success depends in large part on our continued ability to hire, assimilate, retain and leverage the skills of qualified engineers and other highly skilled personnel. We may not be as successful as our competitors at recruiting, assimilating, retaining and utilizing these highly skilled personnel. We may have more difficulty attracting or retaining highly skilled personnel during periods of poor operating performance.

 

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Our success depends in part upon our ability to attract, retain and prepare succession plans for senior management and key employees.

The performance of our senior management and other key employees, in particular our chief executive officer, Dr. Jha, is critical to our success. If we are unable to retain talented, highly qualified senior management and other key employees or attract them when needed, it could negatively impact Motorola SpinCo. We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace and competition for management with experience in the technology industry is intense. A loss of the chief executive officer, a member of senior management or a key employee, particularly to a competitor, could also place us at a competitive disadvantage. Further, if we fail to adequately plan for the succession of our chief executive officer, senior management and other key employees, our business could be negatively impacted by their loss. The separation may also heighten risk related to the organizational structure of a newly independent company if certain subject matter experts or employees with specialized skills who may currently be shared with Motorola, Inc. will stay with Motorola, Inc. and have to be replaced at Motorola SpinCo.

The unfavorable outcome of any pending or future litigation or administrative action could negatively impact Motorola SpinCo.

Our financial results could be negatively impacted by unfavorable outcomes to any pending or future litigation, investigation or administrative actions, including those related to the Foreign Corrupt Practices Act and other anti-bribery laws. There can be no assurances as to the favorable outcome of any litigation. In addition, it can be very costly to defend litigation and these costs could negatively impact our financial results. See “Business—Legal Proceedings”.

It is important that we are able to obtain many different types of insurance, and if we are not able to obtain insurance we are forced to retain the risk.

As part of Motorola, Inc., we had many types of insurance coverage and also were self-insured for some risks and obligations. We may have more difficulty obtaining certain types of insurance or at sufficient levels of coverage or such insurance may be more costly as an independent company. The insurance market has been disrupted in the past after specific events such as September 11, 2001, the 2005 hurricanes and recent earthquakes and flooding. While the cost and availability of most insurance has stabilized, there are still certain types and levels of insurance that remain difficult to obtain at a cost effective level. Natural disasters and certain risks arising from securities claims and product liability are potential self-insured events that could negatively impact our financial results.

We are subject to a wide range of product regulatory and safety, consumer protection, worker safety and environmental laws.

Our operations and the products we manufacture and/or sell are subject to a wide range of global laws. We must comply with a variety of laws, standards and other requirements governing, among other things, health and safety, hazardous materials usage, packaging, consumer protection and environmental matters. Our products must obtain regulatory approvals and satisfy other regulatory concerns in the various jurisdictions where they are manufactured and/or sold. Many of our products must meet standards governing, among other things, interference with other electronic equipment and human exposure to radio frequency energy. Failure to comply with such requirements can subject us to liability, additional costs, reputational harm and, in severe cases, prevent us from selling our products in certain jurisdictions.

Compliance with existing or future laws, regulations or government directives could subject us to future costs or liabilities, impact our production capabilities, constrict our ability to sell, expand or acquire facilities, and generally impact our financial performance. Some of these laws also relate to the use, disposal, clean up of, and exposure to hazardous substances. In the U.S., laws often require parties to fund remedial studies or actions regardless of fault. Changes to U.S. or foreign environmental laws or our discovery of additional obligations under these laws could have a negative impact on Motorola SpinCo.

 

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Over the last several years, laws focused on the energy efficiency of electronic products and accessories, recycling of both electronic products and packaging, reducing or eliminating certain hazardous substances in electronic products, and the transportation of batteries have expanded significantly. Laws pertaining to accessibility features of electronic products, standardization of connectors and power supplies, sound levels of music playing devices and other aspects of our products and business are also proliferating.

These laws impact our products and make it more expensive to manufacture and sell products. It may also be difficult to comply with the laws in a timely way. We may not have compliant products available in the quantities requested by our customers, thereby impacting our sales and profitability. We expect these trends to continue. In addition, we anticipate increased demand for products meeting voluntary criteria related to the reduction or elimination of certain hazardous substances from products, increasing energy efficiency, and providing additional accessibility.

Allegations of health risks with using Motorola SpinCo products, and the lawsuits and publicity relating to them, regardless of merit, could negatively impact our business, operating cash flows and financial condition.

Assertions about health and safety, hazardous materials usage and other environmental concerns related to using Motorola SpinCo products could adversely impact our business, operating cash flows and financial condition. Adverse factual developments or lawsuits against us, or even the perceived risk of adverse health effects from chemical or physical agents associated with the use of smartphones or other handheld devices could negatively impact sales, subject us to costly litigation and/or harm our reputation, business, operating cash flows and financial condition.

There has been public speculation about possible health risks to individuals from exposure to radio frequency energy from the use of mobile devices. Government agencies, international health organizations and other scientific bodies are currently conducting research into these issues. In addition, we have been named in individual plaintiff and class action lawsuits alleging that radio frequency emissions from mobile phones have caused or contributed to brain tumors, and that the use of mobile phones poses a health risk. There has been significant scientific research by various independent research bodies that has indicated that exposure to electromagnetic fields or to radio frequency energy, at levels within the limits prescribed by public health authority standards and recommendations, presents no known adverse effect to human health. Nevertheless, we cannot assure you that other studies will not suggest or identify a link between electromagnetic fields or radio frequency energy and adverse health effects or that we will not be the subject of future lawsuits relating to this issue. See “Business—Legal Proceedings” for more details.

Government regulation of radio frequencies may limit the growth of the wireless communications industry or reduce barriers to entry for new competitors.

Radio frequencies are required to provide wireless services. The allocation of frequencies is regulated in the U.S. and other countries and limited spectrum space is allocated to wireless services. The growth of the wireless and personal communications industry may be affected: (1) by regulations relating to the access to allocated spectrum for wireless communication users, especially in urban areas, (2) if adequate frequencies are not allocated, or (3) if new technologies are not developed to better utilize the frequencies currently allocated for such use. Industry growth has been and may continue to be affected by the cost of new licenses required to use frequencies and any related frequency relocation costs.

The U.S. leads the world in spectrum deregulation, allowing new wireless communications technologies to be developed and offered for sale. Examples include wireless local area network systems, such as Wireless Fidelity (“WiFi”) and Long-Term Evolution (“LTE”). Other countries have also deregulated portions of their available spectrum to allow deployment of new technologies. Deregulation may introduce new opportunities for Motorola SpinCo and our customers, but also new competition.

 

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Changes in government policies and laws related to the Internet could negatively impact our financial results.

The laws and regulations that impact access to, content on or commerce conducted on the Internet are still evolving. We could be negatively impacted by any such regulation in any country where we operate, including in the U.S. The adoption of such measures could decrease demand for our products and at the same time increase the cost of selling such products.

We rely on complex information technology systems and networks to operate our business. Any significant system or network disruption could have a negative impact on our operations, sales and operating results.

We rely on the efficient and uninterrupted operation of complex information technology systems and networks, some of which are within Motorola SpinCo and some are outsourced. All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including but not limited to computer viruses, security breach, energy blackouts, natural disasters, terrorism, war and telecommunication failures. We regularly face attempts by others to gain unauthorized access through the Internet to our information technology systems. These attempts, which might be the result of industrial or other espionage, or actions by hackers seeking to harm Motorola SpinCo, our products or end-users, are sometimes successful. There also may be system or network disruptions if new or upgraded business management systems are defective or are not installed properly.

We have implemented various measures to manage our risks related to system and network disruptions, but these measures may be insufficient and a system failure or security breach could negatively impact our operations and financial results. The theft and/or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could negatively impact our competitive position. In addition, we may incur additional costs to remedy the damages caused by these disruptions or security breaches.

We face a number of risks related to the recent global financial crisis.

The global financial crisis that affected the banking system and financial markets which began during late 2008 and continued throughout 2009 and into 2010 resulted in a severe tightening in the worldwide credit markets, a low level of liquidity in many financial markets and extreme volatility in credit and equity markets. More recently, the destabilization of various currencies has also negatively impacted the global markets. This financial crisis has impacted, and could continue to impact, our business in a number of ways, including:

 

   

Destabilization of currencies: Recent destabilization of currencies, including the euro, has negatively impacted the credit markets and the valuation of certain currencies and may cause, and in some cases has caused, consumers and businesses to defer purchases in response to tighter credit, decreased purchasing power and/or declining consumer confidence. If future demand for our products declines due to global economic conditions, it could negatively impact our financial results.

 

   

Potential deferment or cancellation of purchases and orders by customers: Uncertainty about current and future global economic conditions may cause, and in some cases has caused, consumers, and businesses to defer or cancel purchases in response to tighter credit, decreased cash availability and declining consumer confidence. If future demand for our products declines due to global economic conditions, it could negatively impact our financial results.

 

   

Customers’ inability to obtain financing to make purchases from Motorola SpinCo and/or maintain their businesses: Some of our customers require financing in order to fund their operations and make purchases from Motorola SpinCo. The inability of these customers to obtain sufficient credit to finance purchases of our products and/or meet their payment obligations to us could have, and in some cases has had and may continue to have, a negative impact on our financial results. In addition, if global economic conditions result in insolvencies for our customers, it could negatively impact our financial results.

 

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Negative impact from increased financial pressures on key suppliers: Our ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from our suppliers. Certain of our components are available only from a single source or limited sources. If certain key suppliers were to become capacity or liquidity constrained or insolvent, it could result in a reduction or interruption in supplies or an increase in the price of supplies and negatively impact our financial results. In addition, credit constraints at key suppliers have resulted in accelerated payment of accounts payable by Motorola SpinCo, impacting our cash flow. If this trend continues, it could negatively impact our cash flow. If suppliers consolidate to address this financial pressure, less competition among suppliers could result in increased costs which could negatively impact our financial results.

 

   

Increased risk of financial counterparty failures could negatively impact our financial position: Motorola SpinCo uses derivative financial instruments to reduce its overall exposure to the effects of currency fluctuations on cash flows. We are exposed to credit loss in the event of nonperformance by the counterparties to these derivative financial instruments. In order to minimize this risk, the contracts are distributed among several leading financial institutions, all of whom presently have investment grade credit ratings. Although we have not experienced and do not anticipate nonperformance by the counterparties, in light of the ongoing threats to financial institutions from global economic conditions, there can be no assurance of performance by the counterparties to these financial instruments.

As a new company without long-term debt credit ratings, there can be no assurances that we will have access to the capital markets on terms acceptable to us.

From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we believe that the sources of capital in place at the time of the distribution will permit us to finance our operations for the foreseeable future on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (1) our financial performance, (2) our credit ratings or absence of a credit rating, (3) the liquidity of the overall capital markets, and (4) the current state of the economy, including the telecommunications and cable industries. There can be no assurance that we will have access to the capital markets on terms acceptable to us.

We do not expect to have long-term debt and, accordingly, do not expect to have rated debt. As a result, the following activities we conducted at Motorola, Inc., as a rated company, may be more difficult to perform:

 

   

Ability to sell receivables: We expect to sell certain accounts receivable under facilities that may involve contractual commitments from third-parties to purchase qualifying receivables up to certain stated limits. These sales of receivables provide us the ability to accelerate cash flow when it is prudent to do so. The ability to sell (or “factor”) receivables may be subject to the credit quality of the obligor and our ability to obtain sufficient levels of credit insurance from independent insurance companies. We could be limited in our ability to sell receivables in the future because of our financial position, the creditworthiness of our customers or our ability to purchase credit insurance.

 

   

Our ability to obtain standby letters of credit and surety bonds could be limited: Certain commercial contracts with our customers require that we arrange for standby letters of credit, performance bonds and surety bonds (collectively referred to as “Performance Bonds”) to be issued on behalf of Motorola SpinCo by banks and/or insurance companies. Issuers of these Performance Bonds may be less likely to provide Performance Bonds on our behalf in the future, unless we provide a sufficient level of collateral, and the costs for issuance may be higher. These limitations on issuance may apply to the renewal and extension of existing Performance Bonds, as well as the issuance of new Performance Bonds. Such collateral requirements could result in less liquidity for other operational needs, and financial flexibility would be reduced.

 

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Our ability to hedge foreign exchange risk could be limited: Counterparties may be unwilling to provide trading and derivative credit facilities for us without cash collateral. This would limit our ability to reduce volatility in earnings and cash flow. Should cash collateral be provided, less liquidity would be available for operational needs, and our financial flexibility would be reduced.

 

   

Our ability to fund our foreign affiliates could be limited: Motorola SpinCo relies on uncommitted lines of credit from banks to provide daylight overdraft, short-term loans and other sources of liquidity for foreign affiliates. Lenders may be unwilling to provide credit to our foreign affiliates as Motorola SpinCo will have no credit ratings at the time of the distribution. This situation could result in Motorola SpinCo using U.S. cash to make loans to these affiliates or provide permanent equity where loans are not possible. If this occurs, less liquidity would be available for other operational needs, and our financial flexibility would be reduced.

 

   

Our trade terms with suppliers may be less favorable than those of our competitors: Suppliers may require letters of credit, cash collateral or other forms of security as part of standard payment conditions. Such requests could result in reduced liquidity and less leverage in pricing negotiations.

 

   

Our access to short-term and long-term financing is extremely limited and could be very costly: As a company with unrated credit, we may have very limited access to short-term and long-term borrowing and the cost of such borrowings could be very high as compared to the cost for companies with credit ratings.

Risks Relating to the Separation

If the distribution, together with certain related transactions, were to fail to qualify as a reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, then we and/or Motorola, Inc. and our stockholders could be subject to significant tax liability.

The distribution is conditioned upon, among other things, Motorola, Inc.’s receipt of either a ruling by the IRS or an opinion of counsel to the effect that the distribution, together with certain related transactions, will qualify as a reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. Motorola, Inc. expects to receive an opinion from counsel that the distribution will so qualify. Although the Motorola, Inc. Board of Directors may waive this condition, Motorola, Inc. has advised us that it does not intend to complete the distribution if it has not obtained such opinion. The opinion will rely on certain representations, assumptions and undertakings, including those relating to the past and future conduct of our business, and the opinion would not be valid if such representations, assumptions and undertakings were incorrect. Notwithstanding the opinion, the IRS could determine that the distribution should be treated as a taxable transaction if it determines that any of the representations, assumptions or undertakings upon which the opinion relied is false or has been violated or if it disagrees with the conclusions in the tax opinion. For more information regarding the tax opinion, see the section entitled “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” included elsewhere in this Information Statement.

If the distribution fails to qualify for tax-free treatment, Motorola, Inc. would be subject to tax on gain, if any, as if it had sold the common stock of our Company in a taxable sale for its fair market value. In addition, if the distribution fails to qualify for tax-free treatment, each of our initial public stockholders would be treated as if the stockholder had received a distribution equal to the fair market value of our common stock that was distributed to the stockholder, which generally would be taxed as a dividend to the extent of the stockholder’s pro rata share of Motorola, Inc.’s current and accumulated earnings and profits and then treated as a non-taxable return of capital to the extent of the stockholder’s basis in the Motorola, Inc. common stock and finally as capital gain from the sale or exchange of Motorola, Inc. common stock. Furthermore, even if the distribution were otherwise to qualify under Sections 355 and 368(a)(1)(D) of the Code, it may be taxable to Motorola, Inc. (but not to Motorola, Inc.’s stockholders) under Section 355(e) of the Code, if the distribution were later deemed to be part of a plan (or series

 

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of related transactions) pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50% or greater interest in Motorola, Inc. or us. For this purpose, any acquisitions of Motorola, Inc. stock or of our common stock within the period beginning two years before the distribution and ending two years after the distribution are presumed to be part of such a plan, although we or Motorola, Inc. may be able to rebut that presumption. For a more detailed discussion, see the section entitled “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” included elsewhere in this Information Statement.

Under the Tax Sharing Agreement among Motorola, Inc., Motorola Mobility, Inc. and us, we would generally be required to indemnify Motorola, Inc. against any tax resulting from the distribution to the extent that such tax resulted from (1) an acquisition of all or a portion of our stock or assets, whether by merger or otherwise, (2) other actions or failures to act by us, or (3) any of our representations or undertakings being incorrect or violated. For a more detailed discussion, see the section entitled “Certain Relationships and Related Party Transactions—Agreements With Motorola, Inc.—Tax Sharing Agreement” included elsewhere in this Information Statement. Our indemnification obligations to Motorola, Inc. and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify Motorola, Inc. or such other persons under the circumstances set forth in the Tax Sharing Agreement, we could be subject to substantial liabilities.

We may be unable to achieve some or all of the benefits that we expect to achieve as an independent, publicly traded company.

By separating from Motorola, Inc. there is a risk that our Company may be more susceptible to market fluctuations and other adverse events than we would have otherwise been were we still a part of the current Motorola, Inc. As part of Motorola, Inc., we were able to enjoy certain benefits from Motorola, Inc.’s operating diversity, purchasing and borrowing leverage, and available capital for investments. We may not be able to achieve some or all of the benefits that we expect to achieve as an independent, publicly traded company.

We have no operating history as an independent, publicly traded company, and our historical and pro forma financial statements are not necessarily representative of the results we would have achieved as an independent, publicly traded company and may not be reliable indicators of our future results.

The historical and pro forma financial statements included in this Information Statement do not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as an independent, publicly traded company during the periods presented or those that we will achieve in the future, primarily as a result of the following factors:

 

   

Prior to our separation, our business was operated by Motorola, Inc. as part of its broader corporate organization, rather than as an independent company. Motorola, Inc. or one of its affiliates performed various corporate functions for us, including, but not limited to, tax administration, treasury activities, accounting, information technology services, human resources, legal, ethics and compliance program administration, real estate management, investor and public relations, certain governance functions (including internal audit) and external reporting. Our historical and pro forma financial statements reflect allocations of corporate expenses from Motorola, Inc. for these and similar functions. These allocations may be more or less than the comparable expenses we would have incurred had we operated as an independent, publicly traded company.

 

   

Currently, our business is integrated with the other businesses of Motorola, Inc. Historically, we have shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. While we expect to enter into short-term transition agreements that will govern certain relationships between us and Motorola, Inc. after the separation, those temporary arrangements may not capture all the benefits our businesses have enjoyed as a result of being integrated with the other businesses of Motorola, Inc. The loss of some or all of these benefits could have an adverse effect on our business, results of operations and financial condition following the completion of the separation.

 

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Historically, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, have been satisfied as part of the corporate-wide liability management processes of Motorola, Inc. Cash generated by Motorola SpinCo prior to the separation from Motorola, Inc. was managed and retained by Motorola, Inc. Immediately prior to the separation, Motorola SpinCo is expected to be provided with a significant amount of cash from Motorola, Inc. which it will retain in the distribution. Following completion of the distribution, Motorola, Inc. will not be providing us with funds to finance our working capital or other cash requirements. Without the opportunity to obtain financing from Motorola, Inc., we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, and such arrangements may not be available to us or available on terms that are as favorable as those we could have obtained when we were part of Motorola, Inc.

 

   

Other significant changes may occur in our cost structure, management, financing and business operations as a result of our operation as a company separate from Motorola, Inc.

Motorola, Inc. will be using certain logos and other trademarks, trade names and service marks, including “MOTOROLA” and the Stylized M logo and all derivatives and formatives thereof such as MOTO (“Motorola Marks”), under license from Motorola SpinCo following the distribution, which could result in product and market confusion and negatively impact our ability to expand our business under the Motorola brand.

Although each of Motorola SpinCo and Motorola, Inc. will be an independent company following the distribution, Motorola, Inc. will continue to use the Motorola Marks as part of its name and in connection with many of its products. Motorola, Inc.’s use of the Motorola Marks will be governed by an agreement between Motorola SpinCo and Motorola, Inc. as further described in the section entitled “Certain Relationships and Related Party Transactions—Agreements With Motorola, Inc.—Intellectual Property Agreements”.

There are risks associated with both Motorola SpinCo and Motorola, Inc. using the Motorola Marks. Because both Motorola SpinCo and Motorola, Inc. will be using the Motorola Marks, confusion could arise in the market, including customer and investor confusion regarding the products offered by the two companies. This risk could increase as both Motorola, Inc.’s and our products continue to converge. Also, any negative publicity associated with either company in the future could adversely affect the public image of the other.

In addition because Motorola, Inc. will have the exclusive right to use the Motorola Marks with products and services within its specified fields of use, Motorola SpinCo will not be permitted to use the Motorola Marks in those fields of use. In the event that Motorola SpinCo desires to expand its business into any of Motorola, Inc.’s fields of use, it will need to do so with a brand other than Motorola. Developing a brand as well-known and with as much brand equity as Motorola could take considerable time and expense. The risk of needing to develop a second brand increases as Motorola, Inc.’s and our products continue to converge.

A change of control related to Motorola, Inc. could result in an incompatible third-party being entitled to use the Motorola Marks, thereby increasing the risks associated with sharing the Motorola Marks.

Motorola, Inc.’s license to use the Motorola Marks is assignable to an acquiring entity. Similarly, in the event of a liquidation of Motorola, Inc., it is possible that a bankruptcy court would permit its license rights to be assigned to a third-party. While Motorola, Inc.’s right to use the Motorola Marks is limited to a specific field of use, in the event of a change of control, it is possible that Motorola SpinCo could be party to a license arrangement with a third-party whose interests are incompatible with those of Motorola SpinCo, thereby potentially making the license arrangement difficult to administer, and increasing the costs and risks associated with sharing the Motorola Marks.

As part of Motorola, Inc., we benefited from licenses held by Motorola, Inc. and we may incur additional unanticipated cost as an independent company when we no longer have the benefit of such licenses.

As part of Motorola, Inc., we enjoyed the benefits of a number of intellectual property licenses, including patent and software licenses, which covered all of Motorola, Inc.’s businesses. As an independent company, we

 

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may have additional unanticipated costs to license intellectual property rights that in the past we had access to as part of Motorola, Inc. Such costs could include license fees or litigation costs. Although we cannot predict the extent of such unanticipated costs, it is possible such costs could negatively impact our financial results.

We may have higher levels of restricted cash as a stand-alone, independent, publicly traded company because we do not expect to have a credit rating.

As a stand-alone company we expect to use more cash to obtain standby letters of credit, surety bonds and performance bonds (collectively “Performance Bonds”) as part of our ordinary operations, which means such cash will not be immediately available to us. Historically, as part of Motorola, Inc. and based primarily on Motorola, Inc.’s credit ratings we did not need to use cash at these levels to obtain Performance Bonds as part of ordinary operations. As of April 3, 2010, on a pro forma basis, we had cash and cash equivalents of $[] billion. The use of cash to obtain Performance Bonds could result in less liquidity for other important operational needs, and financial flexibility would be reduced.

We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company, and we may experience increased costs as a result of the separation.

Following the completion of our separation, Motorola, Inc. will be contractually obligated to provide to us only those transition services specified in the Transition Services Agreement and the other agreements we enter into with Motorola, Inc. in connection with the separation. The expiration date of the Transition Services Agreement varies by service provided, but is generally no longer than 12 months from the date of the distribution. We may be unable to replace in a timely manner or on comparable terms the services or other benefits that Motorola, Inc. previously provided to us. Upon the expiration of the Transition Services Agreement or other agreements, many of the services that are covered in such agreements will be provided internally or by unaffiliated third-parties, and we expect that, in some instances, we will incur higher costs to obtain such services than we incurred prior to the separation or under the terms of such agreements. If Motorola, Inc. does not effectively perform the transition services and the other services that are called for under the Transition Services Agreement and other agreements, we may not be able to operate our business effectively and our profitability may decline. After the expiration of the Transition Services Agreement and the other agreements, we may be unable to replace the services specified in such agreements in a timely manner or on comparable terms.

Similarly, we currently purchase a wide variety of products and services, including software licenses, from third-parties as part of Motorola, Inc. We may experience some increased costs after the separation as a result of our inability to continue to purchase products and services on terms that are as favorable to us as those obtained under these combined purchasing arrangements. Although we cannot predict the extent of any such increased costs, it is possible that such costs could have a negative impact on our business and results of operations.

We may have been able to receive better terms from unaffiliated third-parties than the terms provided in our agreements with Motorola, Inc.

The agreements related to our separation from Motorola, Inc., including the Master Separation and Distribution Agreement, Transition Services Agreement, Trademark License Agreement, Intellectual Property Agreements and other agreements, were negotiated in the context of our separation from Motorola, Inc. while we were still part of Motorola, Inc. and, accordingly, may not reflect terms that would have been reached between unaffiliated parties. The terms of the agreements we negotiated in the context of our separation relate to, among other things, allocation of assets, liabilities, rights, indemnifications and other obligations between Motorola, Inc. and us as well as certain ongoing arrangements between Motorola, Inc. and us. Had these agreements been negotiated with unaffiliated third-parties, they might have been more favorable to us. For more information, see the section entitled “Certain Relationships and Related Party Transactions” included elsewhere in this Information Statement.

 

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Motorola SpinCo and Motorola, Inc. might not be able to engage in desirable strategic transactions and equity issuances following the distribution.

To preserve the tax-free treatment to Motorola, Inc. of the distribution, under the Tax Sharing Agreement that we will enter into with Motorola, Inc. and Motorola Mobility, Inc., we will be prohibited from taking or failing to take any action that prevents the distribution and related transactions from being tax-free. Further, for the two-year period following the distribution, we may be prohibited, except in specified circumstances, from:

 

   

entering into any transaction resulting in the acquisition of 40% or more of our stock or 60% or more of our assets, whether by merger or otherwise;

 

   

merging, consolidating or liquidating;

 

   

issuing equity securities beyond certain thresholds;

 

   

repurchasing Motorola SpinCo common stock; and

 

   

ceasing to actively conduct the Motorola SpinCo businesses.

These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. For more information, see the sections entitled “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” and “Certain Relationships and Related Party Transactions—Agreements With Motorola, Inc.—Tax Sharing Agreement” included elsewhere in this Information Statement.

Many contracts will need to be assigned from Motorola, Inc. or its affiliates to us in connection with our separation from Motorola, Inc., and many of these contracts require the consent of the counterparty to such an assignment.

The Master Separation and Distribution Agreement and various local transfer agreements will provide that in connection with our separation from Motorola, Inc., a number of contracts with customers, suppliers, landlords and other third-parties are to be assigned from Motorola, Inc. or its affiliates to Motorola SpinCo or Motorola SpinCo’s affiliates. However, many of these contracts require the contractual counterparty’s consent to such an assignment. Similarly, in some circumstances, we and another business unit of Motorola, Inc. are joint beneficiaries of contracts, and we will need to enter into a new agreement with the third-party to replicate the contract or assign the portion of the contract related to our business. It is possible that some parties may use the requirement of a consent to seek more favorable contractual terms from us. If we are unable to obtain these consents, we may be unable to obtain the benefits, assets and contractual commitments which are intended to be allocated to us as part of our separation from Motorola, Inc. If we are unable to obtain consents with respect to contracts with any of our large customers, the loss of these contracts could negatively impact our financial condition and future results of operations.

In connection with our separation from Motorola, Inc., Motorola, Inc. will indemnify us for certain liabilities and we will indemnify Motorola, Inc. for certain liabilities. If we are required to indemnify Motorola, Inc., we may need to divert cash to meet those obligations and our financial results could be negatively impacted. In the case of Motorola, Inc.’s indemnity, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or as to Motorola, Inc.’s ability to satisfy its indemnification obligations in the future.

Pursuant to the Master Separation and Distribution Agreement, Motorola, Inc. will agree to indemnify us from certain liabilities and we will indemnify Motorola, Inc. for certain liabilities, as discussed further in the

 

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section entitled “Certain Relationships and Related Party Transactions—Agreements With Motorola, Inc.—Master Separation and Distribution Agreement—Indemnification” included elsewhere in this Information Statement. Indemnities that Motorola SpinCo may be required to provide Motorola, Inc. may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature of the distribution. Third-parties could also seek to hold us responsible for any of the liabilities that Motorola, Inc. has agreed to retain. Further, there can be no assurance that the indemnity from Motorola, Inc. will be sufficient to protect us against the full amount of such liabilities, or that Motorola, Inc. will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Motorola, Inc. any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.

A court could deem the distribution to be a fraudulent conveyance and void the transaction or impose substantial liabilities upon us.

A court could deem the distribution or certain internal restructuring transactions undertaken by Motorola, Inc. in connection with the separation to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. A court could void the transactions or impose substantial liabilities upon us, which could adversely affect our financial condition and our results of operations. Among other things, the court could require our stockholders to return to Motorola, Inc. some or all of the shares of our common stock issued in the distribution, or require us to fund liabilities of other companies involved in the restructuring transactions for the benefit of creditors. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the jurisdiction whose law is being applied.

Until the distribution occurs, Motorola, Inc. has the sole discretion to change the terms of the distribution in ways which may be unfavorable to us.

Until the distribution occurs, Motorola, Inc. will have the sole and absolute discretion to determine and change the terms of the distribution, including the establishment of the record date and distribution date. These changes could be unfavorable to us. In addition, Motorola, Inc. may decide at any time not to proceed with the separation.

After the separation, certain of our directors and officers may have actual or potential conflicts of interest because of their equity ownership in Motorola, Inc.

Because of their current or former positions with Motorola, Inc., certain of our directors and executive officers own shares of Motorola, Inc. common stock or hold restricted stock units (“RSUs”), deferred stock units (“DSUs”) or options to acquire shares of Motorola, Inc. Following the distribution, these officers and directors may continue to own shares of Motorola, Inc. common stock and the individual holdings may be significant for some of these individuals compared to their total assets. This ownership may create, or, may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for Motorola, Inc. and Motorola SpinCo.

For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between Motorola SpinCo and Motorola, Inc. regarding the terms of the agreements governing the separation and the relationship thereafter between the companies. Potential conflicts of interest could also arise if Motorola SpinCo and Motorola, Inc. enter into additional commercial arrangements with each other in the future.

 

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Risks Relating to Our Common Stock

There is no existing market for our common stock, and a trading market that will provide you with adequate liquidity may not develop for our common stock. In addition, once our common stock begins trading, the market price of our shares may fluctuate widely.

There is currently no public market for our common stock. It is anticipated that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a “when-issued” basis and will continue up to and including through the Distribution Date. However, there can be no assurance that an active trading market for our common stock will develop as a result of the distribution or be sustained in the future.

We cannot predict the prices at which our common stock may trade after the distribution. The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond Motorola SpinCo’s control, including:

 

   

our business profile and market capitalization may not fit the investment objectives of Motorola, Inc.’s current stockholders and our common stock may not be included in some indices, causing certain holders to sell their shares. Some of this selling pressure may be offset to the extent Motorola SpinCo stock is purchased by other investors due to Motorola SpinCo’s inclusion in other indices;

 

   

a shift in our investor base;

 

   

our quarterly or annual earnings, or those of other companies in our industry;

 

   

actual or anticipated fluctuations in our operating results;

 

   

announcements by us or our competitors of significant acquisitions or dispositions;

 

   

the failure of securities analysts to cover our common stock after the distribution;

 

   

changes in earnings estimates by securities analysts or our ability to meet our earnings guidance;

 

   

the operating and stock price performance of other comparable companies; and

 

   

overall market fluctuations and general economic conditions.

Stock markets in general have also experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could negatively affect the trading price of our common stock.

Substantial sales of common stock may occur in connection with this distribution, which could cause our stock price to decline.

The shares of Motorola SpinCo common stock that Motorola, Inc. distributes to its stockholders generally may be sold immediately in the public market. Although we have no actual knowledge of any plan or intention on the part of any 5% or greater stockholder to sell Motorola SpinCo’s common stock following the separation, it is possible that some Motorola, Inc. stockholders, including possibly some of Motorola, Inc.’s large stockholders and index fund investors, will sell Motorola, Inc. or Motorola SpinCo common stock received in the distribution for various reasons, for example, if our business profile or market capitalization as an independent company does not fit their investment objectives. The sales of significant amounts of our common stock or the perception in the market that this will occur may result in the lowering of the market price of our common stock.

 

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Your percentage ownership in Motorola SpinCo may be diluted in the future.

As with any publicly traded company, your percentage ownership in Motorola SpinCo may be diluted in the future because of equity awards that we expect will be granted to our directors, officers and employees. For a description of the Motorola SpinCo stock incentive plan arrangements and the adjustments being made to outstanding Motorola, Inc. equity awards held by individuals who will become our directors, officers or employees, see the section entitled “The Separation—When and How You Will Receive the Dividend,” “Employment Contracts, Termination of Employment and Change in Control Arrangements—Employment Agreement With Sanjay K. Jha” and “Certain Relationships and Related Party Transactions—Agreements With Motorola, Inc.—Employee Matters Agreement” included elsewhere in this Information Statement.

We do not expect to pay any cash dividends for the foreseeable future.

We presently intend to retain future earnings, if any, to finance our business. As a result, we do not expect to pay any cash dividends for the foreseeable future. All decisions regarding the payment of dividends by our Company will be made by our Board of Directors from time to time in accordance with applicable law. There can be no assurance that we will have sufficient surplus under Delaware law to be able to pay any dividends. This may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of capital expenditures or increases in reserves. If we do not pay dividends, the price of our common stock that you receive in the distribution must appreciate for you to receive a gain on your investment in Motorola SpinCo. This appreciation may not occur. Further, you may have to sell some or all of your shares of our common stock in order to generate cash flow from your investment.

 

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FORWARD-LOOKING STATEMENTS

Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other public statements. These forward-looking statements were based on various facts and were derived utilizing numerous important assumptions and other important factors, and changes in such facts, assumptions or factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. You should understand that the factors described under “Risk Factors” and the following important factors could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

 

   

adverse developments in general business, economic and political conditions or any outbreak or escalation of hostilities on a national, regional or international basis;

 

   

the uncertain economic climate and its impact on the markets in general or on the ability of our suppliers to meet their commitments to us, or the timing of purchases by our current and potential customers, and other general economic and business conditions;

 

   

the impact of our separation from Motorola, Inc. and risks relating to our ability to operate effectively as an independent, publicly traded company;

 

   

changes in our cost structure, management, financing and business operations following our separation from Motorola, Inc.;

 

   

the rapidly changing and intensely competitive nature of the Mobile Devices and Home businesses;

 

   

fluctuations in our operating results, unanticipated delays or accelerations in our sales cycles and the difficulty of accurately estimating revenues;

 

   

competition in our existing and future lines of business and the financial resources of competitors; and

 

   

risks inherent in operating in foreign countries, including the impact of economic, political, legal, regulatory, compliance, cultural, foreign currency fluctuations and other conditions abroad.

Except for historical matters, the matters discussed in this Form 10 of which this Information Statement is a part are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements that relate to, or statements that are subject to risks, contingencies or uncertainties that relate to:

 

   

the expected benefits of the separation;

 

   

our business strategies, plans and objectives, including the anticipated impact of such strategies, plans and objectives;

 

   

our future operating and financial performance;

 

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future levels of revenues, operating margins, income from operations, net income, earnings per share and other financial information;

 

   

expectations regarding the Company’s ability to finance its operations and its ability to obtain, and the cost of, performance related bonds;

 

   

future hedging activities;

 

   

anticipated levels of demand for our products and services;

 

   

expectations regarding our research and development activities and intellectual property, including expectations regarding the competitiveness of the patent portfolio;

 

   

the success or timing of completion of ongoing or anticipated capital or maintenance projects;

 

   

expectations regarding opportunities for growth;

 

   

expectations regarding availability of materials and components, energy supplies and labor;

 

   

the potential effects of judicial or other proceedings and of the financial markets on our business, financial condition, results of operations and cash flows; and

 

   

the anticipated effects of actions of third-parties such as competitors, counterparties, or federal, foreign, state or local regulatory authorities, or plaintiffs in litigation.

In particular, information included under “The Separation,” “Risk Factors,” “Dividend Policy,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain forward-looking statements.

Other factors not identified above, including the risk factors described in the section entitled “Risk Factors” included elsewhere in this Information Statement, may also cause actual results to differ materially from those projected by our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our reasonable control.

You should consider the areas of risk described above, as well as those set forth in the section entitled “Risk Factors” included elsewhere in this Information Statement, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that projected results or events reflected in the forward-looking statements will be achieved or occur. The forward-looking statements included in this document are made as of the date of this Information Statement. We undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

 

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THE SEPARATION

General

On [], 2010, the Motorola, Inc. Board of Directors approved the distribution of all of Motorola, Inc.’s shares of common stock of Motorola SpinCo Holdings Corporation to holders of Motorola, Inc. common stock as of the record date. On [], 201[], the Distribution Date, each Motorola, Inc. stockholder will receive [] share of our common stock for each share of Motorola, Inc. common stock held at the close of business on the record date, as described below. Immediately following the distribution, Motorola, Inc. stockholders will own 100% of our outstanding common stock. You will not be required to make any payment, surrender or exchange your shares of Motorola, Inc. common stock or take any other action to receive your shares of Motorola SpinCo’s common stock.

Furthermore, the distribution of Motorola SpinCo’s common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions. We cannot provide any assurances that the distribution will be completed. For a more detailed description of these conditions, see the caption entitled “Conditions to the Distribution” included elsewhere in this section.

Reasons for the Separation

The Motorola, Inc. Board of Directors believes that separating Motorola, Inc. into two independent, publicly traded companies is in the best interests of Motorola, Inc. and its stockholders, and has concluded that the separation will provide each company with certain opportunities and benefits. The opportunities and benefits that the Motorola, Inc. Board of Directors considered include the following:

 

   

Strategic Focus. Allow each independent company to design and implement corporate strategies and policies that are based on the industries that it serves and its specific business characteristics, including customers, sales cycles and product life cycles.

 

   

Management Focus. Allow management of each independent company to concentrate that company’s resources wholly on its particular markets, customers and core business opportunities. Motorola SpinCo is uniquely suited to address the convergence of mobility, media and the Internet. This creates an opportunity for new devices, applications and services that deliver common functionality, content and mobility to consumers in their home or on the go. Motorola, Inc. is well positioned to focus on its government and enterprise customers, with a broad portfolio of end-to-end mission- and business-critical enterprise systems, products and related services, and on its wireless networks and related telecommunication customers.

 

   

Recruiting and Retaining Employees. Allow each independent company to recruit and retain employees with expertise directly applicable to its needs and pursuant to compensation policies that are appropriate for its specific lines of business. In particular, following the distribution, the value of equity-based incentive compensation arrangements reflected in each company’s stock price should be more closely aligned with the performance of its businesses. Such equity-based compensation arrangements should provide enhanced incentives for employee performance and improve the ability of each company to attract, retain and motivate qualified personnel at all levels of the organization, including those key employees considered essential to that company’s future success.

 

   

Access to Capital. Remove the need for the businesses to compete internally for capital. Instead, both companies will have direct access to the capital markets to fund their respective growth strategies and to establish an appropriate capital structure for their business needs.

 

   

Strategic Flexibility. Provide each independent company increased strategic flexibility to make acquisitions and form partnerships and alliances in its target markets, unencumbered by considerations of the potential impact on the businesses of the other company; and allow each company to effect future acquisitions utilizing common stock for all or part of the consideration, the value of which will be more closely aligned with the performance of its businesses.

 

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Investor Choice. Provide investors in each company with a more targeted investment opportunity with different investment and business characteristics, including different opportunities for growth, capital structure, business models and financial returns. This will allow investors to evaluate the separate and distinct merits, performance and future prospects of each company.

The Motorola, Inc. Board of Directors also considered a number of potentially negative factors in evaluating the separation, including the profitability of the Mobile Devices and Home businesses following the separation, the potential loss of synergies from operating as one company, potential for increased costs for both companies, potential loss of joint purchasing power, potential disruptions to the businesses as a result of the separation, including IT disruptions, negative consequences from allocating the patent portfolio and other intellectual property rights between the two companies, potential for the two companies to compete with one another in the marketplace, potential issues arising from the companies sharing the Motorola brand and logo and using the Motorola Marks, limitations placed on Motorola SpinCo as a result of the Tax Sharing Agreement and other agreements it is expected to enter into with Motorola, Inc. in connection with the distribution, risks of being unable to achieve the benefits expected to be achieved by the separation, risk that the plan of separation might not be completed and both the one-time and ongoing costs of the separation. The Motorola, Inc. Board of Directors concluded that notwithstanding these potentially negative factors, separation would be in the best interests of Motorola, Inc. and its stockholders.

In view of the wide variety of factors considered in connection with the evaluation of the separation and the complexity of these matters, the Motorola, Inc. Board of Directors did not find it useful to, and did not attempt to, quantify, rank or otherwise assign relative weights to the factors considered. The individual members of the Motorola, Inc. Board of Directors may have given different weights to each of the factors.

Formation of a Holding Company Prior to Our Distribution

In connection with our distribution, Motorola, Inc. organized Motorola SpinCo Holdings Corporation as a Delaware corporation for the purpose of transferring to Motorola SpinCo Holdings Corporation all of the entities holding the assets and liabilities of the Mobile Devices and Home businesses, including our principal U.S. operating company, Motorola Mobility, Inc. We often refer to Motorola SpinCo Holdings Corporation as Motorola SpinCo or the Company in this document.

Following the distribution of our shares of common stock to Motorola, Inc.’s stockholders, Motorola, Inc. will continue as a publicly traded company.

The Number of Shares You Will Receive

For each share of Motorola, Inc. common stock that you owned at the close of business on [], 201[], the record date, you will receive [] share of Motorola SpinCo common stock on the Distribution Date.

Treatment of Fractional Shares

The distribution agent will not distribute any fractional shares of our common stock to Motorola, Inc. stockholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds from the sales, net of brokerage fees and other costs, pro rata to each holder who would otherwise have been entitled to receive a fractional share in the distribution. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient stockholders as described in the section “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” included elsewhere in this Information Statement.

 

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When and How You Will Receive the Dividend

Motorola, Inc. will distribute the shares of our common stock on [], 201[], the Distribution Date, to holders of record on the record date. Motorola, Inc.’s transfer agent and registrar, BNY Mellon Shareowner Services (“Mellon”), will serve as transfer agent and registrar for the Motorola SpinCo common stock and as distribution agent in connection with the distribution of Motorola SpinCo common stock.

If you own Motorola, Inc. common stock as of the close of business on the record date, the shares of Motorola SpinCo common stock that you are entitled to receive in the distribution will be issued electronically, as of the Distribution Date, to your account as follows:

 

   

Registered Stockholders. If you own your shares of Motorola, Inc. stock directly, either in book-entry form through an account at Motorola, Inc.’s transfer agent and/or if you hold paper stock certificates, you will receive your shares of Motorola SpinCo common stock by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording stock ownership when no physical paper share certificates are issued to stockholders, as is the case in this distribution.

Commencing on or shortly after the Distribution Date, the distribution agent will mail to you an account statement that indicates the number of shares of Motorola SpinCo’s common stock that have been registered in book-entry form in your name.

If you have any questions concerning the mechanics of having shares of our common stock registered in book-entry form, we encourage you to contact Mellon at the address set forth in the section “The Separation” included elsewhere in this Information Statement.

 

   

Beneficial Stockholders. Most Motorola, Inc. stockholders hold their shares of Motorola, Inc. common stock beneficially through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the stock in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Motorola, Inc. common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares of Motorola SpinCo common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares of common stock held in “street name”, we encourage you to contact your bank or brokerage firm.

Treatment of Equity-Based Compensation

If you hold Motorola, Inc. equity-based compensation, such as stock options or unvested restricted stock units (“RSUs”), on the Distribution Date, you generally will not be entitled to receive shares of Motorola SpinCo common stock in the distribution. Instead, to reflect the distribution, your equity-based compensation interest will be treated as follows:

For the purposes of this section and the following section, (1) “Remaining Motorola, Inc. Employees” refers to former or current officers or employees of Motorola, Inc. or its subsidiaries who either are remaining with Motorola, Inc. or its subsidiaries on or after the Distribution Date or become former officers or employees prior to the Distribution Date other than as a result of their transfer to Motorola SpinCo or its subsidiaries and (2) “Motorola SpinCo Employees” refers to persons who are or will be officers or employees of Motorola SpinCo or its subsidiaries on or after the Distribution Date.

 

   

Stock Options and Stock Appreciation Rights (“SARs”)

 

   

Remaining Motorola, Inc. Employees: Each outstanding Motorola, Inc. stock option to purchase shares of Motorola, Inc. common stock (“Motorola, Inc. stock option”) or Motorola, Inc. SAR that is held by Remaining Motorola, Inc. Employees on the Distribution Date will remain a Motorola, Inc. stock option or Motorola, Inc. SAR, as applicable, subject to the terms of the original stock option or SAR, but the stock option or SAR exercise price and the number of shares subject to the stock option or SAR will be adjusted using a formula designed to generally preserve the intrinsic

 

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value and fair value of the original stock option or SAR immediately prior to the Distribution Date. To the extent the Motorola, Inc. stock option or Motorola, Inc. SAR being adjusted is vested, the adjusted Motorola, Inc. stock option or adjusted Motorola, Inc. SAR, will also be vested. To the extent unvested, the adjusted Motorola, Inc. stock option or adjusted Motorola, Inc. SAR will continue to vest on its existing terms and conditions.

 

   

Motorola SpinCo Employees: Each outstanding Motorola, Inc. stock option or Motorola, Inc. SAR that is held by a Motorola SpinCo Employee on the Distribution Date will be replaced by a substitute stock option to purchase shares of Motorola SpinCo or substitute Motorola SpinCo SAR, as applicable. Each of the substitute Motorola SpinCo stock options or substitute Motorola SpinCo SARs will have the same terms as the Motorola, Inc. stock option or Motorola, Inc. SAR it replaced, but the stock option or SAR exercise price and the number of shares subject to the substitute Motorola SpinCo stock option or substitute Motorola SpinCo SAR will be adjusted using a formula designed to generally preserve the intrinsic value and fair value of the original Motorola, Inc. stock option or Motorola, Inc. SAR immediately prior to the Distribution Date. To the extent the Motorola Inc. stock option or Motorola Inc. SAR being replaced is vested, the substitute Motorola SpinCo stock option or substitute Motorola SpinCo SAR will also be vested. To the extent unvested, the substitute Motorola SpinCo stock option or substitute Motorola SpinCo SAR will continue to vest on its existing terms and conditions.

 

   

Restricted Stock Units (“RSUs”)

 

   

Remaining Motorola, Inc. Employees: Each outstanding unvested Motorola, Inc. RSU without dividend equivalent rights that is held by Remaining Motorola, Inc. Employees on the Distribution Date will remain outstanding, subject to the terms of the original Motorola, Inc. RSU, but the number of RSUs subject to the Motorola, Inc. RSU will be adjusted using a formula designed to generally preserve the intrinsic value and fair value of the original Motorola, Inc. RSU immediately prior to the Distribution Date. Each Motorola, Inc. RSU is intended to be the economic equivalent of one Motorola, Inc. share of common stock. The adjusted Motorola, Inc. RSUs will continue to vest on their existing terms and conditions.

 

   

Motorola SpinCo Employees: Each outstanding unvested Motorola, Inc. RSU without dividend equivalent rights that is held by Motorola SpinCo Employees on the Distribution Date will be replaced by a substitute Motorola SpinCo RSU. Each Motorola SpinCo RSU is intended to be the economic equivalent of one Motorola SpinCo share of common stock. Each of the substitute Motorola SpinCo RSUs will have the same terms as the Motorola, Inc. RSU it replaced, but the number of RSUs subject to the Motorola SpinCo RSU unit will be adjusted using a formula designed to generally preserve the intrinsic value and fair value of the original Motorola, Inc. RSU immediately prior to the Distribution Date. The substitute Motorola SpinCo RSUs will continue to vest on their existing terms and conditions.

Treatment of 401(k) Shares for Current and Former Employees

Remaining Motorola, Inc. Employees invested in the Motorola, Inc. Stock Fund of the Motorola, Inc. 401(k) Plan (U.S. only). Remaining Motorola, Inc. Employees who hold shares of Motorola, Inc. common stock in their Motorola, Inc. 401(k) Plan account as of the record date will be entitled to receive shares of Motorola SpinCo common stock in the distribution. The account of each such Remaining Motorola, Inc. Employee will be credited on the Distribution Date with shares of Motorola SpinCo common stock, based on the distribution ratio, for every share of Motorola, Inc. common stock held in the employee’s account. The Remaining Motorola, Inc. Employees will be obligated to sell the shares of Motorola SpinCo common stock credited to their accounts in the distribution by no later than December 31, 2011. No additional shares of Motorola SpinCo may be acquired and held in the Motorola, Inc. 401(k) Plan by the Remaining Motorola, Inc. Employees.

 

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Motorola SpinCo Employees invested in the Motorola, Inc. Stock Fund of the Motorola, Inc. 401(k) Plan (U.S. only). Motorola SpinCo employees who hold accounts in the Motorola, Inc. 401(k) Plan on December 31, 2010 will have their accounts transferred to the Motorola SpinCo 401(k) Plan, as of January 1, 2011, including any shares of Motorola, Inc. common stock held in the Motorola Stock Fund of the Motorola, Inc. 401(k) Plan. Motorola SpinCo Employees who hold shares of Motorola, Inc. common stock in their applicable 401(k) Plan account as of the record date for the distribution will be entitled to receive shares of Motorola SpinCo common stock in the distribution. On the Distribution Date, shares of Motorola SpinCo common stock, based on the distribution ratio for every share of Motorola, Inc. common stock held in such employee’s stock fund account, will be credited to an account for the employee under the Motorola SpinCo 401(k) Plan. The Motorola SpinCo Employees will be obligated to sell the shares of Motorola, Inc. common stock and Motorola SpinCo common stock credited to their accounts in the distribution by no later than December 31, 2011. No additional shares of Motorola SpinCo or shares of Motorola, Inc. common stock may be acquired and held in the Motorola SpinCo. 401(k) Plan by the Motorola SpinCo Employees.

Results of the Distribution

After our distribution from Motorola, Inc., we will be an independent, publicly traded company. Immediately following the distribution, we expect to have approximately [] stockholders of record, based on the number of registered stockholders of Motorola, Inc. common stock on [], 2010, and approximately [] million shares of Motorola SpinCo common stock outstanding. The actual number of shares to be distributed will be determined on the record date and will reflect any exercise of Motorola, Inc. options and SARS, the vesting of Motorola, Inc. RSUs and the settlement of Motorola, Inc. deferred stock units (“DSUs”) in shares of Motorola, Inc. common stock between the date the Motorola, Inc. Board of Directors declares the dividend for the distribution and the record date for the distribution.

Before the distribution, we will enter into the Master Separation and Distribution Agreement and several other agreements with Motorola, Inc. to effect the separation and provide a framework for our relationship with Motorola, Inc. after the separation. These agreements will provide for the allocation between Motorola SpinCo and Motorola, Inc. of Motorola, Inc.’s assets, liabilities and obligations between Motorola SpinCo and Motorola, Inc. subsequent to the separation (including with respect to transition services, employee benefits, intellectual property, trademark license, tax matters and certain other commercial relationships).

For a more detailed description of these agreements, see the section entitled “Certain Relationships and Related Party Transactions” included elsewhere in this Information Statement.

The distribution will not affect the number of outstanding shares of Motorola, Inc. common stock or any rights of Motorola, Inc. stockholders.

Certain U.S. Federal Income Tax Consequences of the Distribution

The following is a summary of certain material U.S. federal income tax consequences relating to the distribution by Motorola, Inc. This summary is based on the Code, the U.S. Treasury regulations promulgated thereunder, and interpretations of the Code and the U.S. Treasury regulations by the courts and the Internal Revenue Service (“IRS”), in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. This summary does not discuss all the tax considerations that may be relevant to Motorola, Inc. stockholders in light of their particular circumstances, nor does it address the consequences to Motorola, Inc. stockholders subject to special treatment under the U.S. federal income tax laws (including, for example, non-U.S. persons, insurance companies, dealers or brokers in securities or currencies, tax-exempt organizations, banks, financial institutions, mutual funds, pass-through entities and investors in such entities, holders who have a functional currency other than the U.S. dollar, holders who hold their shares as a hedge or as part of a hedging, straddle, conversion, synthetic security, integrated investment or other risk-reduction transaction or who are subject to alternative minimum tax or holders who acquired their shares upon the exercise of employee stock options or otherwise as compensation). In addition, this summary does not address the U.S. federal income tax consequences to those Motorola, Inc.

 

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stockholders who do not hold their Motorola, Inc. common stock as a capital asset. Finally, this summary does not address any U.S. federal taxes other than U.S. federal income tax, and does not discuss any state, local or foreign tax consequences. MOTOROLA, INC. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM.

The distribution is conditioned upon, among other things, Motorola, Inc.’s receipt of either a ruling by the IRS or an opinion of counsel to the effect that the distribution, together with certain related transactions, will qualify as a reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. Motorola, Inc. expects to receive an opinion from counsel that the distribution will so qualify. The opinion will be based on, among other things, certain assumptions and representations made by Motorola, Inc. and us, which if incorrect or inaccurate would jeopardize the conclusions reached by counsel in its opinion. The opinion will not be binding on the IRS or the courts. Assuming the distribution so qualifies: (1) the distribution will not generally result in any taxable income, gain or loss to Motorola, Inc., (2) no gain or loss will be recognized by (and no amount will be included in the income of) Motorola, Inc. common stockholders upon their receipt of shares of Motorola SpinCo common stock in the distribution, except with respect to cash received in lieu of fractional shares, (3) the aggregate basis of the Motorola, Inc. common stock and the Motorola SpinCo common stock (including any fractional share interests in Motorola SpinCo stock for which cash is received) in the hands of each Motorola, Inc. common stockholder after the distribution will equal the aggregate basis of Motorola, Inc. common stock held by the stockholder immediately before the distribution, allocated between the Motorola, Inc. common stock and the Motorola SpinCo common stock (including any fractional share interests in Motorola SpinCo stock for which cash is received) in proportion to the relative fair market value of each immediately following the distribution, and (4) the holding period of the Motorola SpinCo common stock received by each Motorola, Inc. common stockholder (including any fractional share interests in Motorola SpinCo stock for which cash is received) will include the holding period at the time of the distribution for the Motorola, Inc. common stock on which the distribution is made, provided that the Motorola, Inc. common stock is held as a capital asset on the Distribution Date.

Notwithstanding receipt by Motorola, Inc. of the opinion of counsel, the IRS could assert that the distribution does not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in taking this position, our initial public stockholders and Motorola, Inc. could be subject to significant U.S. federal income tax liability. In general, Motorola, Inc. would be subject to tax on gain, if any, as if it had sold the common stock of our company in a taxable sale for its fair market value. In addition, each of our initial public stockholders would be treated as if the stockholder had received a distribution equal to the fair market value of our common stock that was distributed to the stockholder, which generally would be taxed as a dividend to the extent of the stockholder’s pro rata share of Motorola, Inc.’s current and accumulated earnings and profits and then treated as a non-taxable return of capital to the extent of the stockholder’s basis in the Motorola, Inc. common stock and finally as capital gain from the sale or exchange of Motorola, Inc. common stock. Furthermore, even if the distribution were otherwise to qualify under Sections 355 and 368(a)(1)(D) of the Code, it may be taxable to Motorola, Inc. (but not to Motorola, Inc.’s stockholders) under Section 355(e) of the Code, if the distribution were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50% or greater interest in Motorola, Inc. or us. For this purpose, any acquisitions of Motorola, Inc. stock or of our common stock within the period beginning two years before the distribution and ending two years after the distribution are presumed to be part of such a plan, although we or Motorola, Inc. may be able to rebut that presumption.

In connection with the distribution, we, Motorola, Inc. and Motorola Mobility, Inc. will enter into a Tax Sharing Agreement pursuant to which we will agree to be responsible for certain liabilities and obligations following the distribution. In general, under the terms of the Tax Sharing Agreement, in the event the distribution were to fail to qualify for tax-free treatment for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code (including as a result of Section 355(e) of the Code) and if such failure was the result of actions taken after the distribution by Motorola, Inc. or us, the party responsible for such failure would be responsible for all taxes imposed on Motorola, Inc. to the extent that such taxes result from such actions. However, if such failure was the result of any acquisition of our shares, we would be responsible for all taxes imposed on Motorola, Inc. as a result of such acquisition. For a more detailed discussion, see the section entitled

 

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Certain Relationships and Related Party Transactions—Agreements with Motorola, Inc.—Tax Sharing Agreement” included elsewhere in this Information Statement. Our indemnification obligations to Motorola, Inc. and its subsidiaries, officers and directors are not limited in amount or subject to any cap. If we are required to indemnify Motorola, Inc. and its subsidiaries and their respective officers and directors under the circumstances set forth in the Tax Sharing Agreement, we may be subject to substantial liabilities.

Motorola, Inc. may incur some tax cost in connection with the distribution (as a result of certain intercompany transactions or as a result of certain differences between federal, on the one hand, and state, local and foreign tax rules, on the other), whether or not the distribution qualifies for tax-free treatment under Sections 355 and 368(a)(1)(D) of the Code.

U.S. Treasury regulations require certain stockholders that receive stock in a distribution to attach to their U.S. federal income tax return for the year in which the distribution occurs a detailed statement setting forth certain information relating to the tax-free nature of the distribution. U.S. Treasury regulations also generally provide that if a Motorola, Inc. common stockholder holds different blocks of Motorola, Inc. common stock (generally shares of Motorola, Inc. common stock purchased or acquired on different dates or at different prices), the aggregate basis for each block of Motorola, Inc. common stock purchased or acquired on the same date and at the same price will be allocated, to the greatest extent possible, between the shares of Motorola SpinCo common stock received in the distribution in respect of such block of Motorola, Inc. common stock and such block of Motorola, Inc. common stock, in proportion to their respective fair market values, and the holding period of the shares of Motorola SpinCo common stock received in the distribution in respect of such block of Motorola, Inc. common stock will include the holding period of such block of Motorola, Inc. common stock, provided that such block of Motorola, Inc. common stock was held as a capital asset on the Distribution Date. If a Motorola, Inc. common stockholder is not able to identify which particular shares of Motorola SpinCo common stock are received in the distribution with respect to a particular block of Motorola, Inc. common stock, for purposes of applying the rules described above, the stockholder may designate which shares of Motorola SpinCo common stock are received in the distribution in respect of a particular block of Motorola, Inc. common stock, provided that such designation is consistent with the terms of the distribution. Holders of Motorola, Inc. common stock are urged to consult their own tax advisors regarding the application of these rules to their particular circumstances.

THE FOREGOING IS A SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. THE FOREGOING DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS. EACH MOTOROLA, INC. STOCKHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.

Market for Common Stock

There is not currently a public market for Motorola SpinCo’s common stock. A condition to the distribution is the listing on the NYSE of our common stock. We intend to apply to list Motorola SpinCo common stock on the NYSE under the symbol “[].”

Trading Between the Record Date and Distribution Date

Beginning on or shortly before the record date and continuing up to and including through the Distribution Date, we expect that there will be two markets in Motorola, Inc. common stock: a “regular-way” market and an “ex-distribution” market. Shares of Motorola, Inc. common stock that trade on the regular-way market will trade

 

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with an entitlement to receive shares of Motorola SpinCo common stock distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to receive shares of Motorola SpinCo common stock distributed pursuant to the distribution. Therefore, if you sell shares of Motorola, Inc. common stock in the “regular-way” market after the close of business on the record date and up to and including through the Distribution Date, you will be selling your right to receive shares of Motorola SpinCo common stock in the distribution. If you own shares of Motorola, Inc. common stock at the close of business on the record date and sell those shares on the “ex-distribution” market, up to and including through the Distribution Date, you will still receive the shares of Motorola SpinCo common stock that you would be entitled to receive pursuant to your ownership of the shares of Motorola, Inc. common stock.

Furthermore, beginning on or shortly before the record date and continuing up to and including through the Distribution Date, we expect that there will be a “when-issued” market in our common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for shares of Motorola SpinCo common stock that will be distributed to Motorola, Inc. stockholders on the Distribution Date. If you owned shares of Motorola, Inc. common stock at the close of business on the record date, you would be entitled to shares of our common stock distributed pursuant to the distribution. You may trade this entitlement to shares of Motorola SpinCo common stock, without trading the shares of Motorola, Inc. common stock you own, on the “when-issued” market. On the first trading day following the Distribution Date, “when-issued” trading with respect to Motorola SpinCo common stock will end and “regular-way” trading will begin.

Conditions to the Distribution

We expect that the distribution will be effective on [], 201[], the Distribution Date, provided that, among other conditions described in the Master Separation and Distribution Agreement, the following conditions shall have been satisfied or waived by Motorola, Inc., if permissible under the Master Separation and Distribution Agreement:

 

   

the Securities and Exchange Commission (“SEC”) will have declared effective our registration statement on Form 10, of which this Information Statement is a part, with no stop order relating to the registration statement being in effect and the Information Statement will have been mailed to Motorola, Inc.’s stockholders;

 

   

any required actions and filings with regard to state securities and blue sky laws of the U.S. (and any comparable laws under any foreign jurisdictions) will have been taken and, where applicable, have become effective or been accepted;

 

   

the Motorola SpinCo common stock will have been accepted for listing on the NYSE, on official notice of issuance;

 

   

Motorola, Inc. will have received either a ruling by the IRS or an opinion of counsel to the effect that the distribution, together with certain related transactions, will qualify as a tax-free reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code and such ruling or opinion shall be in form and substance satisfactory to Motorola, Inc. in its sole discretion;

 

   

no order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution will be in effect and no other event outside the control of Motorola, Inc. will have occurred or failed to occur that prevents the consumation of the distribution;

 

   

the Master Separation and Distribution Agreement will not have been terminated;

 

   

any government approvals and other material consents necessary to consummate the distribution will have been obtained and be in full force and effect; and

 

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Motorola, Inc. will have received, in form and substance satisfactory to it, (i) an opinion of counsel, among other things, regarding the appropriateness of the determination by the Motorola, Inc. Board of Directors that Motorola, Inc. has sufficient surplus under Delaware law to permit the distribution, (ii) an opinion from its financial advisor with respect to the ability of Motorola, Inc. and Motorola SpinCo to finance their respective operating and capital requirements through a specified date based on conditions in the capital markets as of the date of such opinion, and (iii) certificates from Motorola, Inc. and Motorola SpinCo with respect to factual matters required by the advisors to render the opinions referenced in (i) and (ii).

The fulfillment of the foregoing conditions does not create any obligations on Motorola, Inc.’s part to effect the distribution, and the Motorola, Inc. Board of Directors has reserved the right, in its sole discretion, to abandon, modify or change the terms of the distribution, including by accelerating or delaying the timing of the consummation of all or part of the distribution, at any time prior to the Distribution Date.

Reason for Furnishing this Information Statement

This Information Statement is being furnished solely to provide information to Motorola, Inc. stockholders who are entitled to receive shares of our common stock in the distribution. The Information Statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities. We believe that the information in this Information Statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither Motorola, Inc. nor we undertake any obligation to update such information except in the normal course of our respective public disclosure obligations.

DIVIDEND POLICY

We presently intend to retain future earnings, if any, to finance our business. As a result, we do not expect to pay any cash dividends for the foreseeable future. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors deems relevant. There can be no assurance that we will continue to pay any dividend even if we commence the payment of dividends.

 

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CAPITALIZATION

The following table, which should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Combined Financial Statements” and the historical financial statements and accompanying notes included elsewhere in this Information Statement, sets forth our cash and cash equivalents and combined capitalization as of December 31, 2009 and April 3, 2010, on a historical basis and on a pro forma basis after giving effect to the planned transactions to be effected prior to the distribution of Motorola SpinCo Holdings Corporation common stock to Motorola, Inc.’s stockholders, including the formation of Motorola SpinCo and its subsidiaries and the contribution to Motorola SpinCo and its subsidiaries of all the assets and liabilities of the Mobile Devices and Home businesses along with the related issuance of [] shares of Motorola SpinCo common stock to holders of Motorola, Inc. common stock.

 

     As of December 31, 2009    As of April 3, 2010
($ in millions)    Historical    Pro Forma    Historical    Pro Forma

Cash and cash equivalents

   $    N/A    $    $ []

Business equity

     1,939    N/A      1,785      []
      

Total capitalization

   $ 1,939    N/A    $ 1,785    $ []
 

 

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BUSINESS

General

Motorola SpinCo Holdings Corporation is a leading provider of innovative technologies, products and services that enable a broad range of mobile and wireline digital communication, information and entertainment experiences. The Company’s integrated products and platforms deliver rich multimedia content, such as video, voice, messaging and Internet-based applications and services to multiple screens, such as mobile devices, televisions and personal computers (“multi-screens”). Our product portfolio primarily includes mobile devices, wireless accessories, set-top boxes and video distribution systems, and wireline broadband infrastructure products and associated customer premises equipment. We are focused on developing differentiated, innovative products to meet the expanding needs of consumers to communicate, to collaborate and to discover, consume, create and share content at a time and place of their choosing on multiple devices. We operate our business in two reporting segments, our Mobile Devices segment and our Home segment.

We believe we are well positioned to enable the evolving digital lifestyle by delivering multi-screen experiences across multiple types of devices. Previously separate industries like the wireless, media, the Internet and computing industries are increasingly interacting with each other, creating consumer demand for new devices, applications and services, including cloud-based services. Cloud-based refers to a computing environment where applications and content are shared and delivered over the network using resources that might be located in a single data center, distributed across a number of data centers, or spread throughout the entire network. We offer devices that support these new applications and services like the DROID by MOTOROLA family of smartphones. MOTOBLUR, our cloud-based service platform, manages, aggregates, automatically delivers (referred to as “push”) and uploads personalized digital content, such as photos, videos and social networking updates. We are also a leading provider of products and services for the delivery of video, voice and data to the home. Our businesses have complementary core strengths and synergies in intellectual property, technology, design, distribution and operator and carrier relationships, which together with a global brand uniquely position us to capitalize on emerging opportunities.

The relationship between consumers, devices and the world around them is rapidly evolving due to the convergence of wireless, media, the Internet and computing, and consumers’ demand for anywhere, anytime communications and collaboration. This convergence is enabling new digital lifestyles, as demonstrated by the following key trends, including:

 

   

Adoption of wireless and wired broadband Internet connectivity;

 

   

Increased use of social networking across multiple devices;

 

   

Growth of online and mobile video; and

 

   

Widespread use of online and mobile commerce.

These digital lifestyles are characterized by new engagement models. Consumers want to:

 

   

Communicate using voice, text, instant messaging, email, social networking and blogs;

 

   

Rapidly access information through broadband connectivity anywhere and anytime;

 

   

Consume and interact with entertainment and media content;

 

   

Capture and share user generated content, such as photos and videos; and

 

   

Purchase goods and services through online and mobile commerce.

 

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We sell our products globally, and in 2009, our net revenues were $11.1 billion. We have over 20,000 employees and we operate in approximately 40 countries, with major facilities in the U.S., China, Brazil and Taiwan. Our direct customers are large, leading telecommunications and cable operators. In 2009, our biggest customers were Verizon, Sprint Nextel and Comcast. We also sell our products through retailers and distributors. We are strongly committed to research and development and we have a broad portfolio of approximately 16,500 granted patents and approximately 8,000 pending patent applications worldwide.

Business Segments

We report financial results for the following two business segments:

Mobile Devices Segment

The Mobile Devices segment is a provider of mobile devices and related products and services designed to deliver mobile communications, such as voice, messaging, push-to-talk and video, and to deliver mobile Internet access and content, including multimedia, social networking, navigation and other mobile applications. We have a long history of innovation in wireless communications including the development of the world’s first portable cellular phone. Mobile Devices net revenues represented 65% and 66% of Motorola SpinCo’s combined net revenues in 2009 and the first quarter of 2010, respectively.

Our Products

We design, manufacture and sell a broad range of mobile devices encompassing multiple network technologies, form factors (which are the physical look and mechanical function of a device), capabilities, price points and geographies. Our product portfolio of mobile devices includes smartphones, which are wireless phones with advanced Internet browsing and application capabilities, feature-phones, which are wireless phones with limited internet browsing and application capabilities, and voice-centric phones. We also provide complementary mobile software, services, and accessories and license our extensive portfolio of intellectual property. We market our products globally to mobile network operators and carriers (collectively “wireless carriers”) and consumers through direct sales, retailers, and distributors.

Our Industry

Over the last ten years, the mobile devices industry has grown rapidly. Informa Telecoms & Media, an independent market research firm, estimates there were approximately 4.6 billion mobile subscriptions in 2009 and this number is forecasted to grow to 6.5 billion mobile subscriptions by 2012. This growth will be driven in part by the widespread availability of wireless networks, reduced end-user device and service costs, and expanded device functionality. According to Gartner’s Forecast Mobile Devices worldwide 2Q 2010, 1.2 billion mobile devices were sold to end customers in 2009 and 1.6 billion mobile devices are forecasted to be sold to end customers in 2012, representing a 9% compound annual growth rate (“CAGR”). Much of the market demand will be fueled by smartphones as the mobile devices industry continues to shift from voice-centric devices to data-centric devices. Gartner forecasts smartphones (devices based on open operating systems), will grow from 172 million units in 2009 to 484 million units by 2012, representing a 41% CAGR. In addition, wireless connectivity is being integrated into new classes of devices (“converged devices”) including e-readers, gaming devices, media tablets and netbooks, creating new growth opportunities for mobile devices manufacturers.

Key drivers of mobile device growth include:

 

   

Growing Consumer Demand for Multi-Function Devices. The mobile device is evolving from a voice-only communications device to a multi-function device with features like digital still camera, video camera, music player, organizer, Internet browsing and gaming. Consumers’ desire for mobile data and their evolving communication patterns will continue to drive the demand for devices with enhanced,

 

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personalized mobile experiences, including easy access to the Internet, content and applications on a real-time basis.

 

   

Wireless Carriers’ Focus on Growing Data ARPU. In response to intense competition and shifting consumer communication behavior, we expect wireless carriers to continue to focus on increasing data average revenue per user (“ARPU”) to offset declining voice ARPU. To drive data ARPU, we believe wireless carriers will continue to promote smartphones and converged devices that provide Internet access, applications and services. In addition, wireless carriers are continuing to deploy higher bandwidth wireless technologies such as 4G to better support smartphones and converged devices that enhance consumers’ overall mobile experience.

 

   

Advanced Device Technology. High performance mobile microprocessors, advanced mobile browsers, and high speed wireless networks are enabling mobile devices to provide functionality similar to what consumers experience on a personal computer. Advanced operating systems have enabled third-party developers to create thousands of new innovative mobile applications that consumers can easily download and install on their mobile devices.

 

   

Emergence of Mobile Cloud-Based Services. Increasingly, cloud-based services and applications are being used to deliver information and content to mobile devices. Examples of these services include sharing and consumption of media, social networking and location based services, such as navigation.

Mobile device manufacturers compete in a rapidly evolving marketplace. To be successful, manufacturers must consistently innovate and deliver a differentiated product portfolio. This requires extensive intellectual property assets and expertise in the integration of hardware, software and, increasingly, services. Manufacturers must also have strong wireless carrier relationships, global distribution capabilities, a strong brand and the ability to effectively build or work within a growing ecosystem of applications.

Our Strengths

We believe the strengths of our Mobile Devices segment position us well to bring to market innovative and differentiated products and services. Our key strengths include:

 

   

Innovative Mobile Technologies. We have a long history of developing innovative mobile devices including the first portable cellular phone, the StarTAC® and RAZR® phones and, more recently the DROID by MOTOROLA family of smartphones. We have devoted extensive research and development resources into integrating advanced technologies such as multiple radio interfaces, mobile microprocessors, advanced mobile operating systems and advanced multimedia functionality and industrial design into our mobile devices. In addition, we have extended our expertise into software application and services development to create the MOTOBLUR service platform.

 

   

Broad Product Portfolio. Our broad and diverse global product portfolio includes smartphones, feature phones and voice-centric devices. This portfolio extends across various wireless technologies, capabilities, form factors and price points.

 

   

Deep Customer Relationships. We have extensive relationships with wireless carriers, retailers and global distributors that have been in place for many years. Our global sales organization markets our portfolio of devices and services around the world.

 

   

Strong Patent Portfolio. We have developed an extensive portfolio of intellectual property assets through our significant and continued investment in research and development. The intellectual property assets held by our Mobile Devices segment include approximately 14,600 granted patents and 6,700 pending patent applications, worldwide, which are complemented by another approximately

 

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1,900 granted patents and 1,300 pending patent applications, worldwide, held by our Home segment for a total held by our two segments of approximately 16,500 granted patents and 8,000 pending patent applications, worldwide. These patents and patent applications are directed to inventions in areas such as wireless, audio, video, design and user interface (“UI”).” Further, we believe our portfolio of patents in 4G will position us well in the upcoming technology transition from 2G and 3G.

 

   

Global Brand. Our highly recognizable and successful global brand has been in use for 80 years. We believe our brand is associated with quality, reliability and innovation.

Our Strategy

We are committed to provide a broad portfolio of smartphones and other converged devices that will enhance the mobility of the Internet and deliver interactive, personalized multi-screen experiences and services to consumers around the world. The convergence of these experiences and services onto a single mobile device requires integration of hardware, software, services and UI, which we believe we can provide with our mobile devices. We will also selectively develop devices which target other segments of the mobile device market, including feature phones, and voice-centric devices.

We plan to differentiate ourselves from competitors along a number of dimensions. We will differentiate our portfolio by providing a broad array of innovative and integrated smartphone devices encompassing multiple price points, technologies and geographies. We will also differentiate our products through our global distribution reach, highly recognized brand and extensive customer relationships. As the new digital lifestyle continues to evolve, we plan to take advantage of our capabilities in mobile and wireline communications to meet consumers’ increasing demands to communicate and collaborate inside and outside the home effortlessly on multiple devices. Key elements of our strategy include:

Capitalize on Our Leading Technology Position. We believe that open-source platforms foster rapid innovation and encourage third-party development of applications and services, resulting in an expansive ecosystem of consumer experiences and entertainment. We are currently using the AndroidTM operating system, a royalty-free open-source platform developed by Google, to develop our portfolio of smartphones, which currently has a large offering of applications and services.

We intend to differentiate certain of our product offerings by using the Android operating system with MOTOBLUR. This platform aggregates data such as social network updates, email and calendar and automatically pushes data to the device rather than requiring the user to login individually to multiple services, which increases network traffic and reduces battery life.

As data consumption continues to increase, next-generation wireless technologies will be critical to ensure efficient use of wireless carriers’ spectrum. We continue to invest in next-generation wireless technologies, including evolved high speed packet access (“HSPA+”) and 4G, including long-term evolution (“LTE”). These investments will enable us to develop devices for high speed networks to enable delivery of converged services and media.

As the new digital lifestyle continues to evolve, we plan to develop advanced mobile devices to meet consumers demand to communicate and collaborate inside and outside the home and access and use their data wherever it is located. Advanced mobile devices are a critical component to enable multi-screen experiences.

Extend Our Product Portfolio. We will continue to focus the development of our portfolio on addressing three segments of the overall mobile device market: (1) smartphones and other converged devices, (2) feature phones, and (3) lower priced, voice centric phones.

Our primary product portfolio focus is developing and marketing a broad portfolio of smartphones and other converged devices. We will continue to expand our portfolio of mobile devices, by offering smartphones that operate

 

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on high speed wireless networks, including evolution data optimized (“EVDO”), high speed packet access (“HSxPA”) and LTE networks. We plan to address multiple price points, ranging from entry level smartphones to premium priced devices. Devices will continue to be differentiated by a variety of factors, including form factor, price, processor speed, display size and consumer experience. One of the key experiences we plan to utilize in certain smartphone products is MOTOBLUR. Moreover, we are enhancing the ecosystem of services and applications available to Android-based smartphones through our Motorola developer network (“ MotoDev”) application development program that provides information and tools for Android application developers. Our smartphone portfolio will initially be targeted at the North America and China markets. As our position in those markets strengthens, we will increase our focus on other markets, including Western Europe, Latin America and other parts of Asia.

In the feature phone market, we will develop a limited number of phones for specific customers or applications. This may include rugged devices for certain wireless carriers and integrated digital enhanced network (“iDEN”) push-to-talk devices. Our feature phone portfolio will be focused primarily on North American based customers.

In order to enhance brand awareness and meet customer requirements in certain markets, we will utilize original design manufacturers (“ODMs”) to develop a portfolio of lower-priced, voice-centric mobile devices. These devices will be our lowest priced devices and will be aimed primarily at retailers and distributors in emerging markets.

Leverage Customer Relationships and Global Distribution. We currently market our mobile devices portfolio to leading wireless carriers, distributors and retailers across the globe through our global sales organization. We recently strengthened our relationship with our customers through the launch of several smartphones in North America, China, Western Europe, Korea and Latin America in 2009 and 2010. We plan to continue to build upon these relationships and use our global reach to drive future business growth.

Maximize Our Intellectual Property. With approximately 16,500 granted patents and approximately 8,000 pending patent applications, worldwide, held by our two segments, we believe we have one of the strongest portfolios of intellectual property assets in the wireless industry. Areas of strength include wireless technologies, video, security, UI, and design. We will use our intellectual property and seek to expand our intellectual property portfolio to maintain our competitive position.

Market Our Products Under Our Highly Recognizable Global Brand. Our brand has been in use for 80 years and we believe it is associated with quality, reliability and innovation. We plan to strengthen our brand through advertising and marketing of our products globally.

Competition

The mobile devices market is highly competitive. Competitors include traditional mobile device manufacturers, as well as new competitors who have entered the market in the last several years. As market demand continues to shift toward smartphones, additional competitors may enter the mobile devices market. Our primary competitors include Apple, HTC, LG, Nokia, Research in Motion, Samsung, and Sony-Ericsson.

As reported by Strategy Analytics, in 2009, these seven mobile device manufacturers held an aggregate market share of approximately 79%. In 2009, our overall mobile devices market share decreased significantly compared to 2008 and we were the fifth-largest worldwide supplier of mobile devices. In the fourth quarter 2009, we introduced our first smartphones using the Android operating system. According to Gartner’s “Market Share Share: Mobile Devices and Smartphones 1Q10,” from the fourth quarter 2009 through the first quarter 2010, we have gained share in the smartphone segment of the mobile device market and in North America, our largest market, in the first quarter of 2010, we were the third largest provider of smartphones.

 

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Home Segment

The Home segment is a leading provider of products and services to cable operators and wireline telecommunications (“telco”) service providers (collectively, “network operators”) that enable the delivery of video, voice and data services to consumers. Our product portfolio primarily includes interactive set-top boxes, end-to-end digital video and Internet protocol television (“IPTV”) distribution systems, broadband access infrastructure platforms, and associated data and voice customer premises equipment (“CPE”). Home net revenues represented 35% and 34% of Motorola SpinCo’s combined net revenues in 2009 and the first quarter of 2010, respectively.

Our Products

Our products and services are used by content providers and network operators throughout the delivery network, and consumers in the home.

 

   

We are a leader in providing set-top boxes and data and voice modems on consumers’ premises. We provide a broad array of set-top boxes for network operators that support standard definition TV and high definition television (“HDTV”) delivery including set-top boxes with integrated digital video recorder (“DVR”) capability. Our set-top boxes support a variety of delivery architectures including conventional cable TV, IPTV and hybrid IP/conventional environments. We also supply modems and gateways for data over cable service interface specification (“DOCSIS”) 3.0, digital subscriber line (“DSL”) and passive optical networks (“PON”).

 

   

We provide a wide range of network equipment to transport signals to and from the end-user premises. Our cable modem termination systems (“CMTS”) for DOCSIS 3.0 networks and our optical headend and network equipment enable network operators to deliver video, data and voice services.

 

   

Our products are used by network operators to process, deliver and manage video, voice and data services. We provide integrated receiver decoders (“IRDs”), multiplexers and transcoders that receive content from the content providers for redistribution over the operators’ networks. We also provide encoders for local programming, video-on-demand (“VOD”) servers and multiplexers for placement of advertising streams. Our portfolio includes software that enables the delivery and management of multi-screen experiences across a wide range of cable, telco and wireless platforms. Our products include security solutions used between the headend and the home and device management technology for set-top boxes and modems.

 

   

We are a leading supplier to content providers. Our Moving Picture Experts Group (“MPEG”)-compliant standard-definition (“SD”) and HDTV video encoding, as well as processing and multiplexing equipment is used by leading content providers to deliver programming to network operators’ headends and central offices. Our conditional access technology secures the video content during transmission.

Our Industry

Over the last 15 years, video delivery technology has converted from analog to digital, greatly increasing program choices for consumers and enabling new capabilities such as HDTV, VOD and interactive services. During this period, both traditional cable operators and telcos have expanded their offerings to deliver video, voice and data services (“triple play”). The triple play packages and advances in wireless data technology are allowing consumers to be in touch and access the same entertainment and information inside and outside the home.

Providing video, voice and data services to consumers is a highly competitive business and our customers compete aggressively to provide individual services, triple play packages and even quad play packages, which also include mobile voice and data services. The competitive environment is driving operators to enhance and expand service offerings by adding more high definition (“HD”) channels, three dimensional television (“3D-TV”), increasing data speeds, mobile data services and providing new experiences that bridge conventional TV

 

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and Internet services. Enabling these new capabilities is driving network operators to regularly upgrade their networks and in-home devices, such as set-top boxes and other customer premises equipment such as modems.

In 2009, adverse macroeconomic conditions caused a slowdown in data and digital video subscriber additions for our customers which, in turn, led to reduced spending by those customers. As economic conditions continue to improve, we expect our customers to invest in and use technology advancements to deliver new experiences.

Today, the highest adoption of advanced video technologies like HDTV and DVR is in the U.S. where the Consumer Electronics Association estimates that 65% of households have an HDTV and 42% have a DVR device. However, there remains growth opportunity in the U.S. as the adoption of advanced video technologies continues. In addition, the majority of global TV households have only begun to adopt these technologies. According to IMS Research (“IMS”), there were 351 million digital TV households that purchased video programming from cable, satellite and telco providers in 2009 and that number is expected to grow to 535 million by 2012, representing a 15% CAGR. IMS also estimates the number of global residential broadband subscribers will grow from 420 million at the end of 2009 to 586 million at the end of 2012, representing a 12% CAGR.

The consumer viewing experience is expanding beyond the TV and consumers now also watch video programming on Internet Protocol (“IP”)-enabled devices, such as PCs, media tablets and smartphones. Video delivery requires substantially more bandwidth than other data services and its growth is driving operators to upgrade their network and customer premises equipment. This expanded data capacity is allowing new content providers and aggregators to use the service providers’ high speed data networks to provide over-the-top (“OTT”) services to consumers. These OTT providers sell content directly to the consumer and deliver it to the consumer’s IP-enabled devices and web-capable BluRay players, TV’s and consumer-purchased set-top boxes. Competition from OTT services is driving network operators to invest to expand their content choices, upgrade their networks and enhance their consumer experiences across TVs, PCs and wireless devices.

Our Strengths

We believe our key strengths position us well to be a leading provider of products and services to network operators. Our key strengths include:

 

   

A Long History of Innovation. We introduced our first cable TV system products in 1950 and have been a major supplier of cable network and in-home products for 60 years. We enabled the first pay-per-view event and launched the first all digital HDTV system. Our industry leadership also includes “firsts” in digital video compression and encryption. We were a pioneer in cable modems, produced the first HD set-top boxes with integrated DVR and developed the first multi-room DVR content distribution system.

 

   

Broad Portfolio of Infrastructure and Devices. We offer a broad portfolio of infrastructure and devices to enable network operators to deliver video, data and voice services. We are an industry leader in providing interactive set-top boxes supporting the major video delivery technologies. We are experienced in enabling video networks with a complete portfolio of video processing equipment and in building broadband access networks.

 

   

Strategic Customer Relationships. Through our global sales organization, we market our portfolio of infrastructure and devices to network operators around the world. In North America, our largest market, we are a provider to all of the top ten cable and telco service providers that provide video services to the premise and together account for over 90% of digital video subscribers. As a result of our history of supplying the industry, we have a large installed base of infrastructure and devices which positions us well to participate in network upgrades.

 

   

Extensive Intellectual Property and Industry Standards Leadership. We have made substantial contributions to industry standards such as MPEG for video compression, Advanced Television

 

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Systems Committee (“ATSC”) for digital TV transmission and DOCSIS for data transmission over cable systems. We believe that being at the forefront of these standardization efforts positions us as a leader in new technology adoption and gives us time-to-market advantages. The Home segment also has a strong intellectual property portfolio with approximately 1,900 granted patents and 1,300 pending patent applications, worldwide, and this portfolio is complemented by the portfolio of the Mobile Devices segment.

 

   

Protection and Security of High-Value Content and Devices. Our industry leading conditional access technology is used by major content providers to protect the content they distribute to network operators and has been deployed by network operators to deliver content to consumers for over 15 years in over 100 million set-top boxes. We believe our core security intellectual property and extensive experience in securing high-value content position us to provide digital rights management (“DRM”) technology for content protection in the multi-screen video market.

Our Strategy

Our Home segment is a leading provider of products for the delivery of video, data and voice services. We are focused on leading the development of next-generation broadband solutions which will enable the delivery of personalized media experiences across multiple devices. Key elements of our strategy include:

Expand Our Product Portfolio and Capabilities to Support Multi-screen Convergence and 3D Technology. We are focusing on enabling consumers to view video content on multiple screens such as PCs and mobile devices. We are developing products and software for securely streaming and shifting content and enhancing the content experience through linkage with social networking. We have also begun to incorporate the capability to support 3D-TV in our advanced set-top boxes and for our video infrastructure products to support the network operators’ launch of 3D programming when it occurs.

Increase Digital Adoption by Customers of Network Operators in North America. We are working to increase adoption of digital technology by network operators in North America through a portfolio of enhanced set-top boxes. These products range from basic models supporting the industry movement to all digital delivery and advanced units with HD and DVR functions, as well as network-enabled devices that support multi-room DVR playback and access to IP-delivered content. Adoption of digital technology by network operators is a key driver of growth for our business.

Increase Our Sales Outside the U.S. We also are investing to grow our business globally to capitalize on the growth of video and data services in markets outside North America. We are leveraging our technology portfolio to capitalize on the growth of HDTV in Europe, Middle East and Africa (“EMEA”) and Asia as well and the demand for increased data speeds that are driving infrastructure investment. We also are pursuing a number of opportunities in new markets where customers are looking to deploy advanced networks to enable triple play services.

Continue to Enhance Our Intellectual Property Portfolio. We also are building our intellectual property portfolio to address the changing video network architecture with hybrid IP devices and multimedia home gateways that enable the integration of IP-enabled applications. We are developing software for the network operator’s core network that supports the convergence of the video, data and voice service platforms to deliver integrated experiences. In addition, we are developing in-home and mobile media platforms that use IP-enabled CPE devices and applications to support the discovery and consumption of content across in-home and mobile devices by providing personalized services and social collaboration.

Pursue Complementary Technology Through Acquisitions. We regularly evaluate opportunities to acquire capabilities that complement our internal research and development. We have historically acquired various businesses and technologies to grow our capabilities. We expect to continue targeting acquisition candidates that have complementary technology and products. We also expect to evaluate acquisition candidates that will enable us to expand our business internationally or enter adjacent markets.

 

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Competition

Our set-top boxes and cable and wireline infrastructure equipment products compete in global markets that are highly competitive. We have a broad array of competitors including those with whom we compete across multiple product categories and those who are focused on products in a portion of our portfolio. The rapid technology changes occurring in the markets in which this segment competes may lead to the entry of new competitors. Competitive factors in the market for our products and systems include: technology, product and system performance, price, time-to-market, product features, quality, delivery and availability. Currently, our primary competitors include Cisco, Pace and Arris.

The cable industry had a long history of protecting the video content transmitted over its network by using a conditional access system that was integrated into the set-top box. The Federal Communications Commission (“FCC”) passed regulations that took effect in 2007 requiring separation of security functionality from the set-top box. These regulations enable competitors to sell set-top boxes to cable operators and enable retail distribution of TVs and other devices that are capable of accessing encrypted cable programming through use of a cable operator-supplied security module. Several major cable operators support a full two-way security interface, which allows consumers with such a retail device to access all programming available on the operator’s network without the need for an operator-provided set-top box. As a result, we face competition from several new manufacturers which are able to supply set top boxes to operators, and, to a lesser extent, from consumer electronics manufacturers which sell directly through retail.

Other Information

Customers

Motorola SpinCo’s products are primarily sold through wireless carriers, network and cable operators and to end consumers. In 2009, aggregate net revenues from our five largest customers represented approximately 47% of our revenues. During 2009, approximately 17% of net revenues were from Verizon Communications Inc. (including Verizon Wireless) (“Verizon”) and approximately 13% of net revenues were from Sprint Nextel. In 2009, our two largest markets by locale of end customer were North America, accounting for 63% of sales, and Latin America, accounting for 16% of sales. Motorola SpinCo has several large customers, the loss of one or more of which could have a material adverse effect on us.

In 2009, aggregate net revenues from the Mobile Devices segment’s five largest customers, which included Verizon and Sprint Nextel, among others, represented approximately 54% of the segment’s net revenues. In addition to selling directly to wireless carriers, our Mobile Devices business also sells products through a variety of third-party distributors and retailers, which accounted for approximately 21% of the segment’s net revenues in 2009.

In 2009, aggregate net revenues from the Home segment’s five largest customers, primarily large cable operators and telecommunication companies located throughout the world, such as Verizon and Comcast, represented approximately 54% of the segment’s net revenues.

In 2009, North America was both segments’ largest market based on locale of end customer, accounting for 60% of Mobile Devices sales and 78% of Home sales.

Research and Development

Motorola SpinCo’s business segments participate in very competitive industries with constant changes in technology. Throughout our history, we have relied, and continue to rely, primarily on our research and development (“R&D”) programs for the development of new products, and on our production engineering capabilities for the improvement of existing products. We believe that our commitment to R&D programs should allow each of our segments to remain competitive.

 

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R&D expenditures relating to new product development or product improvement were $1.6 billion in 2009, compared to $2.4 billion in 2008 and $2.6 billion in 2007. R&D expenditures decreased 33% in 2009 as compared to 2008, after decreasing 8% in 2008 as compared to 2007. Motorola SpinCo continues to believe that a strong commitment to R&D is required to drive long-term growth and we have professional employees around the world dedicated to R&D activities.

Intellectual Property

The protection of patents, trademarks and other intellectual property is extremely important to our operations. The industries in which the Mobile Devices and Home business segments compete are characterized by the vigorous pursuit and protection of intellectual property rights. We are focused on the development, implementation and customer acceptance of new products, designs and improvements. The development of associated intellectual property rights is an important component of our business and growth strategy. Motorola SpinCo has a robust intellectual asset management process for building, maintaining and leveraging its portfolio of patents, trademarks, technology rights and other intellectual property to obtain licenses from other industry participants and to pursue royalty based licensing opportunities. Motorola SpinCo intends to continue to obtain patents, trademarks, technology rights and other intellectual property.

At the time of distribution, Motorola SpinCo will have a large portfolio of trademarks registered or otherwise effective in various countries around the world. Motorola’s increased focus on marketing products directly to consumers is reflected in an increasing emphasis on brand equity creation and protection.

On the Distribution Date, Motorola SpinCo will own approximately 24,500 patents and patent applications, worldwide. These include substantially all of the patents unique to the Mobile Devices and Home businesses, and a number of other patent families allocated to Motorola SpinCo and intended in part to mitigate certain intellectual property risks associated with operation as a new entity.

Motorola SpinCo’s patent portfolio generally relates to wireless, audio, video, security, user interface and product design, along with applications and services related to our products.

Upon the Distribution Date, the Mobile Devices business segment will have approximately 14,600 granted patents and 6,700 pending patent applications, worldwide, substantially related to the Mobile Devices product portfolio. This patent portfolio includes numerous patents related to various industry standards, including 2G, 3G, 4G, H.264, MPEG-4, 802.11, open mobile alliance (“OMA”) and near field communication (“NFC”). Motorola is an active participant in the development of these and other industry related standards, and has developed a significant portfolio of standards related patents. The patent portfolio also includes substantial sets of patents related to strategic areas of the product portfolio or business including audio codec technology, UI, power management, location based services, wireless email, and other smartphone related applications and services.

Upon the Distribution Date, the Home business segment will have approximately 1,900 granted patents and 1,300 pending patent applications, worldwide, substantially related to the Home product portfolio. We have contributed intellectual property in the industry standards setting process, including MPEG video compression, ATSC for digital TV transmission and DOCSIS for data transmission over cable systems. We seek to focus our intellectual property portfolio upon our core enabling technologies, such as digital compression, encryption and conditional access systems to protect technology we consider important to our business strategy. We develop and maintain our competitive position based on our proprietary knowledge and ongoing technological innovation, and periodically seek to include our proprietary technologies in certain patent pools that support the implementation of standards. We are a founder of MPEG LA, LLC, the patent licensing authority established to foster broad deployment of MPEG-2-compliant systems and have recently joined the MPEG-4 Visual patent pool as a licensor. In addition, we have licensed our digital conditional access technology, DigiCipher® II, to other equipment suppliers. Our joint ventures with Comcast also support the development and licensing of conditional access technology.

 

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Many of the patents owned by Motorola SpinCo on the Distribution Date are used in its operations or licensed for use by others, and Motorola SpinCo is licensed to use certain patents owned by others. We enter into license agreements with other industry participants, both as licensor and licensee, covering our products and products of the other party to the cross-license. Royalty and licensing fees vary from year to year and are subject to the terms of the license agreements and sales volumes of the products subject to licenses. The freedom of action afforded to our operations by virtue of these license agreements is important to our competitive position. After the distribution, we will no longer be the beneficiary of some of Motorola, Inc.’s intellectual property arrangements, including cross-licenses, and will be engaged in the negotiation of assignments of certain other existing license agreements.

From time to time, third-parties may and do assert their patent, copyright, trademark and other intellectual property rights against technologies that are important to our business segments. Our ability to develop products and related technologies protected by intellectual property rights will be a significant factor in determining our competitiveness in our target markets.

Motorola SpinCo intends to continue to obtain patents and trademarks as part of its intellectual property strategy going forward.

Environmental

During 2009, compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not have a material effect on capital expenditures, earnings or the competitive position of Motorola SpinCo.

Employees

At December 31, 2009, there were approximately 20,000 employees in the Mobile Devices and Home businesses of Motorola, Inc. and its subsidiaries. In addition, the Mobile Devices and Home businesses that comprise Motorola SpinCo share employees with the other businesses of Motorola, Inc. and those employees are not included in the figures above. At the Distribution Date, we expect to have approximately 21,000 employees reflecting the addition of a portion of those who were historically shared corporate employees with Motorola, Inc.

Payment Terms

Payment terms vary worldwide, depending on the arrangement. In North America, payment is generally due 30 to 60 days from the invoice date. In regions outside of North America, terms vary widely but are typically limited to no more than 90 days.

As required for competitive reasons, extended payment terms are provided to customers from time to time on a limited basis. The Company’s payment terms are consistent with industry practice, as many of our contracts are awarded through a competitive bid process. When required for competitive reasons, we may provide long-term financing in connection with equipment purchases. Financing may cover all or a portion of the purchase price.

Backlog

Motorola SpinCo’s aggregate backlog position for all Motorola SpinCo segments, as of the end of the last two fiscal years, was approximately as follows:

 

 

December 31, 2009

   $ 787 million

December 31, 2008

   $ 721 million
 

 

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The Mobile Devices segment’s backlog (excluding any deferred revenue) was $409 million at December 31, 2009, compared to $290 million at December 31, 2008. This increase in backlog is primarily due to demand for smartphones that were launched in the fourth quarter of 2009. The Home segment’s backlog was $378 million at December 31, 2009, compared to $431 million at December 31, 2008. The orders supporting the 2009 backlog amounts are believed to be generally firm, and 100% of the backlog on hand at December 31, 2009 is expected to be recognized as revenue in 2010. The forward-looking estimate of the firmness of such orders is subject to future events that may cause the amount recognized to change.

Regulatory Matters

Radio frequencies are required to provide wireless services. The allocation of frequencies is regulated in the U.S. and other countries, and limited spectrum space is allocated to wireless services. The growth of the wireless communications may be affected if adequate frequencies are not allocated or, alternatively, if new technologies are not developed to better utilize the frequencies currently allocated for such use. Industry growth may also be affected by the cost of the new licenses required to use frequencies and any related frequency relocation costs. The U.S. leads the world in spectrum deregulation, allowing new wireless communications technologies to be developed and offered for sale. Examples include wireless local area network systems, such as wireless fidelity (“WiFi”) and wide area networks, such as LTE. Other countries have also deregulated portions of their available spectrum to allow deployment of these and other new technologies. Deregulation may introduce new competition and new opportunities for us and our customers.

Many of the products sold by our business are subject to regulation by the FCC in the U.S. and other communications regulatory agencies around the world. In addition, our customers, and their networks into which our products are incorporated, are subject to government regulation. Government regulatory policies affecting either the willingness or the ability of cable and telecommunication operators, wireless operators and wireline operators to offer certain services, or the terms on which these operators offer the services and conduct their business, may have a material adverse effect on our results. The FCC continues to examine ways to promote commercial availability of retail video CPE devices that can deliver multichannel video programming distributor (“MVPD”) content to consumers. While the FCC has not formally proposed any new regulatory mandates in this area, changes to the existing framework could impact our set-top box business. During 2009, the FCC proposed a National Broadband Plan to the U.S. Congress outlining its strategic vision for the next decade. The plan responds to a Congressional mandate to “use broadband to achieve national purposes, while improving the economics of deployment and adoption.” Included in the plan are recommendations for spectrum allocation for wireless broadband use and broadband subsidies. Long-term goals include providing affordable high speed access and encouraging mobile innovation. The FCC plan calls for providing access to 100 million households with 100 megabits per second (“Mbps”) speeds by 2020 and at least one gigabit per second (“Gbps”) speeds at anchor institutions such as schools, hospitals and military installations. If implemented, the National Broadband Plan may result in increased sales opportunities for the Home businesses as well as increased competition. Other countries have also deregulated portions of their available spectrum to allow deployment of these and other new technologies. Deregulation may introduce new competition and new opportunities for us and our customers.

Beginning in 2007, FCC regulation required the separation of security functionality from cable set-top boxes, resulting in increased competition for sales of set-top boxes to cable operators and enabling retail distribution of TV and other video devices capable of access encrypted cable programming.

Inventory, Raw Materials, Right of Return and Seasonality

Our practice is to carry reasonable amounts of inventory in manufacturing and distribution centers in order to meet customer delivery requirements in a manner consistent with industry standards. At the end of 2009, both the Mobile Devices segment and Home segment had a significantly lower net inventory balance than at the end of 2008. The decrease reflects significant improvements in supply chain management practices adjusted to market demand.

 

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Availability of materials and components is relatively dependable. However, fluctuations in supply and market demand could cause selective shortages and affect results. We currently source certain materials and components from single vendors. Any material disruption from a single-source vendor may have a material adverse impact on our results of operations. If certain key suppliers were to become capacity constrained or insolvent, it could result in a reduction or interruption in supplies or an increase in the price of supplies and adversely impact our financial results.

Natural gas, electricity, and, to a lesser extent, oil are the primary sources of energy required for our manufacturing operations and each of these resources are currently in generally adequate supply for our operations. In addition, the cost of operating our facilities and freight costs are dependent on world oil prices, which steadily increased during 2009, adversely impacting our manufacturing and shipping costs. Labor is generally available in reasonable proximity to our manufacturing facilities. However, difficulties in obtaining any of the aforementioned resources or a significant cost increase could affect our results.

The Mobile Devices segment permits product returns under limited circumstances in order to remain competitive with current industry practices. The Home business generally does not permit customers to return products, other than under standard warranty provisions.

The Mobile Devices segment typically experiences sequentially higher sales in the fourth calendar quarter and sequentially lower sales in the first calendar quarter of each year due to seasonal trends in the wireless mobile device industry. The Home segment has not experienced seasonal buying patterns for its products.

Properties/Manufacturing

Motorola SpinCo’s principal executive offices are located at 600 North U.S. Highway 45, Libertyville, Illinois 60048. This location also is the headquarters of our Mobile Devices business. Our Home business headquarters are in Horsham, Pennsylvania. Motorola SpinCo also operates manufacturing facilities and sales offices in other U.S. locations and in many other countries. Motorola SpinCo owns eight facilities (manufacturing, sales, service and office), five of which are located in the Americas Region (U.S., Canada, Mexico, Central and South America) and three of which are located in other countries. Motorola SpinCo leases 71 facilities, 32 of which are located in the Americas Region and 39 of which are located in other countries. Motorola SpinCo primarily utilizes three major facilities for the manufacturing and distribution of its products. These facilities are located in: Tianjin, China; Jaguariuna, Brazil; and Hsin Tien, Taiwan.

Motorola SpinCo generally considers the productive capacity of the plants operated by each of its business segments to be adequate and sufficient for the requirements of each business group. The extent of utilization of such manufacturing facilities varies from plant to plant and from time to time during the year.

A substantial portion of Motorola SpinCo’s products are manufactured in Asia, primarily China, either in our own facilities or in the facilities of third-parties who manufacture and assemble products for us. If manufacturing in the region or by the small number of third-party suppliers and manufacturers who make a significant portion of our products were disrupted, Motorola SpinCo’s overall productive capacity could be significantly reduced.

Legal Proceedings

Motorola SpinCo will assume the liabilities for all actions, claims, demands, disputes, lawsuits, arbitrations, inquiries, proceedings or investigations (referred to as “Actions” or an “Action”) to the extent relating to the Mobile Devices and Home businesses in which Motorola, Inc. or any of its subsidiaries is a defendant or the party against whom the Action is directed. Motorola SpinCo will conduct the defense of most of the Actions it assumes at its sole cost and expense and Motorola SpinCo will be responsible for all liabilities resulting from the Actions it assumes. The liability for and conduct of the defense of certain Actions that relate in part to our businesses and in part to the remaining Motorola, Inc. businesses will be allocated between Motorola SpinCo and

 

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Motorola, Inc. and its affiliates, as agreed to by the parties. Motorola, Inc. and its affiliates will continue to be liable for all other Actions. If Motorola, Inc. or its affiliate is named as a defendant or is a party against whom the Action is directed, Motorola, Inc. or such affiliate may participate in any Action Motorola SpinCo assumes at its cost and expense and Motorola SpinCo will cooperate with Motorola, Inc. in any settlement of an Action it assumes. If an Action is commenced after the distribution naming Motorola SpinCo and Motorola, Inc. as defendants and one party is a nominal defendant, the other party will use commercially reasonable efforts to have the nominal defendant removed from the Action.

Personal Injury Cases

Cases relating to Wireless Telephone Usage

Farina v. Nokia, Inc., et al.

On April 19, 2001, Farina v. Nokia, Inc., et al., was filed in the Pennsylvania Court of Common Pleas, Philadelphia County. Farina, filed on behalf of a Pennsylvania class, claimed that the failure to incorporate a remote headset into cellular phones rendered the phones defective by exposing users to biological injury and health risks and sought compensatory damages and injunctive relief. After removal to federal court, transfer and consolidation with now-dismissed similar cases, an appeal, remand to state court and a second removal, the case proceeded in the federal district court in Philadelphia. The original complaint was amended to add allegations that cellular telephones sold without headsets are defective because they present a safety risk when used while driving. In the current complaint, Plaintiff seeks actual damages in the form of the greater of $100 or the difference in value of a Motorola, Inc. phone as delivered and with a headset, the amount necessary to modify the phones to permit safe use, out of pocket expenses, including the purchase of headsets, treble damages and attorney’s fees and costs. On September 2, 2008, the federal district court in Philadelphia dismissed the Farina case, finding that the complaint is preempted by federal law. On September 30, 2008, Plaintiffs appealed the decision to the U.S. Court of Appeals for the Third Circuit. No decision on the appeal has been issued to date.

The Murray Cases

During 2001 and 2002, several cases were filed in the Superior Court of the District of Columbia alleging that use of a cellular phone caused a malignant brain tumor: Murray v. Motorola, Inc., et al., filed November 15, 2001; Agro, et al. v. Motorola, Inc., et al., filed February 26, 2002; Cochran, et al. v. Audiovox Corporation, et al., filed February 26, 2002, and Schofield, et al. v. Matsushita Electric Corporation of America, et al., filed February 26, 2002 (collectively the “Murray cases”). Each complaint seeks compensatory damages in excess of $25 million, consequential damages in excess of $25 million and punitive and/or exemplary damages in excess of $100 million. After removal to federal court, transfer, consolidation and remand, the defendants moved to dismiss the Murray cases on November 30, 2004. On August 24, 2007, the Superior Court granted the defendants’ motion and dismissed the cases with prejudice on federal preemption grounds. On September 20, 2007, Plaintiffs appealed the dismissal to the District of Columbia Court of Appeals.

On October 30, 2009, the Court of Appeals affirmed the decision in part and reversed the decision in part. The Court affirmed dismissal of the personal injury claims on conflict preemption grounds. The Court also held that Plaintiffs’ claims may not be preempted to the extent they are based on allegations that their injuries were caused by wireless phones that did not comply with the FCC’s Radio Frequency (“RF”) exposure standards passed in 1996 (regardless of when Plaintiffs purchased their phones). The Court further held that claims asserted under DC Code Section 28-3904 (DC unlawful trade practices act) alleging that defendants provided false and misleading information about cell phones or omitted to disclose material information may not be preempted if Plaintiffs are able to base their claims on allegations that do not challenge the safety of RF emissions from FCC-compliant wireless phones. The Court remanded the cases to the Superior Court.

 

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On May 3, 2010, Plaintiffs filed amended complaints. Plaintiffs’ amended complaints assert the same claims raised in their previous complaints but purport to limit their claims to those involving: (1) phones manufactured before the FCC adopted its Specific Absorption Rate standards in 1996, (2) post-1996 phones that do not comply with the FCC’s standards, and (3) allegedly non-preempted claims sounding in misrepresentation, non-disclosure, and failure to warn. Plaintiffs have not changed their allegations regarding the Motorola phones they allegedly purchased and used, other than to assert that none of the Motorola phones they purportedly purchased was compliant with the FCC’s Specific Absorption Rate standards. Plaintiffs seek the same damages as in the original complaints.

The Marks Case

On May 5, 2010, Alan and Ellen Marks filed suit in the Superior Court of the District of Columbia alleging that use of a cellular phone caused Alan Marks’ malignant brain tumor (“Marks Case”). The complaint is based on the same legal theories and factual allegations as the Murray cases and seeks compensatory damages of $25 million, consequential damages in excess of $25 million and punitive and/or exemplary damages of $100 million. Motorola has not been served with the complaint.

Dahlgren v. Motorola, Inc., et al.

On September 9, 2002, Dahlgren v. Motorola, Inc., et al., was filed in the D.C. Superior Court containing class claims alleging deceptive and misleading actions by defendants for failing to disclose the alleged “debate” related to the safety of wireless phones reflected in studies that allegedly show wireless phones can cause harm. On December 9, 2005, Plaintiff filed an amended complaint in Dahlgren. On March 5, 2008, the court stayed Dahlgren pending the outcome of Murray v. Motorola, Inc., et al. After the Murray decision, the Court lifted the stay and the Plaintiff amended the complaint. Although the conduct complained of is the same, the class allegations are gone and Plaintiff filed her complaint on behalf of the General Public of the District of Columbia. Dahlgren seeks treble damages or statutory damages in the amount of $1,500 per violation, whichever is greater, disgorgement of profits, punitive damages, attorneys’ fees, costs or disbursements. On February 26, 2010, defendants moved to dismiss Plaintiff’s complaint. No decision has been issued to date.

Motorola SpinCo and its subsidiaries will assume the defense and/or liability for various other lawsuits, claims and investigations arising in the normal course of business and relating to our business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on Motorola SpinCo’s combined financial position, liquidity or results of operations.

 

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MANAGEMENT

Executive Officers Following the Distribution

The following table sets forth the information as of July 1, 2010 regarding the individuals who are expected to serve as our executive officers following the distribution and their anticipated titles following the distribution. All of these individuals are currently employees of Motorola, Inc. or its subsidiaries. After the distribution, none of these individuals will continue to be employees of Motorola, Inc. Additional executive officers will be appointed prior to the distribution and information concerning those executive officers will be included in an amendment to this Information Statement.

 

Name

   Age   

Position(s)

Sanjay K. Jha

   46    Chief Executive Officer

Marc E. Rothman

   45    Chief Financial Officer

William Ogle

   42    Chief Marketing Officer

John Cipolla

   53    Senior Vice President, Product Development

Mark Shockley

   51    Senior Vice President, Global Go-to-Market and Sales Operations

DR. SANJAY K. JHA, Principal Occupation: Chief Executive Officer, Motorola SpinCo Holdings Corporation.

Dr. Jha joined Motorola, Inc. in August 2008 as Co-Chief Executive Officer of Motorola, Inc. and Chief Executive Officer of the Mobile Devices business. In February 2010, Dr. Jha also became the Chief Executive Officer of the Home business. Prior to joining Motorola, Inc., Dr. Jha served as Executive Vice President and Chief Operating Officer of Qualcomm, Inc. from December 2006 to August 2008. Dr. Jha also served as Executive Vice President and President of Qualcomm CDMA Technologies (QCT), Qualcomm’s chipset and software division, from January 2003 to December 2006. Dr. Jha received a Ph.D. in Electronic and Electrical Engineering from the University of Strathclyde, Scotland and a B.S. in Engineering from the University of Liverpool, England.

MARC E. ROTHMAN, Principal Occupation: Senior Vice President and Chief Financial Officer, Motorola SpinCo Holdings Corporation.

Mr. Rothman joined Motorola in January 2000, as a part of Motorola, Inc.’s acquisition of General Instrument. Since February 2010, Mr. Rothman served as Senior Vice President, Finance, Chief Financial Officer, Mobile Devices and Home business. From March 2008 to February 2010, Mr. Rothman served as Senior Vice President, Finance, Chief Financial Officer, Mobile Devices business. From June 2007 to March 2008, Mr. Rothman served as Senior Vice President, Finance, Corporate Controller of Motorola, Inc. From March 2006 to May 2007, he served as Senior Vice President, Finance, Networks and Enterprise Mobility Solutions. From June 2003 to March 2006, he served as Senior Vice President, Finance, Government and Public Safety and Networks. From January 2000 to June 2003, Mr. Rothman served as Corporate Vice President Broadband Communications Sector (and predecessor businesses).

WILLIAM OGLE, Principal Occupation: Senior Vice President, Chief Marketing Officer, Mobile Devices and Home business.

Mr. Ogle joined Motorola in July 2009 as Senior Vice President, Chief Marketing Officer. From October 2007 to 2009, Mr. Ogle served as Chief Marketing Officer, Samsung Telecommunications America, Inc. Prior to that position, Mr. Ogle served as Chief Marketing Officer, Pizza Hut, Inc. from January 2006 to September 2007 and Chief Concept Development Officer, Pizza Hut, Inc. from November 2003 to January 2006.

 

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JOHN CIPOLLA, Principal Occupation: Senior Vice President, Product Development, Mobile Devices business.

Mr. Cipolla joined Motorola in May 1978. Since August 2008, Mr. Cipolla has served as Senior Vice President, Product Development, Mobile Devices business. From May 2008 to August 2008, Mr. Cipolla served as Senior Vice President, General Manager, CDMA, iDEN, and Mid to High Tier Products, Mobile Devices business. From December 2007 to May 2008, Mr. Cipolla served as Corporate Vice President, General Manager, CDMA and iDEN Products, Mobile Devices business. From December 2006 to December 2007, Mr. Cipolla served as Corporate Vice President, General Manager, CDMA, Mobile Devices business. Prior to that position, Mr. Cipolla has served as Vice President, CDMA Product Line, Mobile Devices business from 2002 to December 2006.

MARK SHOCKLEY, Principal Occupation: Senior Vice President, Global Go-to-Market and Sales Operations, Mobile Devices business.

Mr. Shockley joined Motorola in December 1979. Since April 2010, Mr. Shockley has served as Senior Vice President, Global Go-to-Market and Sales Operations, Mobile Devices. From June 2009 to April 2010, Mr. Shockley served as Senior Vice President, Business General Manager Go to Market, Americas Region, Mobile Devices business. From June 2008 to June 2009, Mr. Shockley served as Corporate Vice President, Business General Manager North America Region, Mobile Devices business. Prior to that position, he served as Corporate Vice President, General Manager, East Asia, Mobile Devices business from July 2007 to June 2008. From January 2006 to June 2007, he served as Vice President of the Verizon Account. From September 2003 to January 2006, he served as Vice President, General Manager, WLAN/Seamless Mobility, Mobile Devices business. From 2000 to September 2003, Mr. Shockley served as Vice President IDEN International Subscriber business.

Board of Directors Following the Distribution

The following table sets forth information with respect to those persons who are expected to serve on our Board of Directors following the distribution. See the section entitled “Executive Officers Following the Distribution” for Dr. Jha’s biographical information. We are in the process of identifying the individuals who will be our directors following the distribution, and we expect to provide details regarding these individuals in an amendment to this Information Statement. The following table sets forth information as of July 1, 2010 regarding individuals who are expected to serve as our directors following the distribution.

 

Name

   Age   

Position(s)

Sanjay K. Jha

   46    Director

William R. Hambrecht

   75    Director

WILLIAM R. HAMBRECHT, Principal Occupation: Chairman and Chief Executive Officer of WR Hambrecht + Co.

Mr. Hambrecht has been Founder, Chairman and Chief Executive Officer of WR Hambrecht + Co., a financial services firm, since December 1997. Mr. Hambrecht co-founded Hambrecht & Quist in 1968, from which he resigned in December 1997 to form WR Hambrecht + Co. Mr. Hambrecht is a director of AOL Inc., Decision Economics and the Ironstone Group. Mr. Hambrecht serves on the Board of Trustees for The American University of Beirut and he also serves on the Advisory Council to The J. David Gladstone Institutes. In October 2006, Mr. Hambrecht was inducted to the American Academy of Arts and Sciences. Mr. Hambrecht graduated from Princeton University.

Composition of the Board of Directors

We currently expect that, upon the consummation of our separation, our Board of Directors will consist of [] members, at least a majority of whom we expect to satisfy the independence standards established by the Sarbanes-Oxley Act and the applicable rules of the SEC and the NYSE.

 

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Committees of the Board of Directors

Our Board of Directors will establish several standing committees in connection with the discharge of its responsibilities. Effective upon distribution, our Board of Directors will have the following committees:

Audit Committee. The functions of the Audit Committee include:

 

   

assisting the Board of Directors in fulfilling its oversight responsibilities as they relate to our Company’s accounting policies, internal controls, disclosure controls and procedures, financial reporting practices, legal and regulatory compliance and overall financial posture, financial risk and capital structure;

 

   

hiring the independent registered public accounting firm and monitoring the qualifications, independence and performance of that firm and the performance of the internal auditors;

 

   

maintaining, through regularly scheduled meetings, a line of communication between the Board and our Company’s financial management, internal auditors and independent registered public accounting firm;

 

   

overseeing compliance with our Company’s policies for conducting business, including ethical business standards; and

 

   

preparing the report of the committee included in any proxy statement.

The Audit Committee will be comprised of three or more members such that it meets the independence requirements set forth in the applicable listing standards of the SEC and the NYSE and in accordance with the Audit Committee charter. Each member of the Audit Committee will be financially literate and have accounting or related financial management expertise as such terms are interpreted by the Board of Directors in its business judgment. None of our Audit Committee members will simultaneously serve on more than two other public company audit committees unless our Board of Directors specifically determines that it would not impair the ability of an existing or prospective member to serve effectively on the Audit Committee. The initial members of the Audit Committee will be determined prior to the distribution.

A more detailed discussion of the committee’s mission, composition and responsibilities is contained in the Audit Committee charter, which will be available on the Company’s website: www.[].com.

Compensation Committee. The functions of the Compensation Committee include:

 

   

assisting the Board of Directors in overseeing the management of our Company’s human resources including: (1) compensation and benefits programs; (2) CEO performance and compensation; and (3) executive development and succession and diversity efforts;

 

   

overseeing the evaluation of our Company’s senior management;

 

   

reviewing and discussing the Compensation Discussion and Analysis (“CD&A”) with management and making a recommendation to the Board on the inclusion of the CD&A in any proxy statement; and

 

   

preparing the report of the committee included in any proxy statement.

The Compensation Committee will be comprised entirely of independent directors, each of whom will meet the NYSE listing independence standards and our Company’s independence standards.

 

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In carrying out its duties, the Compensation Committee will have direct access to outside advisors, independent compensation consultants and others to assist them. The committee may decide to direct its consultant to conduct market studies, review publicly available market data and be readily available for consultation with this committee and its members regarding such matters.

A more detailed discussion of the committee’s mission, composition and responsibilities is contained in the Compensation Committee Charter, which will be available on the Company’s website: www.[].com.

Governance and Nominating Committee. The functions of the Governance and Nominating Committee include:

 

   

identifying individuals qualified to become Board members, consistent with the criteria approved by the Board;

 

   

recommending director nominees and individuals to fill vacant positions;

 

   

assisting the Board in interpreting our Company’s Board Governance Guidelines, the Board’s Principles of Conduct and any other similar governance documents adopted by the Board;

 

   

overseeing the evaluation of the Board and its committees; and

 

   

generally overseeing the governance and compensation of the Board.

The Governance and Nominating Committee will be composed entirely of independent directors, each of whom will meet the NYSE listing independence standards and our Company’s independence standards.

A more detailed discussion of the committee’s mission, composition and responsibilities is contained in the Governance and Nominating Committee Charter, which will be available on the Company’s website: www.[].com.

Selection of Nominees for Directors

As stated in the Motorola SpinCo Holdings Corporation Board Governance Guidelines, when selecting directors, the Board and the Governance and Nominating Committee will review and consider many factors, including experience in the context of the Board’s needs, leadership qualities, diversity, ability to exercise sound judgment, existing time commitments and independence. It will also consider ethical standards and integrity.

The Governance and Nominating Committee will consider nominees recommended by Motorola SpinCo stockholders provided that the recommendation contains sufficient information for the Governance and Nominating Committee to assess the suitability of the candidate, including the candidate’s qualifications. Candidates recommended by stockholders that comply with these procedures will receive the same consideration that candidates recommended by the Committee and management receive.

The Governance and Nominating Committee will consider recommendations from many sources, including members of the Board, management and search firms. From time to time, we expect that Motorola SpinCo will hire global search firms to help identify and facilitate the screening and interview process of director nominees. We expect that the search firm will screen candidates based on the Board’s criteria, perform reference checks, prepare a biography for each candidate for the Committee’s review and help set up interviews. The Committee and the Chairman of the Board will conduct interviews with candidates who meet the Board’s criteria.

Decision-Making Process to Determine Director Compensation

The Governance and Nominating Committee of Motorola SpinCo will recommend to the Motorola SpinCo Board the compensation for non-employee directors, which is to be consistent with market practices of other similarly situated companies and is to take into consideration the impact on non-employee directors’ independence

 

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and objectivity. The Board is expected to ask the Compensation Committee to assist the Governance and Nominating Committee in making such recommendations. The charter of the Governance and Nominating Committee will not permit the Committee to delegate director compensation matters to management and management has no role in recommending the amount or form of director compensation.

Decision-Making Process to Determine Executive Compensation

The Board will delegate to the Compensation Committee the responsibility to oversee the programs under which compensation is paid or awarded to Motorola SpinCo’s executives and to evaluate the performance of its senior management. The Compensation Committee will be responsible for bringing recommended compensation actions involving the CEO to the Board for its concurrence. The Global Rewards department in Motorola SpinCo’s Human Resources organization will support the Compensation Committee in its work and, in some cases, may act pursuant to delegated authority from the Compensation Committee to fulfill various functions in administering its compensation programs.

In carrying out its duties, the Compensation Committee will have direct access to outside advisors, independent compensation consultants and others to assist them. For more information, see the section entitled “Compensation Discussion and Analysis”. Further, for a discussion of the role of the Motorola, Inc. Compensation Committee’s independent compensation consultant in determining executive compensation, see the section entitled “Independent Consultant Review of Dr. Jha’s Compensation” in the “Compensation Discussion and Analysis”. Motorola SpinCo expects that its Compensation Committee will similarly employ its own independent compensation consultant to assist in its compensation decisions for its executive officers.

Leadership Structure of the Board

The Board is led by []. The Board will decide the appropriate structure to support the Company in its transition to an independent, publicly traded company. [] acts as the presiding director at meetings of the independent directors.

Board’s Role in the Oversight of Risks

The Board of Directors will oversee the business of the Company, including CEO and senior management performance and risk management, to assure that the long-term interests of the stockholders are being served. Each committee of the Board of Directors will also be responsible for reviewing the risk exposure of the Company related to the committee’s areas of responsibility and providing input to management on such risks.

Management will establish a robust process embedded throughout the Company to identify, analyze, manage and report all significant risks facing the Company. Each Board committee will review with management significant risks related to the committee’s area of responsibility and report to the Board on such risks, which includes the Compensation Committee’s review of Company-wide compensation-related risks. The independent Board members also discuss the Company’s significant risks when they meet in executive session without management.

Our Company’s Audit Services department has a very important role in the risk management program. The role of the department is to provide management and the Audit Committee with an overarching and objective view of the risk management activity of the enterprise. The department’s engagements span financial, operational, strategic and compliance risks and the engagement results assist management in maintaining tolerable risk levels. The director of the department will work directly with the Audit Committee and meet regularly with the committee, including in executive session.

 

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Communicate with the Board of Motorola SpinCo Holdings Corporation

All communications to the Board of Directors, Chairman of the Board, the non-management directors or any individual director, must be in writing and addressed to them c/o Secretary, Motorola SpinCo Holdings Corporation, 600 North US Highway 45, Libertyville, Illinois 60048 or by email to boardofdirectors@[].com.

Compensation of Directors

Directors who are our full-time employees will receive no additional compensation for services as a director. For our non-employee directors, we intend to: (1) provide competitive compensation and benefits that will attract and retain high quality directors, (2) target director compensation at a level that is consistent with our compensation objectives, and (3) encourage ownership of our stock to further align directors’ interests with those of our stockholders. We have not yet determined the amount or type of compensation for our non-employee directors but we intend to establish the amount and type of compensation for our non-employee directors prior to the distribution. The Motorola SpinCo Compensation Committee (or Motorola, Inc.’s compensation committee prior to the distribution) with the assistance of the Motorola SpinCo Governance and Nominating Committee (or Motorola, Inc.’s governance and nominating committee prior to the distribution) is expected to make decisions regarding non-employee director compensation.

Executive officers will not determine or recommend director compensation.

The annual retainer fee paid to each non-employee director is expected to be $[]. In addition: (1) the chair of the Audit Committee will receive an additional annual fee of $[], (2) the chair of the Compensation Committee will receive an additional annual fee of $[], (3) the non-employee chairs of the other committee each will receive an additional annual fee of $[], and (4) the members of the Audit Committee, other than the chair, each will receive an additional annual fee of $[]. A director may elect to receive all or a portion of his or her retainer and other fees in the form of DSUs. The Company also anticipates reimbursing its directors and, in certain circumstances, spouses who accompany directors, for travel, lodging and related expenses they incur in attending Board and committee meetings or other meetings as requested by Motorola SpinCo Holdings Corporation. Non-employee directors may receive an annual grant of deferred stock units, which may be a pro rata award for a partial term. Non-employee directors will not receive any additional fees for attendance at meetings of the Board or its committees or for additional work done on behalf of the Board or a committee.

Director Compensation Table

The following table sets forth information concerning the 2009 compensation awarded by Motorola, Inc. to non-employee directors of Motorola, Inc. who will be non-employee directors of Motorola SpinCo:

 

Name   Fees Earned
or Paid in
Cash ($)(1)
  Stock
Awards
($)(2)(3)(4)
  Option
Awards
($)(3)
  Non-Stock
Incentive
Plan
Compensation
($)
  Nonqualified
Deferred
Compensation
Earnings ($)
  All Other
Compensation
($)(5)
  Total ($)
(a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)

William R. Hambrecht

  $0   $220,003   $0   $0   $0   $0   $220,003

 

(1) As described above, directors may elect to receive a portion of their retainer or other fees in the form of deferred stock units (“DSUs”). The amounts in column (b) are the portion of the annual retainer and any other fees the non-employee director has elected to receive in cash.

 

(2)

As described above, certain directors have elected to receive DSUs for a portion of their retainer or other fees. In addition, all non-employee directors received an annual grant of DSUs on May 7, 2009. All amounts in

 

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column (c) are the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC Topic 718”), including dividend equivalents, as applicable. The number of DSUs received and the value of Motorola, Inc. common stock on each date of grant or purchase are as follows:

 

     March 31 -
$4.23
   May 7 -
$6.22
   June 30 -
$6.63
   September 30 -
$8.59
   December 31 -
$7.76
Director    Deferred
Stock Units
   Annual Grant of
Deferred Stock Units
   Deferred
Stock Units
   Deferred Stock
Units
   Deferred
Stock Units

William R. Hambrecht

   5,910    19,293    3,771    2,910    3,222

 

(3) As of December 31, 2009, the aggregate stock and option awards outstanding for the directors were as set forth below. For each director, the options to purchase Company stock listed below were exercisable at year end.

 

Director   Options   Deferred Stock Units      Restricted Stock/RSUs

William R. Hambrecht

  0   59,805      0

 

(4) Certain de minimis amounts (less than $50) were paid in cash in lieu of fractional shares.

 

(5) The aggregate amount of perquisites and personal benefits, securities or property given to each named director valued on the basis of aggregate incremental cost to the Company was less than $10,000.

 

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COMPENSATION DISCUSSION AND ANALYSIS

Prior to the distribution, Motorola SpinCo Holdings Corporation (“Motorola SpinCo” or the “Company”) was a subsidiary of Motorola, Inc. (“Motorola, Inc.”) and each Named Executive Officer (“Named Executive Officer” or “NEO”) was employed by Motorola, Inc. or its subsidiaries. In connection with the distribution, the board of directors of the Company (“Motorola SpinCo Board”) will form its own compensation committee. In this Compensation Discussion and Analysis, we refer to the Compensation and Leadership Committee of Motorola, Inc. as the Motorola, Inc. Compensation Committee and the Compensation Committee of our Company as our Compensation Committee. Following the distribution, our Compensation Committee will determine the Company’s executive compensation.

Motorola SpinCo Compensation Philosophy After Separation

Motorola SpinCo’s general rewards philosophy will provide programs that attract, retain, and motivate employees in a way that aligns to our business and people strategies. Rewards programs will generally target median market practices of the relevant competitor group for the industries and locations we operate in through designs that link to stockholder, company, business unit, and individual performance. Rewards levels will target median levels of the relevant competitor group for the industries and locations we operate in and our Compensation Committee and Dr. Jha will have the discretion to set individuals’ total compensation above or below the median market levels when the value of the individual’s experience, performance and specific skill set justifies variation. Motorola SpinCo will strive to provide a total compensation package that is competitive with prevailing practices and allows for significant upside when superior financial performance is achieved, but not encourage unnecessary and excessive risk that could jeopardize the Company. Motorola SpinCo has set the following guiding principles that will drive future Motorola SpinCo rewards programs:

Market Competitiveness

The direct compensation programs (base, annual and long-term incentives) will be targeted at the median of the relevant competitor group, but may provide long-term incentive opportunities that are above the median for a select group of key talent. The mix of direct and indirect compensation will be competitive with the local labor market, striving to achieve market competitiveness for individual programs as appropriate given cost and complexity. The relevant competitor groups will be defined as Mobile Devices and Home business competitors and Mobile Devices and Home labor competitors.

Pay for Performance

The direct compensation programs (base, annual and long-term incentives) will be strongly linked to performance by (1) measuring performance at the individual, business segment and overall Company level, (2) leveraging performance management strategy, and (3) providing highly differentiated rewards at the individual and business segment level, as warranted by performance.

Additionally, the variable compensation programs (both short- and long-term) will provide for significant upside for superior financial performance, but not encourage unnecessary and excessive risk that could jeopardize the Company.

U.S. Employee Benefits

The benefits will be targeted at the median of the relevant competitor group and Company provided benefit plans will be designed to provide basic income protection security, focusing on (1) emphasizing wellness and prevention, (2) Company and employee cost sharing of health and welfare benefits at market-competitive levels, (3) Company and employee shared responsibility for providing competitive retirement benefits, and (4) may include benefits and perquisites that are reasonably competitive within our competitor group.

 

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International Rewards

In addition to the above guiding principles, Company-provided benefit plans will follow statutory requirements and supplemental programs will be provided based on competitive practice, as appropriate given the cost and complexity of maintaining programs. Additionally, global assignment programs will be provided to support the seamless mobility of talent throughout the world.

The Remainder of This Compensation Discussion and Analysis

Our historical compensation strategy has been primarily implemented by the Company’s senior management, in consultation with Motorola, Inc.’s senior management and the Motorola, Inc. Compensation Committee. The remainder of this Compensation Discussion and Analysis covers the 2009 executive compensation provided in the tables that follow for those executives expected to be the most highly compensated Motorola SpinCo executive officers based on their 2009 compensation from Motorola, Inc.

Motorola, Inc. General Compensation Philosophy

Motorola, Inc.’s general compensation philosophy is to provide world-class reward strategies and programs that attract, retain and motivate the right people, in the right places, at the right time. Motorola, Inc. strives to provide a total compensation package that is competitive with the prevailing practices for the industries and countries in which it operates, allowing for above average total compensation when justified by business results and individual performance.

Executive Compensation Guiding Principles

Motorola, Inc.’s general compensation philosophy is further guided by the following principles specific to the executives:

 

   

a strong link between pay and performance—both at the company and the individual level;

 

   

the opportunity to receive total compensation above the prevailing market median for outstanding company performance and the correlation of total compensation with the level of success achieved;

 

   

strongly differentiated pay for superior performers that is proportional to their contributions to the company’s success;

 

   

alignment of the executives’ and stockholders’ interests to encourage management of the company from the perspective of owners with a meaningful equity stake;

 

   

a competitive total rewards package that enables Motorola, Inc. to attract, motivate and retain high-performing talent and that is competitive with other large-cap, high-tech companies;

 

   

appropriate incentives and compensation plans aligned with the company’s goals that avoid excessive risk taking and risk exposure;

 

   

retention of high performers through meaningful wealth creation opportunities; and

 

   

a simple and cost-efficient program design.

Components of Motorola, Inc.’s Compensation Program

Motorola, Inc.’s compensation program for the Named Executive Officers consists of:

 

   

base salary;

 

   

short-term incentives through the annual Motorola Incentive Plan (“MIP”);

 

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long-term incentives through the Long-Range Incentive Plans (“LRIP”), other than for Dr. Jha, and equity grants;

 

   

executive benefits and perquisites; and

 

   

broad-based employee benefits.

With each component of the compensation program, Motorola, Inc. strives to align the interests of executives with the interests of stockholders—by attracting and retaining qualified individuals, by focusing on short-term and long-term performance goals, by requiring significant ownership in the company, and by linking individual performance to the company’s performance.

The Role of the Motorola, Inc. Compensation Committee and Executive Officers in Determining Compensation

Design

Motorola, Inc.’s senior leadership team, comprised of the Co-Chief Executive Officers (each, a “Co-CEO” and, together, the “Co-CEOs”) and certain executives designated by the Co-CEOs, provides recommendations regarding the design of the compensation program to the Motorola, Inc. Compensation Committee. Additionally, the Committee’s compensation consultant provides input on these recommendations from time to time. Upon Committee approval, the senior leadership team is responsible for executing the objectives of the approved compensation program. Each member of Motorola, Inc.’s senior leadership team approves all compensation actions for his or her respective part of the organization and is accountable for compliance with established governance procedures.

Actions

For Dr. Jha’s specific compensation, the Global Rewards department in Motorola, Inc.’s Human Resources organization, together with the Senior Vice President, Human Resources and the Committee’s independent compensation consultant, prepared recommendations for the Committee regarding Dr. Jha’s compensation as a Co-CEO. Dr. Jha was not involved in the preparation of recommendations related to his compensation and did not participate in the discussions regarding his compensation at Committee meetings. The Motorola, Inc. Compensation Committee is responsible for bringing recommended compensation actions involving Dr. Jha to the Board for its concurrence. The Motorola, Inc. Compensation Committee cannot unilaterally approve compensation or compensation changes for Dr. Jha without the Board’s concurrence.

For the other Named Executive Officers’ specific compensation, Dr. Jha as the leader of the Mobile Devices business approved the compensation and employment offers, for the Named Executive Officers with input and recommendations from the Global Rewards department in Motorola, Inc.’s Human Resources organization and the Senior Vice President, Human Resources and also within the approval limits on equity that have been delegated by the Motorola, Inc. Compensation Committee. At Motorola, Inc., each member of the Motorola, Inc. senior leadership team is primarily responsible for the compensation determinations for his or her part of the organization. However, if the compensation is for an officer who was a member of Motorola, Inc.’s senior leadership team or any officer subject to Section 16(a) of the Securities Exchange Act of 1934 (a “Section 16 Officer”), Motorola, Inc. Compensation Committee approval would have been required. None of our Named Executive Officers, other than Dr. Jha, were Motorola, Inc. senior leadership team members or Section 16 officers and, therefore, none required Motorola, Inc. Compensation Committee’s approval.

Motorola, Inc.’s Compensation Mix

Motorola, Inc. measures the competitiveness of total direct compensation (base salary + target short-term incentive opportunity + target long-term incentive opportunity) against high-tech market practices. In 2009, total direct compensation levels for each executive position were targeted at the 50th percentile of similar positions in

 

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our comparator group, consisting of 16 large-cap, high-tech companies or one of the “data cuts” described below. Motorola, Inc. structures compensation mix to be market competitive for each compensation element. Both base salary and incentives (including annual and long-term incentives) are generally targeted at the 50th percentile, but the exact percentile may differ by individual.

However, as described in more detail below, the Motorola, Inc. Compensation Committee (for Dr. Jha) and Dr. Jha (for the other NEOs) have the discretion to set total compensation above or below the targeted percentile of similar positions in the comparator group or “data cut” when the value of the individual’s experience, performance and specific skill set justifies variation. As a result, competitively superior pay is awarded to those executives who earn it through performance, and the greatest retention value is invested in the strongest performers.

The cost of the compensation program impacts financial performance. As a result, Motorola, Inc. has been focused on ensuring that its compensation programs are optimized to motivate employees to improve results on a cost-effective basis without encouraging excessive risk taking.

Motorola, Inc. also recognizes the need to balance the components of the compensation program appropriately depending on an individual’s position and ability to impact the company’s results. Accordingly, Motorola, Inc.’s compensation program is generally structured so that approximately two-thirds of our Named Executive Officer’s targeted total compensation is “at risk” (in the form of equity grants and awards under MIP and LRIP) and is dependent upon Motorola, Inc.’s results and stock price.

Annually, at the beginning of each year, the Motorola, Inc. Compensation Committee (for Dr. Jha) and the Dr. Jha (for the other NEOs) review salary increases for that year. In January 2009 and January 2010, in response to economic realities, annual salary increases were not provided to employees, including the Named Executive Officers, in the U.S. and most other countries, except when warranted for promotions or where otherwise required by law.

The compensation package for Dr. Jha is an exception to the Company’s general pay mix principle. In 2008, unique circumstances demanded Motorola, Inc. attract a top quality leader for our Mobile Devices business, particularly in light of the planned separation of Motorola, Inc. into two independent, publicly traded companies. The Motorola, Inc. Compensation Committee determined it was necessary to have a competitive and compelling compensation package involving a significant amount of “at-risk” equity awards. Attracting Dr. Jha to Motorola, Inc. required both guaranteeing certain elements of compensation and also providing inducements to take on the additional risk of leading a turnaround, in part by providing Dr. Jha with equity-based compensation that will, after the separation, reflect solely the performance of the business led by Dr. Jha. Motorola, Inc. believes Dr. Jha will successfully lead the Mobile Devices business during its transition and is one of very few industry leaders qualified to meet this challenge. Due to the weak economic environment, the planned separation of Motorola, Inc. into two independent, publicly traded companies was delayed and Motorola, Inc. announced on February 11, 2010 that the separation is now expected to be completed in the first quarter of 2011. These unique circumstances required amendments to the terms of Dr. Jha’s original employment agreement to ensure that economic incentives were aligned to incentivize Dr. Jha to remain at Motorola, Inc. On February 11, 2010, Dr. Jha’s employment agreement was amended to extend the date by which the separation was previously expected to be completed. For further details, see “Employment Agreement with Sanjay K. Jha”.

The Impact of Compensation Amounts Realizable on the Other Elements of Compensation

Motorola, Inc. deliberately designs its compensation program to attract, retain and motivate high-quality talent. In making compensation decisions, the Motorola, Inc. Compensation Committee reviews and benchmarks total compensation against its comparator group. Motorola, Inc. follows a policy of ensuring that total compensation, as well as each element comprising total compensation, is competitive. As a result, it does not specifically limit one element of compensation in response to the amounts potentially realizable under other compensation elements. However, Motorola, Inc. places certain limits on benefits available under life and disability plans and investment plans, including pension plans, while ensuring competitiveness in the marketplace. Motorola, Inc.’s “qualified” plans are also subject to IRS limits.

 

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Compensation Benchmarking

The individual elements, as well as the total direct compensation, of Motorola, Inc.’s rewards program for Dr. Jha and the Named Executive Officers was benchmarked against Motorola, Inc.’s comparator group. Motorola, Inc. strives to award both competitive forms of compensation (base salary, short-term incentive compensation and long-term incentive compensation) and to ensure that the individual elements comprising the compensation are competitively positioned in the marketplace.

Motorola, Inc.’s comparator group consists of 16 large-cap, high-tech companies that, in the aggregate, both Motorola, Inc. management and the Motorola, Inc. Compensation Committee believe best represent the portfolio of businesses and the competition for executive talent. Motorola, Inc. believes using its comparator group for Dr. Jha is an appropriate method to understand the executive talent market in which it must compete to attract and retain top-quality talent. The Motorola, Inc. Compensation Committee reviews the composition of the comparator group annually to determine if any changes are necessary. Since 2000, Motorola, Inc. has sought to more closely align its compensation program with those of its large-cap, high-tech peers.

In 2009, Motorola, Inc.’s comparator group consisted of the following companies: Alcatel-Lucent, Apple, Inc., Cisco Systems, Inc., Dell Inc., EMC Corp., LM Ericsson Telephone Co., Hewlett Packard Co., Intel Corp., International Business Machines Corp., Microsoft Corp., Nokia Corp., Nortel Networks Corp., Oracle Corp., QUALCOMM Inc., Sun Microsystems, Inc. and Texas Instruments Inc. Based upon the markets in which Motorola, Inc. competes for executive talent within its industries, the Motorola, Inc. Compensation Committee approved the comparator group, and Mercer, the Committee’s compensation consultant at the time, confirmed that the companies comprising the comparator group were appropriate.

In addition to comparator group data, Motorola, Inc. also gathers and analyzes supplemental compensation market data from multiple survey sources in order to obtain a more complete picture of the overall compensation environment for the broader executive group. During 2009, Motorola, Inc. utilized supplemental data for Dr. Jha and some of the Named Executive Officers that was gathered from the following survey sources listed below. The individual compensation for the Named Executive Officers, other than Dr. Jha, is benchmarked individually based on comparator group and supplemental data from time to time on an “as needed basis” when job responsibilities change or when employee compensation is reviewed across businesses or functions.

Cash Compensation and Long-Term Incentive Compensation Survey Sources

 

   

CHiPS Executive & Senior Management Total Compensation Survey, published by Pearl Meyer & Partners, a Clark Consulting Practice;

 

   

Towers Perrin Compensation Data Bank® (“CDB”) Executive Compensation Database;

 

   

Radford Executive Survey Custom Compensation Report, published by Radford, an Aon company; and

 

   

2009 US Global Premium Executive Remuneration Suite, published by Mercer.

Because these surveys contain competitive compensation market data on a number of companies spanning a number of different industries, Motorola, Inc.’s market analysis involves narrowing the available data to “cuts” that most accurately reflect its competitive labor market.

The “data cuts” for the supplemental data used for 2009 were:

 

   

the 16 large-cap, high-tech companies that comprise Motorola, Inc.’s comparator company group and participate in the above surveys;

 

   

an expanded comparator company group that includes other high-tech companies (e.g., Google Inc., Palm, Inc., Advanced Micro Devices Inc.);

 

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technology companies generally with annual revenue greater than $1 billion; and

 

   

large-cap companies with annual revenue in the $1 billion to $50 billion range.

Motorola, Inc. strongly believes in engaging the best talent for critical functions, which may require negotiations with individual executives who have significant retention packages in place with other employers. In order to compensate these individuals for the compensation that they would forfeit by terminating their then-current employment, the Motorola, Inc. Compensation Committee, on the recommendation of management, may determine that it is in Motorola, Inc.’s best interest to offer compensation packages that deviate from the general compensation principles in order to recruit executive talent.

The Motorola, Inc. Compensation Committee, on the recommendation of management, and Dr. Jha for the other NEOs may determine it is appropriate to provide certain individuals with compensation outside of its normal cycles. The Committee and Dr. Jha make such decisions based on:

 

   

increased responsibilities or job changes related to shifts in our strategic priorities,

 

   

retention of critical talent, and

 

   

strategic investment in individuals identified as candidates for our leadership succession plans.

Accordingly, for some Named Executive Officers, the individual compensation elements are above and below the target of the 50th percentile. In determining actual compensation a Named Executive Officer’s role, responsibilities, experience, performance, and skill set are considered in making a judgment of the Named Executive Officer’s value to Motorola, Inc. and in the marketplace. These determinations are generally subjective, and the Motorola, Inc. Compensation Committee and Dr. Jha do not rely on formulaic weighting of these factors in making their compensation decisions. Rather, they use these factors to provide an overall context for their decisions on specific elements of compensation.

Independent Consultant Review of Dr. Jha’s Compensation

The Motorola, Inc. Compensation Committee has the discretion, to the extent deemed necessary and appropriate, to retain and terminate compensation consultants, outside counsel or other advisors, including the sole authority to approve fees and other retention terms for any such consultant, counsel or advisor. The Motorola, Inc. Compensation Committee’s practice is to engage an external independent consultant to complete an evaluation of its compensation program on a periodic basis, typically every one or two years, and to annually review the specific compensation of the Co-CEOs and the Co-CEOs’ senior leadership team, which for our Company only includes Dr. Jha. During 2009, the Committee chose to engage a new compensation consulting firm (discussed further below), a decision solely made by the Motorola, Inc. Compensation Committee without recommendation from management.

The Motorola, Inc. Compensation Committee’s compensation consultant has been Compensation Advisory Partners since September 2009. Compensation Advisory Partners is independent from Motorola, Inc. and reports directly to the Chair of the Motorola, Inc. Compensation Committee. The Motorola, Inc. Compensation Committee’s current compensation consultants from Compensation Advisory Partners also served as the Committee’s consultant as employees of Mercer up until September 2009. The Motorola, Inc. Compensation Committee believes that Compensation Advisory Partners is the appropriate consultant to review and assist in the development of its compensation program. Compensation Advisory Partners does not have any other business relationships with the Company and no additional business relationships are expected in the future. When appropriate, the Motorola, Inc. Compensation Committee has discussions with Compensation Advisory Partners without management present to protect impartiality.

 

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Prior to September 2009, the Motorola, Inc. Compensation Committee’s compensation consultant was Mercer. Motorola, Inc.’s 2009 expenditures with Marsh & McLennan Companies, which includes affiliates of Mercer, were approximately $2.54 million, of which approximately 7% or $170,000 was paid to Mercer for work with the Motorola, Inc. Compensation Committee and 93% or $2.37 million was paid to Marsh & McLennan affiliates for other work.

Motorola, Inc. management reports to the Motorola, Inc. Compensation Committee regarding any fees for unrelated services and products purchased from Mercer, but the Committee does not preapprove such services. The most recent review took place in July 2009. The Motorola, Inc. Compensation Committee reviewed the services Mercer provided Motorola, Inc. and other matters of judgment to ensure Mercer’s objectivity in advising the Committee.

In 2010, the Motorola, Inc. Compensation Committee also engaged Deloitte Consulting LLP to assist in the second amendment of Dr. Jha’s employment agreement. Both Compensation Advisory Partners and Deloitte Consulting LLP were engaged by the Motorola, Inc. Compensation Committee due to both firms’ familiarity with Dr. Jha’s existing agreement. Deloitte Consulting has not been engaged by the Motorola, Inc. Compensation Committee since the engagement on the second amendment to Dr. Jha’s employment agreement and the Committee does not plan on engaging Deloitte Consulting LLP in the future. Motorola, Inc.’s 2010 expenditures with Deloitte Consulting LLP and its affiliates were approximately $31,400 for work with the Motorola, Inc. Compensation Committee. By way of comparison, Motorola, Inc.’s 2009 expenditures with Deloitte Consulting LLP and its affiliates were $12.2 million, none of which was for services provided to the Motorola, Inc. Compensation Committee.

The Compensation Committee will have the discretion, to the extent deemed necessary and appropriate, to retain and terminate compensation consultants, outside counsel or other advisors, including the sole authority to approve fees and other retention terms for any such consultant, counsel or advisor. We anticipate the Compensation Committee will engage an external independent consultant to evaluate its compensation program and review the specific compensation of the executives under the Compensation Committee’s purview.

2010 Executive Compensation Review

In January 2010, the Committee engaged Compensation Advisory Partners to independently review our executive rewards program and the compensation of Motorola, Inc.’s senior leadership team, which included Dr. Jha. Compensation Advisory Partners’ 2010 executive compensation review studied: (1) the relationship between actual 2008 senior executive compensation levels and the company’s performance using available proxy data at that time, (2) the competitiveness of the target executive pay program for 2009 in light of the executive compensation strategy, and (3) the competitiveness of the “pay mix,” long-term incentive compensation (“LTI”) mix, equity grants and LTI performance metrics compared to the market. Compensation Advisory Partners’ review considered annualized values of Dr. Jha’s 2008 sign-on equity awards (excluding make whole awards for compensation forfeited at his prior employer) since his 2009 and 2008 equity grants were not representative of Motorola’s typical core LTI programs and grant practices.

Compensation Advisory Partners reviewed the following compensation components for Dr. Jha in its competitive assessment:

 

   

base salary;

 

   

annual bonus (target annual bonus opportunity);

 

   

total cash compensation (base salary + target annual bonus opportunity);

 

   

LTI (annualized sign-on equity); and

 

   

total direct compensation (total cash compensation + LTI).

 

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Compensation Advisory Partners relied on the peer company proxy data to determine the competitive positioning for Motorola, Inc.’s compensation relative to the market for Motorola, Inc.’s senior leadership team, which for our Company only includes Dr. Jha.

Pay and Performance Relationship

Compensation Advisory Partners’ study found that Motorola, Inc.’s compensation structure is highly leveraged so that strong company performance leads to above-market pay and weak company performance results in below-market pay. Additionally, Dr. Jha’s compensation structure is leveraged not only by Motorola, Inc. stock price, but also the success of the separation of Motorola, Inc. into two, publicly traded companies. Compensation Advisory Partners found that, overall, Motorola, Inc.’s business-based performance on select metrics was below the 25th percentile of its peers for 2008 based on twelve key financial metrics of success.

Compensation Advisory Partners’ study found the following for Dr. Jha:

 

   

Base salary ($900,000) and target annual cash compensation opportunity ($2,700,000) is below the market median;

 

   

Long-term incentives ($11,419,000; including annualized sign-on equity, excluding make whole awards) approximate the 65th percentile;

 

   

Target total compensation ($14,119,000; including annualized sign-on equity, excluding make whole awards) approximates the 65th percentile; and

 

   

Dr. Jha’s total target pay mix has a greater emphasis on the LTI component compared to the market.

The Motorola, Inc. Compensation Committee agreed with the conclusions from Compensation Advisory Partners study and relied on the study’s findings in setting the 2010 compensation levels for the Motorola, Inc. senior leadership team, including for Dr. Jha.

Compensation Bands for Named Executive Officers, other than Dr. Jha

The variable compensation targets for Motorola, Inc.’s executives are based on the level of their position as an Executive Vice President, Senior Vice President, Corporate Vice President or Appointed Vice President. Messrs. Rothman, Ogle, Cipolla and Shockley are Senior Vice Presidents and their compensation is scaled for such position as follows:

 

Officer Level   

Annual

Bonus

Target

  

Long-Range
Incentive Plan

Target

   2009 Equity Budget
Assuming Valued
Performer Ranking

Senior Vice President

   75% of

eligible

earnings

   100% of
salary
   22,000 RSUs of which a portion can be elected in stock options
 

2009 Base Salary

In January 2009 and January 2010, in response to economic realities, annual salary increases were not provided to employees, including the Named Executive Officers, in the U.S. and most other countries, except when warranted for promotions or where otherwise required by law.

Dr. Jha’s Base Salary

Dr. Jha’s base salary is pursuant to his employment agreement. In late 2008, Dr. Jha voluntarily agreed to reduce his base salary for 2009 by 25% from $1,200,000 to $900,000. In January 2010, Dr. Jha voluntarily agreed to have his base salary remain at the reduced level of $900,000 for 2010.

 

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Other Named Executive Officer’s Salaries

The salary of the Named Executive Officers, other than Dr. Jha, are based on such officer’s position as a Senior Vice President and the level of experience, knowledge, skills, ability and performance of the incumbent in his role. Each Named Executive Officer’s salary reflects his level of contributions to the company, responsibilities and accountability.

2009 Short-Term Incentives

MIP is a cash-based, pay-for-performance annual incentive plan that was initiated in January 2002 and applies to all regular employees of Motorola, Inc., including the Named Executive Officers, (excluding those employees participating in a sales incentive plan). This discussion of MIP relates to MIP awards granted in 2009 under the 2009 MIP Plan approved by the Committee in March 2009 (“2009 MIP”). For information regarding the impact of Section 162(m) of the Internal Revenue Code on awards granted under MIP, see the discussion set forth under “The Impact of Favorable Accounting and Tax Treatment on Compensation Program Design”.

Similar to many of its competitors, Motorola, Inc. uses the annual incentive plan, MIP, to reward employees for their contributions to strong annual business performance. Through MIP, Motorola, Inc. strives to promote teamwork and strengthen financial performance. Moreover, MIP supports the goals of: attracting and retaining the talent needed to succeed, focusing employees’ attention on critical business goals, sharing the financial benefits of superior performance, and providing pay that is competitive with comparator companies.

MIP Incentive Formula

The payout value of awards under MIP is based on the following incentive formula:

 

                   

Performance Factors

         
Eligible Earnings    ×    Individual Incentive Target    ×    Business Performance Factor    ×    Individual Performance Factor    =    MIP Award

MIP Individual Incentive Target

The MIP Individual Incentive Targets are based on market-competitive data and are established as a percentage of eligible earnings (generally, base salary). Dr. Jha’s individual incentive target is set forth in his employment agreement as not less than 200% of eligible earnings with a minimum annual bonus of $1,200,000 for 2009. For the other Named Executive Officers, their individual incentive targets are based on their position and set at 75% of eligible earnings for Senior Vice Presidents as described above in “Compensation Bands for Named Executive Officers, other than Dr. Jha”.

MIP Business Performance Factor

At the beginning of each year, the Motorola, Inc. Compensation Committee establishes MIP-related Business Performance Factor targets for both Motorola, Inc. as a whole and for specified business units. For 2009, due in large part to the challenging macroeconomic environment and difficult business conditions, the Motorola, Inc. Compensation Committee placed an increased focus on cash conservation by applying a higher weighting (35%) to the Business Performance Factor relating to cash flow than it had in previous years. For 2009, in general, the Business Performance Factor applicable to employees in each of the businesses was based on the performance of their particular business unit against the established performance targets.

The 2009 MIP Business Performance Factors for Dr. Jha had one component based on the performance of the Broadband Mobility Solutions (“BMS”) business, led by the other Motorola, Inc. Co-CEO, and one

 

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component based on the performance of the Mobile Devices business (“Mobile Devices business” or “MDb”), led by Dr. Jha. Dr. Jha had a higher weighting (70%) on the performance of the business he leads, reflecting the fact that he had the greatest impact on the results of his own business. Although Dr. Jha had a lower weighting (30%) placed on the performance of the business he does not lead, the performance of that business was included in his Business Performance Factor due to his ability to impact the performance of total Motorola, Inc. Dr. Jha’s actual 2009 MIP award of $1,200,000 reflects the minimum payment he was guaranteed pursuant to the terms of his employment agreement, as amended.

The 2009 MIP Business Performance Factors for Messrs. Rothman, Ogle, Cipolla and Shockley were based entirely on the performance of MDb.

In 2009, the MIP Business Performance Factor measures and their relative weights for the NEOs were:

 

   

Operating Earnings (65% weight): which was calculated as operating earnings according to generally accepted accounting principles (“GAAP”), excluding the effect of the following items: (i) reorganization, asset impairment, extraordinary, unusual and/or non-recurring items of gain or loss, separately identified in Motorola, Inc.’s quarterly earnings press releases, (ii) changes in tax or accounting regulations or laws, (iii) the effect of discontinued operations, (iv) the effect of a significant merger or acquisition, and (v) expenses related to the issuance of employee stock options and MOTshare, intangible amortization, and unallocated incentive and function costs.

 

   

Controllable Free Cash Flow (35% weight): which was calculated as operating cash flow according to GAAP, excluding cash flow related to: (i) income taxes, (ii) non-operating income or expense, and (iii) unallocated incentive and function costs, less capital expenditures, which are defined as the original cost of acquiring property, plant and equipment, as reported in the investing section of the cash flow statement per GAAP.

The following tables set forth the minimum, maximum and target levels for each of the 2009 MIP Business Performance measures that pertain to each of the Named Executive Officers, as well as the actual 2009 performance levels. The 2009 MIP Business Performance levels were set so that if the minimum level of performance was not met, no payout would be made for the respective performance measure. Assuming business performance meets the minimum threshold for a payout, the Business Performance Factor formula allows for a range of 20% of the established target award level (at the minimum level of performance) to 130% of the established target award level (at the maximum level of performance). As described further below, during 2009 the actual MDb Operating earnings and MDb Controllable free cash flow was below the minimum level of performance, but the business performance factor for MDb was adjusted upward from 0% to 10%.

2009 MIP Business Performance Factors:

 

Sanjay K. Jha

MIP Business Performance
Measure

  Minimum
Threshold
for
Any Payout
  Performance
Level for
Maximum
Payout
  Target   Actual Fiscal
Year 2009
Performance
  Resulting
Performance
Factor
  Performance
Measure
Weight
  Weighted
Performance
Factor
  Business
Weight
  Weighted
Contributing
Result
  Adjusted
Weighted
Contributing
Result

MDb Operating earnings

  ($750 million)   $225 million     $0   ($904 million)   0%   65%        
              0%   70%   0%   7%

MDb Controllable free cash flow

  ($1.110 billion)   $325 million     $0   ($1.257 billion)   0%   35%        

BMS Operating earnings

  $1.547 billion   $2.652 billion   $ 2.210 billion   $1.833 billion   41%   65%        
              59%   30%   18%   17%

BMS Controllable free cash flow

  $1.526 billion   $2.616 billion   $ 2.180 billion   $2.147 billion   93%   35%        

Total Sanjay K. Jha MIP Business Performance Factor

  24%
 

 

Messrs. Rothman,

Ogle, Cipolla and Shockley

MIP Business Performance
Measure

  Minimum
Threshold for
Any Payout
  Performance
Level for
Maximum
Payout
  Target   Actual Fiscal
Year 2009
Performance
  Resulting
Performance
Factor
  Performance
Measure
Weight
  Weighted
Performance
Factor
  Business
Weight
  Weighted
Contributing
Result
  Adjusted
Weighted
Contributing
Result

MDb Operating earnings

  ($750 million)   $225 million   $0   ($904 million)   0%   65%   0%   100%   0%  
                    10%

MDb Controllable free cash flow

  ($1.110 billion)   $325 million   $0   ($1.257 billion)   0%   35%   0%   100%   0%  

Total Messrs. Rothman, Ogle, Cipolla and Shockley MIP Business Performance Factor

  10%
 

The BMS actual 2009 performance with relation to the Operating Earnings measure fell below target performance but above the minimum performance threshold and, accordingly, contributed to a below-target payout. The BMS actual 2009

 

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performance with relation to the Controllable Free Cash Flow measure also fell below the target performance but above the minimum performance threshold and, accordingly, contributed to a below-target payout.

The MDb actual 2009 performance with relation to the Operating Earnings measure fell below the minimum performance threshold. The MDb actual 2009 performance with relation to the Controllable Free Cash Flow measure also fell below the minimum performance threshold.

Given the improved performance of MDb, management recommended and the Motorola, Inc. Compensation Committee of the Board acted to exercise discretion in determining the final MIP Business Performance Factors for all businesses. Although the financial performance of MDb in 2009 was below the levels required to generate a payout, management and the Motorola, Inc. Compensation Committee felt it was appropriate to recognize the efforts of MDb employees to improve cost structure, strengthen operations, reduce product platforms, simplify processes and deliver two AndroidTM-based smartphones on time and with high levels of customer satisfaction. As a result, the business performance factor for MDb was adjusted upward from 0% to 10% for MDb employees, including our Named Executive Officers and Motorola, Inc.’s Co-CEOs.

MIP Individual Performance Factor

The MIP Individual Performance Factor gives the Motorola, Inc. Compensation Committee and Dr. Jha (for the other NEOs) the ability to adjust the awards, which are formula-driven based on business results, according to an individual’s contribution to Motorola, Inc.’s success. Motorola, Inc. believes that the most effective performance management process establishes a tight and clear link between individual and organizational goals and performance. Motorola, Inc. strives to establish a clear line of sight between the performance management process and the business strategy. Individual performance is measured by both what an individual accomplishes (goal achievement) and how the individual accomplishes those goals (behaviors).

Since not all employees perform at the same level, nor contribute equally to the metrics used to determine the MIP Business Performance Factors, the Committee (for Dr. Jha) and Dr. Jha (for the other NEOs) has the discretion to adjust awards to account for these differences in individual contribution and performance. Motorola, Inc. believes that this discretion results in a stronger pay-for-performance culture. Individual Performance adjustments are made by the Committee or Dr. Jha based on their determination of how much to differentiate among individual participants. Individual Performance multipliers for our Named Executive Officers could range from 0% (no award paid) for poor performance to 130% (130% of the formula-driven award) for exceptional performance, demonstrating a commitment to strongly differentiate rewards for superior performers.

The 2009 MIP payouts for Dr. Jha and Mr. Ogle were guaranteed pursuant to their employment agreement and employment offer, respectively, and the Individual Performance Factor was set at 1.0 or 100% of their award pursuant to their employment offer. For Messrs. Rothman, Cipolla and Shockley, their Individual Performance Factors ranged from 110% to 124% of the resulting Business Performance Factor to reflect their contributions during 2009.

Based on the 2009 Business Performance Factors and the 2009 Individual Performance multiplier, the actual 2009 MIP award and the target 2009 MIP award for each of our Named Executive Officers are set forth in the following table:

 

Named Executive Officer    Target 2009
MIP Award
    Actual 2009
MIP
Award
 

Dr. Jha

   $ 1,811,538      $ 1,200,000 (1) 

Mr. Rothman

   $ 322,500      $ 40,000   

Mr. Ogle

     n/a (2)    $ 273,000 (2) 

Mr. Cipolla

   $ 337,500      $ 37,000   

Mr. Shockley

   $ 261,047      $ 32,000   
                  

 

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(1) Pursuant to Dr. Jha’s employment agreement, his annual bonus target is 200% of base salary with a 2009 minimum bonus of $1,200,000.

 

(2) Pursuant to the terms of his employment offer, Mr. Ogle was entitled to a minimum 2009 MIP award of $273,000.

2009 Long-Term Incentives

Motorola, Inc.’s LTI programs are designed to encourage creation of long-term value for stockholders, promote employee retention and encourage stock ownership. These programs include: (1) the LRIP, (2) grants of stock options, and (3) grants of restricted stock units (“RSUs”) or other equity.

Many of Motorola, Inc.’s employees participate in one or more of the LTI programs, which Motorola, Inc. believes promote a focus on long-term results and align employee and stockholder interests. In designing and refining the programs, Motorola, Inc. carefully considered the impact of equity expensing, actions taken by the comparator group to reduce the use of stock options, and dilution and overhang levels. As a result, the equity programs were redeveloped in 2008 in the interest of achieving the appropriate balance between cost competitiveness and maintaining employee incentive, by replacing stock options with RSUs for the annual equity grant to those below the vice president level. In 2009, a one-time stock option exchange program was implemented to provide improved employee retention and engagement. The exchange program restored economic value to certain stock options held by certain employees at an insignificant cost to Motorola, Inc.

For 2009, LTI levels for our Named Executive Officers, other than Dr. Jha, were developed after considering the 50th percentile of the comparator group and the supplemental data, share usage, and expense associated with offering LTI. The 2009 LTI levels resulted in an LRIP target of 100% of base salary for all Senior Vice Presidents, including the Named Executive Officers other than Dr. Jha, and equity grant guidelines which were denominated in full value shares and varied based on 2008 performance ratings. The full value shares were converted into a mix of stock options and RSUs based on the elections of the Named Executive Officers other than Dr. Jha from Motorola, Inc.’s Equity Choice Program. Motorola, Inc.’s Equity Choice Program allows Appointed Vice Presidents and above, including the Named Executive Officers other than Dr. Jha, to elect the mix of stock options and RSUs of the full value shares their manager recommends for them, if any.

Our Named Executive Officers receive a large proportion of their overall targeted compensation (approximately one-half) in the form of LTI in order to align their interests with those of stockholders and to promote a focus on long-term results. In 2009, the LTI mix focused on LTI vehicles that incentivize either absolute stock price performance or relative total shareholder return performance over a three-year period. The 2009 LRIP (discussed below) was designed to pay for Motorola, Inc.’s three-year total shareholder return versus the peer group, which emphasizes the importance of winning in the marketplace. Stock options and RSUs pay for absolute stock price performance. The wealth creation of these vehicles are only maximized when absolute stock price growth is combined with best-in-class performance against the Company’s peers.

Long-Range Incentive Plan

The LRIP is a pay-for-performance, multi-year incentive plan. A three-year cycle started on January 1, 2008 and will conclude on December 31, 2010 and another three-year cycle started on January 1, 2009 and will conclude on December 31, 2011. On April 21, 2008, the Motorola, Inc. Compensation Committee approved the cancellation of the January 1, 2007 to December 31, 2009 (2007-2009) performance cycle under Motorola, Inc.’s Long-Range Incentive Plan of 2006 without the payment of awards for such performance cycle. This cycle, together with a previous cycle, was cancelled due to the poor performance of the company versus the established plan goals and metrics and there were no new awards granted in their place. As a result, there were no LRIP payouts in 2009.

 

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Participation in the LRIP is limited to elected officers—including corporate, senior and executive vice presidents and all our Named Executive Officers, except Dr. Jha pursuant to his employment agreement (approximately 40 participants in total at Motorola SpinCo).

LRIP Individual Incentive Targets

The LRIP Individual Incentive Targets are based on market-competitive data and are established as a percentage of base salary at the start of a performance cycle. The Motorola, Inc. Compensation Committee designates target levels for all LRIP participants. Pursuant to the terms of his amended employment agreement, Dr. Jha was not eligible to participate in the 2009-2011 cycle of LRIP. For the other Named Executive Officers, their individual incentive target is based on their position and set by the Motorola, Inc. Compensation Committee at 100% of eligible earnings for Senior Vice Presidents, as described above in “Compensation Bands for Named Executive Officers, other than Dr. Jha”.

2009-2011 LRIP and 2010-2012 LRIP

The 2009-2011 LRIP program was redesigned to solely focus on Motorola, Inc.’s three-year total shareholder return relative to the three-year total shareholder return of the peer group. The relative total shareholder performance that is incentivised by this plan is one component of the portfolio of LTI vehicles discussed above. In March 2010, the Motorola, Inc. Compensation Committee approved the 2010-2012 LRIP program with the same metrics as described below for the 2009-2011 LRIP program with the exception of a revised peer group for the 2010-2012 LRIP.

2009-2011 LRIP and 2010-2012 LRIP Incentive Formula

The payout value of awards under the LRIP is based on the following incentive formula:

 

Base Salary at Cycle Start    ×    Individual Incentive Target    ×    TSR Rank Payout Factor    =    LRIP Award

TSR Rank Payout Factor

The TSR Rank Payout Factor is calculated in a two step process:

Step 1: Measure the three-year total shareholder return (“TSR”) for Motorola, Inc. and each of the companies in the peer group to determine the Relative TSR Payout Factor to be used for the LRIP cycle.

For 2009-2011 LRIP and 2010-2012 LRIP purposes, TSR is calculated as follows:

 

   Ending share price
   (Daily average during the final three months of the Performance Cycle)

+

  

Value of reinvested dividends

=

  

Total ending value

   Beginning share price

  

(Daily average during the three months preceding the Performance Cycle)

=

  

Total value created

÷

   Beginning share price

=

  

Total shareholder return

 

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For 2009 LRIP purposes, the peer group is as follows:

 

Alcatel-Lucent (ALU)

Apple Inc. (AAPL)

Cisco Systems, Inc. (CSCO)

Dell Inc. (DELL)

EMC Corporation (EMC)

Hewlett-Packard Company (HPQ)

Intel Corporation (INTC)

International Business Machines Corp. (IBM)

 

LM Ericsson Telephone Co. (ERIC)

Microsoft Corporation (MSFT)

Nokia Corp. (NOK)

Nortel Networks Corp. (NRTLQ.PK)

Oracle Corp. (ORCL)

QUALCOMM Inc. (QCOM)

Sun Microsystems Inc. (JAVA)

Texas Instruments Inc. (TXN)

For 2010 LRIP purposes, the peer group was revised to represent similarly sized technology companies. Ebay, Inc. (EBAY), Google, Inc. (GOOG), Harris Corp. (HRS), LG Electronics (LGERF.PK) and Tyco Electronics LTD (TEL) were added to the peer group. Dell Inc. (DELL), Hewlett-Packard Company (HPQ), International Business Machines Corp. (IBM), Nortel Networks Corp. (NRTLQ.PK) and Sun Microsystems Inc. (JAVA) were removed from the peer group.

Step 2: Rank the total shareholder return for Motorola, Inc. and each of the companies in the peer group to determine Relative TSR Payout.

 

TSR Rank    Relative TSR
Payout Factor
  TSR Rank    Relative TSR
Payout Factor

1

   200%   10    75%

2

   200%   11    50%

3

   190%   12    25%

4

   170%   13    0%

5

   150%   14    0%

6

   140%   15    0%

7

   125%   16    0%

8

   110%   17    0%

9

   100%     
 

2008-2010 LRIP

The 2008-2010 LRIP program was designed to focus on creating shareholder value through stock price goals and a “haircut” reduction if total shareholder return relative to peers is below the 55th percentile.

2008-2010 LRIP Incentive Formula

The payout value of awards under the LRIP is based on the following incentive formula:

 

Base Salary at Cycle Start    ×    Individual Incentive Target    ×    LRIP Business Performance Factor    =    LRIP Award

LRIP Business Performance Factor

The LRIP Business Performance Factor is calculated in a two-step process.

 

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Step 1: Calculate Motorola, Inc.’s 20-day average stock price at the end of the 2008-2010 LRIP cycle.

Motorola, Inc.’s 20-day average stock price at the end of the 2008-2010 LRIP cycle will determine the potential size of the 2008-2010 cycle award, as illustrated in the following performance table.

 

December 31, 2010
20-day Average Stock Price
   Performance Factor

$27.00

   2.00x

$18.00

   1.00x

$16.00

   0.25x

<$16.00

   0.00x
 

If Motorola, Inc.’s 20-day average stock price at the end of the cycle is less than $16.00, then no payout shall be made for the 2008-2010 LRIP cycle and Step 2 measures (below) will not be calculated.

Step 2: Measure Motorola, Inc.’s three-year TSR compared with its comparator group to determine the final Business Performance Factor to be used for the LRIP cycle.

For LRIP purposes, TSR is calculated as follows:

 

   Ending share price
   (20-day average through last day of cycle, e.g., December 31, 2010)

+

  

Value of reinvested dividends

=

  

Total ending value

   Beginning share price

  

(20-day average through day preceding first day of cycle, e.g., December 31, 2007)

=

  

Total value created

÷

   Beginning share price

=

  

Total shareholder return

For the 2008-2010 LRIP cycle, in order for a full LRIP award to be paid: (1) Motorola, Inc.’s three-year TSR must exceed the 55th percentile of its comparator group, and (2) Motorola, Inc.’s “absolute” three-year TSR must be positive (i.e., greater than 0%).

If Motorola, Inc.’s three-year TSR is equal to or above the 55th percentile of our comparator group, then the full LRIP Business Performance Factor is applied. If Motorola, Inc.’s three-year TSR is below the 55th percentile but above the 25th percentile of our comparator group, then a “haircut” reduction is applied to the LRIP Business Performance Factor. The “haircut” is linear between performance at the 55th percentile (no reduction) and the 25th percentile (50% reduction). If Motorola, Inc.’s three-year TSR is below the 25th percentile of its comparator group, then the Motorola, Inc. Compensation Committee will use its discretion to determine if any 2008-2010 LRIP cycle awards are paid.

Impact of Individual Performance on 2008 and 2009 LRIP Awards

As Co-CEO of Motorola, Inc., Dr. Jha may recommend adjustment to the amount of the LRIP award to any participant (other than a member of Motorola, Inc.’s senior leadership team for whose adjustment the Motorola, Inc. Compensation Committee must provide approval) at any time prior to payment as a result of the participant’s performance during the performance cycle; provided, however, that any such adjustment may not result in a payment to the participant in excess of the participant’s maximum award under the LRIP.

 

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Equity Awards

Equity awards are the other component of Motorola, Inc.’s long-term incentive program. To reward, retain and motivate employees, in 2009 and 2010, the Motorola, Inc. Compensation Committee, on the recommendation of management, awarded stock options and restricted stock units (“RSUs”) to a wide range of employees, including the Named Executive Officers. Stock options provide economic value to the holder if the price of Motorola, Inc.’s common stock increases from the grant date to the time the option or right is exercised. In contrast, RSUs convert to shares of Motorola, Inc.’s common stock when they vest, so they have a gross value at the time of vesting equal to the then-current market value of Motorola, Inc.’s common stock. While stock options motivate employees by providing more potential upside, RSUs assist the company in retaining employees because RSUs have value even if stock price does not increase.

Only the Motorola, Inc. Compensation Committee may grant equity awards to Dr. Jha. Motorola, Inc. does not structure the timing of equity award grants to precede or coincide with the disclosure of material non-public information. Since 2002, the grant date for the annual equity award has always been within a few days of the annual stockholders meeting in early May.

A wide range of employees participate in Motorola, Inc.’s equity plans. On May 7, 2009, the Motorola, Inc. Compensation Committee granted equity to approximately 9,000 employees of Motorola SpinCo, including the Named Executive Officers, other than Dr. Jha, as part of Motorola, Inc.’s 2009 annual equity awards. The 2009 annual equity grants generally vest and become exercisable in four equal annual installments, with the first installment vesting on May 7, 2010. The per share exercise price for the 2009 annual stock option grant is $6.22, the Fair Market Value of Motorola, Inc.’s common stock on the date of the grant. The stock options expire on May 7, 2019. Approximately 96% of the Motorola, Inc. equity awards covered by the May 7, 2009 general grant were granted to Motorola SpinCo employees other than the Motorola SpinCo Named Executive Officers.

Motorola, Inc. also grants stock options and/or RSUs: (1) to help make new employees “whole” for the compensation that they forfeit by terminating their previous employment, (2) to attract new critical talent, (3) to encourage retention of critical talent, (4) as a strategic investment in individuals deemed critical to Motorola, Inc.’s leadership succession plans, and (5) to reward strong performance. In 2009, approximately 250 of the approximately 20,000 Motorola SpinCo employees received a grant of stock options or RSUs outside of the May annual award of equity and the June stock option exchange program.

Outstanding stock options, stock appreciation rights (“SARs”) and unvested RSUs granted or awarded under Motorola, Inc.’s equity incentive plans to Motorola, Inc. employees who will be Motorola SpinCo employees will generally be converted, with appropriate adjustments, into stock options, SARs and unvested RSUs of Motorola SpinCo on the same terms and conditions (including vesting restrictions, if any) as were applicable to the employees’ Motorola, Inc. stock options, SARs and unvested RSUs immediately prior to the distribution. Outstanding stock options, SARs and unvested RSUs will be adjusted in a manner such that the “fair value” and the “intrinsic value” of such awards immediately prior to the distribution is generally preserved immediately after the distribution. By converting our employees’ equity into equity of Motorola SpinCo, we are able to align our equity compensation to the performance of Motorola SpinCo while creating an additional retention incentive.

2009 One-Time Stock Option Exchange Program

In 2009, Motorola, Inc. stockholders approved a one-time stock option exchange program that was designed to restore economic value to certain stock options held by certain employees, while not creating material additional expense to Motorola, Inc. While Dr. Jha and Motorola, Inc.’s senior leadership team were not eligible for the stock option exchange program, our other NEOs were eligible and participated. Additional objectives of the program included improved employee retention and engagement. The program allowed for certain stock options with an exercise price above market prices (out-of-the-money) to be exchanged for a smaller number of stock options with an exercise price set as the Fair Market Value of our common stock on the date the replacement

 

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options were issued. Replacement stock options were granted on June 12, 2009 in exchange for eligible out-of-the-money stock options that were elected to be exchanged. The replacement stock options vest in two equal annual installments, with the first installment vesting on June 12, 2010. The per share exercise price for the replacement options issued in the stock option exchange is $6.73. The replacement options expire on June 12, 2014. Approximately 82% of the employees that were eligible for the program chose to participate in the program and 87% of Motorola, Inc. eligible options were exchanged for replacement options.

Fair Market Value Definition

Until March 1, 2007, “Grant Date Fair Market Value” was defined as the closing price for a share of Motorola, Inc.’s common stock on the last trading day before the date of grant for equity awards. For equity award grants on or after March 1, 2007, “Grant Date Fair Market Value” (also termed “Fair Market Value”) is defined as the closing price for a share of Motorola, Inc. common stock on the date of grant. The official source for the closing price is the New York Stock Exchange Composite Transactions in the Wall Street Journal at www.online.wsj.com.

Dr. Jha’s 2009 Equity Grants

In 2008, Dr. Jha was granted a significant number of stock options and RSUs in connection with his employment agreement. Under the terms of his employment agreement, Motorola, Inc. has no obligation to grant additional equity until at least twelve months following a separation of the Mobile Devices business into an independent, publicly traded company. In 2009, the Motorola, Inc. Compensation Committee determined no additional equity grants were necessary in 2009 to further incentivize Dr. Jha. In 2008, Dr. Jha voluntarily decided to forego any 2008 bonus under MIP. At that time, the Motorola, Inc. Compensation Committee agreed to make a grant of RSUs to Dr. Jha in the first quarter of 2009 with a value equal to: $2,400,000 less the amount of cash that would have been payable to the other Co-CEO under MIP had he not also foregone his 2008 bonus under MIP. The total cash value of the RSU award was determined on February 11, 2009 to be $1,334,000. On February 11, 2009, based on the closing price of Motorola, Inc.’s common stock, 344,615 RSUs were granted to Dr. Jha. These RSUs vest in two equal installments on February 11, 2010 and October 31, 2010.

Mr. Rothman’s 2009 Equity Grants

In January 2009, in connection with a program to retain key Mobile Devices employees, Mr. Rothman was granted options to acquire 250,000 shares of Motorola, Inc. common stock. The stock options vest in two equal annual installments beginning on January 21, 2010.

In May 2009, as part of the annual award of equity grants, Mr. Rothman was granted options to acquire 49,500 shares of Motorola, Inc. common stock. Additionally, Mr. Rothman was granted 16,500 RSUs. The stock options and RSUs vest in four equal annual installments beginning on May 7, 2010.

In June 2009, as part of the stock option exchange program, Mr. Rothman chose to exchange certain out-of-the-money stock options for an option to acquire 123,279 shares of Motorola, Inc. common stock. The stock options vest in two equal annual installments beginning on June 12, 2010 and have a five-year term.

Mr. Ogle’s 2009 Equity Grants

In August 2009, in connection with his commencement of employment at Motorola, Inc., Mr. Ogle was granted options to acquire 350,000 shares of Motorola, Inc. common stock. Additionally, Mr. Ogle was granted 50,000 RSUs. The stock options vest in four equal annual installments beginning on August 3, 2010. The RSUs vest in two equal annual installments beginning on August 3, 2010. The equity grants were made under his employment offer in order to induce him to accept the position,

 

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Mr. Cipolla’s 2009 Equity Grants

In January 2009, in connection with a program to retain key Mobile Devices employees, Mr. Cipolla was granted options to acquire 200,000 shares of Motorola, Inc. common stock. The stock options vest in two equal annual installments beginning on January 21, 2010.

In May 2009, as part of the annual award of equity grants, Mr. Cipolla was granted options to acquire 27,000 shares of Motorola, Inc. common stock. Additionally, Mr. Cipolla was granted 27,000 RSUs. The stock options and RSUs vest in four equal annual installments beginning on May 7, 2010.

In June 2009, as part of the stock option exchange program, Mr. Cipolla chose to exchange certain out-of-the-money stock options for an option to acquire 44,434 shares of Motorola, Inc. common stock. The stock options vest in two equal annual installments beginning on June 12, 2010 and have a five-year term.

In December 2009, in recognition for delivering successful key product launches, Mr. Cipolla was granted 90,000 RSUs. The RSUs vest in two equal annual installments on December 1, 2011 and December 1, 2012.

Mr. Shockley’s 2009 Equity Grants

In January 2009, in connection with a program to retain key Mobile Devices employees, Mr. Shockley was granted options to acquire 200,000 shares of Motorola, Inc. common stock. The stock options vest in two equal annual installments beginning on January 21, 2010.

In May 2009, as part of the annual award of equity grants, Mr. Shockley was granted options to acquire 15,750 shares of Motorola, Inc. common stock. Additionally, Mr. Shockley was granted 15,750 RSUs. The stock options and RSUs vest in four equal annual installments beginning on May 7, 2010.

In June 2009, as part of the stock option exchange program, Mr. Shockley chose to exchange certain out-of-the-money stock options for an option to acquire 17,721 shares of Motorola, Inc. common stock. The stock options vest in two equal annual installments beginning on June 12, 2010 and have a five-year term.

In November 2009, to address individual retention concerns, Mr. Shockley was granted 72,000 RSUs. The RSUs vest in two equal annual installments on November 2, 2011 and November 2, 2012.

Recoupment of Incentive Compensation Awards Upon Restatement of Financial Results

Effective January 1, 2008, if, in the opinion of the independent directors of the Motorola, Inc. Board, Motorola, Inc.’s financial results are restated due to intentional misconduct by one or more of Motorola, Inc.’s executive officers, the independent directors have the discretion to use their best efforts to remedy the misconduct and prevent its recurrence. The independent directors may, based upon the facts and circumstances surrounding the restatement, direct that Motorola, Inc. recover all or a portion of any bonus or incentive compensation paid, or cancel the stock-based awards granted, to an executive officer on or after January 1, 2008. In addition, the independent directors may also seek to recoup any gains realized after January 1, 2008 with respect to equity-based awards, including stock options and RSUs, regardless of when issued.

The remedies that may be sought by the independent directors are subject to a number of conditions, including, that: (1) the bonus or incentive compensation to be recouped was calculated based upon the financial results that were restated, (2) the executive officer in question engaged in the intentional misconduct, and (3) the bonus or incentive compensation calculated under the restated financial results is less than the amount actually paid or awarded.

In addition, the independent directors may take other disciplinary action, including, without limitation: (1) adjustment of future compensation of the executive officer, (2) termination of the executive officer’s

 

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employment, (3) pursuit of any and all remedies available in law and/or equity in any country, and (4) pursuit of such other action as may fit the circumstances of the particular case. The independent directors may take into account penalties or punishments imposed by third-parties, such as law enforcement agencies, regulators or other authorities. The independent directors’ power to determine the appropriate punishment for the wrongdoers is in addition to, and not in replacement of, remedies imposed by such entities and is in addition to any right of recoupment against the Co-CEOs or CFO under Section 304 of the Sarbanes-Oxley Act of 2002.

Executive Benefits and Perquisites

The Motorola, Inc. Compensation Committee and management continue to seek to more closely align its total executive rewards programs with that of its comparator group. Motorola, Inc.’s philosophy is to pay at the 50th percentile for total rewards for executive positions in its comparator group given average business performance. These rewards are supplemented by additional performance-based compensation that is substantially leveraged. As a result, Motorola, Inc. provides few executive-only benefits and perquisites. Motorola, Inc.’s executive benefits and perquisites are described below.

 

   

Motorola, Inc. Executive Financial Planning Program. The Motorola, Inc. Executive Financial Planning Program provides elected officers, including each of our Named Executive Officers, with comprehensive financial planning assistance, designed to help them achieve the highest value from their compensation package. For senior executives, including our Named Executive Officers, the annual allowance ranges from $10,000 to $16,500 in the first or last year of receiving the benefit and ranges from $7,000 to $13,500 in subsequent years of receiving the benefit.

 

   

Change in Control Protection. The Motorola, Inc. Board considers the maintenance of a sound management team to be essential to protecting and enhancing the company’s best interests and the best interests of its stockholders. To that end, Motorola, Inc. recognizes that the possibility of a change in control may exist from time to time, and that this possibility, and the uncertainty and questions it may raise among management, may result in the departure or distraction of management personnel to the detriment of the company and its stockholders. Accordingly, the Board has determined that appropriate steps should be taken to encourage the continued attention and dedication of members of Motorola, Inc. management to their assigned duties without the distraction that may arise from the possibility of a change in control. As a result, Motorola, Inc. has established the Senior Officer Change in Control Severance Plan. The Senior Officer Change in Control Severance Plan uses a “double trigger”. In other words, in order for severance benefits to be “triggered” both: (1) a change in control must occur, and (2) an executive must be involuntarily terminated for a reason other than “cause” or must leave for “good reason” within 24 months of the change in control. For a description of benefits provided under our Senior Officer Change in Control Severance Plan, see the information under “Change in Control Arrangements”.

 

   

Personal Aircraft Use. Dr. Jha as Motorola, Inc.’s Co-CEO is active in professional and civic communities, has significant amounts of private and personal information readily available about him on the Internet, has strong visibility and travels extensively as Co-CEO. As a result, while serving as Co-CEO, Dr. Jha is required to use Motorola, Inc. aircraft for personal travel in connection with the overall security program. From time to time and on a limited basis, Motorola, Inc. permits other executives to use its aircraft for personal travel.

 

   

Motorola, Inc. Management Deferred Compensation Plan. Effective January 1, 2008, because of low participation in the plan, Motorola, Inc. temporarily closed the Motorola, Inc. Management Deferred Compensation Plan to new deferrals. The Motorola, Inc. Management Deferred Compensation Plan is a non-qualified deferred compensation plan that is unfunded and unsecured and allows eligible elected officers, including our Named Executive Officers, the opportunity to defer taxes on their base salary and cash incentive compensation. Motorola, Inc. does not contribute to this plan. The plan is not

 

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intended to provide above-market or preferential earnings (as these terms are defined under SEC regulations) on compensation deferred under the plan.

 

   

Relocation Benefits. Motorola, Inc. provides relocation benefits under its Relocation Policy to employees, including the Named Executive Officers, who meet the criteria outlined in the policy. From time to time, in order to attract a particular employee and/or pursuant to an employment agreement, arrangements may be made that offer enhanced benefits beyond the terms of the Relocation Policy, such as an extended duration of temporary housing as in the case of Dr. Jha.

 

   

Commuting Benefits. Motorola, Inc. provides commuting benefits under its Commuting Assignment Policy to employees, including the Named Executive Officers, who meet the criteria outlined in the policy. From time to time, in order to attract a particular employee and/or pursuant to an employment agreement, arrangements may be made that offer enhanced benefits beyond the terms of the Commuting Assignment Policy, such as an extended duration of commuting benefits or allowances.

 

   

Expatriation Benefits. Motorola, Inc. provides expatriate benefits to employees, including the Named Executive Officers, who transfer from a home to a host country on an assignment in excess of one year, up to three years, with a clear intention to return to the home country at the conclusion of the assignment under its relocation and assignment policies. The expatriate benefits that are typically provided include relocation assistance, housing subsidy and hypothetical housing deductions, cost of living adjustments, family assistance, cultural/language assistance, and income tax equalization and filing services, among other benefits.

Motorola, Inc. Broad-based Employee Benefits

As U.S. employees, the Named Executive Officers have the opportunity to participate in a number of benefits programs that are generally available to all regular U.S. employees. These benefits include: (1) healthcare plans (medical and dental benefits, health coaching, and onsite wellness programs and wellness centers/fitness centers), (2) life and disability plans (group life insurance, business travel accident insurance and short-term and long-term disability income plans), (3) investment plans (the 401(k) Plan, the MOTshare Plan (Employee Stock Purchase Plan)) and previously existing pension plans that were available to employees who began employment prior to January 1, 2005, and (4) work/life plans (programs that assist with daily needs such as childcare, adoption assistance, dependent care account and long-term care insurance).

Pension Plans

Pension plans were offered to pension-eligible employees hired before January 1, 2005. Motorola, Inc. offers two different qualified pension plans, the Portable Pension Plan and the Traditional Pension Plan. Motorola, Inc. also offers a non-qualified plan, the MSPP, to highly-compensated employees whose qualified pension plan benefits are limited by annual salary compensation caps imposed by the IRS.

On December 15, 2008, the Motorola, Inc. Board of Directors authorized amendments to both the Motorola, Inc. Pension Plan (“Pension Plan”) and the MSPP. On this date, the Motorola, Inc. Board determined that, effective March 1, 2009, all future benefit accruals and compensation increases used to compute benefit accruals would automatically cease for all individuals who were participants under the Pension Plan and/or MSPP as of February 28, 2009, but allowing such participants to continue to earn vesting credit towards their Pension Plan benefit on and after March 1, 2009, if not already fully vested. Additionally, the MSPP was further amended to freeze any future participation in the MSPP after January 1, 2009, unless such participation was due to a prior contractual entitlement.

Both Pension Plan formulas use “average earnings” to calculate the relevant pension benefit. Prior to January 1, 2008, a participant’s “final average earnings” were used to calculate the relevant pension benefit, with

 

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final average earnings (base salary and lump-sum merit pay, excluding incentive plan awards) being the five years of highest pay during the last ten calendar years ending December 31, 2007. On and after January 1, 2008, a participant’s “modified average earnings” are used to calculate the relevant pension benefit, with modified average earnings starting with the participant’s final average earnings as of December 31, 2007 and additionally including in the numerator and denominator the earnings from each and every subsequent year of employment after January 1, 2008 and up to March 1, 2009 (unless earlier terminated). Further, when computing pension benefits, annual compensation used to calculate a participant’s benefit may not exceed certain limits set by the IRS ($245,000 in 2009) and hence is limited to this number, if required. The benefit payable to plan participants eligible for MSPP is the amount by which their pension plan benefit is reduced by the applicable IRS limits or as a result of their participation in the Motorola, Inc. Management Deferred Compensation Plan. A participant’s pension benefit and MSPP benefit together cannot exceed 70% of their modified average earnings at retirement.

The Impact of Favorable Accounting and Tax Treatment on Compensation Program Design

Favorable accounting and tax treatment of the various elements of Motorola, Inc.’s compensation program is an important, but not the sole, consideration in its design. Section 162(m) of the Internal Revenue Code limits the deductibility of certain items of compensation paid to the Co-CEOs of Motorola, Inc. and certain other highly compensated executive officers (“covered officers”) to $1,000,000 annually. Motorola, Inc.’s short-term and long-term incentive programs have been designed to provide for the deductibility of compensation paid to the covered officers under our incentive plans. In particular, in order to satisfy the Section 162(m) qualification requirements, under Motorola, Inc.’s 2006 Omnibus Incentive Plan, each year the Motorola, Inc. Compensation Committee allocates an incentive pool, equal to 5% of Motorola, Inc.’s consolidated operating earnings, among the covered officers under MIP. Once the amount of the pool and the allocations are determined at the end of the year, the Motorola, Inc. Compensation Committee retains “negative discretion” to reduce (but not increase) the amount of any award payable from the incentive pool to the covered officers to the amounts payable based on the MIP performance criteria using the actual minimum, target and maximum awards by position. For 2009, Dr. Jha was the only Named Executive Officer subject to Section 162(m). Notwithstanding the above, the Motorola, Inc. Compensation Committee reserves the right to provide for compensation to executive officers that may not be deductible pursuant to Section 162(m).

In the first quarter of 2006, Motorola, Inc. began expensing equity awards in accordance with FAS 123R (now ASC Topic 718). This results in significantly higher accounting expenses for stock option awards. Like many of the companies within its comparator group, Motorola, Inc. has taken measures to ensure its equity grant practices remain competitive but also cost-effective (e.g., by generally lowering grant guidelines and participation rates). In 2009, stockholders approved a one-time stock option exchange program that was designed to restore economic value to certain stock options held by certain employees, while not creating significant additional expense to Motorola, Inc. All of the Named Executive Officers, other than Dr. Jha, were eligible for the stock option exchange program for qualifying awards.

Stock Ownership Requirements

In order to align the interests of senior management with the interests of stockholders, the Motorola, Inc. Board requires its senior leadership team and all other senior and executive vice presidents (approximately 30 executives), to maintain prescribed ownership levels of Stock (as defined below). During 2009, the Motorola, Inc. Compensation Committee reviewed and approved revised stock ownership requirements that set minimum levels of ownership, as follows:

 

Executive Level    Minimum
Stock
Ownership
Required

Co-Chief Executive Officer

   6 times base salary

Executive Vice Presidents and Motorola, Inc. Senior Leadership Team members

   3 times base salary

Senior Vice Presidents (other than members of the Motorola, Inc. Senior Leadership Team)

   2 times base salary
 

 

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For purposes of these stock ownership requirements, “Stock” means shares of common stock of Motorola, Inc. owned outright, restricted stock, RSUs and stock owned in benefit plans such as the 401(k) Plan and the MOTshare Plan, each of which count toward fulfilling the ownership guidelines. New senior executives are given five years from the date of hire, promotion or elevation to meet the ownership requirements.

Securities Trading Policy

Executives and other employees, including our Named Executive Officers, may not engage in any transaction in which they may profit from short-term speculative swings in the value of our securities. This includes “short sales” (selling borrowed securities that the seller hopes can be purchased at a lower price in the future) or “short sales against the box” (selling owned, but not delivered securities), “put” and “call” options (publicly available rights to sell or buy securities within a certain period of time at a specified price) and hedging transactions, such as zero-cost collars and forward sale contracts. The securities trading policy is designed to ensure compliance with applicable insider trading rules.

 

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NAMED EXECUTIVE OFFICER COMPENSATION

The following table sets forth information concerning the cash and non-cash compensation awarded by Motorola, Inc. to our named executive officers: the Chief Executive Officer, the Chief Financial Officer and the persons who we expect will be our three most highly compensated executive officers following the Distribution. These amounts are based on the compensation received by these officers while employed by Motorola, Inc. for 2009. We were not a reporting company under the Securities Exchange Act for previous years. Therefore, pursuant to the executive compensation rules adopted by the Securities and Exchange Commission (“SEC”), only the compensation of Dr. Jha is shown for prior years as he was a named executive officer of Motorola, Inc. in 2008.

2009 Summary Compensation Table

 

Name and Principal

Position (a)

   Year
(b)
  

Salary
($)(1)

(c)

   

Bonus

($)

(d)

   

Stock

Awards

($)(2)

(e)

   

Option

Awards

($)(2)

(f)

   

Non-Equity
Incentive
Plan
Compensation
($)(3)

(g)

   

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings

($)

(h)

 

All Other
Compensation
($)

(i)

   

Total

($)

(j)

Dr. Sanjay K. Jha

   2009    $ 905,769 (4)    $ 1,750 (5)    $ 1,344,000 (6)    $ 0      $ 1,200,000 (7)    $0         $ 334,376 (8)    $ 3,785,895

Co-Chief Executive Officer and Chief Executive Officer, Mobile Devices and Home business

   2008      484,615        0        33,850,305 (9)      69,698,513 (9)      0 (4)       0           412,096        104,445,529

Marc Rothman

   2009      430,000        0        102,630        742,847        40,000         0(10)     10,405 (11)      1,325,882

Senior Vice President, Finance, Chief Financial Officer, Mobile Devices and Home business

                   

William Ogle

   2009      181,346 (12)      0        362,500 (13)      1,354,500 (13)      273,000 (14)       0           305,807 (15)      2,477,154

Senior Vice President, Chief Marketing Officer, Mobile Devices and Home business

                   

John Cipolla

   2009      450,000        0        907,740        549,452        37,000         0(16)     12,000 (17)      1,956,192

Senior Vice President, Product Development, Mobile Devices business

                   

Mark Shockley

   2009      370,385        50,000 (18)      748,125        509,674        32,000         0(19)     222,778 (20)      1,932,962

Senior Vice President, Global Go-to-Market and Sales Operations, Mobile Devices business

                   
 

 

(1) Salary includes amounts deferred pursuant to salary reduction arrangements under the 401(k) Plan. Effective January 1, 2009, Motorola, Inc. suspended its matching contributions to the 401(k) Plan. The matching contributions are reinstated as of July 2010.

 

(2) The amounts in columns (e) and (f) reflect the aggregate grant date fair value of the stock and option awards granted in the respective fiscal year as computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. Assumptions used in the calculation of these amounts are included in Note 8, “Share-Based Compensation Plans and Other Incentive Plans” in Motorola, Inc.’s Form 10-K for the fiscal year ended December 31, 2009. These amounts reflect the valuation method recently adopted by the SEC, which is the aggregate grant date fair value of the equity awards, rather than the dollar amounts recognized that year for financial statement reporting purposes, as previously required. The new aggregate grant date fair value method applies to previous years in the table as well. As such, in the year of a grant, the full aggregate grant date fair value appears, rather than the portion being expensed for financial statement reporting purposes in that year.

 

(3) The amounts in column (g) are the awards earned under the Motorola, Inc. Incentive Plan (“MIP”). There were no payments under the Motorola, Inc. Long-Range Incentive Plan (“LRIP”) cycle ending in 2009

 

(4) Dr. Jha voluntarily elected to take a 25% decrease in base salary for 2009 and forego any 2008 bonuses under MIP, including Dr. Jha’s contractually guaranteed cash bonus of $2,400,000.

 

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(5) This amount consists of two awards under Motorola, Inc.’s patent award program.

 

(6) This amount is the aggregate grant date fair value of restricted stock units (“RSUs”) granted to Dr. Jha on February 11, 2009. When Dr. Jha decided to voluntarily forego his 2008 contractually guaranteed cash bonus, the Motorola, Inc. Compensation and Leadership Committee decided to make a grant of RSUs to Dr. Jha with a value equal to: $2,400,000, less the amount of cash that would have been payable to the other Co-Chief Executive Officer had he not also foregone his 2008 bonus under MIP. The total cash value of the award was determined on February 11, 2009 to be $1,334,000. On February 11, 2009, based on the closing price of Motorola, Inc.’s common stock, 344,615 RSUs were granted to Dr. Jha. The RSUs vest in two equal installments on February 11, 2010 and on October 31, 2010.

 

(7) This amount reflects the cash bonus guaranteed to Dr. Jha for 2009 pursuant to his employment agreement.

 

(8) This amount consists of Motorola, Inc. perquisite costs for Dr. Jha of $334,376, including costs for personal use of company aircraft of $219,589, relocation benefits of $66,769, personal use of car and driver of $34,906 and security system monitoring. The incremental cost to Motorola, Inc. for Dr. Jha’s personal use of company aircraft is calculated by multiplying the number of hours Dr. Jha’s travels in a particular plane by the direct cost per flight hour per plane. Direct costs include fuel, maintenance, labor, parts, loading and parking fees, catering and crew. The incremental cost to Motorola, Inc. for Dr. Jha’s personal use of a car and driver is calculated by adding the costs for the driver, including salary and benefits, on a pro rata basis to the cost of fuel for driving to and from work and company events. The amount reported for personal use of company aircraft is net of a reimbursement made by Dr. Jha pursuant to the Aircraft Time Sharing Agreement dated May 4, 2009 between Motorola, Inc. and Dr. Jha, as previously disclosed in Motorola, Inc.’s quarterly report on Form 10-Q filed on May 6, 2009.

 

(9) These amounts are the aggregate grant date fair value of equity awards granted on August 4, 2008 in connection with Dr. Jha’s employment agreement. He was granted 2,304,653 “make-whole” RSUs and 10,211,226 “make-whole” options to replace awards of equivalent value that Dr. Jha forfeited at his prior employer upon joining Motorola, Inc. Also in connection with Dr. Jha’s employment agreement, he was granted 1,362,769 “inducement” RSUs and 6,383,658 “inducement” options. These grants were made to Dr. Jha in order to attract and retain an executive of his unique caliber and experience. The stock options will not have value unless the price of Motorola, Inc.’s stock increases from the grant date price of $9.82.

 

(10) For 2009, the aggregate change in present value from December 31, 2008 to December 31, 2009 of Mr. Rothman’s benefits under all pension plans, including benefits under the General Instrument Pension Plan and the General Instrument SERP Plan (“GI SERP”) was negative and is therefore reflected as $0. During that period, the change in present value of his benefit under the Motorola Pension Plan was $33,600 and under the Motorola Supplemental Pension Plan (“MSPP”) was ($49,770). The change in present value of his benefit under the General Instrument Pension Plan was $7,651 and under the GI SERP was $803. The negative change in MSPP present value is a result of Motorola, Inc. freezing all future benefit accruals and compensation increases under the MSPP, effective March 1, 2009, when calculated with the assumptions under SEC rules.

 

(11) This amount is Motorola, Inc. perquisite costs for Mr. Rothman for financial planning.

 

(12) Mr. Ogle joined Motorola, Inc. on August 3, 2009. His annual base salary is $410,000 pursuant to his employment offer dated June 29, 2009. This amount reflects the portion of his annual salary earned in 2009.

 

(13) These equity awards were made pursuant to Mr. Ogle’s employment offer dated June 29, 2009.

 

(14) This amount reflects the cash bonus guaranteed to Mr. Ogle for 2009 pursuant to his employment offer.

 

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(15) This amount consists of Motorola, Inc. perquisite costs for Mr. Ogle of $305,807, including commuting allowance of $175,000, legal fees of $110,998 and costs for relocation benefits.

 

(16) For 2009, the aggregate change in present value from December 31, 2008 to December 31, 2009 of Mr. Cipolla’s benefits under all pension plans was negative and is therefore reflected as $0. During that period, the change in present value of his benefit under the Motorola Pension Plan was $126,643 and under the MSPP was ($206,618). The negative change in MSPP present value is a result of Motorola, Inc. freezing all future benefit accruals and compensation increases under the MSPP, effective March 1, 2009, when calculated with the assumptions under SEC rules.

 

(17) This amount is Motorola, Inc. perquisite costs for Mr. Cipolla for financial planning.

 

(18) In April 2009, Mr. Shockley received a one-time discretionary cash bonus in recognition of his efforts and to promote retention.

 

(19) For 2009, the aggregate change in present value from December 31, 2008 to December 31, 2009 of Mr. Shockley’s benefits under all pension plans was negative and is therefore reflected as $0. During that period, the change in present value of his benefit under the Motorola Pension Plan was $117,450 and under the MSPP was ($296,202). The negative change in MSPP present value is a result of Motorola, Inc. freezing all future benefit accruals and compensation increases under the MSPP, effective March 1, 2009, when calculated with the assumptions under SEC rules.

 

(20) This amount consists of a tax equalization payment to Mr. Shockley of $158,669 and a tax gross-up of $64,109 in connection with his expatriate assignment in Singapore.

Compensation Proportion

Motorola, Inc.’s executive compensation program is structured so that more than two-thirds of its senior executives’ targeted total compensation is “at risk” (in the form of equity grants, awards under LRIP and awards under MIP) and is therefore dependent upon Motorola, Inc.’s results. In determining the “at risk” proportion between cash and equity among the total mix of compensation, Motorola, Inc. considers the employee’s position and responsibilities, the employee’s ability to impact Motorola, Inc.’s results, and the competitive market for executive talent in our industry. Motorola, Inc. strives to balance the components of its compensation program appropriately in light of these factors. For a further discussion of Motorola, Inc.’s or our compensation methodology, see the “Compensation Discussion and Analysis”. For a discussion of the material terms of employment agreements with our Named Executive Officers, see “Employment Contracts”. For a discussion of the material terms of the 2009 grants of plan based awards, see the footnotes to the “Grants of Plan-Based Awards in 2009” table and the “Compensation Discussion and Analysis”.

 

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Grants of Plan-Based Awards in 2009

 

             

Estimated Future
Payouts Under

Non-Equity Incentive Plan Award

 

Estimated Future
Payouts Under

Equity Incentive Plan Awards

       All Other Stock
Awards: Number
of Shares of
Stock or Units
(#)(1)
(i)
   

All Other
Option Awards:
Number of
Securities
Underlying

Options (#)(2)
(j)

   

Exercise
or Base
Price of
Option

Awards
($/Sh)(3)
(k)

 

Grant
Date Fair
Value of
Stock and

Option
Awards($)
(l)

Name

(a)

  Grant
Type
 

Grant
Date

(b)

   

Threshold

($)

(c)

   

Target

($)

(d)

 

Maximum

($)

(e)

 

Threshold

(#)

(f)

 

Target

(#)

(g)

 

Maximum

(#)

(h)

            
                                                                       

Dr. Sanjay K. Jha

  MIP   01/01/2009 (4)    $ 1,200,000 (5)    $ 1,811,538   $ 3,061,499                            
  Equity   02/11/2009 (6)                             344,615 (7)             $ 1,344,000
 

Marc Rothman

  MIP   01/01/2009 (4)      0        322,500     545,025                            
  LRIP   01/01/2009 (6)      107,500        430,000     860,000                            
  Equity   01/21/2009                                    250,000 (8)    $ 4.51     567,500
  Equity   05/07/2009                               16,500 (9)    49,500 (10)      6.22     276,870
  Equity   06/12/2009                                    123,279 (11)      6.73     1,107
 

William Ogle

  MIP   01/01/2009 (4)      273,000        273,000     273,000                            
  LRIP   01/01/2009 (6)      85,413        341,653     683,306                            
  Equity   08/03/2009                               50,000 (12)    350,000 (13)      7.25     1,717,000
 

John Cipolla

  MIP   01/01/2009 (4)      0        337,500     570,375                            
  LRIP   01/01/2009 (6)      112,500        450,000     900,000                            
  Equity   01/21/2009                                    200,000 (8)      4.51     454,000
  Equity   05/07/2009                               27,000 (9)    27,000 (10)      6.22     262,980
  Equity   06/12/2009                                    44,434 (11)      6.73     412
  Equity   12/01/2009                               90,000 (14)               739,800
 

Mark Shockley

  MIP   01/01/2009 (4)      0        261,047     441,170                            
  LRIP   01/01/2009 (6)      77,913        311,652     623,304                            
  Equity   01/21/2009                                    200,000 (8)      4.51     454,000
  Equity   05/07/2009                               15,750 (9)    15,750 (10)      6.22     153,405
  Equity   06/12/2009                                    17,721 (11)      6.73     234
    Equity   11/02/2009                               72,000 (15)               650,160

 

(1) In the aggregate, the RSUs described in this table represent approximately 0.027% of the total shares of Motorola, Inc. common stock outstanding on January 31, 2010. RSUs granted on or after May 1, 2006 are not eligible for dividend equivalent rights. Each of these RSU awards were granted under the Motorola, Inc. Omnibus Incentive Plan of 2006. All RSUs entitle the holder to acquire shares of common stock and were valued at the fair market value at the time of the grant, as defined in the “Fair Market Value Definition” section of “Compensation Discussion and Analysis”.

 

(2) In the aggregate, the options described in this table are exercisable for approximately 0.055% of the total shares of Motorola, Inc. common stock outstanding on January 31, 2010. Each of these option awards were granted under the Motorola, Inc. Omnibus Incentive Plan of 2006. All options entitle the holder to acquire shares of common stock. The options carry with them the right to elect to have shares withheld upon exercise and/or to deliver previously-acquired shares of common stock to satisfy tax-withholding requirements. For Dr. Jha, options may be transferred to family members or certain entities in which family members have an interest. Unvested options are generally forfeited upon retirement. These options could expire earlier in certain situations.

 

(3) The exercise price of option awards is based on the fair market value of Motorola, Inc. common stock at the time of grant. See the “Fair Market Value Definition” section of “Compensation Discussion and Analysis” for further details.

 

(4) These 2009 awards are made pursuant to the 2009 Motorola Incentive Plan (“MIP”), and are payable in cash. MIP is Motorola, Inc.’s annual pay-for-performance bonus plan that is based upon a formula that combines business performance and individual performance. Awards may be $0 under the formula. Targets assume individual and business performance factors of 1.0. Awards under MIP are determined using a participant’s “eligible earnings” (generally, base salary) for the plan year. Maximum assumes individual and business performance factors of 1.3.

 

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(5) Pursuant to Dr. Jha’s employment agreement, he was entitled to a 2009 cash bonus of not less than $1,200,000.

 

(6) These grants are for the 2009-2011 cycle under the Motorola Long-Range Incentive Plan of 2009 (“LRIP”). Awards under the 2009-2011 LRIP cycle are determined in dollars but, at the discretion of the Motorola, Inc. Compensation and Leadership Committee, may be paid in cash or common stock. The measure/metric used is relative total shareholder return. For a discussion of the LRIP, including the targets and plan mechanics, see “Compensation Discussion and Analysis”. The amounts in the table represent 2009 performance which may be reduced to $0 at the end of the three-year cycle based upon total cycle performance. The amounts under “Threshold” assume the performance level necessary to generate an award was achieved. The amounts under “Target” assume performance factors of 1.0 based on a median three-year total shareholder return, which equates to a payout of 100% of target. The amounts under “Maximum” will be payable if Motorola, Inc.’s three-year total shareholder return ranks first or second amongst the peer companies, which would be a significant accomplishment, the probability of which is remote though possible.

 

(7) As previously disclosed on December 17, 2008, Dr. Jha voluntarily decided to forego his 2008 contractually guaranteed cash bonus of $2,400,000. At that time, the Motorola, Inc. Compensation and Leadership Committee agreed to make a grant of RSUs to Dr. Jha in the first quarter of 2009 with a value equal to: $2,400,000 less the amount of cash that would have been payable to the other Co-Chief Executive Officer under MIP had he also not foregone his 2008 bonus under MIP. The total cash value of the award was determined on February 11, 2009 to be $1,334,000. On February 11, 2009, based on the closing price of Motorola, Inc.’s common stock, 344,615 RSUs were granted to Dr. Jha. The RSUs vest in two equal installments on February 11, 2010 and October 31, 2010.

 

(8) On January 21, 2009, Mr. Rothman was granted 250,000 options, Mr. Cipolla was granted 200,000 options, and Mr. Shockley was granted 200,000 options. The options vest and become exercisable in two equal annual installments on January 21, 2010 and January 21, 2011. The options expire on January 21, 2014, five years from the date of grant.

 

(9) On May 7, 2009, as part of Motorola, Inc.’s annual broad-based employee equity grants, Mr. Rothman was granted 16,500 RSUs, Mr. Cipolla was granted 27,000 RSUs, and Mr. Shockley was granted 15,750 RSUs. The restrictions on these RSUs lapse in four equal annual installments beginning on May 7, 2010.

 

(10) On May 7, 2009, as part of the Motorola, Inc.’s annual broad-based employee equity grants, Mr. Rothman was granted 49,500 options, Mr. Cipolla was granted 27,000 options, and Mr. Shockley was granted 15,750 options. The options vest and become exercisable in four equal annual installments beginning on May 7, 2010. The options expire on May 7, 2019, 10 years from the date of grant.

 

(11) On June 12, 2009, Mr. Rothman, Mr. Cipolla and Mr. Shockley participated in Motorola, Inc.’s voluntary one-time stock option exchange program under which employees (other than certain executives of Motorola, Inc.) exchanged certain outstanding equity awards without creating significant compensation expense. The grant date fair value represents the expense that was incremental to the expense of the original option grant. In connection with their exchange, on June 12, 2009, Mr. Rothman was granted 123,279 options, Mr. Cipolla was granted 44,434 options and Mr. Shockley was granted 17,721 options. The options vest and become exercisable in two equal annual installments beginning on June 12, 2010. The options expire on June 12, 2014, five years from the date of grant.

 

(12) On August 3, 2009, Mr. Ogle was granted 50,000 RSUs. The restrictions on the grant lapse in two equal annual installments on August 3, 2010 and August 3, 2011.

 

(13) On August 3, 2009, Mr. Ogle was granted 350,000 options. The options vest and become exercisable in four equal annual installments beginning on August 3, 2010. The options expire on August 3, 2019, 10 years from the date of grant.

 

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(14) On December 1, 2009, Mr. Cipolla was granted 90,000 RSUs. The restrictions on the grant lapse in two equal annual installments on December 1, 2011 and December 1, 2012.

 

(15) On November 2, 2009, Mr. Shockley was granted 72,000 RSUs. The restrictions on the grant lapse in two equal annual installments on November 2, 2011 and November 2, 2012.

Outstanding Equity Awards at 2009 Fiscal Year-End

 

    Option Awards        Stock Awards

Name

(a)

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(Vested)
(b)
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(Unvested)
(c)
   

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

(d)

 

Option
Exercise
Price ($)

(e)

  Option
Expiration
Date
(f)
      

Number of
Shares or
Units of
Stock That
Have Not
Vested (#)(1)

(g)

    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)(1)
(h)
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested (#)
(i)
 

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not
Vested ($)(1)

(j)

Sanjay K. Jha

  5,531,621 (2)    11,063,263 (2)      $ 9.82   08/04/2018       2,789,566 (3)    $ 21,647,032    
 

Marc Rothman

  44,704 (4)    0          7.2745   05/06/2013       211,295 (5)      1,637,166    
  12,937 (6)    38,813 (6)        10.26   05/06/2018            
  0      250,000 (7)        4.51   01/21/2014            
  0      49,500 (8)        6.22   05/07/2019            
  0      123,279 (9)        6.73   06/12/2014            
 

William Ogle

  0      350,000 (10)        7.25   08/03/2019       50,000 (11)      388,000    
 

John Cipolla

  5,625 (6)    16,875 (6)        10.26   05/06/2018       211,507 (12)      1,641,294    
  0      200,000 (7)        4.51   01/21/2014            
  0      27,000 (8)        6.22   05/07/2019            
  0      44,434 (9)        6.73   06/12/2014            
 

Mark Shockley

  2,343 (6)    7,032 (6)        10.26   05/06/2018       97,782 (13)      758,788    
  0      200,000 (7)        4.51   01/21/2014            
  0      15,750 (8)        6.22   05/07/2019            
    0      17,721 (9)          6.73   06/12/2014                        

 

(1) Awards of RSUs prior to May 1, 2006 are entitled to dividend equivalent rights. RSUs grants awarded on or after May 1, 2006 are not entitled to dividend equivalent rights. Dividend equivalent rights accrued until January 15, 2009 are included in the outstanding awards for the purposes of this table. Market value in column (h) is determined using the closing price of Motorola, Inc. common stock on December 31, 2009 of $7.76.

 

(2) These stock options were granted to Dr. Jha on August 4, 2008. 10,211,226 of these stock options were granted in connection with the make-whole provisions of Dr. Jha’s employment agreement. 6,383,658 of these stock options were granted in connection with the inducement provisions of Dr. Jha’s employment agreement. The original grants of options vest and become exercisable in three equal annual installments with the first installment having vested on July 31, 2009.

 

(3) 1,536,437 of these RSUs were granted to Dr. Jha on August 4, 2008 in connection with the make-whole provisions of his employment agreement. 908,514 of these RSUs were granted on August 4, 2008 in connection with the inducement provisions of his employment agreement. The restrictions on the original grants lapse in three equal annual installments with restrictions on the first installment having lapsed on July 31, 2009.

 

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(4) These stock options were granted on May 6, 2003 as part of Motorola, Inc.’s annual broad-based employee equity grant. The original grant of options vested and became exercisable in four equal annual installments with the first installment having vested on May 6, 2004 and the final installment having vested on May 6, 2007.

 

(5) This includes: (i) 7,982 RSUs remaining from Mr. Rothman’s October 14, 2005 grant including dividend reinvestment shares. The restrictions on these RSUs lapse on October 14, 2010; (ii) 12,500 RSUs remaining from Mr. Rothman’s May 3, 2006 grant with restrictions lapsing on May 3, 2010; (iii) 10,000 RSUs granted on July 25, 2007 with restrictions lapsing on July 25, 2012; (iv) 4,313 RSUs remaining from Mr. Rothman’s May 6, 2008 grant with restrictions lapsing on 1,437 RSUs on May 6, 2010, 1,437 RSUs on May 6, 2011 and 1,439 RSUs on May 6, 2012; (v) 160,000 RSUs granted on June 17, 2008 with restrictions lapsing equally on June 17, 2010 and June 17, 2011; and (vi) 16,500 RSUs granted on May 7, 2009 with restrictions lapsing in four equal annual installments beginning on May 7, 2010.

 

(6) These stock options were granted on May 6, 2008 as part of Motorola, Inc.’s annual broad-based employee equity grant. The original grant of options vests and became exercisable in four equal annual installments with the first installment having vested on May 6, 2009.

 

(7) These stock options were granted on January 21, 2009. These options vest and become exercisable in two equal installments on January 21, 2010 and January 21, 2011.

 

(8) These stock options were granted on May 7, 2009 as part of Motorola, Inc.’s annual broad-based employee equity grant. The original grant of options vests and became exercisable in four equal annual installments with the first installment vesting on May 7, 2010.

 

(9) These stock options were granted on June 12, 2009. These options vest and become exercisable in two equal installments on June 12, 2010 and June 12, 2011.

 

(10) These stock options were granted on August 3, 2009. These options vest and become exercisable in four equal annual installments beginning on August 3, 2010.

 

(11) These RSUs were granted on August 3, 2009. The restrictions on these RSUs lapse equally on August 3, 2010 and August 3, 2011.

 

(12) This includes: (i) 1,587 RSUs remaining from Mr. Cipolla’s March 3, 2006 grant including dividend reinvestment shares. The restrictions on these RSUs lapse on March 3, 2011, (ii) 2,500 RSUs remaining from Mr. Cipolla’s May 8, 2006 grant with restrictions lapsing on May 8, 2010, (iii) 5,625 remaining from Mr. Cipolla’s May 6, 2008 grant with restrictions lapsing equally on May 6, 2010, 2011 and 2012, (iv) 84,795 RSUs granted on May 6, 2008 with restrictions lapsing on 42,437 RSUs on May 6, 2010, and 42,438 RSUs on May 6, 2011, (vi) 27,000 RSUs granted on May 7, 2009 with restrictions lapsing in four equal annual installments beginning on May 7, 2010, and (vii) 90,000 RSUs granted on December 1, 2009 with restrictions lapsing in two equal annual installments on December 1, 2011 and December 1, 2012.

 

(13) This includes: (i) 3,000 RSUs remaining from Mr. Shockley’s May 8, 2007 grant. The restrictions on these RSUs lapse equally on May 8, 2010 and May 8, 2011, (ii) 7,032 RSUs remaining from Mr. Shockley’s May 6, 2008 grant with restrictions lapsing equally on May 6, 2010, 2011 and 2012, (iii) 15,750 RSUs granted on May 7, 2009 with restrictions lapsing in four equal annual installments beginning on May 7, 2010, and (iv) 72,000 RSUs granted on November 2, 2009 with restrictions lapsing in two equal annual installments on November 2, 2011 and November 2, 2012.

 

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Option Exercises and Stock Vested in 2009

 

     Option Awards    Stock Awards(1)
Name (a)    Number of
Shares
Acquired
on Exercise
(#) (b)
  

Value Realized
on Exercise

$ (c)(2)

   Number of
Shares
Acquired
on Vesting
(#) (d)
   Value Realized
on Vesting
($)(3) (e)

Sanjay K. Jha

   0    $ 0    1,222,471    $ 8,752,892

Marc Rothman

   0      0    1,437      9,067

William Ogle

   0      0    0      0

John Cipolla

   0      0    41,875      136,631

Mark Shockley

   0      0    43,843      149,334

 

(1) Includes RSUs accrued pursuant to dividend equivalent rights.

 

(2) The “Value Realized on Exercise” represents the difference between the base (or exercise) price of the option shares and the market price of the option shares at exercise. The value realized was determined without considering any taxes that may have been owed.

 

(3) The “Value Realized on Vesting” is computed by multiplying the number of shares of stock or units by the market value of the underlying shares on the vesting date. When an award vests on a non-trading day the most recent previous market closing price is used for the purpose of this calculation.

RETIREMENT PLANS

The Motorola Pension Plan (“Pension Plan”) and the Motorola Supplemental Pension Plan (“MSPP”) are intended to provide pension benefits to the Named Executive Officers in the future. Prior to January 1, 2005, most regular U.S. employees who had completed one year of employment with Motorola, Inc. or certain of its subsidiaries were eligible to participate in the pension plans. Those employees become vested after five years of service. Effective January 1, 2005, newly-hired employees were no longer eligible to participate in the Pension Plan or the MSPP. Effective January 1, 2008, employees in the Pension Plan not yet vested, became vested after three years of service. Normal retirement is at age 65.

Effective March 1, 2009, all future benefit accruals and compensation increases under the Pension Plan and MSPP automatically ceased for all individuals who are participants under the Pension Plan as of February 28, 2009. However, active participants continue to earn vesting credit towards their Pension Plan benefit on and after March 1, 2009 if not already fully vested.

Traditional and Portable Plan

The Pension Plan contains two benefit formulas, referred to as the Traditional Plan and the Portable Plan. The Traditional Plan provides an annual pension annuity benefit based on the participant’s average earnings and the participant’s benefit service, offset by the participant’s estimated Social Security benefit at age 65. The Traditional Plan formula consists of (1) for service from 1978 through 1987, (a) the sum of (i) 40% of the first $20,000 of final average earnings, plus (ii) 35% of final average earnings in excess of $20,000, multiplied by (b) a fraction whose numerator is the number of months of service during that period and whose denominator is 420, plus (2) for service after 1987, 75% of final average earnings, multiplied by a fraction whose numerator is the number of months of service after 1987 (not exceeding 420) and whose denominator is 420, minus (3) 50% of the participant’s projected primary annual Social Security benefit at age 65 (or the participant’s later retirement age (including any delayed retirement credits or similar adjustments)) multiplied by a fraction whose numerator is the number of months of benefit service after 1977 (not exceeding 420) and whose denominator is 420.

 

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The Portable Plan provides a lump-sum pension benefit based on the participant’s average earnings, and a “benefit percentage” determined by the participant’s vesting service and the participant’s benefit service. The Portable Plan formula consists of (1) average earnings multiplied by the participant’s cumulative benefit percentage, which cumulative benefit percentage is based on benefit service earned on or after July 1, 2000 and vesting service (where a participant’s benefit percentage is determined as follows: 4% for each year of benefit service earned while the participant has five or fewer years of vesting service, plus 5% for each year of benefit service earned while the participant has more than five but less than ten years of vesting service, plus 6% for each year of benefit service earned while the participant has more than ten but less than 15 years of vesting service, plus 7% for each year of benefit service earned while the participant has more than 15 years of vesting service), plus (2) the participant’s Traditional Plan benefit as of June 30, 2000 (if applicable) converted to a lump-sum based on the participant’s age and the interest rate in effect for the year of payment.

Both Pension Plan formulas use “average earnings” to calculate the relevant pension benefit. Prior to January 1, 2008, a participant’s “final average earnings” were used to calculate the relevant pension benefit, while the participant’s “modified average earnings” are used to calculate the relevant pension benefit beginning on and after January 1, 2008.

A participant’s “final average earnings” are his/her average earnings for the five years of his/her highest pay during the last ten calendar years (including years he/she did not work a complete year) of the participant’s Motorola, Inc. employment. A participant’s “modified average earnings” are: (1) the sum of (a) his/her average earnings for the five (or fewer if hired after 2002) years of his/her highest pay during the ten calendar years before January 1, 2008, plus (b) his/her earnings during all years after 2007 in which he/she participated in the pension plan, divided by (2) the sum of (a) the number of years of the participant’s benefit service under the Pension Plan prior to January 1, 2008, up to a maximum of five years (or fewer, if less than five); plus (b) the participant’s total years of participation in the Pension Plan for all years after 2007. Eligible earnings include regular earnings, commissions, overtime, lump-sum merit pay, participant contributions to the Motorola, Inc. 401(k) Plan and other pre-tax plans and incentive pay with respect to the period January 1, 2000 to February 3, 2002. After February 3, 2002, incentive pay was excluded from the definition of eligible compensation.

401(k) Plan

On December 15, 2008, the Motorola, Inc. Board of Directors authorized amendments to the Motorola, Inc. 401(k) Plan. On this date, the Board determined that, effective January 1, 2009, Motorola, Inc.’s match of employee contributions to the 401(k) Plan was suspended until subsequent Board action in the future reactivates contributions, if any, made by Motorola, Inc. to the 401(k) Plan. On March 16, 2010, the Motorola, Inc. Compensation and Leadership Committee recommended the Board reinstate the 401(k) matching contributions as of July 1, 2010 and approved an amendment to permit after-tax contributions by employees. Matching contributions will be reinstated as of July 1, 2010 at a rate of 4% on the first 4% of employee contributions. The maximum matching contribution for the 2010 Plan year is pro-rated to account for the number of months remaining in the year.

Motorola, Inc. Supplemental Pension Plan

The MSPP provides benefits for highly compensated individuals whose tax-qualified Pension Plan benefits are limited by certain IRS limits or by participation in the Motorola, Inc. Management Deferred Compensation Plan. The IRS annual salary limitation (Section 401(a)(17) of the Internal Revenue Code, as amended (the “Code”)) and certain other IRS requirements reduce pension benefits from tax-qualified Pension Plans for certain highly compensated individuals. The MSPP is designed to offset these limitations. The MSPP is a non-qualified plan, which means benefits are not subject to certain nondiscrimination testing and reporting requirements of the Employment Retirement Income Security Act of 1974 (“ERISA”); however, these amounts are unsecured, leaving the participants in the status of a general creditor of Motorola, Inc.

 

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On December 15, 2008, the Motorola, Inc. Board of Directors authorized amendments to the MSPP. On this date, commensurate with the Board of Director’s decision to freeze the Motorola Pension Plan, the Board of Directors also authorized the amendment of the MSPP, effective March 1, 2009, to freeze all future benefit accruals and compensation increases under this plan for all individuals who were participants under this plan as of February 28, 2009. Additionally, the MSPP was further amended to freeze any future participation in the MSPP after January 1, 2009 unless such participation was due to a prior contractual entitlement.

Pension Benefits in 2008

Assumptions described in Note 7, “Retirement Benefits” in Motorola, Inc.’s Form 10-K for the fiscal year ended December 31, 2009 are also used below and incorporated by reference.

 

Name

(a)

  

Plan Name

(b)

  

Number of

Years Credited

Service (#)(1)

(c)

  

Present Value

of Accumulated

Benefit ($)

(d)

  

Payments

During Last

Fiscal Year ($)

(e)

Sanjay K. Jha

   Pension Plan(2)    0         0
   Supplemental Pension Plan(2)    0         0

Marc Rothman

   Pension Plan(3)    14 yrs 1 mth    $ 130,018    0
   Supplemental Pension Plan(4)(5)    14 yrs 1 mth      3,465    0

William Ogle

   Pension Plan(2)    0         0
   Supplemental Pension Plan(2)    0         0

John Cipolla

   Pension Plan    30 yrs 8 mths      601,718    0
   Supplemental Pension Plan(5)    30 yrs 8 mths      0    0

Mark Shockley

   Pension Plan    29 yrs 4 mths      522,340    0
     Supplemental Pension Plan(5)    29 yrs 4 mths      0    0

 

(1) When Motorola, Inc. acquires a company, it does not credit or negotiate crediting years of service for the purpose of benefit accruals or augmentation. In certain circumstances, prior service may count toward eligibility and vesting service.

 

(2) Dr. Jha and Mr. Ogle were hired after January 1, 2005 and therefore are not eligible to participate in either the Pension Plan or the MSPP.

 

(3) In connection with Motorola, Inc.’s acquisition of General Instrument Corporation in January of 2000, Mr. Rothman’s benefits under the General Instrument Pension Plan were frozen as of December 31, 2000 at $9,867 and are included in the amounts listed in column (d).

 

(4) In connection with Motorola, Inc.’s acquisition of General Instrument Corporation in January of 2000, Mr. Rothman’s benefit under the GI SERP was frozen as of December 31, 2000 at $1,037 and is included in the amount listed in column (d).

 

(5) Messrs. Cipolla, Rothman and Shockley are not eligible to participate in the MSPP because they had not met the eligibility requirements to receive the MSPP benefit when the plan was frozen, effective March 1, 2009.

 

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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS

Employment Agreement with Sanjay K. Jha

On August 4, 2008, Dr. Sanjay K. Jha became Co-Chief Executive Officer of Motorola, Inc., Chief Executive Officer of the Mobile Devices business (the “Mobile Devices business”) of Motorola, Inc. and a member of the Board of Directors of Motorola, Inc. On this same date, Motorola, Inc. and Dr. Jha entered into an employment agreement (the “original employment agreement”) providing Dr. Jha with a base salary of $1,200,000 and a guaranteed bonus of $2,400,000 for 2008 and $1,200,000 for 2009 and a target bonus of not less than 200% of base salary thereafter. The agreement was subsequently amended on December 15, 2008 and February 11, 2010 (collectively, the “amended employment agreement”).

On February 11, 2010, Dr. Jha’s title changed to Co-Chief Executive Officer of Motorola, Inc. and Chief Executive Officer of Motorola, Inc.’s Mobile Devices and Home business. Motorola, Inc. announced that it plans to separate into two independent, publicly traded companies in the first quarter of 2011. The separation will result in one public company comprised of Motorola, Inc.’s Mobile Devices and Home businesses, led by Dr. Jha, and one public company comprised of Motorola, Inc.’s Enterprise Mobility Solutions and Networks businesses. On this date, Motorola, Inc. and Dr. Jha also entered into the Second Amendment (the “Second Amendment”) to Dr. Jha’s amended employment agreement.

As previously disclosed on December 17, 2008, Dr. Jha voluntarily decided to forego any 2008 bonus under MIP. At that time, the Motorola, Inc. Compensation and Leadership Committee agreed to make a grant of RSUs to Dr. Jha in the first quarter of 2009 with a value equal to: $2,400,000 less the amount of cash that would have been payable to the other Co-Chief Executive Officer of Motorola, Inc. under MIP had he not also foregone his 2008 bonus under MIP. The total cash value of the RSU award was determined on February 11, 2009 to be $1,334,000. On February 11, 2009, based on the closing price of Motorola, Inc.’s common stock, 344,615 RSUs were granted to Dr. Jha. The RSUs vest in two equal installments on February 11, 2010 and October 31, 2010.

Pursuant to make-whole awards under his original employment agreement, Dr. Jha was granted 2,304,653 RSUs and 10,211,226 options to purchase shares of Motorola, Inc. common stock. Pursuant to inducement awards (“Inducement Awards”) under his original employment agreement, Dr. Jha was granted 1,362,769 RSUs and 6,383,658 options to purchase shares of Motorola, Inc. common stock. Each of the above equity awards vest or restrictions lapse in three equal annual installments with the first installment having vested on July 31, 2009.

Pursuant to the amended employment agreement, in the event the Mobile Devices business becomes a separate, publicly traded company (the “new Mobile Devices entity” or “new MDb”), all of Dr. Jha’s outstanding equity awards that relate to Motorola, Inc. common stock would convert into equity awards that relate to the stock of the new Mobile Devices entity. The new Mobile Devices entity will grant Dr. Jha a post-separation equity award (the “Post-Separation Equity Award”) in an amount that, together with his Inducement Awards, represent between 1.8% and 3% ownership of the new Mobile Devices entity, depending on the entity’s initial market capitalization. If the market capitalization of the new Mobile Devices entity is equal to or less than $6.0 billion, the Post-Separation Equity Award, together with the Inducement Awards, will represent 3% of the new Mobile Devices entity’s total equity immediately following the separation. If the market capitalization is greater than $6.0 billion, the Post-Separation Equity Award, together with the Inducement Awards, will be reduced on a linear basis, calculated as the quotient obtained by dividing $6.0 billion by the market capitalization and finding the product of that ratio times 3%. 90% of the award will be stock options and 10% will be restricted stock and each will vest, subject to continued employment, in three installments, each vesting date to be the later of (a) the date on which the average closing price of new MDb common stock over a fifteen-day trading period is 10% greater than the average closing price of new MDb common stock over the fifteen-day trading period immediately following the date that new MDb becomes a separate, publicly traded company, and (b) the first, second and third anniversary of the grant date, as applicable.

 

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In the event the Mobile Devices business does not become a separate, publicly traded company on or prior to June 30, 2011 (a “Separation Event”) (as extended from October 31, 2010 by the Second Amendment to Dr. Jha’s employment agreement) or if the Mobile Devices business is disposed of in a manner where it is not at least 50% owned by Motorola, Inc. on or prior to June 30, 2011 (a “Disposition Event”), Dr. Jha will be entitled to a cash payment equal to $38 million (the “Contingent Payment”) (increased from $30 million by the Second Amendment to Dr. Jha’s employment agreement) and will not be entitled to the Post-Separation Equity Award. Moreover, if a Separation Event does not occur or if a Disposition Event does occur by June 30, 2011 and Dr. Jha is terminated or resigns, the Contingent Payment is in addition to other entitlements discussed below because such a termination would be deemed “without cause” or for “good reason” under the amended employment agreement. Further, if any successor to the Mobile Devices business does not assume the employment agreement, that also constitutes “good reason” for Dr. Jha to terminate and receive the other entitlements discussed below. If the Separation Event does not occur, Dr. Jha’s employment with Motorola, Inc. will automatically terminate “without cause” on August 31, 2011.

In the event of Dr. Jha’s termination of employment “without cause” or by Dr. Jha for “good reason”, Dr. Jha is entitled to: (1) accrued and unpaid obligations (including base salary, vacation pay and undistributed bonuses), (2) severance equal to two times (prior to a change of control) or three times (on or after a change of control) the sum of Dr. Jha’s base salary and target annual bonus, (3) a pro rata annual bonus based on actual performance during the year in which termination has occurred, (4) two years (prior to a change of control) or three years (following a change of control), of medical insurance continuation, (5) prior to a change of control, accelerated vesting of the make-whole award RSUs and options, inducement award RSUs and options and two years continued vesting of all other equity awards; and, following a change of control, accelerated vesting of all equity awards, and (6) in the event that the Mobile Devices business does not become a separate, publicly traded company and Dr. Jha’s employment is terminated on or prior to June 30, 2011, the Contingent Payment, to the extent not previously paid. In the event Motorola, Inc. terminates Dr. Jha’s employment “for cause” or Dr. Jha terminates employment “without good reason”, he is entitled only to accrued and unpaid base salary and vacation pay. In the event of a termination of employment due to death or disability, Dr. Jha is entitled to accrued and unpaid obligations (including base salary, vacation pay and undistributed bonuses) and vesting of all then unvested equity awards that are outstanding as of the date of termination.

“Good reason” for Dr. Jha to terminate his employment and receive the above generally includes: (1) a Separation Event has not occurred on or prior to June 30, 2011 or a Disposition Event has occurred by June 30, 2011, (2) a reduction in salary, bonus targets or benefits, (3) a failure to continue on the Board of Directors or negative change in reporting structure, (4) Motorola, Inc. requires the principal location of employment be more than 50 miles from Libertyville, Illinois, (other than to the extent agreed to or requested by Dr. Jha), (5) the failure of the successor to the Mobile Devices business to assume the employment agreement, or (6) any other breach of the agreement.

Dr. Jha was eligible to receive a long-term incentive award commensurate with his position in May 2010 when annual equity awards were made.

During his employment term, Dr. Jha is eligible to participate in the health and welfare, perquisite, fringe benefits and other arrangements generally available to other senior executives. Dr. Jha is entitled to the use of the company’s aircraft for business and personal travel pursuant to the Motorola, Inc.’s security policy. Dr. Jha is entitled to relocation expenses, including temporary housing, until the Separation Event or June 30, 2011, whichever is earlier. Dr. Jha is not covered by the Senior Officer Change in Control Severance Plan, as defined below, and did not participate in LRIP in 2008 or 2009. Dr. Jha is entitled to a gross-up for excise taxes on excess parachute payments, subject to a 10% “cut-back” (i.e., change of control payments will be reduced below the 280G safe harbor if the total payments are less than 10% in excess of the 280G safe harbor).

Dr. Jha’s employment agreement contains customary restrictive covenants, including perpetual confidentiality obligations and employee non-solicitation and business non-compete provisions relating to Motorola, Inc. and the new Mobile Devices entity that apply during the employment period and the two-year period following termination of employment.

 

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Other Arrangements

Pursuant to Mr. Ogle’s employment offer, he would be entitled to severance eligibility if the separation of Motorola, Inc. into two independent, publicly traded companies did not occur by January 20, 2011.

Change in Control Arrangements

Motorola, Inc. has Change in Control Severance Plans (the “Plans”) for its elected officers. The Plan applicable to the Named Executive Officers, other than Dr. Jha, is the Motorola, Inc. Senior Officer Change in Control Severance Plan (the “Senior Officer Plan”). The Senior Officer Plan provides for the payment of benefits in the event that: (1) an executive officer terminates his or her employment for “Good Reason” (as defined) within two years of a “Change in Control” (as defined), or (2) the executive officer’s employment is involuntarily terminated for any reason other than termination for “Cause” (as defined), disability, death or normal retirement within two years of a change in control of Motorola, Inc. In addition to unpaid salary for accrued vacation days and accrued salary through the termination date, the amount of the benefits payable to an executive officer entitled thereto would be equal to the sum of:

 

  (1) three times the greater of the executive officer’s highest annual base salary in effect during the three years immediately preceding the Change in Control and the annual base salary in effect on the termination date; plus

 

  (2) three times the highest annual bonus received by the executive officer during the immediately preceding five fiscal years ending on or before the termination date; plus

 

  (3) a pro rata target bonus for the performance period (year, quarter or month) in which the termination occurs.

The executive officer would also receive continued medical and insurance benefits for three years, and three years of age and service credit for retiree medical eligibility. In the event the executive officer is subject to the excise tax under Section 4999 of the Code, Motorola, Inc. will make a tax reimbursement payment to the executive officer to offset the impact of such excise tax. The Senior Officer Plan’s term is for three years, subject to automatic one-year extensions unless Motorola, Inc. gives 90 days prior notice that it does not wish to extend. In addition, if a Change in Control occurs during the term, the Plans continue for an additional two years. These Plans replaced individual agreements that Motorola, Inc. began providing in 1988. In addition to plans covering all of Motorola, Inc.’s officers, there are change in control protections for the general employee population in the Motorola, Inc. Involuntary Severance Plan. A previous stand-alone change in control severance plan for the general employee population was terminated in 2008.

In addition, except as otherwise determined by the Motorola, Inc. Compensation and Leadership Committee at the time of the grant of an award, under the 2006 Omnibus Incentive Plan, upon a change in control of Motorola, Inc.: all equity-based awards granted to an executive officer become fully vested and exercisable; all performance goals are deemed achieved at target levels and all other terms and conditions met; all performance stock would be delivered as promptly as practicable; all performance units, RSUs and other units would be paid out as promptly as practicable; all annual management incentive awards would be paid out at target levels (or earned levels, if greater) and all other terms and conditions deemed met; and all other stock or cash awards would be delivered and paid. Such treatment (referred to herein as “Accelerated Treatment”) does not apply if and to the extent that such awards are assumed by the successor corporation (or parent thereof) or are replaced with awards that preserve the existing value of such awards at the time of the change in control and provide for subsequent payout in accordance with the same vesting schedule applicable to the original awards. With respect to any awards that are so assumed or replaced, such assumed or replaced awards shall provide for the Accelerated Treatment with respect to any executive officer that is involuntarily terminated (for a reason other than “Cause”) (as defined) or quits for “Good Reason” (as defined) within 24 months of the change in control.

 

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Executive Severance Plan

Motorola, Inc. adopted an Executive Severance Plan (“ExSP”) for all elected officers and appointed vice presidents, effective October 1, 2008. The ExSP is applicable to Named Executive Officers in the Summary Compensation Table, other than Dr, Jha. The ExSP provides for the payment of benefits in the event that an executive officer’s employment is terminated by Motorola, Inc. other than: (a) for total and permanent disability, (b) for Cause (as defined therein), (c) due to death, (d) if the executive officer is offered employment at a substantially similar direct compensation level with another company in connection with a sale, lease, outsourcing arrangement or other asset transfer or transfer of any portion of a facility or all or any portion of a discrete organizational unit or business segment of Motorola, Inc. or remains employed by an affiliate or subsidiary that is sold or spun off, (e) if the termination of employment is followed by immediate or continued employment by Motorola, Inc. or an affiliate or subsidiary, or (f) if the executive terminates voluntarily for any reason. In addition to accrued salary through the separation date, the amount of the benefits payable to an executive officer who signs a prescribed separation agreement and general release of claims against Motorola, Inc. would be equal to the sum of:

 

  (1) 12 months of base salary; and

 

  (2) Pro rata alternate annual bonus or pro rata alternate sales incentive, whichever is applicable, for the performance period (year, month or quarter, as applicable) in which separation occurs.

In addition, the executive officer would receive (a) 12 months of continued medical plan coverage at the active employee premium rate, offset against the COBRA amount, (b) up to 12 months outplacement services, and (c) financial planning services. Any severance pay and benefits paid under the ExSP are to be offset against any severance pay and benefits payable under the Senior Officer Change in Control Plan and/or other individual severance arrangements. If an executive officer receives an alternate annual bonus or alternate sales incentive under the ExSP, the executive officer is not to receive an annual bonus or sales incentive under any applicable plan for the same performance period. All equity grants and other benefits are to be administered in accord with their prescribed terms. The Compensation and Leadership Committee of the Motorola, Inc. Board of Directors, or in some circumstances its delegate, may, in its sole discretion, reduce, eliminate or otherwise adjust the amount of an executive officer’s severance pay and benefits, including any bonus or incentive.

Termination and Change in Control Table for 2009

The tables below outline the potential payments to our Chief Executive Officer and other Named Executive Officers upon the occurrence of certain termination triggering events. For the purposes of the table, below are the standard definitions for the various types of termination, although exact definitions may vary by agreement and by person.

“Voluntary termination” means a termination initiated by the officer.

“Voluntary termination for Good Reason” occurs when, other than in connection with a Change in Control, employment is terminated by an officer for Good Reason.

“Good Reason” means (1) an officer is assigned duties materially inconsistent with his position, duties, responsibilities and status, or his duties are materially diminished, during the 90-day period immediately preceding a Change in Control, (2) his position, authority, duties or responsibilities are materially diminished from those in effect during the 90-day period immediately preceding a Change in Control, (3) his annual base salary or total annual compensation opportunity are materially reduced, (4) Motorola, Inc. requires the principal location of employment be more than 50 miles from the officer’s current location (other than to the extent agreed to or requested by the officer), (5) Motorola, Inc. fails to obtain a satisfactory agreement from any successor to assume and perform the relevant plan, or (6) any other material breach of the relevant plan. In the case of Dr. Jha, “Good Reason” also means (1) a failure to continue on the Board of Directors or a negative change in reporting structure, (2) a Separation Event has not occurred on or prior to June 30, 2011 or a Disposition Event has occurred by June 30, 2011, or (3) the failure of the successor to the Mobile Devices business to assume his employment agreement.

 

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“Voluntary termination—Retirement” means, apart from any pension plan or MIP, for purposes of the 2006 Omnibus Incentive Plan and the 2006 and 2009 Long-Range Incentive Plans, retirement after reaching age 55 with at least 20 years of service, or age 60 with at least 10 years of service, or age 65; for purposes of the Motorola Incentive Plans, retirement after reaching age 55 with three years of service; and for purposes of the Motorola Elected Officer Supplementary Retirement Plan, retirement after reaching age 60 (early retirement age for an unreduced benefit) or age 57 for a reduced benefit retirement, if applicable.

“Involuntary Termination—Total and Permanent Disability” means termination of employment following entitlement to long-term disability benefits under the Motorola, Inc. Disability Income Plan, as amended and any successor plan, or a determination of a permanent and total disability under a state workers compensation statute.

“Involuntary Termination—For Cause” means termination of employment following any misconduct identified as a ground for termination in the Motorola, Inc. Code of Business Conduct, or the human resources policies, or other written policies or procedures, including among other things, conviction for any criminal violation involving dishonesty, fraud or breach of trust or willful engagement in gross misconduct in the performance of the officer’s duties that materially injures Motorola, Inc.

“Involuntary Termination—Not for Cause” means termination of employment for reasons other than “For Cause”, Change in Control as defined below, death, Retirement or Total and Permanent Disability as defined above.

“Involuntary Termination for Change in Control” occurs when, at any time: (1) following a Change in Control and, assuming equity awards are not suitably replaced by a successor, prior to the second anniversary of a Change in Control, or (2) during the 12 months prior to a Change in Control but after such time as negotiations or discussions that ultimately lead to a Change in Control have commenced, employment is terminated (a) involuntarily for any reason other than Cause, death, Disability or retirement under a mandatory retirement policy of Motorola, Inc. or any of its Subsidiaries or (b) by the officer after the occurrence of an event giving rise to Good Reason. For purposes of this definition, “Cause” means: (1) conviction of any criminal violation involving dishonesty, fraud or breach of trust, or (2) willful engagement in gross misconduct in the performance of the officer’s duties that materially injures Motorola, Inc., and “Disability” means a condition such that the officer by reason of physical or mental disability becomes unable to perform his normal duties for more than 180 days in the aggregate (excluding infrequent or temporary absence due to ordinary transitory illness) during any 12 month period.

“Change in Control” (as used in the prior definition of “Involuntary Termination for a Change in Control”) shall be deemed to have occurred if (1) any “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (“Exchange Act”)) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Motorola, Inc. representing 20% or more of the combined voting power of Motorola, Inc.’s then outstanding securities (other than the company or any employee benefit plan of the company, and no Change in Control shall be deemed to have occurred as a result of the “beneficial ownership,” or changes therein, of the company’s securities by either of the foregoing), (2) there shall be consummated (a) any consolidation or merger of Motorola, Inc. in which the company is not the surviving or continuing corporation or pursuant to which shares of common stock would be converted into or exchanged for cash, securities or other property, other than a merger of the company in which the holders of common stock immediately prior to the merger have, directly or indirectly, at least a 65% ownership interest in the outstanding common stock of the surviving corporation immediately after the merger, or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Motorola, Inc. other than any such transaction with entities in which the holder of the Motorola, Inc.’s common stock, directly or indirectly, have at least 65% ownership interest, (3) the stockholders of the company approve any plan or proposal for the liquidation or dissolution of the company, or (4) as the result of, or in connection with, any cash tender offer, exchange offer, merger or other business combination, sale of assets, proxy or consent solicitation (other than by the Board), contested election or substantial stock accumulation (a “Control Transaction”), the members of the Board immediately prior to first public announcement relating to such Control Transaction shall thereafter cease to constitute a majority of the Board.

 

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As required, the amounts included in the following tables reflect theoretical potential payouts based on the assumption that the applicable triggering event occurred on December 31, 2009. For each officer, the columns included reflect the triggering events that were theoretically possible on December 31, 2009.

 

Sanjay K. Jha

Co-Chief Executive Officer and

Chief Executive Officer

Mobile Devices and

Home business

Executive Benefits and Payments

Upon Termination(1)

  Voluntary
Termination
          
 

Good

Reason

    Retirement   

Total and

Permanent

Disability

or Death

 
         Involuntary Termination  
         For
Cause
  Not For
Cause
    Change in
Control(10)
 

Compensation

            

Severance(2)

  $ 5,400,000      $ 0    $ 0   $ 0   $ 5,400,000      $ 8,100,000   

Short-term Incentive(3)

    1,800,000        0      1,800,000     0     1,800,000        1,800,000   

Long-term