MOTOROLA EMPLOYEE STOCK PURCHASE PLAN. A Guide for U.S. Employees Revised August MOTshare

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1 MOTOROLA EMPLOYEE STOCK PURCHASE PLAN A Guide for U.S. Employees Revised August 2004 MOTshare SM

2 The MOTshare Plan EFFECTIVE DATE: OCTOBER 1,1999 MOTshare, Motorola s discounted stock purchase plan for employees, gives you an opportunity to acquire Motorola stock. You share in Motorola s growth and success not only as an employee, but also as a shareholder. As a participant in MOTshare, you may purchase shares of Motorola, Inc. common stock at a 15% discount through payroll deductions. In addition, you save on brokerage fees and other costs related to owning Motorola stock. You are eligible for MOTshare if you are an active employee on Motorola payroll and scheduled to work at least 20 hours per week and more than five months per year. Among those ineligible to participate are independent contractors, consultants, leased employees or any individuals whose terms and conditions of employment are governed by a collective bargaining agreement. Data Privacy Notice: Motorola respects the confidentiality of its employees and will keep employee data secure and confidential in accordance with the Motorola Protection of Proprietary Information handbook and will use the data only for the purposes explained in this brochure. Please note: Participation in MOTshare is entirely voluntary. There is no guarantee against loss. As an investor, in seeking the benefits of share ownership, you must also accept the risks. 2 MOTshare SM

3 Here s How MOTshare Works Once you enroll, the percentage of pay you specify will be deducted each pay period and held in a noninterest-bearing account until the end of each six-month offering period. At that time, your accumulated contributions will be used to purchase whole and fractional shares of Motorola common stock. The purchase price of each share will be 85% of the lower of the fair market value of Motorola stock on the close of the first trading day or last trading day of the offering period. Example: If Motorola stock is trading at $20 at the beginning of the six-month period and at $25 at the end, your shares will be purchased at 85% of $20 ($17 per share). You can elect to contribute, by payroll deductions, 1% to 10% (whole percentage only) of your total compensation, which includes wages, salary, shift differentials, overtime, commissions, lump-sum merit pay and incentive plan pay. Individual awards are not included (e.g., BRAVO!, patent, KPIP and referral awards). The Internal Revenue Code limits the number of shares that can be purchased in any one calendar year through discounted employee stock purchase programs such as MOTshare. Your contributions will be limited to $21,250 or less per calendar year depending on the fair market value of Motorola stock. You will be notified if your contributions are affected by the limit. Refer to question 23 on page 7 for more details. FEES Sales Commission (per share) shares $ ,000 shares $0.08 1,001-5,000 shares $0.06 5,001 + shares $0.05 Subject to a minimum commission charge of $25, plus Smith Barney standard confirm fee of $5 and New York Stock Exchange and/or Securities and Exchange Commission fee of $0.01 for every $300 of gross proceeds. Additional Services (per transaction) Wire transfer fees $5 Certificate fee (issued upon request only) $15 Please note: Dividends will automatically be reinvested in additional shares unless you elect to have them paid in cash. (Refer to question 33 on page 9) Motorola has arranged with Smith Barney, one of the nation s leading investment firms, to maintain individual employee accounts for those who elect to participate. Smith Barney will maintain your account and mail you a statement following each transaction. It is Motorola s expectation that shares will be available in your account no more than five business days after the close of each offering period. Motorola will pay all fees on stock purchases. If you sell shares from your MOTshare account, the transaction will be subject to fees charged by Smith Barney. The current rates are shown at right and are subject to change. Motorola Employee Stock Purchase Plan 3

4 Easy Enrollment There are two opportunities to enroll each year: ENROLLMENT FIRST DAY LAST DAY PERIOD OF OFFERING PERIOD OF OFFERING PERIOD March 2-15 April 1 September 30 September 2-15 October 1 March ENROLL IN MOTSHARE AND ELECT YOUR CONTRIBUTION PERCENTAGE. Online Visit Under For Select Plans Only, click Enroll/Change. Enter the Motorola stock symbol (MOT) and follow the simple instructions. Telephone Call the toll-free MOTshare enrollment line at (outside the U.S. call ), and follow the automated voice response system. 2. Complete W-9 Certification Completing this form eliminates backup withholding tax consequences if you sell Motorola stock. See question 7 on page 6 for more information. Telephone Call the toll-free MOTshare line at (outside the U.S. call ), and select option 6 from the main menu. Mail Obtain and submit the W-9 form included in your Smith Barney welcome kit or available at Watch for MOTshare participant information in the mail from Smith Barney, including how to: Contact Smith Barney Sell your shares online or by telephone Confirm sale date and price WORKING WITH YOUR BROKER To contact Smith Barney Telephone (toll-free). Outside the U.S Client service representatives are available to serve you from 8:00 a.m. to 6:00 p.m., Eastern Time, every day that the New York Stock Exchange (NYSE) is open. Mail For general inquiries, address your mail to: USCC SB Stock Plan Services 100 Citibank Drive Building 3, 2nd Floor San Antonio, TX SELLING MOTOROLA STOCK You can instruct Smith Barney to sell your shares the following ways: Access the Smith Barney web site at Call Smith Barney and place a trade through the automated voice response system or speak to a client service representative. Orders will be entered for execution when the NYSE is open. During NYSE hours you can receive confirmation of your sale price. You will also receive written confirmation from Smith Barney. You may choose to have your sale proceeds sent to you via U.S. dollar check or by wire transfer. Smith Barney must have your wire transfer instructions on file before the proceeds of your sale can be transferred. You must contact a client service representative at Smith Barney to initiate wire transfer instructions. If you sell your shares, you will recognize a taxable gain or loss. Please consult your tax advisor before making any decisions that will affect your taxes. 4 MOTshare SM

5 MOTOROLA, INC. EMPLOYEE STOCK PURCHASE PLAN OF 1999 Prospectus This booklet is a summary of the Motorola Employee Stock Purchase Plan of 1999 (MOTshare). This summary is based on legal documents. If there is a disagreement between this summary and the legal documents, the legal documents always govern. In addition, nothing in this summary states or implies a contract of employment between you and Motorola. Motorola reserves the right to change, amend or terminate MOTshare at any time, consistent with the terms of the Plan. MOTshare is not qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, and is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. This summary constitutes part of a Prospectus covering shares of Motorola s common stock that have been registered under the U.S. Securities Act of Certain documents have been incorporated by reference in this Prospectus and are available without charge upon written or oral request. Certain other documents, including Motorola s latest summary annual report to stockholders and proxy statement, are required to be delivered to eligible employees, and are located at and are also available without charge upon written request. Requests for such documents should be addressed to: Rewards Administration Center, Attn: MOTshare, P.O. Box 63962, Phoenix, AZ WHAT IS MOTSHARE? Motorola created MOTshare (effective October 1, 1999) to provide eligible employees an opportunity to purchase shares of Motorola stock at a 15% discount through voluntary payroll deductions. 2. HOW DOES MOTSHARE WORK? MOTshare allows eligible Motorola employees to contribute 1% to 10% of their compensation to purchase shares of Motorola stock at a discounted price. The Plan has two six-month offering periods during which payroll deductions are made. On the last trading day of each six-month period, MOTshare contributions are used to purchase Motorola stock. The purchase price will be 15% below the fair market value of Motorola stock using the lower of the stock price on either the first or last trading day of the offering period. 3. WHO IS ELIGIBLE TO PARTICIPATE IN MOTSHARE? You are eligible if you are employed by Motorola or one of its qualified subsidiaries and customarily work at least 20 hours per week and more than five months per year. 4. WHO IS NOT ELIGIBLE TO PARTICIPATE IN MOTSHARE? Among those ineligible to participate in MOTshare are independent contractors, consultants, leased employees or any individuals whose terms and conditions of employment are governed by a collective bargaining agreement. 5. WHAT ARE THE OFFERING PERIODS? The Plan has two six-month offering periods beginning on the first business day on or after each April 1 and each October HOW DO I JOIN? There are two enrollment periods each year: March 2 through March 15 for the April-September offering period and September 2 through September 15 for the October-March offering period. ENROLLMENT FIRST DAY LAST DAY PERIOD OF OFFERING PERIOD OF OFFERING PERIOD March 2-15 April 1 September 30 September 2-15 October 1 March 31 Your enrollment will remain in effect for future offering periods until you change it. Motorola Employee Stock Purchase Plan 5

6 Prospectus (continued) 7. WHAT IS THE PURPOSE OF THE W-9 TAX FORM? Completing this form eliminates backup withholding tax consequences if you sell Motorola stock. If you don t complete this form, backup withholding tax will be withheld from the proceeds of any stock sales at a 28% tax rate. 8. WHAT MUST I DO IF I M A U.S. CITIZEN ON ANOTHER COUNTRY S PAYROLL? If you re a U.S. citizen on another country s payroll, you must work with your local reward representative to: Set up your Smith Barney account with your social security number. Complete a W-9 tax form (eliminates backup withholding tax consequences if you sell shares). 9. IF I DECIDE NOT TO JOIN MOTSHARE WHEN IT IS FIRST AVAILABLE, WILL I HAVE ANOTHER OPPORTUNITY? Yes. You may enroll during any future enrollment period in which MOTshare is in effect. However, you may not join the current six-month offering period after the enrollment period has ended. 10. HOW MUCH MAY I CONTRIBUTE TO MOTSHARE? You can elect to contribute, by payroll deductions, 1% to 10% (whole percentage only) of your total compensation, which includes wages, salary, shift differentials, overtime, commissions, lump-sum merit pay and incentive plan pay. Individual awards are not included (e.g., BRAVO!, patent, KPIP and referral awards.) During each six-month offering period, your contributions will accumulate in a noninterest-bearing account. At the end of the offering period, your contributions will be used to purchase Motorola stock at the discounted price. 11. HOW ARE MOTSHARE CONTRIBUTIONS CALCULATED? Example: Assuming a 5% MOTshare election: Bi-weekly Earnings* $1, Less Payroll Taxes (at 20%) - $ (k) Contributions (at 6%) - $60.00 Subtotal $ Less MOTshare Contributions (at 5%) - $50.00 Total Bi-weekly Net Pay $ MAY I MAKE A CASH CONTRIBUTION TO MOTSHARE IN ADDITION TO MY PAYROLL DEDUCTIONS? No. Contributions can be made only through payroll deductions. 13. DO I RECEIVE INTEREST ON MY MOTSHARE CONTRIBUTIONS? No. MOTshare contributions will be held in a noninterest-bearing account during the offering period. 14. CAN I CHANGE THE AMOUNT OF MY PAYROLL DEDUCTIONS FOR MOTSHARE? You cannot increase or decrease the percentage you are contributing during an offering period. However, you may change your contribution percentage during any enrollment period. 15. MAY I WITHDRAW FROM MOTSHARE AND STOP CONTRIBUTING? Yes. You may withdraw from MOTshare at any time up to the end of the first business day of the last month of each offering period. If you withdraw, you will stop contributing to MOTshare and all contributions for the current offering period will be returned to you without interest within 30 days of the date you withdraw from the Plan. Once you withdraw, you can rejoin MOTshare during any enrollment period. 16. WHEN ARE NEW HIRES ELIGIBLE TO PARTICIPATE IN MOTSHARE? New hires may join the Plan during any enrollment period, provided they are hired on or before March 1 for the April to September offering period and September 1 for the October to March offering period. Example: If a new employee starts work on March 2, he or she will not be able to participate in the April to September offering period and must wait until the next enrollment period (September 2-15). However, an employee who begins his or her employment on March 1 will be able to participate in the April to September offering period. * Includes wages, salary, shift differential, overtime, commissions, lump-sum merit pay and incentive plan pay. 6 MOTshare SM

7 17. WHEN CAN I START PARTICIPATING IN MOTSHARE IF I JOIN MOTOROLA AS PART OF AN ACQUISITION? You may join the Plan during any enrollment period, provided your first day of Motorola employment is on or before March 1 for the April to September offering period and September 1 for the October to March offering period. Example: If your Motorola employment begins on March 2, you will not be able to participate in the April to September offering period and must wait until the next enrollment period (September 2-15). However, if your Motorola employment begins on March 1, you are eligible to participate in the April to September offering period. 18. CAN I NAME A BENEFICIARY FOR MY MOTSHARE ACCOUNT? No. The balance of any accumulated payroll deductions will be paid directly to your estate. See questions 56 and 57 on page 14 for more information. 19. WHAT PRICE WILL I PAY FOR MOTOROLA STOCK? The purchase price will be 85% (100% - 15%) of the lower of: The closing price (based on the New York Stock Exchange composite transactions as reported in the Midwest Edition of the Wall Street Journal) on the first trading day of the offering period, or The closing price (based on the New York Stock Exchange composite transactions as reported in the Midwest Edition of the Wall Street Journal) on the last trading day of the offering period. Example: If the price on the first trading day of the offering period is $20 and the price on the last trading day of the offering period is $25, your purchase price through MOTshare is $17 ($20 x 85%). If your MOTshare contributions for the offering period were $500, you would purchase shares of Motorola stock ($500 $17). 20. WHAT HAPPENS TO THE SHARES PURCHASED WITH MY PAYROLL DEDUCTIONS? As soon as administratively feasible after the end of each offering period, your shares will be allocated to a brokerage account established for you at Smith Barney. It is Motorola s expectation that the shares will be available in your account no more than five business days after the close of each offering period. Smith Barney has been retained by Motorola to establish accounts for MOTshare participants to hold and handle sales of stock acquired through the Plan. 21. WHO ADMINISTERS MOTSHARE? The Compensation Committee of the Board of Directors administers MOTshare. Smith Barney, a member of Citigroup, is the recordkeeper and coordinates the efforts of Motorola s transfer agent, Mellon Investor Services LLC, to facilitate your transactions. 22. WHEN DO I OWN SHARES OF MOTOROLA STOCK PURCHASED THROUGH MOTSHARE? You own your stock once it is actually purchased and allocated to your account at Smith Barney. On the last trading day of each offering period, all of your MOTshare contributions will be used to purchase whole and fractional shares of Motorola stock at the discounted purchase price. 23. ARE THERE LIMITS TO THE NUMBER OF SHARES I CAN BUY? Section 423 of the Internal Revenue Code limits the number of shares that can be purchased in any calendar year through an employer-sponsored discount stock purchase plan. This annual limit is $25,000 in total value of stock based on the fair market value on grant date (first trading day of an offering period) instead of the actual purchase date. Your contributions will be limited to $21,250 ($25,000 x 85%) or less, depending on the fair market value of Motorola stock. You will be notified if your contributions are affected by the limit. 24. WILL I AUTOMATICALLY RECEIVE STOCK CERTIFICATES WHEN I PURCHASE SHARES THROUGH MOTSHARE? No. Certificates for shares of Motorola stock purchased through MOTshare will be held by Smith Barney in street name (without charge), but whole shares can be delivered to you upon request for a $15 fee. The number of shares credited to your account will be shown on your account statement. 25. WILL I HAVE THE SAME RIGHTS AS ANY OTHER SHAREHOLDER OF MOTOROLA? Yes, if you have at least one full share in your account. These rights include the right to vote and receive dividends (if any are declared) and the right to receive information generally sent to shareholders, such as the annual report and proxy statement. 26. CAN MY RIGHTS TO PURCHASE STOCK WITH PAYROLL DEDUCTIONS BE ASSIGNED TO ANYONE ELSE? No. You cannot transfer or pledge your right to receive shares. You may purchase the shares in your name only. Motorola Employee Stock Purchase Plan 7

8 Prospectus (continued) 27. WHEN CAN I REACH SMITH BARNEY? Client Service Representatives are available toll-free at (outside the U.S., call ) to serve you from 8:00 a.m. to 6:00 p.m., Eastern Time, every day that the New York Stock Exchange is open. 28. WHAT STATEMENTS AND/OR CONFIRMATIONS WILL I RECEIVE REGARDING MY MOTSHARE ACCOUNT? You will receive the following documents: 31. WHAT HAPPENS TO MY MOTSHARE ACCOUNT IF I RETIRE, LEAVE MOTOROLA, DIE OR BECOME INELIGIBLE FOR THE PLAN? If you retire, are no longer employed by Motorola or one of its qualified subsidiaries, die or become ineligible for the Plan prior to the end of the current offering period, you will be withdrawn from the Plan. Any accumulated payroll deductions for the current offering period will be returned without interest within 30 days from the date you are no longer NOTICE WHEN YOU LL RECEIVE IT All notices, confirmations, statements, tax forms and checks will be mailed to your home address. Active employees must change their addresses at If you are retired or are no longer employed with Motorola, it is your responsibility to contact Smith Barney via phone or postal service to inform them of any address changes. Enrollment confirmation Welcome letter, PIN and Smith Barney automated stock access program brochure Account Statements purchase IRS Form 1099-DIV (Dividends) IRS Form 1099-B (Stock Sales) Transaction history report 29. WHY WOULD I CALL SMITH BARNEY? Client Services Representatives are available to walk you through each transaction, explain the details of the Plan, answer your questions and produce reports detailing shares purchased and sold. 30. WHAT HAPPENS IF I GO ON A LEAVE OF ABSENCE OR A DISABILITY LEAVE? If you go on a leave of absence for any reason (e.g., disability, medical, etc.), your payroll deductions for MOTshare will continue if you remain on Motorola payroll. If you go on a leave of absence for any reason and are not paid through Motorola payroll, your payroll deductions for MOTshare will stop. Any current offering period payroll deductions will still be used to purchase stock at the end of the offering period. Upon reinstatement from a leave of absence, payroll deductions for MOTshare will resume automatically unless you withdrew from the Plan before you were reinstated to active employment. You may withdraw from MOTshare while you are on a leave of absence. If you withdraw, any current period payroll deductions will be refunded to you without interest. You may rejoin MOTshare during the next enrollment period if you are an active employee. Following your initial enrollment in MOTshare Prior to your first stock allocation (February/August) Each April and October following each stock and each dividend reinvestment By January 31 of each year By January 31 of each year On request participating in the Plan. If your date of retirement/termination is the last trading day of an offering period, your contributions for the current period will be used to purchase shares. Your MOTshare account will be retained with Smith Barney until it is closed (e.g., you request a stock certificate for your shares, sell your shares or transfer your account to another broker) or paid to your estate. Smith Barney will not charge a maintenance fee for retaining your MOTshare account. Smith Barney does not communicate with participants via after they have left Motorola. You must contact them via phone or postal service if you have a question about your account. 32. WHAT HAPPENS TO MY ACCUMULATED PAYROLL DEDUCTIONS IF I LEAVE MOTOROLA AS PART OF A DIVESTITURE PRIOR TO THE END OF AN OFFERING PERIOD? If the divestiture occurs within the first 90 days of an offering period, you will be withdrawn from the Plan and any accumulated payroll deductions will be returned without interest. If the divestiture occurs within the last 90 days of an offering period, your accumulated payroll deductions will be used to purchase stock on the last trading day of the offering period. 8 MOTshare SM

9 33. WHAT HAPPENS TO THE DIVIDENDS I RECEIVE ON MY STOCK? Any quarterly dividends you receive will be automatically reinvested (additional shares purchased at the current market price), unless you contact Smith Barney and elect to have them paid in cash. If you elect to receive dividends in cash, each quarter you will receive a check from Smith Barney. Any dividends you receive are taxable to you in the year you receive them whether reinvested or paid in cash. 34. WHAT HAPPENS IF MOTOROLA STOCK SPLITS? If Motorola stock splits, the price of Motorola stock will be adjusted to reflect the split. The following is an example of the effect on your purchase price under MOTshare if Motorola stock splits 2 for 1 during the MOTshare offering period. PRE-SPLIT POST-SPLIT Closing price of $20 $10 Motorola stock on ($20 2= $10) the first trading day of offering period Your price of $50 $25 Motorola stock on ($50 2= $25) the last trading day of offering period Your purchase price under MOTshare is $8.50 ($10 x 85%) 37. WHAT IS THE STOCK SYMBOL FOR MOTOROLA STOCK AND WHERE CAN I CHECK THE CURRENT STOCK PRICE? The symbol for Motorola stock is MOT and you can check the price of Motorola in a variety of different ways, including: Accessing the Smith Barney web site at (stock price is 20 minutes delayed). Calling Smith Barney at Checking the financial section of most major daily newspapers, which lists the closing stock price for the preceding trading day Accessing various financial and securities web sites. 38. WHO MAY SELL MY SHARES? Authorization to sell shares will only be accepted directly from MOTshare participants. Brokers and financial advisors may not initiate sale transactions. 39. ARE THERE ANY FEES OR COMMISSIONS FOR THE SALE OF STOCK IN MY MOTSHARE ACCOUNT? Smith Barney will charge a sales commission based on the following schedule: shares $ ,000 shares $0.08 PER SHARE 1,001-5,000 shares $ WILL I BE CHARGED FEES OR COMMISSIONS FOR MOTSHARE STOCK PURCHASES AND DIVIDEND REINVESTMENTS? No. Motorola will pay all fees to purchase stock and maintain your account. 36. CAN I SELL MY SHARES RIGHT AWAY? Yes. You may sell full and fractional shares once they are credited to your account subject to Securities and Exchange Commission (SEC) insider trading rules. If you sell your shares, you will recognize a taxable gain or loss in addition to having fees and commissions deducted from your sale proceeds. Please consult your tax advisor before making any decisions that will affect your taxes. 5,001+ shares $0.05 Sales are subject to a minimum charge of $25 plus a confirm fee of $5 and New York Stock Exchange and/or SEC fee of $0.01 for every $300 of gross proceeds. Motorola Employee Stock Purchase Plan 9

10 Prospectus (continued) Example: Fees on a sale of 25 shares when the price of Motorola stock is $30: FEE Per Share Fee $0.10 (per share) $25.00 x 25 (shares)=$2.50 (minimum charge) Confirm Fee $5.00 $5.00 SEC Fee $0.01 x 25 shares x [$30 $300] = $0.03 TOTAL FEES $ WHAT IS A MARKET SELL ORDER? A market sell order is an order to immediately sell your shares based on the current market price of Motorola stock. The order will be placed immediately (during New York Stock Exchange market hours) after the request to sell is received and accepted by Smith Barney. 41. WHAT IS A LIMIT SELL ORDER? A limit sell order is an order to immediately sell shares based on a specified limit price (above the current market price) set by you. When the Motorola stock price reaches the limit established by you, your order is submitted for execution. This type of order remains in effect until it is either executed (shares are sold) or canceled by you. 44. WHAT ALTERNATIVES ARE AVAILABLE FOR THE DELIVERY OF MY SALE PROCEEDS? You may choose to have your sale proceeds sent to you via U.S. dollar check or by wire transfer. 45. ARE MY MOTSHARE CONTRIBUTIONS DEDUCTED ON A PRETAX BASIS? No. The Internal Revenue Service requires that discounted stock purchase plan contributions be made on an after-tax basis. This means MOTshare contributions are subject to federal, state and local tax withholding (where applicable) and will be included as taxable wages on your year-end W-2 form. 46. BECAUSE THE STOCK IS PURCHASED AT A DISCOUNT, AM I SUBJECT TO ANY TAX AT THE TIME OF PURCHASE? No. The discounted purchase price does not generate taxable income at the time of purchase. 47. WHAT RECORDS DO I NEED TO KEEP FOR TAX PURPOSES? It is very important to keep all statements that Smith Barney sends to you because the information on the statements verifies your actual cost of the shares of stock. When you sell the stock, you will need to know your cost in order to determine the proper amount of gain or loss on the sale. 48. IS THERE A GUARANTEE AGAINST LOSS THROUGH MOTSHARE? No. There is no guarantee against loss. 42. HOW DO I ACCESS MY BROKERAGE ACCOUNT OR SELL STOCK ACQUIRED THROUGH MOTSHARE? Once you have purchased Motorola stock through MOTshare, you can access your brokerage account and initiate transactions in the following ways: Accessing the Smith Barney web site at Calling Smith Barney and placing a trade via the automated voice system or speaking to a Client Service Representative at (toll-free) or (outside the U.S.). 43. IF I SELL MY SHARES WILL I RECEIVE ACONFIRMATION? You will receive a Smith Barney confirmation, or confirm, after each sale. Confirms are mailed the next business day following the date of the trade. 10 MOTshare SM

11 Taxation The statements set out in the following questions are intended only as a general guide to current U.S. federal taxation in relation to participation in MOTshare. The statements on the following questions and answers do not comprise a complete analysis of all the potential tax consequences of acquiring, holding and disposing of Motorola common stock. Employees wishing to participate in MOTshare are advised to consult their own tax advisors concerning the tax consequences under U.S. federal and state laws concerning the acquisition, ownership and disposal of Motorola common stock. The statements are based on current tax laws. These laws may be subject to change, possibly with retroactive effect. 49. HOW IS GAIN (OR LOSS) ON THE SALE OF STOCK ACQUIRED THROUGH MOTSHARE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES? If you sell your stock, part of any gain or loss will generally be treated as ordinary income and part as capital gain or loss. The discount portion of stock acquired through MOTshare is generally considered ordinary income and subject to ordinary income taxes (at the same tax rates as salaries and wages). How long you own the shares before you sell them determines how much of the gain or loss will be treated as ordinary income and how much will be treated as capital gain or loss from the sale of stock: If you sell or otherwise dispose of any shares within two years after the first day of an offering period (October 1 and April 1) in which the shares were purchased, the difference between the fair market value of the shares on the date of purchase and the price you paid is treated as ordinary income. This amount will be reported by Motorola as ordinary income to you, on your annual Form W-2. If you sell or otherwise dispose of any shares more than two years after the first day of an offering period (October 1 and April 1) in which such shares were purchased, your ordinary income shall be the lesser of: 15% of the fair market value of shares on the first day of the offering period; or the amount, if any, by which the sale proceeds exceed the purchase price of the shares. Motorola will not report this income on your annual Form W-2. You will need to report this income on your individual income tax return and be prepared to provide any necessary documentation. Retain the statements provided to you by Smith Barney for this purpose. You will also recognize a capital gain or loss from the sale of stock to the extent of any further gain or loss. This gain or loss is taxed as long-term capital gain or loss if the shares have been held for more than one year from the purchase date. You are responsible for determining and reporting the amount of your capital gains or losses. Capital gain rates are subject to change and vary depending on how long the shares have been held. State and local taxes may also apply depending on where you live. State tax rules may be different from the U.S. federal income tax rules. Please consult your tax advisor before making any decisions that will affect your taxes. 50. IF I VE SOLD MY STOCK, WHAT INFORMATION DO I NEED TO KNOW FOR TAX REPORTING? The market value of the stock on the first trading day of the offering period (April 1 or October 1). The market value of the stock on the last trading day of the offering period (March 31 or September 30). The price you paid for the stock and the amount of any reinvested dividends. The date you sold your stock and the price you sold it for. Any commissions paid to sell your stock. You can find historical information about MOTshare offering periods at You can find your personal account information at or on the MOTshare statements and purchase/sales confirmations you receive from Smith Barney. Motorola Employee Stock Purchase Plan 11

12 Taxation (continued) 51. IF I SELL MY STOCK WITHIN THE TWO-YEAR PERIOD FROM THE FIRST DAY OF THE PURCHASE PERIOD IN WHICH THE STOCK WAS PURCHASED, HOW ARE THE ORDINARY INCOME AND ANY CAPITAL GAINS OR LOSSES FROM THE SALE OF STOCK DETERMINED? Your total gains or losses would be calculated as follows: Ordinary income equals the difference between the fair market value of the shares on the date of purchase and the discounted purchase price. Capital gains or losses are determined from the sale of stock to the extent of any further gain or loss. If the shares are sold for less than the purchase price, the amount of ordinary income is the same but you would recognize a capital loss. The capital loss is equal to the difference between the sale price and the fair market value of the shares on the last trading day of the offering period. Example: In this example, you sell your MOTshare stock for $30 per share within two years of the first day of the purchase period in which the stock was purchased. DETERMINING PURCHASE PRICE Fair market value of stock on first trading day of offering period $20.00 Fair market value of stock on last trading day of offering period $25.00 Lower of the above values $20.00 Discounted 15 percent X 85% PURCHASE PRICE $17.00 PURCHASING SHARES AT THE END OF THE OFFERING PERIOD MOTshare contributions for offering period $5, Divided by purchase price NUMBER OF SHARES PURCHASED DETERMINING GAIN FROM THE SALE Sale price per share $30.00 Times the number of shares purchased X Sale proceeds* $8, Minus your initial MOTshare contributions -$5, YOUR GAIN $3, DETERMINING ORDINARY INCOME TAX TO BE REPORTED ON IRS FORM W-2 Fair market value of stock on last trading day of offering period $25.00 Less the purchase price -$17.00 $8.00 Times the number of shares X ORDINARY INCOME $2, DETERMINING CAPITAL GAINS TAX REPORTED ON IRS FORM 1040, SCHEDULE D Sale proceeds $8, Minus your initial MOTshare contributions -$5, Minus ordinary income $2, CAPITAL GAINS $1, *Less fees and commissions. 12 MOTshare SM

13 52. IF I SELL MY STOCK AFTER THE TWO-YEAR PERIOD FROM THE FIRST DAY OF THE PURCHASE PERIOD IN WHICH THE STOCK WAS PURCHASED, HOW ARE THE ORDINARY INCOME AND ANY CAPITAL GAINS OR LOSSES FROM THE SALE OF STOCK DETERMINED? Your total gains or losses would be calculated as follows: Ordinary income equals the lesser of: Sale price less purchase price; or 15% of the fair market value of the shares on the first day of the offering period in which the shares were purchased. Capital gains or losses from the sale of stock to the extent of any further gains or losses. These gains or losses will be taxed at capital gain rates. Capital gain rates are subject to change and vary depending on how long the shares have been held. If the shares are sold at a loss (sales price is less than purchase price), there is no ordinary income and you must recognize a long-term capital loss for the difference. Example: In this example, you sell your MOTshare stock for $30 per share after the two-year period from the first day of the purchase period in which the stock was purchased. DETERMINING PURCHASE PRICE Fair market value of stock on first trading day of offering period $20.00 Fair market value of stock on last trading day of offering period $25.00 Lower of the above values $20.00 Discounted 15 percent X 85% PURCHASE PRICE $17.00 PURCHASING SHARES AT THE END OF THE OFFERING PERIOD MOTshare contributions for offering period $5, Divided by purchase price NUMBER OF SHARES PURCHASED DETERMINING GAIN FROM THE SALE Sale price per share $30.00 Times the number of shares purchased X Sale proceeds $8, Minus your initial MOTshare contributions -$5, YOUR GAIN $3, DETERMINING ORDINARY INCOME TAX TO BE REPORTED ON IRS FORM W-2 Choose the lesser of: Your gain $3, OR Fair market value of stock on first trading day of offering period $20.00 Discounted 85 percent X 15% Times the number of shares purchased X $ ORDINARY INCOME $ DETERMINING CAPITAL GAINS TAX REPORTED ON IRS FORM 1040, SCHEDULE D Sale proceeds $8, Minus your initial MOTshare contributions -$5, Minus ordinary income -$ CAPITAL GAINS $2, Motorola Employee Stock Purchase Plan 13

14 Taxation (continued) 53. WHAT OPTIONS ARE AVAILABLE FOR DETERMINING THE COST BASIS FOR SOLD SHARES? Cost basis is used to determine the proper amount of gain or loss on the sale of your shares. You may select from three choices for calculating the cost basis: 1. Specific identification calculates the cost basis using the purchase price of the shares that you SPECIFY at the time of the sale. For example: You can sell your March 2001 shares (bought at $12.12) now and hold your September 2000 shares (bought at $ ) until later or even sell some from each offering period. 2. Last in/first out uses the purchase price of the shares you LAST acquired. 3. First in/first out uses the purchase price of the shares you FIRST acquired. If you do not specify your choice, the default first in/first out option will be used. 57. WHO SHOULD AN EXECUTOR OR PERSONAL REPRESENTATIVE CONTACT CONCERNING SHARES HELD AT SMITH BARNEY? The executor or personal representative must contact Smith Barney at and request information to open an estate account. This information includes the following forms: New account form Client agreement Affidavit of domicile Smith Barney also needs to receive: Copy of the certificate of appointment naming the executor or personal representative of the estate Original death certificate Once the estate account is established, the executor or personal representative can make decisions regarding the disposition of shares acquired through the MOTshare program. 54. WILL I BE SUBJECT TO ANY EMPLOYMENT OR INCOME TAX WITHHOLDING REQUIREMENTS? The IRS will not impose employment tax or income tax withholding on shares acquired. 55. WHAT IF I MAKE A GIFT OF SHARES ACQUIRED UNDER THE MOTSHARE PROGRAM? Gifting shares constitutes a disposition that, depending upon the fair market value of Motorola shares on the date of your gift, may cause you to recognize ordinary income (i.e., salary and wages). Gifting shares does not trigger capital gain income. Please consult your tax advisor concerning the tax consequences of gifting shares. 56. WHAT IF I DIE WHILE OWNING SHARES THAT I ACQUIRED UNDER THE MOTSHARE PROGRAM? Ordinary income (i.e., salary and wages) must be reported on your final income tax return in an amount equal to the lesser of: 15% of the fair market value of your shares on the first day of the offering period in which the shares were purchased; or The amount by which the fair market value of your shares on your date of death exceeds the price you paid for the shares. For estate planning purposes, please consult your tax advisor concerning the tax consequences of owning shares acquired under the MOTshare program at the time of your death. 14 MOTshare SM

15 Motorola Employee Stock Purchase Plan 15

16 Motorola and are registered trademarks of Motorola, Inc Motorola, Inc. Motorola is an Equal Opportunity/Affirmative Action Employer. Form No /04