Motorola 2004 Annual Report Download - page 32

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On February 5, 2002, Telsim initiated arbitration against MCC in Switzerland at the Zurich Chamber of
Commerce. In Telsim's request for arbitration, Telsim acknowledged its debt, but has alleged that the disruption in
the Turkish economy during 2001 should excuse Telsim's failure to make payments on the MCC loans as required
under the agreements between the parties. Telsim seeks a ruling excusing its failure to adhere to the original
payment schedule and establishing a new schedule for repayment of Telsim's debt to MCC. Telsim has failed to
comply with its proposed new schedule, missing the Ñrst three payments totaling approximately $85 million. In
August 2003, MCC made a motion to the arbitration panel for a partial award, seeking a judgment for the
$85 million. On January 26, 2004, the arbitral tribunal granted MCC's request and entered a Partial Final Award in
favor of MCC and against Telsim in the amount of $85 million. MCC has initiated proceedings to enforce this
award against Telsim in Turkey. This proceeding has been discontinued (without prejudice) while MCC appeals
the Turkish court's ruling that MCC pay a multi-million dollar court fee. MCC requested a second partial award of
$40 million from the arbitration panel to account for a loan payment that would have been due at year-end 2003
even under Telsim's proposed loan repayment schedule. In June 2004, MCC Ñled a request for a further award of
$1.73 billion based on alleged further breaches of the Ñnancing agreements and a reply in support of MCC's request
for the $40 million partial award. On November 25, 2004, the arbitral tribunal granted MCC's request and entered
a Partial Final Award in favor of MCC and against Telsim in the amount of $40 million. Motorola expects to
initiate proceedings to enforce this award against Telsim in Turkey. Motorola is awaiting a ruling from the arbitral
tribunal with respect to the request for $1.73 billion. In December 2004, a Ñnal round of hearings was held on all
outstanding issues and the case is now before the panel for Ñnal adjudication.
On June 7, 2002, Rumeli Telfon (""Rumeli'') initiated arbitration against MCC in the Zurich Chamber of
Commerce seeking a ruling requiring that MCC consent to Rumeli's request to place the stock that was pledged to
MCC (including improperly issued new shares, that eÅectively diluted MCC's pledge from the contractually
mandated 66% interest to a 22% interest) into an escrow account in Switzerland. Pursuant to the request of
Rumeli, this arbitration was stayed. Upon the Company's request, the panel has re-started this arbitration.
On June 19, 2002, Telsim initiated arbitration against Motorola, Ltd. and Motorola Komunikasyon Ticaret v.p.
Servis Ltd. Sti., both wholly-owned subsidiaries of Motorola, before the International Chamber of Commerce in
Zurich, Switzerland, initially seeking approximately 179 million pounds as damages for the defendants' alleged sale
of defective products to Telsim. Telsim increased the amount of its claim to approximately 300 million pounds.
Motorola has denied the claims and has Ñled a counterclaim valued at approximately $20 million. On July 16,
2004, the arbitral panel ruled in favor of Motorola's contention that an overall cap of liability applied to Telsim's
claims, but has not yet ruled on how the cap is to be computed.
On October 13, 2004, Motorola Ñled an arbitration claim in Washington, D.C., under a United States-Turkey
bilateral investment treaty involving the Turkish government, which currently controls Telsim and claims priority
over Motorola's interest in Telsim. Motorola claims that the Turkish government has ""expropriated'' Motorola's
investment in Telsim by taking over Telsim, obtaining injunctions purportedly prohibiting Telsim from paying
MCC's debt, and passing legislation requiring that Telsim be sold and that the proceeds of the sale be distributed
Ñrst to the Turkish government, in priority over MCC's claims. Motorola seeks, among other things, a judgment in
the amount of $2 billion. On December 28, 2004, the International Centre for the Settlement of Investment
Disputes registered Motorola's Request for Arbitration, thus Ñnding that, at a minimum, there is a possibility of
jurisdiction for Motorola's claims.
Class Action Securities Lawsuits
A purported class action lawsuit, Barry Family LP v. Carl F. Koenemann, was Ñled against the former chief
Ñnancial oÇcer of Motorola on December 24, 2002 in the United States District Court for the Southern District of
New York, alleging breach of Ñduciary duty and violations of Section 10(b) of the Securities Exchange Act of 1934
and SEC Rule 10b-5. It has been consolidated before the United States District Court for the Northern District of
Illinois (the ""Illinois District Court'') with 18 additional putative class action complaints which were Ñled in various
federal courts against the Company, its former chief Ñnancial oÇcer and various other individuals, alleging that the
price of Motorola's stock was artiÑcially inÖated by a failure to disclose vendor Ñnancing to Telsim Mobil
Telekomunikasyon Hizmetleri A.S. (Telsim), in connection with the sale of telecommunications equipment by
Motorola. In each of the complaints, plaintiÅs proposed a class period of February 3, 2000 through May 14, 2001,
and sought an unspeciÑed amount of damages. On August 25, 2004, the Illinois District Court issued its decision on
Motorola's motion to dismiss, granting the motion in part and denying it in part. The court dismissed without
prejudice the fraud claims against the individual defendants and denied the motion to dismiss as to Motorola. The
plaintiÅs chose not to Ñle an amended complaint; therefore, the fraud claims against the individual defendants are