Motorola 2005 Annual Report Download - page 37

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30
Shareholder Derivative Case
M&C Partners III v. Galvin, et al., filed January 10, 2002, in the Circuit Court of Cook County, Illinois, is a
shareholder derivative action against fifteen current and former members of the Motorola Board of Directors and
Motorola as a nominal defendant. The lawsuit alleges that the Motorola directors breached their fiduciary duty to
the Company and/or committed gross mismanagement of Motorola's business and assets by allowing Motorola to
engage in improper practices with respect to Iridium. Following the dismissal without prejudice of prior versions of
the complaint, in January 2006, plaintiff filed a motion for leave to file a Third Amended Complaint, which
remains pending.
In May 2004, plaintiff served a demand on the Motorola Board of Directors to investigate the alleged
wrongful conduct. In July 2004, Motorola's Board appointed an investigatory committee to evaluate the plaintiff's
demand. On July 26, 2005, Motorola's Board, acting on an extensive report from and recommendations made by
the investigatory committee, rejected plaintiff's demand.
An unfavorable outcome in one or more of the Iridium-related cases still pending could have a material
adverse effect on Motorola's consolidated financial position, liquidity or results of operations.
Telsim-Related Cases
In April 2001, Telsim Mobil Telekomunikasyon Hizmetleri A.S. (""Telsim''), a wireless telephone operator in
Turkey, defaulted on the payment of approximately $2 billion of loans owed to Motorola and its subsidiaries (the
""Telsim Loans''). Motorola fully reserved the carrying value of the Telsim Loans in the second quarter of 2002.
The Uzan family formerly controlled Telsim. Telsim remains under the control of the Turkish government, pending
the closing of the sale of Telsim described below. Motorola is involved in several matters related to Telsim.
October 2005 Settlement
On October 28, 2005, Motorola signed an agreement resolving its disputes regarding the Telsim Loans with
Telsim and the Government of Turkey (the ""Telsim Dispute Agreement''). The parties to the Telsim Dispute
Agreement are: Motorola, Inc., Motorola Credit Corporation, Motorola Limited, Motorola Komunikasyon Ticaret
ve Servis Limited Sirketi, Telsim, Rumeli Telefon Sistemleri A.S. and Bayindirbank A.S. The Government of Turkey
and the Turkish Savings and Deposit Insurance Fund (""TMSF'') are third-party beneficiaries of the Telsim Dispute
Agreement. As part of the Telsim Dispute Agreement, on October 28, 2005, Motorola received a cash payment of
$500 million. On December 13, 2005, Vodafone agreed to purchase Telsim for $4.55 billion, pursuant to a sales
process organized by the TMSF. This purchase has not yet been completed. Pursuant to the Telsim Dispute
Agreement, Motorola has the right to receive 20% of the sale proceeds above $2.5 billion, in addition to the cash
payment of $500 million it received in 2005, once this transaction is completed. Although there can be no
assurances as to when or if the sale will close, the Company currently expects to receive $410 million in the second
quarter of 2006.
As part of the Telsim Dispute Agreement, and subject to certain conditions, Motorola has agreed that it will
not pursue collection efforts against the three corporate defendants under TMSF control (Unikom Iletisim
Hizmetleri Pazarlama A.S., Standart Pazarlama A.S., and Standart Telekomunikasyon Bilgisayar Hizmetleri A.S.)
(the ""Corporate Defendants''), that are subject to its final judgment in the U.S. courts related to the matter. The
Telsim Dispute Agreement permits Motorola to continue its efforts (except in Turkey and three other countries,
which restriction is subject to certain conditions) to enforce the U.S. Judgment described below against the Uzan
family. In addition, pursuant to the Telsim Dispute Agreement, Telsim and its related companies have dismissed all
litigation, including arbitrations, pending against Motorola.
U.S. Judgment
The Company continues to realize collections on its judgment of $2.13 billion (the ""U.S. Judgment'') for
compensatory damages rendered by the United States District Court for the Southern District of New York (the
""District Court'') against the Uzans on July 31, 2003 and affirmed by the U.S. Court of Appeals for the Second
Circuit (the ""Second Circuit'') in 2004 and in connection with foreign proceedings against the Uzan family.
However, the Company believes that the ongoing litigation, collection and/or settlement processes against the Uzan
family will be very lengthy in light of the Uzans' continued resistance to satisfy the judgment against them and their
decision to violate various courts' orders, including orders holding them in contempt of court. Following a remand