FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ( Mark One ) ( X ) Annual Report Pursuant to Section 13 or 15 ( d ) of the Securities Exchange Act of 1934 For the fiscal year ended : December 31, 2000 ( ) Transition Report Pursuant to Section 13 or 15 ( vitamin d ) of the Securities Exchange Act of 1934 For the conversion period from : ______ to ______ XEROX CORPORATION ( Exact mention of registrant as specified in its charter ) 1-4471 ( Commission file number ) New York 16-0468020 - -- -- -- -- -- -- -- -- -- ( State of incorporation ) ( I.R.S. Employer Identification No. ) P.O. Box 1600, Stamford, Connecticut 06904 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ( Address of principal administrator offices ) ( Zip Code ) Registrant 's telephone count, including area code : ( 203 ) 968-3000 Securities registered pursuant to Section 12 ( barn ) of the Act : name of Each Exchange Title of Each class on Which Registered - -- -- -- -- -- -- -- -- -- - -- -- -- -- -- -- -- -- -- - coarse Stock, $ 1 equality measure New York Stock Exchange Chicago Stock Exchange Securities registered pursuant to Section 12 ( g ) of the Act : none Indicate by check notice whether the registrant ( 1 ) has filed all reports required to be filed by section 13 or 15 ( five hundred ) of the Securities Exchange Act of 1934 during the preceding 12 months ( or for such shorter period that the registrant was required to file such reports ), and ( 2 ) has been subject to such filing requirements for the past 90 days. yes : ( ) No : ( X ) Indicate by hindrance mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant 's cognition, in definitive proxy or information statements incorporated by citation in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market rate of the voting stock of the registrant held by non- affiliates as of April 30, 2001 was : $ 6,231,027,145. ( Cover Page Continued ) Indicate the number of shares great of each of the registrant 's classes of common stock, as of the latest operable date : class Outstanding at April 30, 2001 - -- -- - -- -- -- -- -- -- -- -- -- -- -- -- -- -- - common Stock, $ 1 Par Value 694,264,863 Shares Documents Incorporated By Reference -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Portions of the play along documents are incorporated herein by address : part of 10-K in Document Which Incorporated - -- -- -- -- -- -- -- -- -- -- -- -- -- Xerox Corporation 2000 Annual Report to Shareholders I & II Page 2 From time to time Xerox Corporation ( the Registrant or the Company ) and its representatives may provide information, whether orally or in writing, including certain statements in this Form 10-K, which are deemed to be `` advanced '' within the meaning of the Private Securities Litigation Reform Act of 1995 ( `` Litigation Reform Act '' ). These advanced statements and other information relating to the Company are based on the belief of management adenine well as assumptions made by and information presently available to management. The words `` predict '', `` believe '', `` appraisal '', `` expect '', `` mean '', `` will '', and exchangeable expressions, as they relate to the company or the Company 's management, are intended to identify advanced statements. such statements reflect the stream views of the Registrant with esteem to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should implicit in assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Registrant does not intend to update these advanced statements. In accord with the provisions of the Litigation Reform Act we are making investors mindful that such `` advanced '' statements, because they relate to future events, are by their very nature national to many authoritative factors which could cause actual results to differ materially from those contained in the '' advanced '' statements. such factors include but are not limited to the follow : Competition - the Registrant operates in an environment of meaning competition, driven by rapid technological advances and the demands of customers to become more efficient. There are a number of companies worldwide with significant fiscal resources which compete with the Registrant to provide document march products and services in each of the markets served by the Registrant, some of whom operate on a global footing. The Registrant 's success in its future operation is largely dependent upon its ability to compete successfully in its currently-served markets and to expand into extra commercialize segments. transition to Digital - presently black and white light-lens copiers represent approximately 30 % of the Registrant 's revenues. This section of the market is mature with anticipate declining industry revenues as the commercialize transitions to digital technology. Some of the Registrant 's raw digital products replace or compete with the Registrant 's current light-lens equipment. Changes in the blend of products from light-lens to digital, and Page 3 the pace of that change american samoa well as competitive developments could cause actual results to vary from those expected. expansion of Color - color printing and imitate represents an crucial and growing segment of the market. Printing from computers has both facilitated and increased the need for color. A significant share of the Registrant 's strategy and ultimate success in this changing market is its ability to develop and market machines that produce color prints and copies cursorily and at reduced cost. The Registrant 's continuing achiever in this scheme depends on its ability to make the investments and commit the necessary resources in this highly competitive market. Pricing - the Registrant 's ability to succeed is dependant upon its ability to obtain adequate pricing for its products and services which provide a reasonable render to shareholders. Depending on competitive market factors, future prices the Registrant can obtain for its products and services may vary from historic levels. In accession, pricing actions to offset currency devaluations may not prove sufficient to offset far devaluations or may not hold in the face of customer immunity and/or rival. Customer Financing Activities - On average, 75 - 80 percentage of the Registrant's equipment sales are financed through the Registrant. To fund these arrangements, the Registrant must access the credit rating markets and the long-run viability and profitableness of its customer financing activities is dependent on its ability to borrow and its cost of borrowing in these markets. This ability and cost, in turn, is dependent on the Registrant 's recognition ratings. presently the registrant 's credit ratings are such as to efficaciously preclude its cook access to capital markets and the Registrant is presently funding its customer finance activity from cash on hand. There is no assurance that the Registrant will be able to continue to fund its customer finance bodily process at deliver levels. The Registrant is actively seeking one-third parties to provide finance to its customers. In the near-term the Registrant 's ability to continue to offer customer finance and be successful in the placement of its equipment with customers is largely dependent upon obtaining such third gear party finance. Productivity - the Registrant 's ability to sustain and improve its profit margins is largely subject on its ability to maintain an effective, cost- effective operation. productiveness improvements through process reengineering, design efficiency and supplier cost improvements are required to offset tug price inflation and potential materials cost changes and competitive price pressures. Page 4  International Operations - the Registrant derives approximately half its tax income from operations outside of the United States. In accession, the Registrant manufactures or acquires many of its products and/or their components outside the United States. The Registrant 's future tax income, cost and net income results could be affected by a number of factors, including changes in extraneous currentness exchange rates, changes in economic conditions from country to country, changes in a country 's political conditions, trade protection measures, license requirements and local tax issues. Our ability to enter into newly extraneous exchange contracts to manage foreign exchange risk is presently badly specify, and we anticipate increased excitability in our results of operations due to changes in extraneous switch over rates. New Products/Research and Development - the procedure of developing new high technology products and solutions is inherently complex and uncertain. It requires accurate anticipation of customers ' changing needs and emerging technological trends. The Registrant must then make long-run investments and perpetrate significant resources before knowing whether these investments will finally result in products that achieve customer credence and generate the revenues required to provide anticipate returns from these investments. Revenue Growth - the Registrant 's ability to attain a consistent vogue of tax income increase over the intercede to longer term is largely subject upon expansion of its equipment sales cosmopolitan and use growth ( i.e., an increase in the number of images produced by customers ). The ability to achieve equipment sales growth is subject to the successful implementation of our initiatives to provide industry-oriented ball-shaped solutions for major customers and expansion of our distribution channels in the face of ball-shaped contest and pricing pressures. The ability to grow custom may be adversely impacted by the movement towards distributed print and electronic substitutes. Our inability to attain a consistent vogue of gross growth could materially affect the vogue of our actual results. Turnaround Program - In October 2000, the Registrant announced a turnaround program which includes a varied plan to generate cash, return to profitableness and pay down debt. The success of the reversion platform is dependent upon successful and seasonably sales of assets, restructuring the cost base, placement of greater functional stress on the core business and the remove of the financing of customer equipment purchases to third parties. Cost base restructure is dependent upon effective and seasonably elimination of employees, closing and consolidation of facilities, outsourcing of certain fabrication and logistics operations, reductions in operational expenses and the successful implementation of work and systems changes. page 5 The Registrant 's liquidity is pendent on the timely implementation and execution of the versatile reversal program initiatives vitamin a well as its ability to generate cocksure cash flow from operations and diverse finance strategies including securitizations. Should the Registrant not be able to successfully complete the turnaround program, including positive cash generation on a seasonably or satisfactory basis, the Registrant will need to obtain extra sources of funds through other operating improvements, financing from third parties, or a combination thence. Page 6 share I Item 1. Business -- -- -- -- Overview Xerox Corporation ( Xerox or the party ) is The Document Company and a drawing card in the ball-shaped document marketplace, selling equipment and providing document solutions including hardware, services and software that enhance productivity and cognition share. References herein to `` us '' or `` our '' refer to Xerox and consolidate subsidiaries unless the context specifically requires differently. We distribute our products in the Western Hemisphere through divisions and wholly- owned subsidiaries. In Europe, Africa, the Middle East, India and parts of Asia, we distribute through Xerox Limited and related companies ( jointly Xerox Limited ). Xerox had 92,500 employees at year-end 2000. Fuji Xerox Co., Limited, an unconsolidated entity jointly owned by Xerox Limited and Fuji Photo Film Company Limited, develops, manufactures and distributes document processing products in Japan and early areas of the Pacific Rim, Australia and New Zealand. Japan represents approximately 80 percentage of Fuji Xerox revenues, and Australia, New Zealand, Singapore, Malaysia, Korea, Thailand and the Philippines represent 10 percentage. The remaining 10 percentage of Fuji Xerox revenues are sales to Xerox. Fuji Xerox conducts business in early asian Pacific Rim countries through roast ventures and distributors. In December 2000, as separate of the asset inclination element of our turnaround plan, we completed the sale of our China operations to Fuji Xerox for $ 550 million cash and their assumption of $ 118 million of debt. The sale included all of our manufacture, sales and servicing functions in China and Hong Kong, including ownership of Xerox ( China ) Limited and Xerox ( Hong Kong ) Limited. The sale strengthened our liquid and produced a $ 119 million after tax gain. In March 2001 we sold half our possession interest in Fuji Xerox to Fuji Photo Film for $ 1,283 million in cash. The company retains meaning rights as a minority Shareholder. All product and engineering agreements between Xerox and Fuji Xerox will continue, ensuring that the two companies retain uninterrupted access to each other 's portfolio of patents, technology and products. Our activities encompass developing, manufacture, commercialize, servicing and financing a arrant rate of document work products, solutions and services designed to make organizations around the world more fat. We believe that the document is a joyride for productiveness, and that documents - both electronic and newspaper - are at the heart of most clientele processes. Documents are the means for storing, wangle and sharing business cognition. Document technology is key to improving productivity through data share and knowledge management and we believe no one knows the document - newspaper to electronic and electronic to newspaper - better than we do. The finance of Xerox equipment is primarily carried out by Xerox Credit Corporation ( XCC ) in the United States and internationally by foreign financing subsidiaries and divisions in most countries. As part of our turnaround program, we intend to transition equipment finance to third gear parties. As part of this program, in April 2001 we announced the sale of certain of our european finance businesses to Resonia Leasing AB. This transition will significantly reduce indebtedness on our balance sheet and improve liquidity. Turnaround Program - -- -- -- -- -- -- -- -- -- During 2000, the significant business challenges that we began to experience in the second base half of 1999 continued to adversely affect our fiscal performance. In May 2000, Paul A. Allaire, Chairman and CEO and Anne Mulcahy, President and Page 7 COO, assumed their modern responsibilities and began ferment stabilizing the occupation. After a thorough review, they announced a reversal plan in October 2000. implementation of the turnaround plan focuses Xerox on its core business and prioritizes cash generation, improved liquidity and a return to profitableness in 2001. The course of study includes asset dispositions and equity partnerships designed to generate $ 2 billion to $ 4 billion. Asset sales include the sale of the Company's China operations to Fuji Xerox, which was completed in December 2000, and in March 2001 the sale of one-half of the ship's company 's pastime in Fuji Xerox for approximately $ 1.3 billion. We are in discussion to form a strategic alliance for our european paper business. We are actively engaged in discussions to sell sealed other assets, including Xerox Engineering Systems and our interests in by-product companies such as ContentGuard and InXight. We are seeking equity investors for our inkjet business and we are exploring a joint venture with non- competitive partners for certain of our research centers including the Palo Alto Research Center. last, Xerox is besides seeking to sell or outsource certain fabrication operations. It is expected that in most cases asset sales will result in a gain. A second component of the reversal program includes cost reductions of at least $ 1 billion annually. Headcount reductions of 2000 and 4,300 were implemented in the fourthly quarter 2000, and the first quarter 2001 respectively. A third element of the turnaround program includes transitioning equipment financing to third base parties, a move that will importantly improve Xerox's libra plane and is designed to avoid negatively impacting customers. In January 2001 we announced the acknowledge of $ 435 million in financing from General Electric Capital Corporation secured by the Xerox portfolio of lease receivables in the United Kingdom. In April 2001 we announced the sale of our rent businesses in four european countries to Resonia Leasing AB for approximately $ 370 million in cash. We are besides discussing with several electric potential vendors plans for them to provide equipment financing for Xerox customers around the earth. In addition, the Board of Directors announced in October the decision to reduce the quarterly dividend to 5 cents per partake, saving $ 400 million a year. The turnaround platform being implemented by the Xerox management team will refocus the core scheme of the Company going advancing - with a greater emphasis on high-end, high-growth print supported by color, solutions and services across the board and serving the office market in new ways. For an extra discussion of the Company 's reversion program, refer to Note 3 of the consolidate fiscal statements included on pages 24 through 25 of the Company 's 2000 annual Report to Shareholders hereby incorporated by mention in this document in partial derivative answer to this Item. Core Strategy We believe that documents represent the cognition base of an organization and play a moral force and central role in business, politics, education and other organizations. Our principle strategy is to focus our core businesses on the most profitable and highest growth segments of the document marketplace, with a particular stress on color across our product lines and document services and solutions. As our customers increasingly move towards color documents, we have responded with our highly successful DocuColor 2000 series of digital color presses and the ongoing development of FutureColor, the future genesis of color technology that we believe will dramatically expand the discolor print-on-demand market. Our January 2000 learning of the Color Printing and Imaging Division of Tektronix ( CPID ), Page 8 and its award winning telephone line of Phaser hearty ink and laser color printers, has moved Xerox to a impregnable number two market partake side in the fast growing network office color printing market. We are besides taking significant steps to satisfy our customers ' increasing demand for more advance services and solutions. Our products, engineering, services and solutions are geared to match the needs of quickly growing markets such as high-end, Internet driven digital print and customs print, graphic arts and on-demand print and print. Our success is derived from our ability to understand our customers' needs and to provide true document management services and outsourcing capabilities. As we increasingly make use of our steer sales pull to serve customers seeking more advanced capabilities and solutions, we will simultaneously expand our use of more cost-efficient distribution channels such as dealers, agents and concessionaires. The document diligence is undergoing a cardinal transformation, with the continued transition from analogue and offset to digital engineering, the management of publish and print jobs over the Internet, the use of variable data to create customize documents, an increasing reliance on outsourcing and the rapid transition to color. Documents are increasingly created and stored in digital electronic shape while the Internet is increasing the come of information that can be accessed in the form of electronic documents. We believe that all of these trends play to the strengths of our products, engineering and services, and that such trends represent opportunities for Xerox 's future growth. We create customer value by providing innovative document technologies, products, systems, services and solutions that allow our customers to : - - move well within and between the electronic and newspaper forms of documents. - - scan, memory, retrieve, watch, retool and distribute documents electronically anywhere in the global. - - mark or publish documents on demand, at the point close to the necessitate, including those locations of our customers ' customers. - - Integrate the presently freestanding modes of producing documents, such as the datum center, production publication and office environments into a seamless, user-friendly, enterprise-wide text file systems network - with engineering acting as an enabler. We have formed alliances to bring together the diverse infrastructures that presently exist and to nurture the development of an clear document services and solutions environment to support complementary products from our partners and customers. We are working with more than 100 companies and industry organizations to make office and production electronic printing an integrated, seamless part of nowadays 's digital bring place. industry Segments Our fiscal results by industry segment for 2000, 1999 and 1998, presented in Note 10 to the consolidate fiscal statements on pages 29 through 31 of the Company 's 2000 annual Report to Shareholders are hereby incorporated by reference in this document in partial derivative suffice to this Item. Market Overview We estimate the ball-shaped text file market that we serve, excluding Japan and the Pacific Rim countries served by Fuji Xerox, was approximately $ 149 billion in page 9 1999 and will grow to about $ 209 billion in 2003. To return to emergence and profitableness, we continue to shift our focus to, and invest in, the most profitable and highest growth segments of the document market, with an vehemence on color throughout our product lines, high-end document systems, services and solutions, outsourcing and the transition from light-lens to digital technology. We are focused on providing solutions to our customers, through our products, technology, document management services and outsourcing capabilities. To drive future growth, we have increased our R & D spend, concentrating on programs to develop hardware and value-added solutions to support high-end occupation and programs that extend color capabilities. We are besides expanding the use of more cost effective collateral sales channels such as dealers, agents and concessionaires for less complex merchandise offerings and for those customers whose chief merchandise acquisition criteria is price. We continue to lead the passage in our industry from black and white to color adequate to devices, from box sales to services and solutions that enhance customer productiveness and solve customer problems, from light-lens to digital engineering and from standalone devices to network-connected systems. Xerox emergence will be driven by the accelerate demand for discolor documents, on-demand high-end services and solutions, document outsource, the passage to digital imitate and print in the office and the transplant of document production from offset printing to digital print. Revenues for our major product categories for the three years ending December 31, 2000 are as follows : year ended December 31 ( in millions ) 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - black and white agency and small office/home position ( SOHO ) $ 7,410 $ 8,150 $ 8,384 Black and white production 4,940 5,904 5,954 Color replicate and impression 2,897 1,851 1,726 other products and services 3,454 3,662 3,529 -- -- -- -- -- -- -- -- -- -- - sum $ 18,701 $ 19,567 $ 19,593 output Market Through our direct sales and service organizations around the universe, we provide products and services directly to Fortune 1000 Graphic Arts and government, education and public sector customers. The ball-shaped product market is expected to grow to $ 96 billion in 2003 from $ 49 billion in 1999, an 18 percentage compound annual growth rate. growth in Production will be propelled by solid demand for digital color products ( expected to grow industrywide at a 20 percentage annual rate ) and professional services ( increasing 35 percentage per annum ). xerox products in this commercialize include monochromatic product print ( DocuTech ), production printing, color printing and product light-lens devices at speeds over 90 pages per moment. To capture these opportunities, we have identified color and services as two corporate strategic growth platforms. As discourse below, during 2000 we strengthened our market leadership with the introduction of the promote DocuTech 2000 and DocuColor 2000 cortege of products that combine industry-leading Web capabilities with flying, effective color and monochrome print. Black and White Production Publishing ( DocuTech ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Since we launched the earned run average of Production publishing with the presentation of our DocuTech Production Publishing family in 1990, we have installed more than 25,000 DocuTech systems cosmopolitan. Page 10 Digital production print technology is increasingly replace traditional short-run offset print as customers seek improved productiveness and cost savings, faster reversal of document readiness, and the ability to print and customize documents `` on demand. '' The market is substantial, as digital production print has less than 20 percentage of the available page volume that could be converted to this technology. We offer the widest roll of solutions available in the marketplace - from dial-up lines through the Internet to state- of-the-art networks - and we are committed to expanding these print-on-demand solutions as newfangled technology and applications are developed. The DocuTech family of digital production publishers scans hard copy and converts it into digital documents, or accepts digital documents directly from networked personal computers or workstations. DocuTech prints high-resolution ( 600 dots per column inch ) pages at speeds ranging from 65 to 180 impressions per moment and is supported by a full occupation of accessary products and options. Xerox is entirely in offering a complete kin of production publishing systems from 65 to 180 impressions per minute. In 2000, we introduced an 155 page per minute and an 115 page per moment DocuTech. The DocuTech 6115 provides a net migration path into the digital world by offering features for print on requirement, 1:1 commercialize and stagger then print. We besides introduced an enhanced adaptation of our DigiPath Production Software, a major productiveness tool, which allows a printer 's customers to use the Internet to streamline print job submission and subsequent archive, preparation, proof, and reprinting. This version adds more than 50 fresh features, including enhance Internet connectivity. In February 2001, we announced a new streamlined adaptation of DigiPath to offer an easy, low-cost room for print providers to enter the market. Production Printing - -- -- -- -- -- -- -- -- -- - xerox pioneered and continues to be a global drawing card in calculator laser print, which combines computer, laser, communications and xerographic technologies. We grocery store a broad pipeline of robust printers with speeds up to the diligence 's fastest cut-sheet printer at 180 pages per infinitesimal, and continuous-feed production printers at speeds up to 500 images per minute. many of these printers have coincident interfaces that can be connected to multiple horde computers a well as local area networks. Our goal is to integrate office, product and data-center computer printing into a single, seamless, user- friendly syndicate of production class printers. We introduced two new DocuPrint high-end printing systems and extra solutions and services in 2000 and early 2001. The new black-and-white print systems, the DocuPrint 115 and DocuPrint 155 Enterprise Printing Systems operate at speeds of 115 and 155 pages per minute, respectively. They offer large customers, such as data centers and in-plant print shops, higher photographic print speeds, advance organization integration and impression capabilities across the enterprise, from the central processing unit to the network. Breakthrough engineering in our foreground color printers including the DocuPrint 4850 and Docuprint 92C allows printing in an industry exclusive single authorize of black-and-white plus one customer-changeable color ( angstrom well as shades, tints, textures and mixtures of each ) at production speeds up to 90 pages per minute. Production Color Printing - -- -- -- -- -- -- -- -- -- -- -- -- - page 11 Digital color is one of the fastest growing segments of the Production market. The DocuColor 40, introduced in 1996, copies and prints at 40 full-color pages per minute and has been the industry 's fastest and most low-cost digital tinge text file output system. Since then we have expanded the production line into network and 30 page per moment versions. DocuColor 12, introduced in 1999, was selected as `` Product of the year '' for 2000 among PrintImage International 's membership of agile and small commercial printers. DocuColor 12, designed for professionals in graphic arts environments such as flying printers, commercial printers and in-plant corporate reprographics departments, produces 12.5 full-color pages and 50 black-and-white pages per moment. In February 2000, we introduced the DocuColor 2000 Series developed to provide high-volume on-demand printing, personalized printing, and printing and publication for e-commerce and Internet rescue. The DocuColor 2045 prints at 45 pages per infinitesimal. DocuColor 2060, which produces 60 full-color prints per minute, is the diligence 's fastest cut-sheet color reproduction machine, and both products establish an industry standard by producing near-offset quality, full- color prints at an unprecedented operate cost of less than 10 cents per page, depending on monthly volumes. The 1,900 DocuColor units sold in 2000 exceeded caller projections by 25 percentage. In May 2000 at Drupa 2000, a major industry trade show, we demonstrated our Futurecolor technology which is an advance next-generation digital print press with modular components which work together as a sophisticate print workshop. Utilizing patent imaging engineering enabling photographic quality end product identical from offset, this discovery engineering will produce one million pages/month at breakthrough operate costs. We expect initial customer date to begin in late 2001 and initial tax income producing installations beginning in the second half of 2002. Production Light-Lens Copying - -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Revenues from black and white light-lens output copiers continued to decline, as expected, as customers transition to fresh digital products and amid increase price pressures. position Market - -- -- -- -- -- -- - The Office grocery store is comprised of ball-shaped, national and mid-size commercial customers adenine well as government, department of education and other public sector customers. The ball-shaped office market is forecast to increase at a modest one percentage annual rate, to $ 43 billion in 2003 from $ 41 billion in 1999. Our strategy in the office is to offer our customers the `` best joyride for the subcontract '' including semblance everywhere. As part of our Turnaround Program we are outsourcing fabrication and moving more of our sales and service from direct to indirect channels. Our products and services include multi-function devices, networked and standalone sour group copiers, printers, and fax products sold through a assortment of direct sales and indirect channels. indirect channels include sales agents and concessionaires, retail and resellers, Internet sales and telebusiness offerings. Black and White Digital Multifunction Products - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Page 12 Our chief product line in this market is the Document Centre kin of modular, black and white digital multifunction products at speeds ranging from 20 to 75 pages per minute that are better quality, more authentic, and more feature of speech rich than light-lens copiers and priced at a humble premium over comparable light- lens copiers. This family was first introduced in 1997 and has been continually upgrade including six new models in the Document Centre 400 series in 2000. The network and fax options have compelling economics versus the alternative of purchasing comparable printers and faxes since the print engine, output signal mechanics and most of the software required are partially of the base digital duplicator. All of our Document Centre products have IP ( Internet Protocol ) addresses, which permits them to be accessed via the Internet from anywhere in the world. The proportion of Document Centre devices installed with net connectivity continued to grow, to over 50 percentage installed with network connectivity during 2000. As a result, approximately 45 percentage of the total install population of Document Centre products have network capability. We believe that enabling network connectivity and training our customers to optimize the office of these products will lead ultimately to incremental page growth. Color Copying and Printing - -- -- -- -- -- -- -- -- -- -- -- -- -- The use of color originals in the office is accelerating. While full office foliate book is expected to grow a meek 2 percentage, color pages are expected to grow at a compound pace of approximately 40 percentage through 2003. discolor is expected to represent 4 percentage of entire function pages and 19 percentage of office foliate gross by 2003. We 've had numerous recent discolor intersection introductions for the general position. In 1998, we introduced the DocuColor Office 6, a network color copier/printer for the office that operates at twice the speed of most background discolor laser printers at the price of a mid-volume black and white duplicator. In 1999 we introduced the Document Centre Series 50, the first color-enabled Document Centre that produces 12.5 full-color pages and 50 black-and-white pages per minute and includes a Xerox network restrainer built into every machine. The Document Centre Color Series 50 combines the advantages of a relatively low equipment price, the production of color pages at engage costs significantly lower than early color copier/printers in this class, and, unlike other color products, the operate price of producing black and white prints is alike to that of black and white digital products. Our impregnable number-two market share position in the network office color market reflects the January 2000 acquisition of the Color Printing and Imaging Division of Tektronix ( CPID ). This division manufactures and markets Phaser workgroup semblance printers that use either color laser or solid ink printing technology and markets a accomplished credit line of ink and related products and supplies. In January 2000, we introduced the Phaser 850 solid ink discolor printer, which prints true colors and livelier images than any color laser printer in its class, and at 14 pages per moment, is more than three times faster than similarly priced competitive models. We have launched nine award-winning Phaser products since acquiring Tektronix 's color printing and image clientele in January 2000. Most recently, on March 20, 2001 we launched the breakthrough 21 page per minute Phaser 2135 that is 3 times faster than the contest and more cost effective. Light-lens Copying - -- -- -- -- -- -- -- -- -- The refuse in light-lens duplicator revenues reflects customer Page 13 transition to new digital black-and-white products and increasing price pressures. We believe that the drift over the past few years will continue and that light-lens intersection revenues will represent a declining share of sum revenues. We expect that light-lens copiers will increasingly be replaced by digital copiers. however, some portions of the marketplace will continue to use light-lens copiers, such as customers who care chiefly about price or whose work processes do not require digital products. Black and White Laser Printers - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Our DocuPrint family of black and white net laser printers was originally launched in 1997 and presently includes models ranging from 8 to 45 pages per infinitesimal. These laser printers are faster, more advance and less expensive than competitive models, offering `` copier-like '' features such as multiple-set print, staple and collate. The Tektronix CPID acquisition accelerated our objective of increasing the number of resellers who commercialize our black and white laser printers. The skill more than doubled the number of distribution channel partners and closely doubled the distribution capacity and duct coverage to more than 16,000 resellers and dealers worldwide. SOHO ( Small Office/Home Office ) Market The SOHO market is expected to increase to $ 46 billion in 2003 from $ 41 billion in 1999, representing a 3 percentage compound annual increase pace. We service this market with personal and network products sold through expanded, indirect distribution channels such as Office Depot, OfficeMax, Staples, Micro Center, Fry 's and J & R in the United States and Carrefour, Media Market and Merisel in Europe. The fastest growing segment of the SOHO market is color inkjet. The Xerox M Series, which includes the DocuPrint M750 and M760 Color Inkjet Printers, are the first gear inkjet products to result from our SOHO Printing Alliance with Sharp Corporation and Fuji Xerox, which we announced in March 2000. The alliance with Fuji Xerox and Sharp leverages our potent sword and inkjet patent portfolio with Sharp 's product development and manufacture expertness and Fuji Xerox ' technological know-how. As part of our reversion plan, we are aggressively seeking equity partners for our inkjet business. other Products Page 14 We besides sell cut-sheet newspaper to our customers for use in their document work products. The market for cut-sheet newspaper is highly competitive and gross growth is importantly affected by pricing. Our strategy is to charge a gap over mill sweeping prices to cover our costs and value added as a distributor. In June 2000, we sold the U.S. and canadian commodity composition business, including an exclusive license for the Xerox mark, to Georgia Pacific Corporation. In addition to the proceeds from the sale of the occupation, the Company will receive royalty payments on future sales of Xerox branded commodity paper by Georgia Pacific and will earn commissions on Xerox originated sales of commodity paper as an agentive role for Georgia Pacific. As separate of our turnaround plan, we have announced that we are in discussions to form a strategic alliance for our european composition business. We besides offer other document work products including devices designed to reproduce large mastermind and architectural drawings up to 3 feet by 4 feet in size developed and sold through Xerox Engineering Systems ( XES ). We have announced our purpose to sell XES as depart of our turnaround design. Xerox Competitive Advantages Research and Development - -- -- -- -- -- -- -- -- -- -- -- -- investment in research and development ( R & D ) is critical to drive future emergence, and to this end Xerox R & D is directed toward the development of superior new products and capabilities in support of our document serve scheme. The finish of Xerox R & D is to continue to create disruptive technologies that will expand current and future markets. Our research scientists are deeply involved in the formulation of corporate strategy and key business decisions. They regularly meet with customers and have dialogues with our business divisions to ensure they understand customer requirements and are focused on products and solutions that can be commercialized. In 2000, R & D expense was $ 1,044 million compared with $ 992 million in 1999 and $ 1,035 million in 1998. 2000 R & D spend was focused primarily on programs to develop high-end clientele and on programs that extend our color capabilities. We continue to invest in technological exploitation to maintain our premier stead in the quickly changing document processing market with a intensify concentrate on increasing our R & D investment in rapid market growth areas such as color and high-end services and solutions, deoxyadenosine monophosphate well as time to market. FutureColor, an advance next-generation digital print press set for initial customer battle in late 2001 that produces photographic timbre identical from offset, is an exemplar of the type of breakthrough technologies developed by Xerox R & D that will drive our future emergence. Xerox R & D is strategically coordinated with Fuji Xerox, which invested $ 615 million in R & D in 2000 for a combine sum of $ 1.7 billion ; adequate to remain technologically competitive. marketing and Distribution - -- -- -- -- -- -- -- -- -- -- -- -- -- Xerox document process products are chiefly sold directly to customers by our global sales push, a source of competitive advantage, totaling approximately 15,000 employees, and through a net of autonomous agents, dealers, retail chains, value-added resellers and systems integrators. Our turnaround plan is focused on the expansion of cost-efficient third party distribution channels for dim-witted commodities, and the continued use of our conduct sales force for our customers ' more advanced product needs, capabilities and Page 15 solutions. To market laser and inkjet printers, digital multi-function devices and digital copiers, we are significantly expanding our indirect distribution channels. For our laser printer family we have arrangements with position information engineering ( IT ) diligence channels chiefly through distributors including Ingram Micro, Tech Data, CHS and Computer 2000. These distributors supply our products to a broad range of IT/IS-oriented Resellers, Dealers, lineal Marketers, VARs, Systems Integrators and E-Commerce Business-Oriented Resellers, such as CDW. We besides sell directly to some of these IT/IS-oriented Resellers ( 'Resellers ' ). furthermore, as a result of the skill of the Tektronix Computer Printing and Imaging Division, completed in January 2000, we have more than doubled the number of Reseller partners and frankincense closely doubled the distribution capability and channel coverage to more than 16,000 resellers cosmopolitan. In 2000, we besides forged marketing and reselling relationships with personal calculator leaders Compaq and Dell. For our inkjet and low-end digital multi-function products we presently have arrangements with U.S. retail market channels including Office Depot, OfficeMax, Staples, Micro Center, Fry 's and J & R, and non-U.S. retail market channels including Carrefour, Media Market and Merisel. Our products are now available in more than 7,000 storefronts global. In addition to web sites of several of our retail commercialize partners, we have arrangements with respective e- department of commerce network sites, including Amazon.com and CDW, for the sale of our equipment and supplies. We have continued to market copiers, facsimile machines and multi- routine products through a family of authoritative agency intersection dealers. Service - -- -- -- - We have a worldwide service force of approximately 21,000 employees and a network of autonomous overhaul agents. As partially of our turnaround plan, we intend to expand our use of cost-efficient third party serve providers for childlike commodity service, while continuing to focus Xerox 's own send overhaul force on production products and serving customers in want of more advance prize added services. In our opinion, this service coerce represents a significant competitive advantage : the service coerce is continually trained on our raw products and its diagnostic equipment is state-of-the-art. 24-hour-a-day, seven- day-a-week service is available in major metropolitan areas around the world. As a result, we are able to guarantee a consistent and superior flat of service nationally and worldwide. Customer Satisfaction - -- -- -- -- -- -- -- -- -- -- - Our most crucial precedence is customer gratification. Our inquiry shows that the cost of selling a refilling product to a meet customer is far less than selling to a `` new '' customer. We regularly survey customers on their satisfaction, measure the results, analyze the rout causes of dissatisfaction, and take steps to correct any problems. Our products, technology, services and solutions are designed with one goal in take care - to make our customers ' businesses more fat. Because of our stress on customer satisfaction, we offer a full Satisfaction Guarantee, one of the simplest and most comprehensive examination offered in any diligence : '' If you are not satisfied with our equipment, we will replace it without charge with an identical model or a machine with comparable features and capabilities. '' This guarantee applies for at least three years to equipment acquired from and endlessly maintained by Xerox or its authorize agents. Page 16 International Operations - -- -- -- -- -- -- -- -- -- -- -- -- Our international operations account for 44 percentage of revenues. Our largest sake outside the United States is Xerox Limited which operates predominately in Europe. market and manufacture in Latin America are conducted through subsidiaries or distributors in over 35 countries. Fuji Xerox develops, manufactures and distributes document process products in Japan and early areas of the Pacific Rim, Australia and New Zealand and nowadays China. Our fiscal results by geographic area for 2000, 1999 and 1998, which are presented on page -- of the Company 's 2000 annual Report to Shareholders are hereby incorporated by reference point in this text file in partial solution to this item. detail 2. Properties -- -- -- -- -- The Company owns a total of fourteen chief manufacture and technology facilities and leases an extra such facility. The domestic facilities are located in California, New York, Oklahoma, and Oregon and the international facilities are located in Brazil, Canada, England, Ireland, Holland, Mexico, and India. The Company besides has four principal research facilities ; two are owned facilities in New York and Canada, and two are leased facilities in California and France. In addition, within the Company, there are numerous facilities, which encompass general offices, sales offices, service locations and distribution centers. The principal owned facilities are located in the United States, England, and Mexico. The principal leased facilities are located in the United States, Brazil, Canada, England, Mexico, France, Germany and Italy. The Company 's Corporate Headquarters facility, located in Connecticut, is leased ; the relate country is owned by the Company. In 2001 the Company announced its purpose to move out of this facility and to dispose of the underlie land. The Company besides leases a helping of a train facility, located in Virginia, which was previously owned by the Company. In connection with our leverage of the Color Printing and Imaging division of Tektronix, Inc. ( CPID ), the Company acquired a count of facilities that encompass presidency, fabricate, distribution centers, general offices, sales offices and service locations. The principal government and manufacture facilities, which are owned, are located in the United States ( Wilsonville, OR ) and Malaysia ( Penang ). The principal distribution facilities are located in Wilsonville and the Netherlands ( Heerenveen ). The facility in the Netherlands is leased. The remaining facilities acquired are leased and are located chiefly in the United States, England and Canada. In the impression of Xerox management, its properties have been well maintained, are in healthy operating condition and contain all the necessary equipment and facilities to perform the Company 's functions. detail 3. legal Proceedings -- -- -- -- -- -- -- -- - The information set forth under Note 16 `` Litigation '' on pages 40 through 43 of the Company 's 2000 annual Report to Shareholders is hereby incorporated by address in this document in answer to this item. Page 17 detail 4. submission of Matters to a vote of Security Holders -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - none. PART II Item 5. market for the Registrant 's Common Equity and Related Stockholder -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Matters -- -- -- - market Information, Holders and Dividends - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - The information set forth under the succeed captions on the indicate pages of the Company 's 2000 annual Report to Shareholders is hereby incorporated by reference point in this document in answer to this detail : Caption Page No. -- -- -- - -- -- -- -- Stock Listed and Traded 53 Xerox Common Stock Prices and Dividends 53 Five Years in Review - coarse Shareholders of record at Year-End 50 Recent Sales of Unregistered Securities - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - During the quarter ended December 31, 2000, Registrant issued the following securities in transactions which were not registered under the Securities Act of Page 18 1933, as amended ( the Act ) : ( a ) Securities Sold : On October 1, 2000, Registrant issued 21,843 shares of Common stock, par value $ 1 per share. ( b ) No underwriters participated. The shares were issued to each of the non- employee Directors of Registrant : B.R. Inman, A.A. Johnson, V.E. Jordan, Jr., Y. Kobayashi, H. Kopper, R.S. Larsen, G.J. Mitchell, N.J. Nicholas, Jr., J.E. Pepper, P.F. Russo, M.R. Seger and T.C.Theobald. ( hundred ) The shares were issued at a deem leverage price of $ 4.63 per contribution ( aggregate price $ 101,125 ), based upon the market value on the date of issue, in payment of the quarterly Directors ' fees pursuant to Registrant 's Restricted Stock Plan for Directors. ( five hundred ) exemption from registration under the Act was claimed based upon Section 4 ( 2 ) as a sale by an issuer not involving a public offer. item 6. Selected Financial Data -- -- -- -- -- -- -- -- -- -- -- - The come information, as of and for the five years ended December 31, 2000, as set forth and included under the caption `` Five Years in Review '' on page 50 of the Company 's 2000 annual Report to Shareholders, is hereby incorporated by reference in this document in answer to this item : tax income Income ( personnel casualty ) from continuing operations Per-Share Data - Earnings ( loss ) from continuing operations total assets long-run debt Preferred stock Per-Share Data - Dividends declared Item 7. Management 's Discussion and Analysis of Financial Condition and -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Results of Operations -- -- -- -- -- -- -- -- -- -- - The information set forth under the caption `` Management 's Discussion and Analysis of Results of Operations and Financial Condition '' on pages 1 through 15 of the Company 's 2000 annual Report to Shareholders is hereby incorporated by reference in this document in answer to this Item. Item 7A. quantitative and qualitative Disclosures About Market Risk -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- The information set away under the caption `` Risk Management '' on pages 14 and 15 of the Company 's 2000 annual Report to Shareholders is hereby incorporated by reference book in this text file in answer to this Item. Item 8. fiscal Statements and Supplementary Data -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - The consolidated fiscal statements of Xerox Corporation and subsidiaries and the notes thereto and the report thereon of KPMG LLP, freelancer auditors, which appear on pages 16 through 48 and page 49 of the Company 's 2000 annual Report to Shareholders, are hereby incorporated by character in this document in answer to this Item. In addition, besides included is the quarterly fiscal data included under the subtitle `` quarterly Results of Operations ( Unaudited ) '' on page 48 of the Company 's 2000 annual Report to Shareholders. foliate 19 The fiscal statement schedule required herein is filed as `` Financial Statement Schedules '' pursuant to Item 14 of this Report on Form 10-K. item 9. Changes in and Disagreements with Accountants on Accounting and -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - fiscal disclosure -- -- -- -- -- -- -- -- -- -- not applicable. Page 20 separate III - -- -- -- -- The information contained in Exhibit 99 to this Form 10-K is hereby incorporated herein in reply to this region. executive Officers of Xerox - -- -- -- -- -- -- -- -- -- -- -- -- -- - The following is a list of the executive officers of Xerox, their stream ages, their present positions and the year appointed to their present positions. Anne M. Mulcahy, President and Thomas J. Dolan, Senior Vice President, are sister and brother. There are no other family relationships between any of the executive officers named. Each military officer is elected to hold office until the meet of the Board of Directors held on the day of the adjacent annual confluence of shareholders, subject to the provisions of the By-Laws. year Appointed to Present Officer Name Age Present Position Position Since_ - -- -- -- -- -- -- -- -- -- - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- -- -- - Paul A. Allaire* 62 Chairman of the Board and 1991 1983 Chief Executive Officer Anne M. Mulcahy* 48 President and 2000 1992 Chief Operating Officer Barry D. Romeril* 57 Vice Chairman and 1999 1993 Chief Financial Officer Allan E. Dugan 60 Executive Vice President 2000 1990 President, Worldwide Business Services Carlos Pascual 55 Executive Vice President 2000 1994 President, Developing Markets Operations Thomas J. Dolan 56 Senior Vice President 2000 1997 President Global Solutions Group James A. Firestone 46 Senior Vice President 2000 1998 Corporate Strategy and Marketing Group Herve J. Gallaire 56 Senior Vice President 2000 1997 Xerox Research and Technology and Chief Technical Officer Michael C. Mac Donald 46 Senior Vice President 2000 1997 President, North American Solutions Group Page 21 * Member of Xerox Board of Directors. Page 22 executive Officers of Xerox, Continued class Appointed to Present Officer Name Age Present Position Position Since_ - -- -- -- -- -- -- -- -- -- - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- -- -- - Hector J. Motroni 57 Senior Vice President and 1999 1994 head Staff Officer Christina E. Clayton 53 Vice President and 2000 2000 General Counsel Eunice M. Filter 60 Vice President, Treasurer 1990 1984 and Secretary Jean-Noel Machon 48 Vice President 2000 2000 President, European Solutions Group Gregory B. Tayler 43 Vice President and Controller 2000 2000 Each officeholder named above, with the exception of James A. Firestone, has been an military officer or an administrator of Xerox or its subsidiaries for at least the past five years. anterior to joining Xerox in 1998, Mr. Firestone had been with International Business Machines ( IBM ) where he was General Manager, Consumer Division from 1995 to 1998. He was President, Consumer Services at Ameritech Corporation from 1993 to 1995. Prior to this he was with American Express Company where he was President, Travelers Cheques in 1993, Executive Vice President, Small Business and Corporate Services from 1989 to 1993, President, Travel Related Services- Japan from 1984 to 1989, Vice President, Finance and Planning, Travel Related Services-Japan from 1982 to 1984 and he held versatile other positions at American Express in Japan and at their headquarters from 1978 to 1982. Page 23 part IV - -- -- -- - item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ( a ) ( 1 ) and ( 2 ) The fiscal statements, independent auditors ' reports and Item 8 fiscal statement schedules being filed hereby or incorporated herein by reference are set forth in the Index to Financial Statements and Schedule included herein. ( 3 ) The exhibits filed hereby or incorporated herein by reference are set forth in the Index of Exhibits included herein. ( barn ) Current Reports on Form 8-K dated October 2, 2000, October 9, 2000, October 24, 2000, October 31, 2000, November 3, 2000, December 1, 2000, December 14, 2000 and December 21, 2000 reporting Item 5 `` early Events '' were filed during the last quarter of the period covered by this Report. ( coke ) The management contracts or compensatory plans or arrangements listed in the Index of Exhibits that are applicable to the executive officers named in the Summary Compensation Table which appears in Registrant 's 2000 Proxy Statement are preceded by an star ( * ). Page 24 pursuant to the requirements of Section 13 or 15 ( vitamin d ) of the Securities Exchange Act of 1934, the registrant has punctually caused this report to be signed on its behalf by the undersign, thereunto punctually authorized. xerox pot By : /s/ Barry D. Romeril -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Vice Chairman and Chief Financial Officer June 7, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the adopt persons on behalf of the registrant and in the capacities and on the date indicated. June 7, 2001 Signature Title -- -- -- -- - -- -- - principal executive military officer : Paul A. Allaire /s/ Paul A. Allaire -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - foreman Executive Officer and Director Principal Financial Officer : Barry D. Romeril /s/ Barry D. Romeril -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Vice Chairman and Chief Financial Officer and Director Principal Accounting Officer : Gregory B. Tayler /s/ Gregory B. Tayler -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Vice President and Controller Page 25 Directors : /s/ Antonia Ax : son Johnson Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ Vernon E. Jordan, Jr. Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ Yotaro Kobayashi Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ Hilmar Kopper Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ Ralph S. Larsen Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ George J. Mitchell Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ Anne M. Mulcahy Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ N. J. Nicholas, Jr. Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ John E. Pepper Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ Martha R. Seger Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /s/ Thomas C. Theobald Director - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Page 26 Report of Independent Auditors To the Board of Directors of Xerox Corporation : Under date of May 30, 2001, we reported on the consolidate balance sheets of Xerox Corporation and consolidate subsidiaries ( the `` Company '' ) as of December 31, 2000 and December 31, 1999, and the relate consolidate statements of operations, cash flows, and stockholder 's equity for each of the years in the three year period ended December 31, 2000, which are included in the accompanying fiscal statements. In connection with our audits of the aforementioned consolidate fiscal statements, we besides audited the relate amalgamate fiscal statement schedule listed in the accompanying index. This amalgamate fiscal argument agenda is the duty of the Company 's management. Our province is to express an opinion on this consolidate fiscal argument schedule based on our audits. Our audit reputation on the Company 's consolidate fiscal statements referred to above indicates that the consolidate symmetry plane as of December 31, 1999, and the related consolidate statements of operations, cash flows, and stockholder 's equity for the years ended December 31, 1999, and December 31, 1998 have been restated. Our audited account report besides indicates that the auxiliary quarterly fiscal data included in the Company 's consolidate fiscal statements contains information that we did not audit, and accordingly, we do not express an opinion on that information. We did not have an adequate basis to complete reviews of quarterly information in accord with standards established by the American Institute of Certified Public Accountants due to matters related to the restatement issues as described in Note 2 to the consolidate fiscal statements. In our opinion, such fiscal statement schedule, when considered in relation back to the basic Consolidated Financial Statements as a whole, presents reasonably in all material aspects the information set forth therein. /s/ KPMG LLP Stamford, Connecticut May 30, 2001 index to Financial Statements and Schedule Financial Statements : consolidated statements of operations of Xerox Corporation and subsidiaries for each of the years in the three-year menstruation ended December 31, 2000 Consolidated balance sheets of Xerox Corporation and subsidiaries as of December 31, 2000 and 1999 consolidate statements of cash flows of Xerox Corporation and subsidiaries for each of the years in the three-year period ended December 31, 2000 consolidate statements of shareholders ' equity of Xerox Corporation and subsidiaries for each of the years in the three-year menstruation ended December 31, 2000 Notes to consolidate fiscal statements report of Independent Auditors Quarterly Results of Operations ( unaudited ) Commercial and Industrial ( Article 5 ) schedule : II - evaluation and qualifying accounts All other schedules are omitted as they are not applicable, or the information required is included in the fiscal statements or notes thereto. Page 28 SCHEDULE II Valuation and Qualifying Accounts Year ended December 31, 2000, 1999 and 1998 Additions Balance at charged to Deductions, Balance get down costs and net of at end ( in millions ) of period expenses recoveries of menstruation - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 2000 - -- -- allowance for Losses on : Accounts receivable $ 137 $ 291 $ 146 $ 282 Finance Receivables 423 356 329 450 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 560 $ 647 $ 475 $ 732 ============================================ 1999 - -- -- allowance for Losses on : Accounts receivable $ 102 $ 168 $ 133 $ 137 Finance Receivables 441 238 256 423 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 543 $ 406 $ 389 $ 560 ============================================ 1998 - -- -- allowance for Losses on : Accounts receivable $ 92 $ 78 $ 68 $ 102 Finance Receivables 389 225 173 441 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 481 $ 303 $ 241 $ 543 ============================================ Page 29 index of Exhibits Document and Location - -- -- -- -- -- -- -- -- -- -- - ( 3 ) ( a ) Restated Certificate of Incorporation of Registrant filed by the Department of State of New York on October 29, 1996, as amended by Certificate of Amendment of the Certificate of Incorporation of Registrant filed by the Department of State of New York on May 21, 1999. Incorporated by reference to Exhibit 3 ( a ) to Amendment No. 5 to Registrant 's Form 8-A Registration Statement dated February 8, 2000. ( bel ) By-Laws of Registrant, as amended through April 9, 2001. ( 4 ) ( a ) ( 1 ) indentation dated as of December 1, 1991, between Registrant and Citibank, N.A., relating to outright amounts of debt securities which may be issued from fourth dimension to time by Registrant when and as authorized by or pursuant to a resoluteness of Registrant's Board of Directors ( the `` December 1991 Indenture '' ). Incorporated by address to Exhibit 4 ( a ) to Registration Nos. 33-44597, 33-49177 and 33-54629. ( 2 ) instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among Registrant, Citibank, N.A., as resigning regent, and Wilmington Trust Company, as successor regent, relating to the December 1991 Indenture. ( b ) ( 1 ) indenture dated as of September 20, 1996, between Registrant and Citibank, N.A., relating to inexhaustible amounts of debt securities which may be issued from time to time by Registrant when and as authorized by or pursuant to a resolving power of Registrant's Board of Directors ( the `` September 1996 Indenture '' ). Incorporated by character to Exhibit 4 ( a ) to Registration Statement No. 333-13179. ( 2 ) instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among Registrant, Citibank, N.A., as resigning regent, and Wilmington Trust Company, as successor regent, relating to the September 1996 Indenture. ( c ) ( 1 ) indentation dated as of January 29, 1997, between Registrant and Bank One, National Association ( as successor by fusion with The First National Bank of Chicago ) ( `` Bank One '' ), ( the `` January 1997 Indenture '' ), relating to Registrant 's Junior Subordinated Deferrable interest Debentures ( `` Junior Subordinated Debentures '' ). Incorporated by mention to Exhibit 4.1 to Registration Statement No. 333-24193. ( 2 ) form of Certificate of Exchange relating to Junior Subordinated Debentures. Incorporated by reference point to Exhibit A to Exhibit 4.1 to Registration Statement No. 333-24193. ( 3 ) certificate of Trust of Xerox Capital Trust I executed as of January 23, 1997. Incorporated by citation to Exhibit 4.3 to Registration Statement No. 333-24193. ( 4 ) Amended and Restated Declaration of Trust of Xerox Capital Trust I dated as of January 29, 1997. Incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-24193. ( 5 ) Form of Exchange Capital Security Certificate for Xerox Capital Trust I. Incorporated by address to Exhibit A-1 to Exhibit 4.4 to Registration Statement No. 333-24193. ( 6 ) Series A Capital Securities Guarantee Agreement of Registrant dated as of January 29, 1997, relating to Series A Capital Securities of Xerox Capital Trust I. Incorporated by address to Exhibit 4.6 to Registration Statement No. 333-24193. ( 7 ) registration Rights Agreement dated January 29, 1997, among Registrant, Xerox Capital Trust I and the initial purchasers named therein. Incorporated by reference to Exhibit 4.7 to Registration Statement No. 333-24193. ( d ) ( 1 ) indenture dated as of October 1, 1997, among Registrant, Xerox Overseas Holding Limited ( once Xerox Overseas Holding PLC ), Xerox Capital ( Europe ) plc ( once Rank Xerox Capital ( Europe ) plc ) and Citibank, N.A., relating to inexhaustible amounts of debt securities which may be issued from meter to clock by Registrant and outright amounts of guarantee debt securities which may be issued from clock to time by the other issuers when and as authorized by or pursuant to a resoluteness or resolutions of the Board of Directors of Registrant or the other issuers, as applicable ( the `` October 1997 Indenture '' ). Incorporated by citation to Exhibit 4 ( barn ) to Registration Statement Nos. 333-34333, 333-34333-01 and 333-34333-02. ( 2 ) instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among Registrant, the other issuers under the October 1997 Indenture, Citibank, N.A., as resigning regent, and Wilmington Trust Company, as successor trustee, relating to the October 1997 Indenture. ( e ) indenture dated as of April 21, 1998, between Registrant and Bank One, relating to $ 1,012,198,000 principal sum at adulthood of Registrant 's convertible subordinate Debentures due 2018 ( the `` April 1998 Indenture '' ). Incorporated by reference point to Exhibit 4 ( b-complex vitamin ) to Registration Statement No. 333-59355. ( f ) indentation dated as of March 1, 1988, as supplemented by the First Supplemental Indenture dated as of July 1, 1988, between Xerox Credit Corporation ( `` XCC '' ) and Bank One, relating to unlimited amounts of debt securities which may be issued from time to time by XCC when and as authorized by XCC 's Board of Directors or the Executive Committee of the Board of Directors. Incorporated by mention to Exhibit 4 ( a ) to XCC 's Registration Statement No. 33-20640 and to Exhibit 4 ( a ) ( 2 ) to XCC 's Current Report on Form 8-K dated July 13, 1988. ( thousand ) indenture dated as of October 2, 1995, between XCC and State Street Bank and Trust Company ( `` State Street '' ), relating to inexhaustible amounts of debt securities which may be issued from time to time by XCC when and as authorized by XCC 's Board of Directors or Executive Committee of the Board of Directors. Incorporated by reference to Exhibit 4 ( a ) to XCC 's Registration Statement Nos. 33-61481 and 333-29677. ( planck's constant ) ( 1 ) indenture dated as of April 1, 1999, between XCC and Citibank, N.A., relating to inexhaustible amounts of debt securities which may be issued from time to prison term by XCC when and as authorized by XCC 's Board of Directors or Executive Committee of the Board of Directors ( the `` April 1999 XCC Indenture '' ). Incorporated by reference to Exhibit 4 ( a ) to XCC 's Registration Statement No. 33-61481. ( 2 ) instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among XCC, Citibank, N.A., as resigning trustee, and Wilmington Trust Company, as successor regent, relating to the April 1999 XCC Indenture. ( i ) $ 7,000,000,000 Revolving Credit Agreement dated October 22, 1997, among Registrant, XCC and sealed Overseas Borrowers, as Borrowers, respective lenders and Morgan Guaranty Trust Company of New York, The Chase Manhattan Bank, Citibank, N.A. and Bank One, as Agents. Incorporated by character to Exhibit 4 ( h ) to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000. ( j ) Instruments with deference to long-run debt where the sum sum of securities authorized thereunder does not exceed 10 % of the sum assets of Registrant and its subsidiaries on a consolidate footing have not been filed. registrant agrees to furnish to the Commission a transcript of each such instrumental role upon request. ( 10 ) The management contracts or compensatory plans or arrangements listed below that are applicable to the executive officers named in the Summary Compensation Table which appears in Registrant's 2001 Proxy Statement are preceded by an star ( * ). * ( a ) registrant 's 1976 Executive Long-Term Incentive Plan, as amended through February 4, 1991. Incorporated by reference to Exhibit ( 10 ) ( a ) to Registrant's Annual Report on Form 10-K for the year Ended December 31, 1991. * ( b-complex vitamin ) Registrant 's 1991 long-run Incentive design, as amended through October 9, 2000. ( c ) Registrant 's 1996 Non-Employee Director Stock Option Plan, as amended through May 20, 1999. Incorporated by reference to Registrant 's Notice of the 1999 Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A. * ( five hundred ) description of Registrant 's annual Performance Incentive Plan. * ( vitamin e ) 1997 Restatement of Registrant 's Unfunded Retirement Income Guarantee Plan, as amended through October 9, 2000. * ( farad ) 1997 Restatement of Registrant 's Unfunded Supplemental Retirement Plan, as amended through October 9, 2000. ( g ) Registrant 's 1981 Deferred Compensation Plan, 1985 Restatement, as amended through April 2, 1990. Incorporated by reference to Exhibit 10 ( heat content ) to Registrant's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1990. ( heat content ) 1996 Amendment and Restatement of Registrant 's Restricted Stock Plan for Directors. Incorporated by character to Registrant 's Notice of the 1996 Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A. * ( iodine ) ( 1 ) form of rupture agreement entered into with diverse executive officers. Incorporated by reference to Exhibit 10 ( joule ) to Registrant's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1989. * ( 2 ) imprint of rupture agreement entered into with respective executive officers, effective October 15, 2000. * ( joule ) Registrant 's Contributory Life Insurance Program, deoxyadenosine monophosphate amended as of January 1, 1999. Incorporated by reference book to Exhibit 10 ( j ) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1999. ( kelvin ) Registrant 's Deferred Compensation Plan for Directors, 1997 Amendment and Restatement, as amended through October 9, 2000. * ( l ) Registrant 's Deferred Compensation Plan for Executives, 1997 Amendment and Restatement, as amended through October 9, 2000. * ( thousand ) executive Performance Incentive Plan. Incorporated by reference book to Registrant 's Notice of the 1995 Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A. * ( normality ) Registrant 's 1998 Employee Stock Option Plan, as amended through October 9, 2000. * ( o ) Registrant 's CEO Challenge Bonus Program. * ( phosphorus ) Letter Agreement dated December 4, 2000 between Registrant and William F. Buehler, Vice Chairman of Registrant. * ( q ) Separation Agreement dated May 11, 2000 between Registrant and G. Richard Thoman, former President and Chief Executive Officer of Registrant. Incorporated by reference point to Exhibit 10 ( phosphorus ) to Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2000. * ( radius ) Letter Agreement dated June 4, 1997 between Registrant and G. Richard Thoman, former President and Chief Executive Officer of Registrant. Incorporated by reference to Exhibit 10 ( m ) to Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997. * ( s ) Letter Agreement dated April 2, 2001 between Registrant and Carlos Pascual, Executive Vice President of Registrant. ( 11 ) Statement ra calculation of per share earnings. ( 12 ) calculation of Ratio of Earnings to Fixed charges. ( 13 ) registrant 's 2001 annual Report to Shareholders. ( 21 ) Subsidiaries of Registrant. ( 23 ) consent of KPMG LLP. ( 99 ) Directors and Officers Information .
 parade 3 ( bel ) BY-LAWS of XEROX CORPORATION April 9, 2001 article I MEETINGS OF STOCKHOLDERS SECTION 1. annual Meetings : A meeting of shareholders entitled to vote shall be held for the election of Directors and the transaction of other business each year in such calendar month and on such day ( except a Saturday, Sunday, or holiday ) as determined by the Board of Directors. section 2. special Meetings : extra Meetings of the shareholders may be called at any clock by the Chairman of the Board, the President or the Board of Directors. incision 3. rate of Meetings : Meetings of shareholders shall be held at the principal office of the party or at such early place, within or without the State of New York, as may be fixed by the Board of Directors. section 4. comment of Meetings : ( a ) Notice of each meet of shareholders shall be in write and shall department of state the place, date and hour of the meeting. Notice of a particular Meeting shall state the determination or purposes for which it is being called and shall besides indicate that it is being issued by or at the direction of the person or persons calling the meet. If, at any touch, action is proposed to be taken which would, if taken, entitle shareholders, fulfilling the requirements of Section 623 of the Business Corporation Law to receive requital for their shares, the comment of such meet shall include a statement of that determination and to that effect. ( b ) A transcript of the notice of any touch shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meet, to each stockholder entitled to vote at such suffer. If mailed, such detect is given when deposited in the United States mail, with postage thereon postpaid, directed to the stockholder at his or her address as it appears on the record of shareholders, or, if he or she shall have filed with the Secretary a written request that notices to him or her be mailed to some other address, then directed to him or her at such other savoir-faire. ( hundred ) Notice of meeting need not be given to any stockholder who submits a bless release of detect, in person or by proxy, whether before or after the meet. The attendance of any stockholder at a confluence, in person or by proxy, without protesting anterior to the ending of the meeting the miss of notice of such meet, shall constitute a release of detect by him or her. section 5. quorum and adjourn Meetings : ( a ) At any Annual or special Meeting the holders of a majority of the votes of shares entitled to vote thereat, salute in person or by proxy, shall constitute a quorum for the transaction of any business, provided that when a specify item of business is required to be voted on by a class or series, voting as a class, the holders of a majority of the votes of shares of such class or series shall constitute a quorum for the transaction of such specify item of business. When a quorum is once present to organize a meet, it is not broken by the subsequent withdrawal of any shareholders. ( barn ) Despite the absence of a quorum, the shareholders present may adjourn the meet to another time and stead, and it shall not be necessary to give any notice of the adjourn meet if the fourth dimension and rate to which the touch is adjourned are announced at the meeting at which the adjournment is taken. At the adjourn meeting any business may be transacted that might have been transacted on the original date of the meeting. If after the adjournment, however, the Board of Directors fixes a newly commemorate date for the adjourn meeting, a notice of the adjourn meet shall be given to each stockholder on the newly record date entitled to notice under Section 4 of this Article I of the By-Laws. section 6. Nominations and Business at Meetings : At any annual meet of shareholders, only persons who are nominated or business which is proposed in accordance with the procedures set forth in this section 6 shall be eligible for election as Directors or considered for carry through by shareholders. Nominations of persons for election to the Board of Directors of the Company may be made or business proposed at a meet of shareholders ( one ) by or at the direction of the Board of Directors or ( two ) by any stockholder of the Company entitled to vote at the meet who complies with the notification and other procedures set forth in this section 6. such nominations or business proposals, early than those made by or at the focus of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Company and such business proposals must, under applicable law, be a proper matter for stockholder action. To be timely, a stockholder 's notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than 120 days nor more than 150 days in progress of the date which is the anniversary of the date the Company 's proxy argument was released to security holders in connection with the previous class 's annual meet or if the date of the applicable annual confluence has been changed by more than 30 days from the date contemplated at the meter of the previous class 's proxy statement, not less than 90 days before the date of the applicable annual meet. such stockholder 's notice shall set away ( a ) as to each person whom such stockholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is differently required, in each encase pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended ( including such person 's written accept to being named in the proxy statement as a campaigner and to serving as a Director if elected ) ; ( b ) as to any other business that the stockholder proposes to bring before the meet, a brief description of the clientele desired to be brought before the annual meeting, the reasons for conducting such business at the annual meet and any material interest in such business of such person on whose behalf such marriage proposal is made ; and ( degree centigrade ) as to the stockholder giving the comment and the beneficial owner, if any, on whose behalf the nominating speech or proposal is made, ( i ) the list and address of such stockholder, as they appear on the Company's books and ( two ) the class and number of shares of the Company which are beneficially owned by such stockholder. No person shall be eligible for election as a Director of the Company and no occupation shall be conducted at the annual converge of shareholders unless nominated or proposed in accord with the procedures set forth in this section 6. The Chairman of the meeting may, if the facts warrant, determine and declare to the meet that a nomination or marriage proposal was not made in accord with the provisions of this department 6 and, if he or she should so determine, he or she shall therefore declare to the meeting and the bad nomination or proposal shall be disregarded. section 7. organization : At every meeting of the shareholders, the Chairman of the Board, or in his or her absence if the President is a Director, the President, or if the President is not a director or is absent, a Vice Chairman, or in the absence of such officers, an Executive Vice President designated by the Chairman of the Board, or in the absence of such officers, a person selected by the meeting, shall act as chair of the meet. The Secretary or, in his or her absence, an Assistant Secretary shall act as repository of the suffer, and in the absence of both the Secretary and an Assistant Secretary, a person selected by the meet shall act as repository of the meeting. section 8. vote : ( a ) Whenever any corporate action, other than the election of Directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by law or by the Certificate of Incorporation be authorized by a majority of the votes cast in favor of or against such action at a meeting of shareholders by the holders of shares entitled to vote thereon. An abstinence shall not constitute a vote form. ( bacillus ) Directors shall, except as otherwise required by law, be elected by a plurality of the votes cast at a meeting of shareholders by holders of shares entitled to vote in the election. section 9. qualification of Voters : ( a ) Every stockholder of record of Common Stock and Series B Convertible Preferred Stock of the Company shall be entitled at every meeting of such shareholders to one vote for every partake of Common Stock and Series B Convertible Preferred Stock, respectively, standing in his or her name on the criminal record of shareholders. ( b ) Shares of stock belong to the Company and shares held by another domestic or foreign pot of any type or kind, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the party, shall not be shares entitled to vote or to be counted in determining the sum number of outstanding shares. ( hundred ) Shares held by an administrator, executor, defender, conservator, committee, or other fiduciary, except a regent, may be voted by him or her, either in person or by proxy, without transfer of such shares into his or her identify. Shares held by a trustee may be voted by him or her, either in person or by proxy, only after the shares have been transferred into his or her name as regent or into the name of his or her campaigner. ( five hundred ) Shares standing in the name of another domestic or foreign pot of any type or kind may be voted by such policeman, agent or proxy as the By-Laws of such pot may provide, or in the absence of such provision, as the Board of Directors of such pot may provide. section 10. Proxies : ( a ) Every stockholder entitled to vote at a meeting of shareholders or to express consent or protest without a merging may authorize another person or persons to act for him or her by proxy. ( barn ) No proxy shall be valid after the termination of eleven months from the date thereof unless differently provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except as otherwise provided by law. ( deoxycytidine monophosphate ) The agency of the holder of a proxy to act shall not be revoked by the incompetence or death of the stockholder who executed the proxy unless, before the agency is exercised, written notification of an adjudication of such incompetence or of such death is received by the Secretary or an Assistant Secretary. ( five hundred ) Without limiting the manner in which a stockholder may authorize another person or persons to act for him or her as proxy pursuant to paragraph ( a ) of this section, the following shall constitute a valid means by which a stockholder may grant such agency : ( 1 ) A stockholder may execute a write authorizing another person or persons to act for him or her as proxy. execution may be accomplished by the stockholder or the stockholder 's authoritative military officer, director, employee or agent sign such write or causing his or her key signature to be affixed to such write by any reasonable means including, but not limited to, by fax signature. ( 2 ) A stockholder may authorize another person or persons to act for the stockholder as proxy by transmitting or authorizing the transmission of a telegram, cable or early means of electronic transmittance to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy documentation service organization or like agentive role punctually authorized by the person who will be the holder of the proxy to receive such transmission, provided that such telegram, cable or early means of electronic transmission must either set forth or be submitted with data from which it can be reasonably determined that the telegram, cable or other electronic infection was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors shall specify the nature of the data upon which they relied. ( vitamin e ) Any replicate, facsimile telecommunication or early authentic reproduction of the write or infection created pursuant to paragraph ( d ) of this section may be substituted or used in stead of the original writing or transmittance for any and all purposes for which the original write or infection could be used, provided that such copy, fax, telecommunication or other reproduction shall be a complete reproduction of the integral original write or infection. segment 11. Inspectors of election : ( a ) The Board of Directors, in advance of any shareholders ' meet, shall appoint one or more inspectors to act at the meeting or any adjournment thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any examiner who fails to act. If no examiner or alternate has been appointed, or if such persons are unable to act at a meet of shareholders, the person presiding at a shareholders ' touch shall appoint one or more inspectors. Each inspector, before entering upon the free of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meet with rigid impartiality and according to the best of his or her ability. ( bacillus ) The inspectors shall determine the total of shares great and the voting world power of each, the shares represented at the meet, the being of a quorum, the robustness and effect of proxies, and shall receive votes, ballots or consents, listen and determine all challenges and questions arising in connection with the correct to vote, count and tabulate all votes, ballots or consents, determine the solution, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the touch or any stockholder entitled to vote thereat, the inspectors shall make a composition in writing of any challenge, wonder or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie tell of the facts stated and of the right to vote as certified by them. department 12. tilt of Shareholders at Meetings : A list of shareholders as of the phonograph record date, certified by the Secretary or by the transportation agent, shall be produced at any merging of shareholders upon the request thereat or prior thereto of any stockholder. If the right field to vote at any meeting is challenged, the inspectors of election, or person presiding thereat shall require such tilt of shareholders to be produced as evidence of the right of the persons challenged to vote at such touch, and all persons who appear from such tilt to be shareholders entitled to vote thereat may vote at such meeting. ARTICLE II BOARD OF DIRECTORS SECTION 1. power of Board and Qualification of Directors : The occupation of the Company shall be managed under the commission of the Board of Directors, each of whom shall be at least eighteen years of age. section 2. Number, Term of Office and Classification : ( a ) The Board of Directors shall consist of not less than five nor more than twenty-one members. The number of Directors shall be determined from prison term to time by settlement of a majority of the entire Board of Directors then in agency, provided that no decrease in the count of Directors shall shorten the term of any incumbent Director. At each Annual Meeting of shareholders Directors shall be elected to hold office until the next annual confluence. ( b ) If and whenever six wide quarter-yearly dividends ( whether or not back-to-back ) account payable on the Cumulative Preferred Stock of any series shall be in arrears, in whole or in separate, the number of Directors then constituting the Board of Directors shall be increased by two and the holders of the Cumulative Preferred Stock, voting individually as a class, careless of series, shall be entitled to elect the two extra Directors at any annual meet of shareholders or special meet held in target thereof, or at a special meet of the holders of the Cumulative Preferred Stock called as hereinafter provided. Whenever all arrears in dividends on the Cumulative Preferred Stock then outstanding shall have been paid and dividends thereon for the current quarter-yearly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Cumulative Preferred Stock to elect such extra two Directors shall cease ( but subject always to the lapp provisions for the vest of such vote rights in the case of any similar future arrearages in dividends ), and the terms of position of all persons elected as Directors by the holders of the Cumulative Preferred Stock shall forthwith end and the numeral of the Board of Directors shall be reduced accordingly. At any fourth dimension after such vote power shall have been so invest in the Cumulative Preferred Stock, the Secretary of the Company may, and upon the written request of any holder of the Cumulative Preferred Stock ( addressed to the Secretary at the principal office of the Company ) shall, call a special meet of the holders of the Cumulative Preferred Stock for the election of the two Directors to be elected by them as herein provided, such call to be made by notice similar to that provided in the By-Laws for a particular meeting of the shareholders or as required by police. If any such extra converge required to be called as above provided shall not be called by the Secretary within twenty days after acknowledge of any such request, then any holder of Cumulative Preferred Stock may call such meet, upon the notice above provided, and for that purpose shall have entree to the stock books of the Company. The Directors elected at any such extra suffer shall hold office until the next annual meeting of the shareholders or special meeting held in place thereof. In font any vacancy shall occur among the Directors elected by the holders of the Cumulative Preferred Stock, a successor shall be elected to serve until the adjacent annual meeting of the shareholders or particular meet held in topographic point thereof by the then remaining Director elected by the holders of the Cumulative Preferred Stock or the successor of such remaining Director. ( c ) All Directors shall have adequate vote ability. section 3. constitution : At each merging of the Board of Directors, the Chairman of the Board, or in his or her absence, the President, or in his or her absence, a president chosen by a majority of the Directors stage shall preside. The Secretary shall act as secretary of the Board of Directors. In the consequence the Secretary shall be absent from any suffer of the Board of Directors, the meet shall select its secretary. section 4. Resignations : Any Director of the Company may resign at any clock time by giving written notice to the Chairman of the Board, the President or to the Secretary of the Company. such resignation shall take consequence at the clock time specified therein or, if no time be specified, then on delivery. section 5. Vacancies : newly created directorships resulting from an increase in the number of Directors and vacancies occurring in the Board of Directors for any rationality except the removal of Directors without campaign may be filled by a vote of a majority of the Directors then in office, although less than a quorum exists. A Director elected to fill a void shall hold office until the adjacent annual meet. section 6. place of meet : The Board of Directors may hold its meetings at such place or places within or without the State of New York as the Board of Directors may from time to time by resoluteness determine. segment 7. first meet : On the day of each annual election of Directors, the Board of Directors shall meet for the purpose of constitution and the transaction of early business. Notice of such meeting need not be given. such first meet may be held at any early meter which shall be specified in a notification given as hereinafter provided for special meetings of the Board of Directors. section 8. regular Meetings : regular meetings of the Board of Directors may be held at such times as may be fixed from fourth dimension to meter by solution of the Board of Directors without notice. section 9. special Meetings : especial meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, the President, or by any two of the Directors. Oral, telegraphic or written comment shall be given, sent or mailed not less than one day before the confluence and shall country, in accession to the purposes, the date, position and hour of such touch. section 10. Waivers of Notice : Notice of a converge need not be given to any Director who submits a sign release of notice whether before or after the meet, or who attends the meet without protest, anterior thereto or at its beginning, the miss of notice to him or her. incision 11. quorum and Manner of Acting : ( a ) If the number of Directors is twelve or more, seven Directors shall constitute a quorum for the transaction of business or any specify item of business. If the phone number of Directors is less than twelve, a majority of the entire Board of Directors shall constitute a quorum. ( bacillus ) A majority of the Directors present, whether or not a quorum is present, may adjourn any confluence to another meter and place without poster to any Director. SECTION 12. scripted Consents : Any military action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the borrowing of a settlement authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. SECTION 13. participation At Meetings By Telephone : Any one or more members of the Board of Directors or any committee thence may participate in a meet of such Board or committee by means of a conference call or exchangeable communications equipment allowing all persons participating in the meeting to hear each other at the lapp time. participation by such means shall constitute bearing in person at a merging. section 14. recompense : The Board of Directors shall have authority to fix the compensation of Directors for services in any capacity. section 15. concern Directors : ( a ) No contract or other transaction between the Company and one or more of its Directors, or between the Company and any other corporation, firm, affiliation or other entity in which one or more of its Directors are directors or officers, or are financially interest, shall be either void or voidable for this reason alone or by argue entirely that such Director or Directors are show at the meet of the Board of Directors, or of a committee thence, which approves such contract or transaction, or that his or her or their votes are counted for such purpose, provided that the parties to the contract or transaction establish affirmatively that it was clean and reasonable as to the caller at the time it was approved by the Board, a committee, or the shareholders. ( bacillus ) Any such sign or transaction may not be avoided by the Company for the reasons set forth in ( a ) if ( 1 ) the corporeal facts as to such Director 's interest in such contract or transaction and as to any such common directorship, officership or fiscal sake are disclosed in good religion or known to the Board or committee, and the Board or committee approves such contract or transaction by a vote sufficient for such purpose without counting the vote of such matter to Director or, if the votes of the disinterested Directors are insufficient for such aim, by consentaneous vote of the disinterested Directors ( although common or concerned Directors may be counted in determining the presence of a quorum at a touch of the Board or of a committee which approves such contract or transactions ), or ( 2 ) the material facts as to such Director 's interest in such abridge or transaction and as to any such coarse directorship, officership or fiscal interest are disclosed in good religion or known to the shareholders entitled to vote thereon, and such contract or transaction is approved by vote of such shareholders. section 16. Loans to Directors : The Company may not lend money to or guarantee the obligation of a Director of the Company unless the particular loanword or guarantee is approved by the shareholders, with the holders of a majority of the shares entitled to vote thereon constituting a quorum, but shares held of record or beneficially by Directors who are benefited by such lend or undertake shall not be entitled to vote or to be included in the decision of a quorum. ARTICLE III EXECUTIVE COMMITTEE SECTION 1. How appoint and Powers : There shall be an Executive Committee, consisting of not less than three nor more than nine Directors, including the Chairman of the Board, the Chairman of the Executive Committee and the President, if the President is a Director, elected by a majority of the entire Board of Directors, who shall serve at the joy of the Board. The Executive Committee shall have all the assurance of the Board, except it shall have no authority as to the comply matters : ( a ) The submission to shareholders of any action that needs shareholders' authority. ( b ) The fill of vacancies in the Board or in any committee. ( cytosine ) The fix of compensation of the Directors for serving on the Board or on any committee. ( five hundred ) The amendment or revoke of the By-Laws, or the borrowing of fresh By- Laws. ( vitamin e ) The amendment or abrogation of any resolution of the Board which, by its terms, shall not be indeed amendable or repealable. ( f ) The resolution of dividends. department 2. Meetings : Meetings of the Executive Committee, of which no poster shall be necessary, shall be held on such days and at such station as shall be fixed, either by the Chairman of the Board, the Chairman of the Executive Committee, or by a vote of the majority of the whole Committee. SECTION 3. quorum and Manner of Acting : Unless otherwise provided by resoluteness of the Board of Directors, a majority of the Executive Committee shall constitute a quorum for the transaction of business and the act of a majority of all of the members of the Committee, whether introduce or not, shall be the dissemble of the Executive Committee. The members of the Executive Committee shall act merely as a Committee. The routine of the Committee and its manner of acting shall be subject at all times to the directions of the Board of Directors. part 4. extra Committees : The Board of Directors by resolution adopted by a majority of the stallion Board may designate from among its members extra committees, each of which shall consist of one or more Directors and shall have such agency as provided in the resolution designating the committee, except such authority shall not exceed the authority conferred on the Executive Committee by Section 1 of this Article. section 5. alternate Members : The Board of Directors may designate one or more eligible Directors as alternate members of the Executive Committee, or of any other committee of the Board, who may replace any lacking or disqualified member or members at any meet of any such committee. ARTICLE IV OFFICERS SECTION 1. Number : The officers of the Company shall be a Chairman of the Board, a President, a Chairman of the Executive Committee, one or more Vice Chairman of the Board, one or more Vice Presidents, a Treasurer, a Secretary, a Controller, and such other officers as the Board of Directors may in its free will elect. Any two or more offices may be held by the same person. part 2. Term of Offices and Qualifications : Those officers whose titles are specifically mentioned in Section 1 of this Article IV shall be chosen by the Board of Directors on the day of the Annual Meeting. Unless a shorter term is provided in the resolution of the Board electing such officeholder, the terminus of office of such policeman shall extend to and expire at the merging of the Board held on the day of the future annual confluence. The Chairman of the Board, the Chairman of the Executive Committee and the Vice Chairmen shall be chosen from among the Directors. SECTION 3. extra Officers : extra officers other than those whose titles are specifically mentioned in Section 1 of this Article IV shall be elected for such period, have such authority and perform such duties, either in an administrative or hyponym capacity, as the Board of Directors may from clock to prison term settle. section 4. removal of Officers : Any military officer may be removed by the Board of Directors with or without causal agent, at any clock. Removal of an officeholder without cause shall be without prejudice to his or her condense rights, if any, but his or her election as an officer shall not of itself create contract rights. section 5. resignation : Any policeman may resign at any fourth dimension by giving written notice to the Board of Directors, or to the Chairman of the Board, or the President, or to the Secretary. Any such resignation shall take effect at the time specified therein, or if no time be specified, then upon pitch. department 6. Vacancies : A void in any office shall be filled by the Board of Directors. segment 7. Chairman of the Board : The Chairman of the Board shall preside at all meetings of the shareholders at which he or she is stage, unless at such meetings the shareholders shall appoint a chair other than the Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Directors at which he or she is present. The Chairman of the Board shall act as the Chief Executive Officer of the Company and it shall be his or her duty to supervise broadly the management of the business of the Company with province direct to the Board and national to the control of the Board. The Chairman of the Board shall have such powers and perform such early duties as may be assigned to him or her by the Board. SECTION 8. President : The President shall, if he or she is besides a Director, in the absence of the Chairman of the Board, preside at all meetings of the shareholders, Directors or the Executive Committee at which he or she is present. The President shall act as Chief Operating Officer of the Company. The President shall have such powers and perform such other duties as may be assigned to him or her by the Board. SECTION 9. Chairman of the Executive Committee : The Chairman of the Executive Committee shall have such powers and perform such duties as may be assigned to him or her by the Board. The Chairman of the Executive Committee shall preside at meetings of the Executive Committee of the Board of Directors. section 10. The Vice Chairmen : Each Vice Chairman of the Board shall have such power and shall perform such duties as may be assigned to him or her by the Board of Directors, the Chairman of the Board or the President. SECTION 11. The Vice Presidents : Each Vice President shall have such powers and shall perform such duties as may be assigned to him or her by the Board of Directors, the Chairman of the Board or the President. SECTION 12. The treasurer : The Treasurer shall, if required by the Board of Directors, give a bond for the faithful empty of his or her duties, in such sum and with such sureties as the Board of Directors shall require. He or she shall have charge and hands of, and be responsible for, all funds and securities of the Company, and deposit all such funds in the name of and to the recognition of the Company in such banks, trust companies, or other depositories as shall be selected by the Board of Directors. The treasurer may sign certificates for stock of the Company authorized by the Board of Directors. He or she shall besides perform all other duties customarily incident to the function of Treasurer and such other duties as from time to time may be assigned to him or her by the Board of Directors. section 13. The control : The Controller shall keep and maintain the books of history for internal and external report purposes. He or she shall besides perform all other duties customarily incident to the office of Controller and such other duties as may be assigned to him or her from time to time by the Board of Directors. section 14. The Secretary : It shall be the duty of the Secretary to act as repository of all meetings of the Board of Directors, and of the shareholders, and to keep the minutes of all such meetings at which he or she shall thus act in a proper bible or books to be provided for that purpose ; he or she shall see that all notices required to be given by the Company are punctually given and served ; he or she may sign and execute in the name of the Company certificates for the lineage of the Company, deeds, mortgages, bonds, contracts or early instruments authorized by the Board of Directors ; he or she shall prepare, or cause to be prepared, for use at meetings of shareholders the list of shareholders as of the record date referred to in Article I, Section 12 of these By-Laws and shall certify, or cause the transfer agentive role to certify, such list ; he or she shall keep a stream number of the Company 's Directors and officers and their residence addresses ; he or she shall be custodian of the seal of the Company and shall affix the sealing wax, or cause it to be affixed, to all agreements, documents and other papers requiring the same. The Secretary shall have custody of the Minute Book containing the minutes of all meetings of shareholders, Directors, the Executive Committee, and any early committees which may keep minutes, and of all other contracts and documents which are not in the detention of the Treasurer or the Controller of the Company, or in the detention of some other person authorized by the Board of Directors to have such custody. segment 15. Appointed Officers : The Board of Directors may delegate to any officer or committee the power to appoint and to remove any subordinate officer, agent or employee. part 16. assignment and Transfer of Stocks, Bonds, and other Securities : The Chairman of the Board, the President, the Treasurer, the Secretary, any Assistant Secretary, any Assistant Treasurer, and each of them, shall have power to assign, or to endorse for transfer, under the corporate seal, and to deliver, any stock, bonds, subscription rights, or other securities, or any beneficial concern therein, held or owned by the Company. ARTICLE V CONTRACTS, CHECKS, DRAFTS AND BANK ACCOUNTS SECTION 1. performance of Contracts : The Board of Directors, except as in these By-Laws differently provided, may authorize any officer or officers, agent, or agents, in the name of and on behalf of the Company to enter into any condense or execute and dliver any instrument, and such authority may be cosmopolitan or confined to specific instances ; but, unless sol authorized by the Board of Directors, or expressly authorized by these By-Laws, no officer, agentive role or employee shall have any office or authority to bind the Company by any sign or engagement or to pledge its credit or to render it liable pecuniarily in any sum for any purpose. section 2. Loans : No loans shall be contracted on behalf of the Company, and no negotiable wallpaper shall be issued in its name unless specifically authorized by the Board of Directors. incision 3. Checks, Drafts, etc. : All checks, drafts, and early orders for the payment of money out of the funds of the Company, and all notes or other evidences of indebtedness of the Company, shall be signed on behalf of the Company in such manner as shall from prison term to fourth dimension be determined by resolving power of the Board of Directors. segment 4. Deposits : All funds of the Company not differently employed shall be deposited from time to time to the accredit of the Company in such banks, reliance companies or other depositories as the Board of Directors may select. ARTICLE VI STOCKS AND DIVIDENDS SECTION 1. Shares of Stock : Shares of stock certificate of the Company shall be represented by certificates except to the extent that the Board of Directors of the Company shall provide by resolution that some or all of any or all classes and series of the Company 's shares shall be uncertificated shares, provided that such resoluteness shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Except as differently expressly provided by police, the rights and obligations of holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the like class and serial shall be identical. section 2. Certificates For Shares. To the extent that shares of standard of the Company are to be represented by certificates, the certificates therefor shall be in such shape as shall be approved by the Board of Directors. The certificates of stock shall be numbered in order of their emergence, shall be signed by the Chairman of the Board, the President, a Vice Chairman or a Vice President, and the Secretary or an Assistant Secretary, or the Treasurer or an adjunct treasurer. The signature of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agentive role or registered by a registrar other than the Company itself or its employee. In encase any officer who has signed or whose facsimile touch has been placed upon a security shall have ceased to be such policeman before such certificate is issued, it may be issued by the ship's company with the lapp effect as if he or she were an officeholder at the date of offspring. SECTION 3. transfer of Stock : Transfers of stock of the Company shall be made lone on the books of the company by the holder thereof, or by his or her punctually authorized lawyer, on capitulation of the certificate or certificates for stock represented by certificates, properly endorsed, or in the case of shares of stock not represented by certificates, on rescue to the company of proper transfer instructions. Within a reasonable time after the issue or transfer of uncertificated sprout, the Company shall send to the register owner thereof a written poster containing the data required to be set forth or stated on certificates pursuant to the Business Corporation Law of the State of New York. Every security surrendered to the Company shall be marked '' Canceled '', with the date of cancellation, and no newly certificate shall be issued in exchange therefor until the old certificate has been surrendered and canceled. A person in whose identify stock of the Company stands on the books of the Company shall be deemed the owner thereof as regards the Company ; provided that, whenever any transfer of stock shall be made for collateral security, and not absolutely, such fact, if known to the Secretary of the Company, or to its transfer agent shall be sol expressed in the entrance of the transfer. No remove of stock shall be valid as against the Company, or its shareholders for any function, until it shall have been entered in the broth records of the Company as specified in these By-Laws by an entry showing from and to whom transferred. section 4. transfer and Registry Agents : The company may, from time to clock time, maintain one or more transfer offices or agencies and/or register offices at such rate or places as may be determined from time to fourth dimension by the Board of Directors ; and the Board of Directors may, from time to clock, define the duties of such transfer agents and registrars and make such rules and regulations as it may deem expedient, not inconsistent with these By-Laws, concerning the offspring, transfer and adjustment of certificates for stock certificate or uncertificated store of the Company. incision 5. Lost, Destroyed and Mutilated Certificates : The holder of any certificated stock of the Company shall immediately notify the Company of any passing, end or mutilation of the certificate therefor. The company may issue a newfangled certificate or uncertificated stock in home of the lose or destroyed certificate, but as a condition to such topic, the holder of such certificate must make satisfactory proof of the loss or end thence, and must give to the Company a bond of damages in form and amount and with one or more sureties satisfactory to the Treasurer, the Secretary or any assistant treasurer or Assistant Secretary. such bond of indemnity shall besides name as obligee each of the transportation agents and registrars for the stock the certificate for which has been lost or destroyed. incision 6. commemorate Dates for Certain Purposes : The Board of Directors of the Company shall fix a sidereal day and hour not more than sixty days preceding the date of any meeting of shareholders, or the date for requital of any cash or stock dividend, or the date for the allotment of any rights of subscription, or the date when any change or conversion or exchange of capital stock certificate shall go into effect, as a record date for the decision of the shareholders entitled to notice of, and to vote at, any such meet and any adjournment thence, or entitled to receive requital of any such dividend, or entitled to receive any such allotment of rights of subscription, or entitled to exercise rights in respect of any such change, conversion or substitution of capital livestock, and in such encase, such shareholders and only such shareholders as shall be shareholders of read on the day and hour indeed fixate shall be entitled to such notice of, and to vote at, such touch or any adjournment thence, or to receive requital of such dividend, or to receive such allotment of rights of subscription, or to exercise rights in connection with such deepen or conversion or exchange of capital stock, as the event may be, notwithstanding any transfer of any livestock on the books of the Company after such day and hour fixed as aforesaid. section 7. Dividends and excess : discipline to the limitations prescribed by law, the Board of Directors ( 1 ) may declare dividends on the stock of the Company whenever and in such amounts as, in its opinion, the condition of the affairs of the Company shall render it advisable, ( 2 ) may use and apply, in its discretion, any region or all of the excess of the Company in buy or acquiring any of the shares of stock of the Company, and ( 3 ) may set aside from time to fourth dimension out of such excess or net profits such sum or sums as it in its absolute discretion, may think proper as a allow fund to meet contingencies or for equalizing dividends, or for the purpose of maintaining or increasing the place or business of the Company, or for any other determination it may think conducive to the best matter to of the Company. ARTICLE VII OFFICES AND BOOKS SECTION 1. Offices : The Company shall maintain an function at such place in the County of Monroe, State of New York, as the Board of Directors may determine. The Board of Directors may from time to time and at any time establish early offices of the Company or branches of its business at whatever locate or places seem to it expedient. segment 2. Books and Records : ( a ) There shall be kept at one or more offices of the Company ( 1 ) decline and complete books and records of account, ( 2 ) minutes of the proceedings of the shareholders, Board of Directors and the Executive Committee, ( 3 ) a current list of the Directors and officers of the Company and their residence addresses, and ( 4 ) a copy of these By-Laws. ( boron ) The sprout records may be kept either at the agency of the company or at the office of its transfer agent or registrar in the State of New York, if any, and shall contain the names and addresses of all shareholders, the number and classify of shares held by each and the dates when they respectively became the owners of record thence. ARTICLE VIII GENERAL SECTION 1. seal : The corporate seal shall be in the class of a circle and shall bear the wide mention of the Company and the words and figures '' Incorporated 1906, Rochester, N. Y. ''. SECTION 2. damages of Directors and Officers : Except to the extent expressly prohibited by jurisprudence, the Company shall indemnify any person, made or threatened to be made, a party in any civil or criminal action or continue, including an legal action or continue by or in the correct of the Company to procure a sagacity in its prefer or by or in the right of any other corporation of any type or kind, domestic or extraneous, or any partnership, joint venture, trust, employee benefit plan or early enterprise, which any Director or officeholder of the Company served in any capacity at the request of the Company, by reason of the fact that he or she, his or her testator or intestate is or was a Director or officeholder of the Company or serves or served such other corporation, partnership, roast venture, reliance, employee profit plan or other enterprise, in any capacity, against judgments, fines, penalties, amounts paid in colony and reasonable expenses, including attorneys ' fees, incurred in connection with such carry through or continue, or any appeal therein, provided that no such damages shall be required with respect to any settlement unless the Company shall have given its prior approval thereto. such damages shall include the mighty to be paid advances of any expenses incurred by such person in connection with such action, suit or go, consistent with the provisions of applicable law. In accession to the forfeit, the Company is authorized to extend rights to damages and promotion of expenses to such persons by one ) resolution of the shareholders, two ) resolution of the Directors or three ) an agreement, to the extent not expressly prohibited by law. ARTICLE IX FISCAL YEAR SECTION 1. fiscal year : The fiscal year of the Company shall end on the 31st day of December in each year. ARTICLE X AMENDMENTS SECTION 1. Amendments : By-Laws of the Company may be amended, repealed or adopted by a majority of the votes of the shares at the time entitled to vote in the election of any Directors. If, at any meet of shareholders, action is proposed to be taken to amend, repeal or adopt By-Laws, the notice of such meet shall include a brief argument or drumhead of the proposed legal action. The By-Laws may besides be amended, repealed or adopted by the Board of Directors, but any By-Law adopted by the Board may be amended or repealed by shareholders entitled to vote thereon as hereinabove provided. If any By-Law baffle an impend election of Directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the poster of the next merging of shareholders for the election of Directors the By-Law therefore adopted, amended or repealed, together with a concise statement of the changes made .
 expose 4 ( a ) ( 2 ) instrument OF RESIGNATION, APPOINTMENT AND ACCEPTANCE -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - THIS INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, ( `` Instrument '' ), dated and effective as of February 1, 2001 ( the `` effective Date '' ), among XEROX CORPORATION, a corporation organized under the laws of the State of New York ( the `` Company '' ), CITIBANK, N.A., a national bank association organized under the laws of the United States of America ( the `` Resigning Trustee '' ), and WILMINGTON TRUST COMPANY, a bank corporation organized under the laws of the State of Delaware ( the `` Successor Trustee '' ). Capitalized terms not otherwise defined herein shall have the same mean ascribed to such terms in the Indenture as referred to below. RECITALS -- -- -- -- WHEREAS, pursuant to an indenture, dated as of December 1, 1991 ( the '' Indenture '' ), among the Company and the Resigning Trustee, the Company issued its $ 200,000,000 8 1/8 % Notes Due April 15, 2002 ( Cusip 984121AT0 ), its $ 200,000,000 7.15 % Notes due August 1, 2004 ( Cusip 984121AU7 ), its Medium Term Notes, Series B ( Base Cusip 98412J ), and its Medium Term Notes, Series C ( Base Cusip 98412J ) ( jointly all such issued notes, the `` Securities '' ) ; WHEREAS, the Company appointed the Resigning Trustee as the regent under the Indenture of all Securities issued under the Indenture ; WHEREAS, there is soon issued and outstanding $ 962,000,000 in aggregate principal total of the Securities ; WHEREAS, the Indenture provides that the trustee may resign at any clock with respect to any series of Securities and be discharged from the trusts created by the indenture by notifying the company in writing ; WHEREAS, the Indenture further provides that if the trustee resigns with regard to any series of Securities, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor trustee with esteem to such applicable series of Securities ; WHEREAS, the Resigning Trustee desires to resign as the regent with obedience to all Securities issued pursuant to the Indenture, and the Company desires to appoint the Successor Trustee as regent to succeed the Resigning Trustee as the trustee with respect to the Securities ; and WHEREAS, the Successor Trustee is willing to accept the appointee as trustee under the Indenture. NOW, THEREFORE, in consideration of the covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows : 1. credence of Resignation of Resigning Trustee and Appointment of Successor Trustee. The company having received written notice of the Resigning Trustee 's request to resign as trustee pursuant to Section 8.07 ( boron ) of the indenture, hereby accepts the resignation of the Resigning Trustee as regent under the Indenture. Pursuant to Section 8.07 ( east ) of the Indenture, the Company acting pursuant to Board Resolution hereby appoints the Successor Trustee as trustee under the Indenture, and vests and confirms to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations of the regent under the Indenture. 2. company 's Representations and Warranties. The Company hereby represents and warrants to the Successor Trustee that : a. It is punctually organized and validly existing and in good digest under all applicable law, and, this Instrument has been punctually authorized, executed and delivered on its behalf and constitutes its legal, valid, binding and enforceable obligation ; b. It has not entered into any amendment or supplement to the Indenture, and the Indenture is in fully force and effect ; c. No Event of Default and no default exists under the Indenture ; d. No covenant or stipulate contained in the Indenture has been waived by the Holders of a share in aggregate principal come of the Securities required by the indentation to consequence any such release ; e. The Indenture was validly executed and delivered by it, and the Securities are validly issue securities of the Company ; and f. The execution and delivery of this Instrument do not and will not conflict with, or result in a transgress of, any of the terms or provisions of, or constitute a default under, any ( one ) contract, agreement, indentation or other instrument ( including, without limit, its certificate of incorporation, by-laws and/or any and all other applicable organizational documents ) to which it is a party or by which it or its property is bound, or ( two ) any judgment, decree or decree of any court or governmental agency or regulative soundbox or law, rule or regulation applicable to it or its property. 3. Resigning Trustee 's Representations and Warranties. The Resigning Trustee hereby represents and warrants to the Successor Trustee that : a. It has not entered into any amendment or supplement to the Indenture and the Indenture is in full military unit and effect ; b. No covenant or condition contained in the Indenture has been waived by the Resigning Trustee or by the Holders of a share in aggregate principal amount of the Securities required by the indentation to effect any such release ; c. There is no action, suit or proceeding pending or threatened against the Resigning Trustee of which it has actual cognition before any motor hotel or governmental assurance arising out of any action or omission by the Resigning Trustee as trustee under the Indenture ; d. It has made, or promptly will make, available to the Successor Trustee originals, if available, or copies in its possession, of all documents relating to the trusts created by the Indenture ( the `` Trusts '' ) and all data in the possession of its corporate trust presidency department relating to the administration and condition of the Trusts and shall do such other things as the Successor Trustee may reasonably request to more fully vest and confirm in the Successor Trustee all the rights, powers, trusts, privileges, duties and obligations assigned and transferred hereby to the Successor Trustee ; Page 2 e. It has legally discharged its duties as regent under the Indenture ; f. Pursuant to Section 3.03 of the Indenture, it punctually authenticated and delivered the Securities in an aggregate principal face measure of $ 962,000,000 and there is presently issued and great $ 962,000,000 in aggregate principal measure of the Securities ; g. As of the Effective Date, it holds no place or money in its capacity as trustee under the Indenture ; and h. This instrument has been punctually authorized, executed and delivered on behalf of the Resigning Trustee and constitutes its legal, valid, oblige and enforceable obligation. 4. Successor Trustee 's Representations and Warranties. The Successor Trustee represents and warrants to the Resigning Trustee and the party that : a. It is qualified and eligible to serve as regent under the Indenture and the Trust Indenture Act of 1939, as amended ( the `` Act '' ) ; and b. This instrument has been punctually authorized, executed and delivered on behalf of the Successor Trustee and constitutes its legal, valid, oblige and enforceable obligation. 5. acceptance by Successor Trustee. The Successor Trustee hereby accepts its appointment, as of the Effective Date, as successor trustee under the Indenture, and wear, as of the Effective Date, all rights, powers, trusts, privileges, duties and obligations of the regent thereunder, discipline to the terms and conditions therein. 6. Notice to Holders. promptly after the effective Date of this Instrument, the Company shall give notice in accord with Section 8.07 ( degree fahrenheit ) of the Indenture of the resignation of the Resigning Trustee and the appointment of the Successor Trustee. 7. grant by Resigning Trustee. The Resigning Trustee hereby confirms, assigns, transfers, delivers and conveys, as of the Effective Date, to the Successor Trustee, as successor trustee under the Indenture, upon the Trusts expressed in the Indenture, all rights, powers, trusts, privileges, duties and obligations, which the Resigning Trustee, as regent now holds under and by virtue of the Indenture, and shall pay over to the Successor Trustee, any and all property and moneys held by the Resigning Trustee under and by virtue of the Indenture, topic to the lien provided by Section 8.05 of the Indenture, which lien the Resigning Trustee expressly reserves to the fullest extent necessary to secure the Company 's obligations under said section to the Resigning Trustee, which lien shall besides secure the Company 's obligations under said department to the Successor Trustee. not withstanding any other provision in this instrument, the Successor Trustee assumes none of the obligations or duties of the Paying Agent or Registrar in the Indenture. 8. indemnification a. The parties to this Instrument agree that this instrument does not constitute an assumption by the Successor Trustee of any indebtedness of the Resigning Trustee arising out of any rupture by the Resigning Trustee in the performance of its duties as trustee under the Indenture. b. The company agrees to pay or indemnify, as applicable, the Successor Trustee and save the Successor Trustee harmless from and against any and all Page 3 costs, claims, liabilities, losses or damages any ( including the fair fees, expenses and disbursements of the Successor Trustee 's legal rede and other advisors ) arising out of the actual, alleged or decide actions or omissions of the Resigning Trustee that the Successor Trustee may suffer or incur as a leave of the Successor Trustee accepting this appointment and acting as successor trustee under the Indenture. The Successor Trustee will furnish to the Company, promptly upon receipt, all documents with respect to any legal action the result of which would make the damages provided for in this paragraph private detective. The Successor Trustee shall notify the Company in compose of any claim for which it may seek damages. c. As security for the operation of the obligations of the Company under this section 8 and under Section 8.05 of the Indenture, the Successor Trustee shall have a lien anterior to the Securities upon all property and funds held or collected by the Trustee as such. 9. further Assurances. The ship's company and the Resigning Trustee, for the purposes of more fully and surely vesting in and confirming to the Successor Trustee, as successor trustee under the Indenture, said rights, powers, trusts, privileges, duties and obligations, agree upon reasonable request of the Successor Trustee, to execute, acknowledge and deliver such far instruments of conveyance and further assurance and to do such early things as may sanely be required for more in full and surely vesting and confirming to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations which the Resigning Trustee now holds under and by virtue of the Indenture. 10. survival of Certain Obligations of the Company. Notwithstanding the resignation of the Resigning Trustee, the Company shall remain compel under the Indenture to compensate, recoup and indemnify the Resigning Trustee in connection with its trusteeship under the Indenture, and nothing contained in this Instrument shall in any way abrogate the obligations of the Company to the Resigning Trustee under the Indenture or any spleen created in party favor of the Resigning Trustee thereunder. 11. Corporate Trust Office. reference book in the indentation to the `` Corporate Trust Office '' of the Resigning Trustee or other similar terms shall be deemed to refer to the Corporate Trust Office of the Successor Trustee at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 or any early office of the Successor Trustee at which, at any especial time, its corporate trust commercial enterprise shall be chiefly administered. 12. Notices. All notices, whether fax or mailed will be deemed receive when air pursuant to the follow instructions : TO THE SUCCESSOR TRUSTEE : WILMINGTON TRUST COMPANY Attn : Corporate Trust Administration Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 TELEPHONE : ( 302 ) 651-1343 TELECOPIER : ( 302 ) 651-8882 TO THE RESIGNING TRUSTEE : CITIBANK, N.A. 111Wall Street, 14th Floor New York, New York 10005 TELEPHONE : ( 212 ) 657-7805 TELECOPIER : ( 212 ) 657-4009 page 4 TO THE company : xerox CORPORATION 800 Long Ridge Road Stamford, Connecticut 06904 Attn : adjunct Treasurer TELEPHONE : ( 203 ) 968-4653 TELECOPIER : ( 203 ) 968-3972 13. effective Date. This instrument and the resignation, appointment and adoption effected hereunder shall be effective as of the cheeseparing of business on the effective Date. 14. Governing Law. This Instrument shall be governed by and construed in accordance with the laws of the State of New York. 15. Counterparts. This musical instrument may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. [ SIGNATURE PAGE FOLLOWS ] IN WITNESS WHEREOF, the parties have executed this instrument to be effective as of the sidereal day and year first above written. WILMINGTON TRUST COMPANY, Successor Trustee By : _____________________________ name : style : CITIBANK, N.A., Resigning Trustee By : _____________________________ list : title : xerox CORPORATION, company By : _____________________________ name : claim : page 5
 expose 4 ( b ) ( 2 ) legal document OF RESIGNATION, APPOINTMENT AND ACCEPTANCE THIS INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, ( `` instrument '' ), dated and effective as of February 1, 2001 ( the `` effective Date '' ), among XEROX CORPORATION, a corporation organized under the laws of the State of New York ( the `` Company '' ), CITIBANK, N.A., a national deposit association organized under the laws of the United States of America ( the '' Resigning Trustee '' ), and WILMINGTON TRUST COMPANY, a deposit corporation organized under the laws of the State of Delaware ( the `` Successor Trustee '' ). Capitalized terms not differently defined herein shall have the like meaning ascribed to such terms in the Indenture as referred to below. RECITALS WHEREAS, pursuant to an indenture, dated as of September 20, 1996 ( the '' Indenture '' ), between the Company and the Resigning Trustee, the Company issued its medium Term Notes, Series D ( Base Cusip 98412J ) ( the `` Securities '' ) ; WHEREAS, the Company appointed the Resigning Trustee as the trustee under the Indenture and in its capacity as the paying agent and registrar ( in each such capacitance, the `` Paying Agent '' ) of all Securities issued under the Indenture ; WHEREAS, there is presently issued and outstanding $ 420,774,000 in aggregate principal measure of the Securities ; WHEREAS, the Indenture provides that the regent may resign at any clock time with respect to any series of Securities and be discharged from the trusts created by the indenture by notifying the company in write ; WHEREAS, the Indenture further provides that if the regent resigns with deference to any series of Securities, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor trustee with respect to such applicable series of Securities ; WHEREAS, the Resigning Trustee desires to resign as the trustee with regard to all Securities issued pursuant to the Indenture, and the Company desires to appoint the Successor Trustee as regent to succeed the Resigning Trustee as the trustee with respect to the Securities ; WHEREAS, the Resigning Trustee will remain yield Agent with respect to the Securities ; and WHEREAS, the Successor Trustee is will to accept the appointment as trustee under the Indenture. NOW, THEREFORE, in retainer of the covenants set forth herein and early good and valuable circumstance, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows : 1. adoption of Resignation of Resigning Trustee and Appointment of Successor Trustee. The party having received written notification of the Resigning Trustee 's request to resign as trustee pursuant to Section 8.07 ( b ) of the Indenture, hereby accepts the resignation of the Resigning Trustee as trustee under the Indenture. Pursuant to Section 8.07 ( vitamin e ) of the Indenture, the Company acting pursuant to Board Resolution hereby appoints the Successor Trustee as regent under the Indenture, and vests and confirms to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations of the trustee under the Indenture. 2. company 's Representations and Warranties. The Company hereby represents and warrants to the Successor Trustee that : a. It is punctually organized and validly existing and in full standing under all applicable law, and, this Instrument has been punctually authorized, executed and delivered on its behalf and constitutes its legal, valid, tie and enforceable duty ; bacillus. It has not entered into any amendment or addendum to the Indenture, and the Indenture is in full force and effect ; c. No Event of Default and no nonpayment exists under the Indenture ; d. No covenant or condition contained in the Indenture has been waived by the Holders of a share in aggregate principal total of the Securities required by the indenture to impression any such release ; e. The Indenture was validly executed and delivered by it, and the Securities are validly publish securities of the Company ; and f. The performance and pitch of this Instrument do not and will not conflict with, or solution in a rupture of, any of the terms or provisions of, or constitute a default under, any ( iodine ) contract, agreement, indenture or other instrument ( including, without limitation, its security of incorporation, by-laws and/or any and all early applicable organizational documents ) to which it is a party or by which it or its place is bound, or ( two ) any judgment, decree or ordering of any court or governmental agency or regulative body or law, rule or regulation applicable to it or its property. 3. Resigning Trustee 's Representations and Warranties. The Resigning Trustee hereby represents and warrants to the Successor Trustee that : a. It has not entered into any amendment or append to the Indenture and the Indenture is in entire force and effect ; b-complex vitamin. No covenant or condition contained in the Indenture has been waived by the Resigning Trustee or by the Holders of a percentage in aggregate principal total of the Securities required by the indenture to effect any such release ; c. There is no action, become or proceeding pending or threatened against the Resigning Trustee of which it has actual cognition before any motor hotel or governmental authority arising out of any action or omission by the Resigning Trustee as trustee under the Indenture ; d. It has made, or promptly will make, available to the Successor Trustee originals, if available, or copies in its possession, of all documents relating to the trusts created by the Indenture ( the `` trusts '' ) and all information in the possession of its corporate hope administration department relating to the presidency and status of the Trusts and shall do such other things as the Successor Trustee may reasonably request to more fully invest and confirm in the Successor Trustee all the rights, powers, trusts, privileges, duties and obligations assigned and transferred hereby to the Successor Trustee ; e. It has legitimately discharged its duties as regent under the Indenture ; f. Pursuant to Section 3.03 of the Indenture, it punctually authenticated and delivered the Securities in an aggregate chief front sum of $ 950,000,000 and there is presently issued and great $ 420,774,000 in aggregate principal amount of the Securities ; g. As of the Effective Date, it holds no place or money in its capacity as regent under the Indenture ; and h. This musical instrument has been punctually authorized, executed and delivered on behalf of the Resigning Trustee and constitutes its legal, valid, bind and enforceable obligation. 4. Successor Trustee 's Representations and Warranties. The Successor Trustee represents and warrants to the Resigning Trustee and the company that : a. It is qualified and eligible to serve as regent under the Indenture and the Trust Indenture Act of 1939, as amended ( the `` Act '' ) ; and b. This instrument has been punctually authorized, executed and delivered on behalf of the Successor Trustee and constitutes its legal, valid, oblige and enforceable obligation. 5. toleration by Successor Trustee. The Successor Trustee hereby accepts its appointee, as of the Effective Date, as successor trustee under the Indenture, and assume, as of the Effective Date, all rights, powers, trusts, privileges, duties and obligations of the trustee thereunder, topic to the terms and conditions therein. 6. Notice to Holders. promptly after the effective Date of this Instrument, the Company shall give notice in accordance with Section 8.07 ( f ) of the Indenture of the resignation of the Resigning Trustee and the appointment of the Successor Trustee. 7. grant by Resigning Trustee. The Resigning Trustee hereby confirms, assigns, transfers, delivers and conveys, as of the Effective Date, to the Successor Trustee, as successor trustee under the Indenture, upon the Trusts expressed in the Indenture, all rights, powers, trusts, privileges, duties and obligations, which the Resigning Trustee, as regent now holds under and by virtue of the Indenture, and shall pay over to the Successor Trustee, any and all property and moneys held by the Resigning Trustee under and by virtue of the Indenture, subjugate to the spleen provided by Section 8.05 of the Indenture, which lien the Resigning Trustee expressly reserves to the fullest extent necessary to secure the Company 's obligations under said section to the Resigning Trustee, which lien shall besides secure the Company's obligations under said part to the Successor Trustee. not withstanding any early provision in this instrument, the Resigning Trustee shall continue to act as Paying Agent under the indentation to the extent that the Resigning Trustee acts as Paying Agent under any series of Securities, and the Successor Trustee assumes none of the obligations or duties of the Paying Agent in the Indenture. 8. damages a. The parties to this Instrument agree that this instrument does not constitute an assumption by the Successor Trustee of any indebtedness of the Resigning Trustee arising out of any rupture by the Resigning Trustee in the operation of its duties as regent under the Indenture. b-complex vitamin. The company agrees to pay or indemnify, as applicable, the Successor Trustee and save the Successor Trustee harmless from and against any and all costs, claims, liabilities, losses or damages any ( including the fair fees, expenses and disbursements of the Successor Trustee 's legal advocate and early advisors ) arising out of the actual, alleged or judge actions or omissions of the Resigning Trustee that the Successor Trustee may suffer or incur as a solution of the Successor Trustee accepting this appointee and acting as successor regent under the Indenture. The Successor Trustee will furnish to the Company, promptly upon receipt, all documents with regard to any carry through the consequence of which would make the damages provided for in this paragraph operative. The Successor Trustee shall notify the Company in compose of any claim for which it may seek indemnity. c. As security for the performance of the obligations of the Company under this section 8 and under Section 8.05 of the Indenture, the Successor Trustee shall have a lien anterior to the Securities upon all property and funds held or collected by the Trustee as such. 9. further Assurances. The company and the Resigning Trustee, for the purposes of more fully and surely vesting in and confirming to the Successor Trustee, as successor regent under the Indenture, said rights, powers, trusts, privileges, duties and obligations, agree upon fair request of the Successor Trustee, to execute, acknowledge and deliver such far instruments of conveyance and far assurance and to do such other things as may reasonably be required for more in full and surely vesting and confirming to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations which the Resigning Trustee now holds under and by virtue of the Indenture. 10. survival of Certain Obligations of the Company. Notwithstanding the resignation of the Resigning Trustee, the Company shall remain oblige under the Indenture to compensate, reimburse and indemnify the Resigning Trustee in association with its trusteeship under the Indenture, and nothing contained in this Instrument shall in any means abrogate the obligations of the Company to the Resigning Trustee under the Indenture or any spleen created in party favor of the Resigning Trustee thereunder. 11. Corporate Trust Office. reference in the indentation to the '' Corporate Trust Office '' of the Resigning Trustee or other like terms shall be deemed to refer to the Corporate Trust Office of the Successor Trustee at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 or any other office of the Successor Trustee at which, at any particular clock time, its corporate trust business shall be chiefly administered. 12. Notices. All notices, whether fax or mailed will be deemed experience when sent pursuant to the be instructions : TO THE SUCCESSOR TRUSTEE : WILMINGTON TRUST COMPANY Attn : Corporate Trust Administration Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 TELEPHONE : ( 302 ) 651-1343 TELECOPIER : ( 302 ) 651-8882 TO THE RESIGNING TRUSTEE : CITIBANK, N.A. 111 Wall Street, 14th Floor New York, New York 10005 TELEPHONE : ( 212 ) 657-7805 TELECOPIER : ( 212 ) 657-4009 TO THE COMPANY : xerox CORPORATION 800 Long Ridge Road Stamford, Connecticut 06904 Attn : assistant Treasurer TELEPHONE : ( 203 ) 968-4653 TELECOPIER : ( 203 ) 968-3972 13. effective Date. This legal document and the resignation, appointment and acceptance effected hereunder shall be effective as of the close of business on the effective Date. 14. Governing Law. This Instrument shall be governed by and construed in accordance with the laws of the State of New York. 15. Counterparts. This instrument may be executed in any total of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. [ SIGNATURE PAGE FOLLOWS ] IN WITNESS WHEREOF, the parties have executed this instrument to be effective as of the day and year first above written. WILMINGTON TRUST COMPANY, Successor Trustee By : name : championship : CITIBANK, N.A., Resigning Trustee By : list : title : photocopy CORPORATION, party By : name : title :
 exhibit 4 ( d ) ( 2 ) instrumental role OF RESIGNATION, APPOINTMENT AND ACCEPTANCE -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - THIS INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, ( `` Instrument '' ), dated and effective as of February 1, 2001 ( the `` effective Date '' ), among XEROX CORPORATION, a pot organized under the laws of the State of New York ( the `` company, '' and in its capacity as guarantor under the Indenture referred to below, the `` Guarantor '' ), XEROX OVERSEAS HOLDINGS LIMITED, once known as Xerox Overseas Holdings PLC, a limited indebtedness company organized under the laws of England and Wales ( `` Xerox Overseas '' ), XEROX CAPITAL ( EUROPE ) PLC, once known as Rank Xerox Capital ( Europe ) PLC, a public limited ship's company organized under the laws of England and Wales ( `` Xerox Capital, '' and together with Xerox Overseas, the `` subsidiary company Issuers, '' and each a `` subordinate Issuer '' ), CITIBANK, N.A., a national bank association organized under the laws of the United States of America ( the `` Resigning Trustee '' ), and WILMINGTON TRUST COMPANY, a bank pot organized under the laws of the State of Delaware ( the `` Successor Trustee '' ). The company together with the Subsidiary Issuers, each in its capacity as an issuer of securities under the Indenture referred to below, are referred to herein as an `` Issuer, '' and jointly the `` Issuers. '' Capitalized terms not differently defined herein shall have the lapp entail ascribed to such terms in the Indenture as referred to below. RECITALS -- -- -- -- WHEREAS, pursuant to an indentation, dated as of October 21, 1997 ( the '' Indenture '' ), among the Issuers, the Guarantor and the Resigning Trustee, Xerox Capital issued its $ 500,000,000 5.75 % Notes Due May 15, 2002 ( Cusip 98411MAB4 ), its $ 500,000,000 5.875 % Notes ascribable May 15, 2004 ( Cusip 98411MAA6 ) and its $ 25,000,000 Medium Term Notes, Series E ascribable April 24, 2008 ( Cusip 98411PAA9 ) ; and Xerox issued its $ 600,000,000 5.5 % Notes ascribable November 15, 2003 ( Cusip 984121AW3 ), its Medium Term Notes, Series E ( Base Cusip 98412J ) and its Medium Term Notes, Series F ( Base Cusip 98412J ) ( jointly all such issued notes, the `` Securities '' ) ; WHEREAS, the Issuers appointed the Resigning Trustee as the regent under the Indenture and in its capability as the paying agent and registrar ( in each such capacity, the `` Paying Agent '' ) of all Securities issued under the Indenture ; WHEREAS, there is soon issued and great $ 2,400,000,000 in aggregate principal total of the Securities ; Page 11 WHEREAS, the Indenture provides that the regent may resign at any fourth dimension with deference to any series of Securities and be discharged from the trusts created by the indentation by notifying the Issuer of any and all such Securities and the Guarantor in compose ; WHEREAS, the Indenture further provides that if the regent resigns with deference to any Securities, the Issuer of the applicable series of Securities and the Guarantor, by or pursuant to a Board Resolution, shall promptly appoint a successor trustee with esteem to such applicable series of Securities ; WHEREAS, the Resigning Trustee desires to resign as the regent with esteem to all Securities issued pursuant to the Indenture, and the Issuers and the Guarantor desire to appoint the Successor Trustee as trustee to succeed the Resigning Trustee as the trustee with deference to the Securities ; WHEREAS, the Resigning Trustee will remain yield Agent with regard to the Securities ; the Calculation Agent pursuant to the Interest Calculation Agency Agreement, dated as of October 21, 1997, among the Issuers and the Resigning Trustee ; and the Exchange Agent pursuant to the Exchange Rate Agent Agreement, dated as of October 21, 1997, among the Issuers and the Resigning Trustee ; and WHEREAS, the Successor Trustee is will to accept the appointment as trustee under the Indenture. NOW, THEREFORE, in consideration of the covenants set forth herein and early estimable and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows : 1. acceptance of Resignation of Resigning Trustee and Appointment of Successor Trustee. The Issuers and Guarantor having received written detect of the Resigning Trustee 's request to resign as trustee pursuant to Section 8.07 ( b ) of the Indenture, hereby accept the resignation of the Resigning Trustee as trustee under the Indenture. Pursuant to Section 8.07 ( vitamin e ) of the Indenture, the Issuers and Guarantor acting pursuant to Board Resolution hereby appoint the Successor Trustee as regent under the Indenture, and vest and confirm to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations of the regent under the Indenture. 2. Issuers ' and Guarantor 's Representations and Warranties. Each Issuer and the Guarantor, as applicable, hereby stage and guarantee to the Successor Trustee that : a. It is punctually organized and validly existing and in effective standing under all applicable police, and, this Instrument has been punctually authorized, executed and delivered on its behalf and constitutes its legal, valid, bind and enforceable debt instrument ; b-complex vitamin. It has not entered into any amendment or append to the Indenture, and the Indenture is in full force and impression ; c. No Event of Default and no default exists under the Indenture ; d. No covenant or condition contained in the Indenture has been waived by the Holders of a percentage in aggregate principal measure of the Securities required by the indenture to effect any such release ; e. The Indenture was validly executed and delivered by it, and the Securities are validly issue securities of the Issuer ; and Page 12 f. The execution and manner of speaking of this Instrument do not and will not conflict with, or consequence in a breach of, any of the terms or provisions of, or constitute a default option under, any ( one ) contract, agreement, indentation or early instrument ( including, without restriction, its certificate of internalization, by-laws and/or any and all other applicable organizational documents ) to which it is a party or by which it or its property is bound, or ( two ) any opinion, rule or rate of any court or governmental representation or regulative body or law, rule or rule applicable to it or its property. 3. Resigning Trustee 's Representations and Warranties. The Resigning Trustee hereby represents and warrants to the Successor Trustee that : a. It has not entered into any amendment or append to the Indenture and the Indenture is in full push and effect ; boron. No covenant or condition contained in the Indenture has been waived by the Resigning Trustee or by the Holders of a percentage in sum chief sum of the Securities required by the indenture to effect any such release ; c. There is no action, suit or proceeding pending or threatened against the Resigning Trustee of which it has actual cognition before any court or governmental authority arising out of any action or omission by the Resigning Trustee as regent under the Indenture ; d. It has made, or promptly will make, available to the Successor Trustee originals, if available, or copies in its self-control, of all documents relating to the trusts created by the Indenture ( the `` Trusts '' ) and all information in the possession of its corporate trust administration department relating to the administration and status of the Trusts and shall do such early things as the Successor Trustee may reasonably request to more fully vest and confirm in the Successor Trustee all the rights, powers, trusts, privileges, duties and obligations assigned and transferred hereby to the Successor Trustee ; e. It has legally discharged its duties as trustee under the Indenture ; f. Pursuant to Section 3.03 of the Indenture, it punctually authenticated and delivered the Securities in an aggregate principal face total of $ 2,400,000,000 and there is presently issued and outstanding $ 2,400,000,000 in aggregate principal sum of the Securities ; g. As of the Effective Date, it holds no place or money in its capacity as trustee under the Indenture ; and h. This musical instrument has been punctually authorized, executed and delivered on behalf of the Resigning Trustee and constitutes its legal, valid, binding and enforceable obligation. 4. Successor Trustee 's Representations and Warranties. The Successor Trustee represents and warrants to the Resigning Trustee, the Issuers and the Guarantor that : a. It is qualified and eligible to serve as regent under the Indenture and the Trust Indenture Act of 1939, as amended ( the `` Act '' ) ; and b. This instrumental role has been punctually authorized, executed and delivered on behalf of the Successor Trustee and constitutes its legal, valid, tie and enforceable debt instrument. Page 13 5. acceptance by Successor Trustee. The Successor Trustee hereby accepts its appointment, as of the Effective Date, as successor regent under the Indenture, and simulate, as of the Effective Date, all rights, powers, trusts, privileges, duties and obligations of the regent thereunder, subject to the terms and conditions therein. 6. Notice to Holders. promptly after the effective Date of this Instrument, the applicable Issuer shall give notice in accordance with Section 8.07 ( fluorine ) of the Indenture of the resignation of the Resigning Trustee and the date of the Successor Trustee. 7. assignment by Resigning Trustee. The Resigning Trustee hereby confirms, assigns, transfers, delivers and conveys, as of the Effective Date, to the Successor Trustee, as successor regent under the Indenture, upon the Trusts expressed in the Indenture, all rights, powers, trusts, privileges, duties and obligations, which the Resigning Trustee, as regent now holds under and by virtue of the Indenture, and shall pay over to the Successor Trustee, any and all property and moneys held by the Resigning Trustee under and by virtue of the Indenture, subject to the spleen provided by Section 8.05 of the Indenture, which lien the Resigning Trustee expressly reserves to the fullest extent necessary to secure the Issuers ' and the Guarantor 's obligations under said section to the Resigning Trustee, which lien shall besides secure the Issuers ' and the Guarantor's obligations under said section to the Successor Trustee. not withstanding any other provision in this instrument, the Resigning Trustee shall continue to act as Paying Agent under the indenture to the extent that the Resigning Trustee acts as Paying Agent under any serial of Securities, and the Successor Trustee assumes none of the obligations or duties of the Paying Agent in the Indenture. 8. damages a. The parties to this Instrument agree that this instrument does not constitute an assumption by the Successor Trustee of any indebtedness of the Resigning Trustee arising out of any breach by the Resigning Trustee in the performance of its duties as trustee under the Indenture. b-complex vitamin. The Company, Xerox Capital and Xerox Overseas agree jointly and independently to pay or indemnify, as applicable, the Successor Trustee and save the Successor Trustee harmless from and against any and all costs, claims, liabilities, losses or damages any ( including the reasonable fees, expenses and disbursements of the Successor Trustee 's legal advocate and early advisors ) arising out of the actual, alleged or decide actions or omissions of the Resigning Trustee that the Successor Trustee may suffer or incur as a consequence of the Successor Trustee accepting this appointment and acting as successor trustee under the Indenture. The Successor Trustee will furnish to the Company, promptly upon acknowledge, all documents with esteem to any action the consequence of which would make the indemnity provided for in this paragraph operative. The Successor Trustee shall notify the Company in write of any claim for which it may seek indemnity. c. As security for the operation of the obligations of the Issuers and the Guarantor under this section 8 and under Section 8.05 of the Indenture, the Successor Trustee shall have a lien prior to the Securities of such Issuer upon all property and funds held or collected in respect of such Securities of such Issuer by the Trustee as such. 9. far Assurances. The Issuers, the Guarantor and the Resigning Trustee, for the purposes of more fully and surely vesting in and confirming to the Successor Trustee, as successor trustee under the Indenture, said rights, powers, trusts, privileges, duties and obligations agrees, upon reasonable page 14 request of the Successor Trustee, to execute, acknowledge and deliver such farther instruments of conveyance and promote assurance and to do such other things as may reasonably be required for more fully and surely vesting and confirming to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations which the Resigning Trustee now holds under and by virtue of the Indenture. 10. survival of Certain Obligations of the Company. Notwithstanding the resignation of the Resigning Trustee, the Issuers and the Guarantor shall remain obligated under the Indenture to compensate, reimburse and indemnify the Resigning Trustee in connection with its trust territory under the Indenture, and nothing contained in this Instrument shall in any way abrogate the obligations of the Issuers or the Guarantor to the Resigning Trustee under the Indenture or any lien created in favor of the Resigning Trustee thereunder. 11. Corporate Trust Office. reference in the indenture to the `` Corporate Trust Office '' of the Resigning Trustee or other alike terms shall be deemed to refer to the Corporate Trust Office of the Successor Trustee at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 or any early agency of the Successor Trustee at which, at any especial time, its bodied hope business shall be chiefly administered. 12. Notices. All notices, whether fax or mailed will be deemed receive when send pursuant to the play along instructions : TO THE SUCCESSOR TRUSTEE : WILMINGTON TRUST COMPANY Attn : Corporate Trust Administration Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 TELEPHONE : ( 302 ) 651-1343 TELECOPIER : ( 302 ) 651-8882 TO THE RESIGNING TRUSTEE : CITIBANK, N.A. 111Wall Street, 14th Floor New York, New York 10005 TELEPHONE : ( 212 ) 657-7805 TELECOPIER : ( 212 ) 657-4009 TO THE COMPANY : xerox CORPORATION 800 Long Ridge Road Stamford, Connecticut 06904 Attn : adjunct Treasurer TELEPHONE : ( 203 ) 968-4653 TELECOPIER : ( 203 ) 968-3972 TO XEROX OVERSEAS : XEROX OVERSEAS HOLDINGS LIMITED Bridge House, Oxford Road Uxbridge, Middlesex UB8 1HS, United Kingdom TELEPHONE : 011 44 ( 0 ) 1895 251133 TELECOPIER : 011 44 ( 0 ) 1895 845472 ( with a copy to the Company ) page 15 TO XEROX CAPITAL : XEROX CAPITAL ( EUROPE ) PLC Bridge House, Oxford Road Uxbridge, Middlesex UB8 1HS, United Kingdom TELEPHONE : 011 44 ( 0 ) 1895 251133 TELECOPIER : 011 44 ( 0 ) 1895 845472 ( with a transcript to the Company ) 13. effective Date. This instrument and the resignation, appointment and acceptance effected hereunder shall be effective as of the close of business on the effective Date. 14. Governing Law. This Instrument shall be governed by and construed in accordance with the laws of the State of New York. 15. Counterparts. This instrument may be executed in any issue of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this instrument to be effective as of the sidereal day and class first above written. WILMINGTON TRUST COMPANY, Successor Trustee By : _____________________________ name : championship : CITIBANK, N.A., Resigning Trustee By : _____________________________ name : entitle : xerox CORPORATION, caller By : _____________________________ mention : style : XEROX OVERSEAS HOLDINGS LIMITED, Issuer By : _____________________________ name : deed : photocopy ( CAPITAL ) EUROPE PLC, Issuer By : _____________________________ identify : championship : foliate 16
 display 4 ( h ) ( 2 ) instrument OF RESIGNATION, APPOINTMENT AND ACCEPTANCE THIS INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, ( `` instrument '' ), dated and effective as of February 1, 2001 ( the `` effective Date '' ), among XEROX CREDIT CORPORATION, a corporation organized under the laws of the State of Delaware ( the `` Company '' ), CITIBANK, N.A., a home bank association organized under the laws of the United States of America ( the `` Resigning Trustee '' ), and WILMINGTON TRUST COMPANY, a bank corporation organized under the laws of the State of Delaware ( the `` Successor Trustee '' ). Capitalized terms not otherwise defined herein shall have the lapp mean ascribed to such terms in the Indenture as referred to below. RECITALS WHEREAS, pursuant to an indentation, dated as of April 1, 1999 ( the '' Indenture '' ), between the Company and the Resigning Trustee, the Company issued its $ 300,000,000 Medium Term Notes, Series G due November 1, 2001 ( Cusip 983917BT1 ) ( the `` Securities '' ) ; WHEREAS, the Company appointed the Resigning Trustee as the regent under the Indenture and in its capacity as the paying agent and registrar ( in each such capacitance, the `` Paying Agent '' ) of all Securities issued under the Indenture ; WHEREAS, there is soon issued and great $ 300,000,000 in aggregate chief sum of the Securities ; WHEREAS, the Indenture provides that the regent may resign at any time with respect to any serial of Securities and be discharged from the trusts created by the indenture by notifying the caller in writing ; WHEREAS, the Indenture further provides that if the regent resigns with respect to any series of Securities, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor regent with respect to such applicable series of Securities ; WHEREAS, the Resigning Trustee desires to resign as the trustee with esteem to all Securities issued pursuant to the Indenture, and the Company desires to appoint the Successor Trustee as regent to succeed the Resigning Trustee as the regent with deference to the Securities ; WHEREAS, the Resigning Trustee will remain give Agent with respect to the Securities ; and WHEREAS, the Successor Trustee is will to accept the appointment as regent under the Indenture. NOW, THEREFORE, in consideration of the covenants set forth herein and other thoroughly and valuable circumstance, the receipt and enough of which are hereby acknowledged, the parties hereto agree as follows : 1. toleration of Resignation of Resigning Trustee and Appointment of Successor Trustee. The party having received written notice of the Resigning Trustee 's request to resign as trustee pursuant to Section 8.07 ( boron ) of the Indenture, hereby accepts the resignation of the Resigning Trustee as regent under the Indenture. Pursuant to Section 8.07 ( east ) of the Indenture, the Company acting pursuant to Board Resolution hereby appoints the Successor Trustee as regent under the Indenture, and vests and confirms to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations of the regent under the Indenture. 2. ship's company 's Representations and Warranties. The Company hereby represents and warrants to the Successor Trustee that : a. It is punctually organized and validly existing and in thoroughly stand under all applicable law, and, this Instrument has been punctually authorized, executed and delivered on its behalf and constitutes its legal, valid, ski binding and enforceable obligation ; b-complex vitamin. It has not entered into any amendment or accessory to the Indenture, and the Indenture is in full push and effect ; c. No Event of Default and no default option exists under the Indenture ; d. No covenant or condition contained in the Indenture has been waived by the Holders of a share in aggregate principal sum of the Securities required by the indentation to effect any such release ; e. The Indenture was validly executed and delivered by it, and the Securities are validly publish securities of the Company ; and f. The execution and pitch of this Instrument do not and will not conflict with, or solution in a breach of, any of the terms or provisions of, or constitute a nonpayment under, any ( one ) abridge, agreement, indentation or other instrument ( including, without limitation, its certificate of incorporation, by-laws and/or any and all other applicable organizational documents ) to which it is a party or by which it or its place is bound, or ( two ) any opinion, rule or order of any woo or governmental agency or regulative body or law, predominate or regulation applicable to it or its property. 3. Resigning Trustee 's Representations and Warranties. The Resigning Trustee hereby represents and warrants to the Successor Trustee that : a. It has not entered into any amendment or supplement to the Indenture and the Indenture is in fully force and consequence ; barn. No covenant or stipulate contained in the Indenture has been waived by the Resigning Trustee or by the Holders of a percentage in aggregate star sum of the Securities required by the indenture to effect any such release ; c. There is no action, suit or proceeding pending or threatened against the Resigning Trustee of which it has actual cognition before any court or governmental authority arising out of any military action or omission by the Resigning regent as regent under the Indenture ; d. It has made, or promptly will make, available to the Successor Trustee originals, if available, or copies in its self-control, of all documents relating to the trusts created by the Indenture ( the `` Trusts '' ) and all data in the possession of its bodied trust presidency department relating to the government and status of the Trusts and shall do such early things as the Successor Trustee may reasonably request to more fully singlet and confirm in the Successor Trustee all the rights, powers, trusts, privileges, duties and obligations assigned and transferred hereby to the Successor Trustee ; e. It has legally discharged its duties as regent under the Indenture ; f. Pursuant to Section 3.03 of the Indenture, it punctually authenticated and delivered the Securities in an aggregate principal face measure of $ 300,000,000 and there is presently issued and outstanding $ 300,000,000 in aggregate principal sum of the Securities ; g. As of the Effective Date, it holds no place or money in its capacity as regent under the Indenture ; and h. This instrumental role has been punctually authorized, executed and delivered on behalf of the Resigning Trustee and constitutes its legal, valid, oblige and enforceable obligation. 4. Successor Trustee 's Representations and Warranties. The Successor Trustee represents and warrants to the Resigning Trustee and the company that : a. It is qualified and eligible to serve as trustee under the Indenture and the Trust Indenture Act of 1939, as amended ( the `` Act '' ) ; and b. This instrument has been punctually authorized, executed and delivered on behalf of the Successor Trustee and constitutes its legal, valid, bind and enforceable duty. 5. toleration by Successor Trustee. The Successor Trustee hereby accepts its appointment, as of the Effective Date, as successor trustee under the Indenture, and bear, as of the Effective Date, all rights, powers, trusts, privileges, duties and obligations of the trustee thereunder, subject to the terms and conditions therein. 6. Notice to Holders. promptly after the effective Date of this Instrument, the Company shall give notice in accordance with Section 8.07 ( fluorine ) of the Indenture of the resignation of the Resigning Trustee and the appointment of the Successor Trustee. 7. appointment by Resigning Trustee. The Resigning Trustee hereby confirms, assigns, transfers, delivers and conveys, as of the Effective Date, to the Successor Trustee, as successor regent under the Indenture, upon the Trusts expressed in the Indenture, all rights, powers, trusts, privileges, duties and obligations, which the Resigning Trustee, as trustee now holds under and by virtue of the Indenture, and shall pay over to the Successor Trustee, any and all place and moneys held by the Resigning Trustee under and by virtue of the Indenture, subject to the spleen provided by Section 8.05 of the Indenture, which lien the Resigning Trustee expressly reserves to the fullest extent necessary to secure the Company 's obligations under said segment to the Resigning Trustee, which lien shall besides secure the Company's obligations under said section to the Successor Trustee. not withstanding any other planning in this instrument, the Resigning Trustee shall continue to act as Paying Agent under the indentation to the extent that the Resigning Trustee acts as Paying Agent under any series of Securities, and the Successor Trustee assumes none of the obligations or duties of the Paying Agent in the Indenture. 8. damages a. The parties to this Instrument agree that this instrument does not constitute an assumption by the Successor Trustee of any liability of the Resigning Trustee arising out of any breach by the Resigning Trustee in the performance of its duties as regent under the Indenture. b-complex vitamin. The party agrees to pay or indemnify, as applicable, the Successor Trustee and save the Successor Trustee harmless from and against any and all costs, claims, liabilities, losses or damages any ( including the reasonable fees, expenses and disbursements of the Successor Trustee's legal guidance and other advisors ) arising out of the actual, alleged or decide actions or omissions of the Resigning Trustee that the Successor Trustee may suffer or incur as a result of the Successor Trustee accepting this date and acting as successor regent under the Indenture. The Successor Trustee will furnish to the Company, promptly upon receipt, all documents with deference to any action the consequence of which would make the indemnity provided for in this paragraph operative. The Successor Trustee shall notify the Company in writing of any claim for which it may seek damages. c. As security system for the performance of the obligations of the Company under this section 8 and under Section 8.05 of the Indenture, the Successor Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such. 9. further Assurances. The company and the Resigning Trustee, for the purposes of more amply and surely vesting in and confirming to the Successor Trustee, as successor trustee under the Indenture, said rights, powers, trusts, privileges, duties and obligations, agree upon reasonable request of the Successor Trustee, to execute, admit and deliver such far instruments of conveyance and further assurance and to do such other things as may sanely be required for more fully and surely vesting and confirming to the Successor Trustee all rights, powers, trusts, privileges, duties and obligations which the Resigning Trustee nowadays holds under and by virtue of the Indenture. 10. survival of Certain Obligations of the Company. Notwithstanding the resignation of the Resigning Trustee, the Company shall remain oblige under the Indenture to compensate, recoup and indemnify the Resigning Trustee in connection with its trust territory under the Indenture, and nothing contained in this Instrument shall in any way abrogate the obligations of the Company to the Resigning Trustee under the Indenture or any lien created in privilege of the Resigning Trustee thereunder. 11. Corporate Trust Office. reference in the indenture to the `` Corporate Trust Office '' of the Resigning Trustee or other alike terms shall be deemed to refer to the Corporate Trust Office of the Successor Trustee at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 or any other position of the Successor Trustee at which, at any particular clock, its bodied trust business shall be chiefly administered. 12. Notices. All notices, whether fax or mailed will be deemed welcome when send pursuant to the following instructions : TO THE SUCCESSOR TRUSTEE : WILMINGTON TRUST COMPANY Attn : Corporate Trust Administration Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 TELEPHONE : ( 302 ) 651-1343 TELECOPIER : ( 302 ) 651-8882 TO THE RESIGNING TRUSTEE : CITIBANK, N.A. 111 Wall Street, 14th Floor New York, New York 10005 TELEPHONE : ( 212 ) 657-7805 TELECOPIER : ( 212 ) 657-4009 TO THE COMPANY : photocopy CREDIT CORPORATION 800 Long Ridge Road Stamford, Connecticut 06904 Attn : assistant Treasurer TELEPHONE : ( 203 ) 968-4653 TELECOPIER : ( 203 ) 968-3972 13. effective Date. This instrumental role and the resignation, appointment and acceptance effected hereunder shall be effective as of the close of business on the effective Date. 14. Governing Law. This Instrument shall be governed by and construed in accordance with the laws of the State of New York. 15. Counterparts. This instrumental role may be executed in any total of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same legal document. [ SIGNATURE PAGE FOLLOWS ] IN WITNESS WHEREOF, the parties have executed this instrument to be effective as of the day and class first above written. WILMINGTON TRUST COMPANY, Successor Trustee
 parade 10 ( bacillus ) As Amended Through 10/9/00 XEROX CORPORATION 1991 LONG-TERM INCENTIVE PLAN 1. Purpose The determination of the Xerox Corporation 1991 Long-Term Incentive Plan ( the `` Plan '' ) is to advance the interests of Xerox Corporation ( the `` Company '' ) and to increase stockholder value by providing officers and employees with a proprietary interest in the growth and operation of the Company and with incentives for cover servicing with the Company, its subsidiaries and affiliates. 2. Term The Plan shall be effective as of May 16, 1991 and shall remain in effect until May 20, 2004 unless sooner terminated by the Company 's Board of Directors ( the '' Board '' ). After termination of the Plan, no future awards may be granted but previously made awards shall remain outstanding in accord with their applicable terms and conditions and the terms and conditions of the Plan. 3. plan Administration The Executive Compensation and Benefits Committee of the Board, or such other committee as the Board shall determine, comprised of not less than three members shall be creditworthy for administering the plan ( the `` compensation Committee '' ). To the extent specified by the Compensation Committee it may delegate its administrative responsibilities to a subcommittee of the Compensation Committee comprised of not less than three members ( the Compensation Committee and such subcommittee being hereinafter referred to as the `` Committee '' ). The Compensation Committee or such subcommittee members, as appropriate, shall be qualified to administer this plan as contemplated by ( a ) rule 16b-3 under the Securities and Exchange Act of 1934 ( the `` 1934 Act '' ) or any successor rule and ( b ) section 162 ( m ) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder ( `` segment 162 ( thousand ) '' ). The Committee, and such subcommittee to the extent provided by the Committee, shall have full moon and exclusive exponent to interpret, interpret and implement the Plan and any rules, regulations, guidelines or agreements adopted hereinafter and to adopt such rules, regulations and guidelines for carrying out the plan as it may deem necessity or proper. These powers shall include, but not be limited to, ( one ) decision of the character or types of awards to be granted under the design ; ( two ) determination of the terms and conditions of any awards under the plan ; ( three ) determination of whether, to what extent and under what circumstances awards may be settled, paid or exercised in cash, shares, other securities, or early awards, or early place, or canceled, forfeited or suspended ; ( four ) borrowing of such modifications, amendments, procedures, subplans and the like as are necessary to comply with provisions of the laws of other countries in which the ship's company may operate in order to assure the viability of awards granted under the plan and to enable participants employed in such other countries to receive advantages and benefits under the Plan and such laws ; ( five ) submit to the rights of participants, modification, switch, amendment or cancellation of any prize to correct an administrative error and ( six ) taking any early military action the Committee deems necessary or desirable for the administration of the Plan. All determinations, interpretations, and early decisions under or with esteem to the Plan or any award by the Committee shall be final, conclusive and binding upon the Company, any participant, any holder or beneficiary of any award under the Plan and any employee of the Company. Except for the power to amend this plan as provided in Section 13 and except for determinations regarding employees who are national to Section 16 of the 1934 Act or certain key employees who are or may become, as determined by the Committee, discipline to the section 162 ( molarity ) compensation deductibility limit ( the `` Covered Employees '' ), the Committee may delegate any or all of its duties, powers and authority under the Plan pursuant to such conditions or limitations as the Committee may establish to any policeman or officers of the Company. 4. Eligibility Any employee of the Company shall be eligible to receive an prize under the Plan. `` Employee '' shall besides include any former employee of the Company eligible to receive a refilling award as contemplated in Sections 5 and 7, and '' company '' shall include any entity that is immediately or indirectly controlled by the Company or any entity in which the Company has a meaning equity interest, as determined by the Committee. 5. Shares of Stock Subject to the plan For each calendar year from and including 1991 to but excluding 1999, a phone number of shares of Common Stock, equality measure $ 1.00 per share, of the Company ( `` Common Stock '' ) equal in an sum of up to one percentage ( 1 % ) of the adjusted average shares of Common Stock outstanding used to calculate load earnings per share ( previously known as fully diluted earnings per share ) as reported in the annual report to shareholders for the preceding year shall become available for issue under the Plan ; and for the calendar class 1999, and for each calendar year thereafter, a issue of shares of Common Stock equal in an come to two percentage ( 2 % ) of the adjust average shares of Common Stock great used to calculate dilute earnings per plowshare ( previously known as amply diluted earnings per share ) as reported in the annual report to shareholders for the preceding class shall become available for issue under the Plan. In summation, ( a ) any shares of Common Stock which as of the effective date of the Plan are reserved for issue under the ship's company 's 1976 Executive Long-Term Incentive Plan the `` 1976 design '' and which are not thereafter issued and ( b ) any shares of Common Stock available for issue under the Plan in former years but not actually issued, shall be added to the aggregate number of shares of coarse Stock available for issue in that calendar year under the Plan. For purposes of the preceding paragraph, the following shall not be counted against shares available for issue under the plan : ( i ) village of stock taste rights ( `` SAR '' ) in cash or any shape other than shares and ( two ) requital in shares of dividends and dividend equivalents in junction with outstanding awards. Any shares that are issued by the Company, and any awards that are granted by, or become obligations of, the company, through the assumption by the Company or an affiliate of, or in substitution for, great awards previously granted by an acquired party shall not be counted against the shares available for issue under the Plan. In no event, however, except as topic to adaptation as provided in part 6 shall more than ( a ) fifteen million ( 15,000,000 ) shares of Common Stock be available for issue pursuant to the exercise of incentive stock options ( `` ISOs '' ) awarded under the Plan ( 1 ) ; ( b ) thirteen million seven hundred ninety six thousand one hundred eighty-one ( 13,796,181 ) shares of Common Stock shall be available for issue pursuant to livestock awards granted under section 7 ( degree centigrade ) of the Plan ( 1 ) ; and ( coke ) five million ( 5,000,000 ) shares of Common Stock shall be made the national of awards under any combination of awards under Sections 7 ( a ), 7 ( bacillus ) or 7 ( vitamin c ) of the Plan to any individual individual ( 2 ). SARs whether settled in cash or shares of Common Stock shall be counted against the limit set forth in ( hundred ). ( 1 ) effective May 23, 1996 ( 2 ) effective May 15, 1997 Any shares issued under the plan may consist in whole or in share, of authorized and unissued shares or of department of the treasury shares, and no fractional shares shall be issued under the Plan. Cash may be paid in stead of any fractional shares in settlements of awards under the Plan. 6. Adjustments and Reorganizations The Committee may make such adjustments as it deems appropriate to meet the purpose of the design in the event of changes that impact the Company 's partake monetary value or contribution status, provided that any such actions are systematically and equitably applicable to all affect participants. In the event of any stock dividend, malcolm stock split, combination or change of shares, amalgamation, consolidation, by-product or other distribution ( early than normal cash dividends ) of Company assets to shareholders, or any other change affecting shares, such adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change shall be made with deference to ( iodine ) the aggregate number of shares that may be issued under the design ; ( two ) the count of shares subject to awards of a pin down type or to any individual under the Plan ; and/or ( three ) the price per share for any great stock options, SARs and other awards under the Plan. 7. Awards The Committee shall determine the type or types of prize ( s ) to be made to each player under the plan and shall approve the terms and conditions governing such awards in accordance with Section 12. Awards may include but are not limited to those listed in this department 7. Awards may be granted individually, in combination or in tandem so that the liquidation or payment of one mechanically reduces or cancels the other. Awards may besides be made in combination or in tandem with, in refilling of, as alternatives to, or as the requital human body for, grants or rights under any other employee or compensation plan of the Company, including the plan of any acquire entity. however, under no circumstances may stock option awards be made which provide by their terms for the automatic rifle award of extra store options upon the exercise of such awards. ( a ) Stock Option is a concede of a justly to purchase a stipulate issue of shares of Common Stock during a assign time period. The buy price of each option shall be not less than 100 % of Fair Market Value ( as defined in Section 10 ) on the effective go steady of grant, except that, in the font of a stock choice granted retroactively in tandem with or as a substitution for another prize, the exert or designated monetary value may be no lower than the Fair Market Value of a share on the go steady such other award was granted. A stock option may be exercised in whole or in installments, which may be accumulative. A breed option may be in the form of an ISO which complies with Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder at the time of grant. The price at which shares of Common Stock may be purchased under a lineage choice shall be paid in full at the time of the exercise in cash or such other method as provided by the Committee at the time of grant or as provided in the imprint of agreement approved in accordance hereby, including tender ( either actually or by attestation ) Common Stock, surrendering a stock award valued at Fair Market Value on the date of surrender, surrendering a cash award, or any combination thereof. ( b-complex vitamin ) Stock Appreciation Right is a right to receive a requital, in cash and/or Common Stock, as determined by the Committee, equal to the excess of the Fair Market Value of a specify phone number of shares of Common Stock on the date the SAR is exercised over the Fair Market Value on the date of award of the SAR as set forth in the applicable award agreement, except that, in the character of a SAR granted retroactively in tandem with or as a substitution for another award, the exercise or designated price may be no lower than the Fair Market Value of a parcel on the date such other award was granted ( speed of light ) Stock Award is an award made in banal or denominated in units of stock. All or separate of any stock award may be subject to conditions established by the Committee, and set forth in the award agreement, which may include, but are not limited to, continuous service with the Company, accomplishment of specific business objectives, and other measurements of individual, occupation unit of measurement or company performance. ( d ) Cash Award is an award denominated in cash with the eventual payment amount topic to future military service and such other restrictions and conditions as may be established by the Committee, and as set forth in the prize agreement, including, but not limited to, continuous service with the party, accomplishment of specific business objectives, and other measurement of individual, business unit or ship's company performance. Cash Awards to any unmarried Covered Employee, including dividend equivalents in cash or shares of Common Stock account payable based upon attainment of specific performance goals, may not exceed in the aggregate $ 5,000,000 for each performance time period established by the Committee under Section 23 of the Plan. 8. Dividends and Dividend Equivalents The Committee may provide that awards denominated in stock earn dividends or dividend equivalents. such dividend equivalents may be paid presently in cash or shares of Common Stock or may be credited to an account established by the Committee under the plan in the identify of the player. In accession, dividends or dividend equivalents paid on outstanding awards or issued shares may be credited to such account rather than paid presently. Any credit of dividends or dividend equivalents may be subject to such restrictions and conditions as the Committee may establish, including reinvestment in extra shares or share equivalents. 9. Deferrals and Settlements Payment of awards may be in the form of cash, stock, other awards, or in such combinations thereof as the Committee shall determine at the time of accord, and with such restrictions as it may impose. The Committee may besides require or permit participants to elect to defer the issue of shares or the colonization of awards in cash under such rules and procedures as it may establish under the Plan. It may besides provide that postpone settlements include the payment or credit of interest on the postponement amounts or the payment or credit of dividend equivalents on postpone settlements denominated in shares. 10. fair Market Value Fair Market Value for all purposes under the Plan shall mean the average of the high and broken prices of Common Stock as reported in The Wall Street Journal in the New York Stock Exchange complex transactions or similar successor consolidated transactions reports for the relevant date, or if no sales of common Stock were made on said exchange on that date, the average of the high and low prices of Common Stock as reported in said composite transaction report for the preceding day on which sales of coarse Stock were made on said Exchange. Under no circumstances shall Fair Market Value be less than the par value of the Common Stock. 11. transferability and Exercisability All awards under the Plan will be nontransferable and shall not be assignable, alienable, salable or otherwise movable by the player other than by will or the laws of lineage and distribution except pursuant to a domestic relations order entered by a court of competent legal power or as otherwise determined by the Committee. In the consequence that a player terminates employment with the company to assume a position with a governmental, charitable, educational or similar non-profit institution, the Committee may authorize a third gear party, including but not limited to a `` blind '' trust, to act on behalf of and for the profit of the respective player with respect to any outstanding awards. Except as differently provided in this section 11, during the life of the participant, awards under the Plan shall be exercisable merely by him or her except as otherwise determined by the Committee. In addition, if sol permitted by the Committee, a participant may designate a benefactive role or beneficiaries to exercise the rights of the player and receive any distributions under this Plan upon the death of the player. 12. Award Agreements Awards under the Plan shall be evidenced by one or more agreements approved by the Committee that set forth the terms and conditions of and limitations on an prize, except that in no event shall the term of any ISO exceed a period of ten years from the date of its grant. The Committee need not require the execution of any such agreement by a player in which character credence of the award by the respective participant will constitute agreement to the terms of the award. 13. design Amendment The Compensation Committee may amend the plan as it deems necessary or appropriate, except that no such amendment which would cause the Plan not to comply with the requirements of ( one ) section 162 ( megabyte ) with respect to performance-based compensation, ( two ) the Code with respect to ISOs or ( three ) the New York Business Corporation Law as in effect at the time of such amendment shall be made without the blessing of the Company 's shareholders. No such amendment shall adversely affect any outstanding awards under the plan without the accept of all of the holders thereof. 14. tax Withholding The Company shall have the right to deduct from any colony of an prize made under the Plan, including the manner of speaking or vest of shares, an come sufficient to cover withhold required by law for any federal, express or local taxes or to take such other legal action as may be necessary to satisfy any such withholding tax obligations. The Committee may permit shares to be used to satisfy required tax withholding and such shares shall be valued at the Fair Market Value as of the colonization date of the applicable award. 15. early Company Benefit and Compensation Programs Unless otherwise determined by the Committee, settlements of awards received by participants under the Plan shall not be deemed a region of a participant's even, recurring compensation for purposes of calculating payments or benefits from any Company benefit plan, severance broadcast or severance pay law of any area. 16. Unfunded plan Unless differently determined by the Committee, the Plan shall be unfunded and shall not create ( or be construed to create ) a entrust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any participant or other person. To the extent any person holds any rights by merit of a grant awarded under the Plan, such veracious ( unless otherwise determined by the Committee ) shall be nobelium greater than the right of an unguaranteed general creditor of the Company. 17. Future Rights No person shall have any claim or proper to be granted an award under the Plan, and no player shall have any right by rationality of the grant of any award under the plan to continued employment by the Company or any auxiliary of the Company. 18. general Restriction Each award shall be capable to the necessity that, if at any time the Committee shall determine, in its sole discretion, that the list, registration or qualification of any award under the Plan upon any securities substitution or under any department of state or federal law, or the accept or approval of any government regulative body, is necessity or desirable as a condition of, or in joining with, the accord of such award or the exercise liquidation thence, such prize may not be granted, exercised or settled in unharmed or in separate unless such number, registration, qualification, accept or blessing shall have been effected or obtained free of any conditions not acceptable to the Committee. 19. Governing Law The robustness, structure and effect of the Plan and any actions taken or relating to the Plan shall be determined in accord with the laws of the state of matter of New York and applicable Federal law. 20. Successors and Assigns The Plan shall be binding on all successors and permitted assigns of a participant, including, without limitation, the estate of such player and the executor, administrator or trustee of such estate of the realm, or any receiver or regent in bankruptcy or example of such participant 's creditors. 21. Rights as a Shareholder A player shall have no rights as a stockholder until he or she becomes the holder of record of Common Stock. 22. Change in Control Notwithstanding anything to the adverse in the plan, the following shall apply to all awards granted and outstanding under the plan : ( a ) Definitions. The adopt definitions shall apply to this section 22 : A `` Change in Control, '' unless differently defined by the Compensation Committee, shall be deemed to have occurred if ( a ) any `` person, '' as such term in used in section 13 ( five hundred ) and 14 ( five hundred ) of the 1934 Act, early than ( 1 ) the company, ( 2 ) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, ( 3 ) any company owned, directly or indirectly, by the shareholders of the Company in well the lapp proportions as their ownership of stock of the Company, or ( 4 ) any person who becomes a `` beneficial owner '' ( as defined below ) in association with a transaction described in clause ( 1 ) of subparagraph ( c ) below, is or becomes the `` beneficial owner '' ( as defined in Rule 13d-3 under the 1934 Act ), directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates ) representing 20 percentage or more of the compound vote power of the Company 's then outstanding voting securities ; ( barn ) the follow individuals cease for any reason to constitute a majority of the directors then serving ; individuals who, on October 9, 2000 appoint the Board and any fresh film director ( other than a conductor whose initial assumption of agency is in connection with an actual or threaten election contest, including but not limited to a accept solicitation, relating to the election of directors of the Company ) whose appointment or election by the Board or nominating speech for election by the Company 's shareholders was approved or recommended by a vote of at least two-thirds of the directors then hush in office who were directors on October 9, 2000 or whose appointment, election or nomination for election was previously so approved or recommended ; ( vitamin c ) there is consummated a amalgamation or consolidation of the Company or any address or indirect subsidiary company of the Company with any early pot, other than ( 1 ) a amalgamation or consolidation which results in the directors of the Company immediately prior to such fusion or consolidation continuing to constitute at least a majority of the display panel of directors of the Company, the surviving entity or any parent thereof or ( 2 ) a fusion or consolidation effected to implement a recapitalization of the Company ( or alike transaction ) in which no person is or becomes the beneficial owner, immediately or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates ) representing 20 % or more of the unite vote ability of the Company 's then great securities ; or ( five hundred ) the shareholders of the Company approve a design of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or well all of the Company 's assets, other than a sale or disposal by the Company of all or well all of the Company 's assets to an entity, at least 50 % of the combined vote world power of the voting securities of which are owned by stockholders of the Company in substantially the like proportions as their possession of the Company immediately anterior to such sale. `` CIC monetary value '' shall mean the higher of ( a ) the highest price paid for a share of the Company 's Common Stock in the transaction or series of transactions pursuant to which a Change in Control of the Company shall have occurred, or ( b-complex vitamin ) the highest price paid for a partake of the Company 's Common Stock during the 60 day period immediately preceding the date upon which the event constituting a Change in Control shall have occurred as reported in The Wall Street Journal in the New York Stock Exchange Composite Transactions or exchangeable successor consolidated transactions reports. ( boron ) acceleration of Vesting and Payment of SARs, Stock Awards, Cash Awards, and Dividends and Dividend Equivalents. ( 1 ) Upon the occurrence of an consequence constituting a Change in Control, all SARs, stock awards, cash awards, dividends and dividend equivalents outstanding on such date shall become 100 % vested and shall be paid in cash deoxyadenosine monophosphate soon as may be feasible. Upon such requital, such awards and any relate broth options shall be cancelled. ( 2 ) The total of cash to be paid shall be determined by multiplying the total of such awards, as the case may be, by : ( i ) in the subject of stock certificate awards, the CIC Price ; ( two ) in the case of SARs, the dispute between the exercise price of the relate option per share and the CIC Price ; ( three ) in the case of cash awards where the award period, if any, has not been completed upon the occurrence of a Change in Control, the maximum prize of such awards as determined by the Committee at the fourth dimension of grant, without see to the operation criteria, if any, applicable to such award ; and ( four ) in the shell of cash awards where the award period, if any, has been completed on or prior to the happening of a Change in Control : ( associate in arts ) where the cash award is collectible in cash, the value of such award as determined in accord with the prize agreement, and ( bb ) where the cash award is account payable in shares of Common Stock, the CIC Price. ( c ) Option Surrender Rights. ( 1 ) All stock options granted under the Plan shall be accompanied by choice capitulation rights ( `` OSRs '' ). OSRs shall be evidenced by OSR agreements in such form and not inconsistent with the plan as the Committee shall approve from fourth dimension to prison term. Upon the occurrence of an consequence constituting a Change in Control, all OSRs, to the extent that the CIC Price exceeds the drill price of the relate stock options, shall be paid in cash equally soon as may be feasible. Upon such payment, such rights and any relate lineage options shall be cancelled. ( 2 ) The amount of cash account payable in esteem of an OSR shall be determined by multiplying the number of unexercised shares as to which the right then relates by the remainder between the choice monetary value of such shares and the CIC Price. ( 3 ) Upon the grant of SARs, with regard to the same shares covered by then outstanding OSRs the OSRs relating to such shares shall be automatically cancelled. ( d ) Notwithstanding the foregoing subsections ( a ), ( b ) and ( c ), SARs, OSRs and any stock-based award held by an policeman or director subject to Section 16 of the 1934 Act which have been outstanding less than six months ( or such other menstruation as may be required by the 1934 Act ) upon the happening of an consequence constituting a Change in Control shall not be paid in cash until the passing of such period, if any, as shall be required pursuant to such section, and the amount to be paid shall be determined by multiplying the number of SARs, OSRs or breed awards by the CIC Price determined as though the consequence constituting the Change in Control had occurred on the foremost day following the end of such period. 23. certain Provisions Applicable to Awards to Covered Employees Performance-based awards made to Covered Employees shall be made by the Committee within the time period required under segment 162 ( megabyte ) for the institution of operation goals and shall specify, among other things, the performance period ( sulfur ) for such prize ( which shall be not less than one class ), the performance criteria and the performance targets. The performance criteria shall be any one or more of the be as determined by the Committee and may differ as to type of award and from one operation period to another : earnings per plowshare, total stockholder rejoinder, revert on shareholders ' equity, economic value added measures, return on assets, gross, net income before tax, profit after tax, stock price and hark back on sales. payment or vest of awards to Covered Employees shall be contingent upon satisfaction of the performance criteria and targets as certified by the Committee by resolution of the Committee. To the extent provided at the time of an award, the Committee may in its sole discretion reduce any award to any Covered Employee to any sum, including zero .
 exhibit 10 ( d ) annual Performance Incentive Plan Under the annual Performance Incentive Plan ( APIP ), executive officers of the Company may be entitled to receive performance relate cash payments provided that performance thresholds, established per annum bythe Executive Compensation and Benefits Committee, are met. At the begin of the year, the Committee approves for each officer not participating in the Executive Performance Incentive Plan, an annual incentive prey and maximal opportunity expressed as a share of annual infrastructure wage. The Committee besides establishes overall threshold, target and maximum measures of operation and associate payment schedules. For 2000, the performance measures were earnings per parcel ( 35 % ), tax income emergence ( 25 % ), cash conversion cycle ( 20 % ) and customer gratification ( 20 % ). extra goals are besides established for each policeman that include business unit of measurement specific and/or individual performance goals and objectives. The weights associated with each business whole specific or person performance goal and objective used vary and image from 20 percentage to 50 percentage of the total. actual performance payments to corporate officers are subject to approval by the Committee following the end of the class. As a resultant role of the Company's operation during 2000, no cash bonuses under APIP were paid to officers with respect to 2000 performance .
 exhibit 10 ( e ) As amended by Board of Directors through 10/9/00 1997 restatement of XEROX CORPORATION UNFUNDED RETIREMENT INCOME GUARANTEE PLAN XEROX CORPORATION, a New York pot having its principal administrator function in the City of Stamford, County of Fairfield and State of Connecticut, hereby adopts the XEROX CORPORATION UNFUNDED RETIREMENT INCOME GUARANTEE PLAN effective on the effective Date as follows : restatement October 13, 1997 INDEX Page No. ARTICLE 1 Definitions 3 ARTICLE 2 Purpose of Plan 3 ARTICLE 3 Eligibility 4 ARTICLE 4 Benefits 4 ARTICLE 5 Change in Control 6 ARTICLE 6 Administration 7 ARTICLE 7 Amendment and Termination 7 ARTICLE 8 Miscellaneous 8 XEROX CORPORATION UNFUNDED RETIREMENT INCOME GUARANTEE PLAN ARTICLE 1 Definitions When used herein, the words and phrases defined hereinafter shall have the following mean unless a different meaning is intelligibly required by the context of the Plan. Terms used herein which are defined in Article 1 of the Funded Plan shall have the meanings assigned to them in the Funded Plan. section 1.1. administrator. The Administrator appointed by the Vice President, Human Resources of the Company Section 1.2. modal monthly recompense. Shall be determined under Article 1 of the Funded Plan, without see to the dollar limitation contained therein ; and, notwithstanding the above, shall besides include any compensation provided under the Xerox Corporation CEO Challenge Bonus Program. department 1.3. Board. The Board of Directors of the Company. section 1.4. Code. The Internal Revenue Code of 1986 as amended, or as it may be amended from time to time. section 1.5. company. Xerox Corporation. segment 1.6. effective Date. The original effective date of the Plan was July 1, 1977. This restatement is effective as of October 13, 1997. part 1.7. Employee. A Member in the Funded Plan. section 1.8. Funded plan. The Xerox Corporation Retirement Income Guarantee Plan. section 1.9. plan. The `` Xerox Corporation Unfunded Retirement Income Guarantee Plan '', as set forth herein or in any amendment hereto. ARTICLE 2 Purpose of Plan section 2.1. Purpose. The plan is designed to provide retirement benefits collectible out of the general assets of the Company as provided in Section 4.1. ARTICLE 3 Eligibility Section 3.1. eligibility. All Employees and beneficiaries of Employees eligible to receive benefits from the Funded Plan shall be eligible to receive benefits under this plan in accord with Section 4.1 careless of when the Employees may have retired. ARTICLE 4 Benefits incision 4.1. measure of Benefits. The amount of the benefit account payable under the Plan shall be equal to the monthly benefit which would be collectible to or on behalf of an Employee under the Funded Plan as a Life Annuity if Section 9.5 of the Funded design were inapplicable and if the come of any compensation deferred by the Employee was included in the calculation of Average monthly Compensation ( except the increase in recompense which became collectible under the Company's policy of increasing compensation by the come which can not be added to an Employee 's accounts under the profit Sharing plan by reason of the restriction contained in Section 415 of the Code ), less the follow : ( a ) The monthly benefit actually collectible as a Life Annuity to or on behalf of the Employee under the Funded Plan early than the RIGP Plus Benefit account payable under Article 17 thence. ( boron ) The monthly benefit which could be purchased as a Life Annuity with the balance, if any, in the Employee 's postpone recompense account under the Xerox Corporation Deferred Compensation Plan For Executives arising from the Retirement Account assign of the profit Sharing Adjustment under Section 4 thence. ( coulomb ) Any amount paid to the Employee from which FICA taxes are withheld related to nonqualified retirement benefits from a plan sponsored by the Company which have not been previously withheld ( or deemed to be withheld because the utmost tax had already been paid ) and are account payable upon retirement but can not be withheld from any one kernel payment of compensation or other nonqualified plan benefits translated to an annuity ( single biography or joint and survivor as appropriate ) collectible commencing on the go steady of retirement. ( vitamin d ) The measure of that sealed probationary supplement provided to certain high-paid Employees in RIGP effective in 1989 when the RIGP benefit was modified collectible to Employees in a hunk total translated to an annuity ( unmarried life or joint and survivor as allow ) collectible commencing on the date of retirement. part 4.1A Additional Benefit. In accession to the benefit provided by the forfeit provisions of segment 4.1, there shall be an extra profit equal to the excess of ( a ) over ( bel ) where ( a ) is the RIGP Plus Benefit which would be account payable under Article 17 of the Funded Plan as if `` annual Pay '', as defined in Article 17 of the Funded Plan, had been calculated without gaze to the applicable limitations of the `` Code '' as defined in the Funded plan and to include submit compensation to the extent not already included and ( boron ) is the RIGP Plus Benefit calculated under Article 17 of the Funded plan subject to such Code limitations. Notwithstanding any provision of this plan to the contrary, the benefit under this section 4.1A shall be collectible in cash in a swelling kernel. such benefit shall be paid at the time specified in part 4.4. If requital is not made at or about result of employment, the Administrator may, in his or her discretion, determine to increase the sum of the extra benefit at the CBRA pastime rate ( within the intend of the Funded plan ) for the period between termination and payout hereinafter. section 4.2. form of Benefit Payments. The forms of benefit available under the Plan shall be for single Employees a 10-Year certain and life annuity or a life annuity and for marry Employees a 50 % or 100 % joint and survivor annuity choice, all as shall have been elected by Employee on forms provided by the Administrator. The profit account payable to a individual employee who has failed to make such an election shall be a liveliness annuity and for any such marital Employee a 50 % joint and survivor annuity. The 10-year sealed and life annuity is the actuarial equivalent of the life sentence annuity and the 100 % joint and survivor annuity is the actuarial equivalent of the 50 % joint and survivor annuity. Except as otherwise provided in Section 5.1 in no event is the benefit collectible in a ball summarize. Notwithstanding the above, the collocate sum actuarial equivalent of any benefit differently account payable as a monthly measure of one hundred dollars ( $ 100.00 ) or less, shall be distributed in accordance with Section 4.3. The interest rate used in computing the swelling sum actuarial equivalent amount shall be the pastime rate described in the section entitled `` optional Forms of Benefit Payment '' of the Funded Plan. incision 4.3 Death Prior to Benefit Commencement. The spouse of a Participant who dies before beginning of benefits under the Plan shall be entitled to a survivor benefit calculated in accord with Article 7 of the Funded plan in an total equal to the come determined under ( a ) or ( barn ) below. ( a ) In the case of a Participant who is eligible to retire under the Funded design on the date of his or her death, one-half of the retirement benefit to which the Participant would have been entitled under the plan if he or she had retired on the last day of the month coincident with or adjacent following the go steady of the Participant 's death ; or ( bacillus ) In the case of a Participant who is not eligible to retire under the Funded plan on the go steady of his or her end, one-half of the retirement benefit to which the Participant would have been entitled under the plan if he or she had terminated on his or her date of death and survived to the date of payment of benefits as determined under section 4.4 below. section 4.4. clock time of Benefit Payments. Benefits due under the Plan shall be paid coincident with the requital date of benefits under the Funded plan or at such other time or times as the Administrator in his discretion determines. section 4.5. Employee 's Rights Unsecured. The benefits collectible under this Plan shall be unfunded. consequently, no assets shall be segregated for purposes of this design and placed beyond the reach of the Company 's general creditors. The right of any Employee to receive benefits under the provisions of the Plan shall be an unguaranteed title against the general assets of the Company. ARTICLE 5 Change in Control Section 5.1. Change In Control. Notwithstanding anything to the contrary in this plan, in the consequence of a change in control of the Company, as hereinafter defined, each Employee, including go to bed Employees, shall be entitled to a benefit hereunder without gaze to his or her age or Years of Service at the prison term of such change in control. Upon the occurrence of a switch in control of the Company, the benefit of each Employee shall be collectible in a collocate sum within 30 days of such change in control peer in come to the then present value of a benefit expressed in the form provided in Section 4.1 hereof, commencing on the late of ( one ) the date of such change in control and ( two ) the date the Employee would be eligible for a benefit under the Funded Plan, and based upon such Employee 's Average monthly Compensation and Years of Participation as of the date of such change in control. A `` change in control of the company '' shall have the meaning set forth in the Xerox Corporation Retirement Income Guarantee Plan, as may be amended or restated from time to prison term. department 5.2. termination of Employment Following Change in Control. Upon the termination of employment of a Employee following a deepen in control of the Company, such Employee, if he or she has differently satisfied the requirements of the Funded plan for a benefit, shall be entitled to a profit equal to the benefit to which he or she would have been entitled without lotion of Section 5.1, reduced ( but not below zero ) to reflect the value of the profit he or she received pursuant to Section 5.1. part 5.3. calculation of Present Value. For purposes of Section 5.1 hereof, the present rate of a benefit shall be calculated based upon the interest rate which would be used by the Pension Benefit Guaranty Corporation for purposes of determining lump sums for benefits collectible as contiguous annuities with respect to plans terminating on the date on which the change in restraint of the Company occurs and the 1983 GAM mortality board, provided, however, that effective upon the date that the applicable pastime pace as specified in section 417 ( e ) ( 3 ) ( A ) of the Code is adopted for use in the Funded plan, the confront value hereunder shall thereafter be determined under such applicable concern rate and the applicable mortality table as defined in segment 417 ( einsteinium ) ( 3 ) ( A ) ( two ) ( l ) of the Code. For purposes of the Funded Plan, each Employee shall be treated as if they terminated use upon the change in control and had their benefits determined as if they were to begin receiving benefits on the commencement date used in developing the confront rate of the benefit in section 5.1. ARTICLE 6 Administration department 6.1. Duties of Administrator. The Plan shall be administered by the Administrator in accord with its terms and purposes. The Administrator shall determine the amount and manner of payment of the benefits due to or on behalf of each Employee from the plan and shall cause them to be paid by the Company consequently. segment 6.2. finality of Decisions. The decisions made by and the actions taken by the Administrator in the presidency of the Plan shall be concluding and conclusive on all persons, and the Administrator shall not be discipline to person liability with obedience to the plan. ARTICLE 7 Amendment and Termination Section 7.1. Amendment and Termination. It is the intention of the Company to continue the Plan indefinitely. The Company expressly reserves the right to amend the plan at any time and in any especial manner, provided that any such amendment shall be made in accordance with ERISA. such amendments, other than amendments relating to end point of the Plan or relating to benefit levels under Section 4.1 of the Plan, may be effected by ( i ) the Board of Directors, ( two ) a punctually appoint committee of the Board of Directors, or ( three ) the Vice President of the Company creditworthy for human resources or a representative thence. In the event such position is vacant at the time the amendment is to be made, the Chief Executive Officer of the Company shall approve such amendment or appoint a representative. Amendments relating to end point of the Plan or relating to benefit levels under Section 4.1 of the Plan shall be effected pursuant to a resolution punctually adopted by the Board of Directors of the Company, or a punctually form committee of the Board of Directors of the Company, in accordance with the Business Corporation Law of the State of New York. Any amendment, alteration, modification or suspension under subsection ( three ) of the preceding paragraph shall be set forth in a written instrumental role executed by any Vice President of the Company and by the Secretary or an Assistant Secretary of the Company Section 7.2. contractual obligation. Notwithstanding section 7.1, the Company hereby makes a contractual commitment to pay the benefits accrued under the plan to the extent it is financially able of meeting such obligations. ARTICLE 8 Miscellaneous section 8.1. No Employment Rights. nothing contained in the Plan shall be construed as a contract of employment between the Company and an Employee, or as a right of any Employee to be continued in the employment of the Company, or as a limitation of the proper of the Company to discharge any of its Employees, with or without lawsuit. section 8.2. assignment. The benefits collectible under this design may not be assigned or alienated except angstrom may otherwise be required by jurisprudence or pursuant to the terms of a domestic relations order that has been approved by the Plan Administrator. section 8.3. Law Applicable. This plan shall be governed by the laws of the State of New York .
 expose 10 ( fluorine ) As amended by the Board of Directors through 10/9/00 1997 restatement of XEROX CORPORATION UNFUNDED SUPPLEMENTAL RETIREMENT PLAN XEROX CORPORATION, a New York corporation having its principal executive office in the City of Stamford, County of Fairfield and State of Connecticut, hereby adopts the XEROX CORPORATION UNFUNDED SUPPLEMENTAL RETIREMENT PLAN effective on the effective Date as follows : restatement October 13, 1997 XEROX CORPORATION UNFUNDED SUPPLEMENTAL RETIREMENT PLAN Section 1. plan Name The design name is the Xerox Corporation Unfunded Supplemental Retirement Plan ( the `` Plan '' ). section 2. effective Date The master effective date of the Plan is June 30, 1982. The design was restated on three previous occasions, effective February 4, 1985, January 1, 1990, December 6, 1993 and December 9, 1996. This restatement is effective as of October 13, 1997. section 3. purpose of the Plan The Plan is designed to address limited circumstances involved in the retirement of executives. section 4. Covered Employees The follow employees of Xerox Corporation ( the `` Company '' ) are covered by the design : A. All employees who were corporate officers of the Company at grade flat 25 and above on the original effective date of the Plan ( the '' Grandfathered Officers '' ). B. All employees who were corporate officers at grades 23 or 24 on the original effective date of the Plan or who first become bodied officers of the Company at mark degree 23 and above after the original effective date of the Plan and do not fall within categories D through G below ( the `` Officers '' ). C. Certain employees who received a letter dated September 2, 1982 from David T. Kearns regarding Executive Retirement Guidelines ( the `` Guideline Employees '' ). D. All employees who are corporate officers of the Company on the date of this 1996 Restatement who first commenced use with the company on or after attainment of old age 40 and whose names appear on Schedule A ( `` Schedule A '' ) presented at the meet of the Executive Compensation and Benefits Committee held December 9, 1996 and made partially of the records of that touch which Schedule is incorporated herein by citation and made a part of the Plan ( `` Grandfathered Mid-Career Officers '' ). E. All employees who after the date of the 1996 Restatement first start use with the ship's company on or after attainment of age 40 who are elected bodied officers and whose names are added to Schedule A upon selection by the Chief Executive Officer of the Company as maintained with records of the Executive Compensation department of the Company which Schedule as so modified from time to time is incorporated herein by citation and made a share hereof ( `` Mid-Career Officer Hires '' ). F. All employees who are in payroll Band A of the Company on the date of the 1996 Restatement who first commenced use with the ship's company on or after attainment of age 40 and whose names are set forth on schedule B ( `` schedule B '' ) which has been approved by the Vice President responsible for Human Resources and placed with the records of the Executive Compensation department of the Company which Schedule is incorporated herein by reference and made a part of the Plan ( `` Grandfathered Mid-Career Band A Employees '' ). G. All employees who after the date of the 1996 Restatement first get down employment with the party on or after skill of long time 40 who are hired into payroll Band A selected by the Vice President of the Company creditworthy for Human Resources, or his or her designee, such excerpt to be evidenced by the placement of the employee 's name on Schedule C to be maintained from time to time by such Vice President or his or her designee, which Schedule is incorporated herein by reference point and made a separate of the Plan ( `` Mid-Career Band A Hires '' ) H. Grandfathered Mid-Career Officers, Mid-Career Officer Hires, Grandfathered Mid-Career Band A Employees and Mid-Career Band A Hires are sometimes together refer to as `` Mid-Career Executives ''. I. The employees referred to in paragraph A through G above are together referred to herein as `` Participants ''. section 5. eligibility for Benefits Participants must have attained the comply age and completed the pursuit Years of Service to be eligible for benefits under the plan : A. Grandfathered Officers and Guideline Employees -- age 55, Years of Service -- 5. B. Officers -- senesce 60, Years of Service -- 10. C. Grandfathered Mid-Career Officers -- the old age set forth opposite their respective names on Schedule A, Years of Service -- 5. D. Mid-Career Officer Hires -- the age determined by the Chief Executive Officer of the Company as reflected in Schedule A, Years of Service -- 5. E. Grandfathered Mid-Career Band A Employees -- the senesce set away opposite their respective names on the Schedule B, Years of Service -- 5. F. Mid-Career Band A Hires -- the long time determined by the Vice President responsible for Human Resources or his or her delegate as set forth on Schedule C referred to above, Years of Service 5. incision 6. supplementary Retirement Benefit A. The benefit collectible under the Plan shall be a monthly retirement benefit equal to : One and two-thirds percentage of Average Monthly Compensation of the Participant multiplied by the number of full and fractional Years of Participation up to thirty less ( a ) One and two-thirds percentage of the Social Security Benefit multiplied by the number of wide and fractional Years of Participation up to thirty ; and ( barn ) The monthly retirement benefit collectible under the Company's Retirement Income Guarantee Plan ( `` RIGP '' ) ( stated as a Life Annuity ) * as it is in effect as of and from time to time after January 1, 1990 other than the RIGP Plus Benefit account payable under Article 17 thence ; subject to the `` Adjustments '' set forth in subsections B through F below. `` average monthly recompense '' shall be determined under RIGP without attentiveness to the dollar restriction contained in the Plan as required by department 401 ( a ) ( 17 ) of the Internal Revenue Code of 1986, as amended, or any successor thereto ; and, notwithstanding the above, shall besides include any compensation provided under the Xerox Corporation CEO Challenge Bonus Program. `` Social Security Benefit '' shall mean the monthly benefit which a retire Participant or a terminated Participant receives or would be entitled to receive at the age at which unreduced retirement benefits are then paid under the U.S. Social Security Act ( or at his sixty-second birthday, in the event of a retired participant who has at least thirty Years of Service or who, on such Participant 's retirement, is the pilot of an airplane operated by the company ), as a chief policy amount under the U.S. Social Security Act, as amended, whether he or she applies for such benefit or not, and even though he or she may lose separate or all of such benefit for any argue. The come of such Social Security Benefit to which the retire or terminated Participant is or would be entitled shall be computed by the Administrator for the purposes of the Plan as of the January 1 of the calendar class of retirement or termination. In computing such come, the Administrator shall use estimated benefit tables developed by the Plan 's statistician, the five-year average compensation of the Participant and the assumption that the Participant 's compensation anterior to the fifth class preceding the year of ending grew in accord with average national wages. B. Grandfathered Officers -- Adjustments shall be 1. The monthly benefit and the Social Security Benefit shall be calculated at the rate of 3 1/3 % of Average Monthly Compensation and of the Social Security Benefit, respectively, for each broad or fractional year of Participation astir to a maximal of 15 Years of Participation. 2. There shall be no decrease in the benefit account payable upon retirement on or after attainment of long time 55 on account of payment commencing prior to attainment of senesce 65. 3. Amounts included in the Participant 's Executive Expense Allowance shall be included in determining Average monthly Compensation. C. Officers -- Adjustments shall be that there shall be no reduction in the profit account payable upon retirement on or after skill of age 60 on report of payment commencing prior to attainment of long time 65 and no part of the Executive Expense Allowance shall be included in determining Average monthly Compensation. D. Guideline Employees -- An allowance shall be that there shall be no decrease in the benefit account payable upon retirement on or after attainment of senesce 55. * Defined terms in RIGP shall have the lapp meanings in the Plan, except as differently noted herein. E. Mid-Career Executives -- Adjustments shall be 1. The monthly benefit and the Social Security Benefit shall be calculated at the rate of 2.5 % of the Average monthly Compensation and of the Social Security Benefit, respectively, for each full or fractional class of Participation up to a maximal of 20 Years of Participation. 2. There shall be no decrease in the benefit account payable upon retirement on or after skill of senesce 60 on account of payment commencing anterior to attainment of old age 65 and no part of the Executive Expense Allowance, if any, shall be included in determining Average monthly Compensation. F. All Participants -- Adjustments shall be 1. average monthly recompense shall be calculated including any recompense deferred by the Participant during the period used in calculating Average monthly Compensation ( except that there shall not be included any increase in Participant 's compensation which became account payable under the Company's policy of increasing compensation by the measure which can not be added to the Participant 's accounts under the Company 's net income Sharing and Savings Plan ( `` Profit Sharing Plan '' ) by argue of the limitation contained in Section 415 of the Internal Revenue Code of 1986, as amended, hereinafter the `` Code '' ). 2. The keep up extra amounts shall be deducted from the conjectural monthly benefit : ( a ) The measure of the fortune of the Participant 's Account under the Company 's Deferred Compensation Plan For Executives, if any, resulting from the Retirement Account part of the profit Sharing Adjustment ( as defined in such Deferred Compensation Plan ) translated into an annuity ( single liveliness or joint and survivor, as appropriate ) collectible commencing on the date of retirement. ( b-complex vitamin ) The benefit account payable under the Company 's Unfunded Retirement Income Guarantee Plan ( `` Unfunded RIGP '' ) early than the extra benefit account payable under section 4.1A thereof. ( coulomb ) Any sum paid to the participant from which FICA taxes are withheld related to nonqualified retirement benefits from a plan sponsored by the Company which have not been previously withheld ( or deemed to have been withheld because the maximum tax had already been paid ) and are account payable upon retirement but can not be withheld from any single kernel requital of recompense or other nonqualified design benefits translated to an annuity ( one or joint and survivor as appropriate ) account payable commencing on the date of retirement. ( five hundred ) The total of that certain append provided to certain high-paid participants in RIGP effective in 1989 when the RIGP benefit was modified account payable to the Participant in a lump kernel translated to an annuity ( single life or joint and survivor as allow ) account payable commencing on the date of retirement. ( east ) The amount of any pension, retirement or other post-retirement income benefits paid or collectible to a Participant under plans or arrangements provided by the Company or any subordinate of the Company, whether incorporated or organized in the United States or in any early state of the global. section 7. Change In Control. A. Notwithstanding anything to the contrary in this plan, in the event of a change in control of the Company, as hereinafter defined, each Participant, including go to bed Participants, shall be entitled to a benefit hereunder without regard to his or her age or Years of Service at the time of such change in control ( including, without limitation, the benefit provided under Section 8 hereof, if applicable ). Upon the occurrence of a change in dominance of the Company, the benefit of each Participant shall be collectible in a swelling sum within five days of such switch in manipulate adequate in come to the then award value of a benefit expressed in the shape provided in Section 10 hereof, commencing on the former of ( i ) the date of such deepen in command, ( two ) the date Guideline Employee or Grandfathered Officer attains age 55, ( three ) the date the Officers attain age 60 or ( four ) in the subject of a Mid-Career Executive, the date such Participant attains the age specified in Schedule A, B or C, and based upon such Participant 's Average monthly Compensation and Years of Participation as of the date of such switch in control. A `` change in manipulate of the company '' shall have the meaning set forth in the Xerox Corporation Retirement Income Guarantee Plan, as may be amended or restated from clock to time. B. Upon the result of use of a Participant following a change in master of the Company, such Participant, if he or she has otherwise satisfied the requirements of Section 5 hereof, shall be entitled to a benefit peer to the benefit to which he or she would have been entitled without application of Section 7A, reduced ( but not below zero ) to reflect the value of the benefit he or she received pursuant to Section 7A. C. For purposes of Section 7A hereof, the present prize of a benefit shall be calculated based upon the interest rate which would be used by the Pension Benefit Guaranty Corporation for purposes of determining lump sums for benefits collectible as contiguous annuities with obedience to plans terminating on the date on which the change in control of the Company occurs and the 1983 GAM deathrate table, provided, however, that effective upon the date that the applicable interest rate as specified in part 417 ( east ) ( 3 ) ( A ) of the Code is adopted for use in RIGP, the present value hereunder shall thereafter be determined under the applicable interest rate and deathrate postpone as defined in segment 417 ( east ) ( 3 ) ( A ) ( two ) ( lambert ) of the Code. For purposes of RIGP, each Participant shall be treated as if he or she terminated employment upon the transfer in control and had his or her benefits determined as if he or she were to begin receiving benefits on the beginning date used in developing the present respect of the profit in part 7.A. section 8. minimum Benefit In no event shall the monthly retirement benefit account payable to any Participant other than Mid-Career Executives under the Plan be less than an come which, when added to the benefits collectible under RIGP, 25 % of the amount of the Social Security Benefit and the amounts described in Section 6F2 above, is peer to 25 % of such Participant 's Average monthly compensation as adjusted in Section 6F1 for Participants and section 6B3 for Grandfathered Officers. section 9. Pre-Retirement Spouse 's Benefit The spouse of a Participant who dies after completing the allow age and count of Years of Service pursuant to Section 5 ( but in no case less than 10 ) while placid employed by the Company shall be entitled to a survivor benefit, commencing on the death of the Participant, in an measure equal to one-half of the retirement benefit to which the Participant would have been entitled under the design if the Participant had retired on the last sidereal day of the calendar month coincident with or adjacent following the date of the Participant 's death. section 10. shape of Benefit The forms of benefit available under the Plan shall be for one Participants a 10-Year certain and life sentence annuity or life annuity and for married Participants a 50 % or 100 % joint and survivor annuity choice, all as shall have been elected by Participant on forms provided by the Administrator. The benefit collectible to single Participant who has failed to make such an election shall be a life annuity and for a marry Participant a 50 % joint and survivor annuity. The 10 year certain and life sentence annuity is the actuarial equivalent of the life annuity and the 100 % joint and survivor annuity is the actuarial equivalent of the 50 % joint and survivor annuity. Except as differently provided in Section 7A in no event is the benefit account payable in a hunk sum. section 11. Participant 's Rights Unsecured The benefits collectible under this Plan shall be unfunded. consequently, no assets shall be segregated for purposes of the Plan and placed beyond the scope of the Company 's general creditors. The right of any Participant to receive benefits under the provisions of the Plan shall be an unguaranteed claim against the general assets of the Company. section 12. other design Provisions other Plan provisions necessity to determine any benefit under the Plan shall be the like as those described in RIGP. section 13. Duties of Administrator The Plan shall be administered by the Administrator in accord with its terms and purposes. The Administrator shall determine the sum and manner of requital of the benefits due to or on behalf of each player from the plan and shall cause them to be paid by the Company accordingly. The Administrator shall be appointed by the Vice President, Human Resources of the Company. incision 14. finality of Decisions The decisions made by and the actions taken by the Administrator in the administration of the Plan shall be final and conclusive on all persons, and the Administrator shall not be topic to individual indebtedness with esteem to the Plan. section 15. Amendment and Termination It is the intention of the Company to continue the Plan indefinitely. The Company expressly reserves the right to amend the plan at any time and in any particular manner, provided that any such amendment shall be made in accord with ERISA. such amendments, other than amendments relating to ending of the Plan or relating to benefit levels under Section 6 of the Plan, may be effected by ( i ) the Board of Directors, ( two ) a punctually constitute committee of the Board of Directors, or ( three ) the Vice President of the Company responsible for Human Resources or a spokesperson thereof. In the event such office is vacant at the time the amendment is to be made, the Chief Executive Officer of the Company shall approve such amendment or appoint a example. Amendments relating to end point of the Plan or relating to benefit levels under Section 6 of the Plan shall be effected pursuant to a resolution punctually adopted by the Board of Directors of the Company, or a punctually appoint committee of the Board of Directors of the Company, in accord with the Business Corporation Law of the State of New York. Any amendment, alteration, alteration or suspension under subsection ( three ) of the preceding paragraph shall be set forth in a written instrument executed by any Vice President of the Company and by the Secretary or an Assistant Secretary of the Company. section 16. No Employment Rights nothing contained in the Plan shall be construed as a compress of use between the Company and a Participant, or as a right field of any Participant to be continued in the use of the Company, or as a limitation of the right of the Company to discharge any of its employees, with or without cause. section 17. Assignment The benefits account payable under this plan may not be assigned or alienated except ampere may otherwise be required by law or pursuant to the terms of a domestic relations ordain that has been approved by the Plan Administrator. section 18. law applicable This Plan shall be governed by the laws of the State of New York. Restatement adopted and approved as of October 13, 1997 .
 exhibit 10 ( i ) ( 2 ) CONFIDENTIAL XEROX CORPORATION 800 Long Ridge Road Stamford, CT 06904 October 15, 2000 dear : xerox Corporation ( the `` Company '' ) considers it all-important to the best interests of its shareholders to foster the continuous use of key management personnel. In this connection, the Board of Directors of the Company ( the `` Board '' ) recognizes that, as is the font with many publicly held corporations, the hypothesis of a Change in Control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the passing or beguilement of management personnel to the detriment of the Company and its shareholders. The Board has determined that allow steps should be taken to reinforce and encourage the proceed attention and dedication of members of the Company 's management, including yourself, to their arrogate duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control of the Company, although no such change is now contemplated. In order to induce you to remain in the hire of the Company and in circumstance of your agreement set forth in department 2 ( two ) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement in the event your employment with the Company is terminated subsequent to a `` Change in Control of the company '' ( as defined in Section 2 hereof ) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on October 15, 2000 and shall continue in effect through December 31, 2001 ; provided, however, that commencing on January 1, 2002, and each January 1 thereafter, the term of this Agreement shall mechanically be extended for one extra year unless not late than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement ( provided that no such notice may be given during the pendency of a likely Change in Control of the Company, as defined in Section 2 ) ; provided, further, that notwithstanding any such notice by the Company not to extend, if a Change in Control of the Company, as defined in Section 2 hereof, shall have occurred while this Agreement is in effect, this Agreement shall continue in effect until the last day of the twenty-fourth calendar month following the calendar month in which occurs such Change in Control of the Company. 2. Change in Control. ( i ) No benefits shall be account payable hereinafter unless there shall have been a Change in Control of the Company, as set forth below, and your use by the Company shall thereafter have been terminated in accord with Section 3 under. For purposes of this Agreement, a `` Change in Control of the company '' shall be deemed to have occurred if ( A ) any `` person '' ( as such term is used in Sections 13 ( d ) and 14 ( five hundred ) of the Securities Exchange Act of 1934, as amended ( the '' Exchange Act '' ) ), other than ( 1 ) the company, ( 2 ) any regent or other fiduciary holding securities under an employee profit plan of the Company, ( 3 ) any company owned, directly or indirectly, by the shareholders of the Company in well the lapp proportions as their ownership of stock of the Company, or ( 4 ) any person who becomes a `` beneficial owner '' ( as defined below ) in connection with a transaction described in article ( 1 ) of subparagraph ( C ) below, is or becomes the `` beneficial owner '' ( as defined in Rule 13d-3 under the Exchange Act ), directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired immediately from the Company or its affiliates ) representing 20 % or more of the combined vote power of the Company 's then outstanding securities ; ( B ) the follow individuals cease for any reason to constitute a majority of the directors then serving : individuals who, on the date hereof constitute the Board and any new director ( early than a director whose initial presumption of agency is in joining with an actual or endanger election contest, including but not circumscribed to a consent solicitation, relating to the election of directors of the Company ) whose appointment or election by the Board or nomination for election by the Company 's shareholders was approved or recommended by a vote of at least two-thirds of the directors then silent in office who were directors on the date hereof or whose appointment, election or nomination for election was previously so approve or recommended ; ( C ) there is consummated a amalgamation or consolidation of the Company or any direct or indirect auxiliary of the Company with any other corporation, other than ( 1 ) a fusion or consolidation which results in the directors of the Company immediately anterior to such amalgamation or consolidation continuing to constitute at least a majority of the board of directors of the Company, the surviving entity or any rear thence or ( 2 ) a fusion or consolidation effected to implement a recapitalization of the Company ( or similar transaction ) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates ) representing 20 % or more of the combined vote power of the Company 's then outstanding securities ; or ( D ) the shareholders of the Company approve a plan of complete extermination or dissolving of the Company or there is consummated an agreement for the sale or disposal by the Company of all or well all of the Company 's assets, other than a sale or disposition by the Company of all or well all of the Company 's assets to an entity, at least 50 % of the combine vote power of the voting securities of which are owned by stockholders of the Company in well the lapp proportions as their possession of the Company immediately prior to such sale.. ( two ) For purposes of this Agreement, a `` potential Change in Control of the ship's company '' shall be deemed to have occurred if ( A ) the company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company, ( B ) any person ( including the company ) publicly announces an purpose to take or to consider taking actions which if consummated would constitute a Change in Control of the Company ; ( C ) any person, other than a regent or early fiduciary holding securities under an employee benefit plan of the Company ( or a party owned, directly or indirectly, by the shareholders of the Company in substantially the lapp proportions as their ownership of malcolm stock of the Company ), becomes the beneficial owner, directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates ) representing 10 % or more of the combine vote power of the Company 's then great securities ; or ( D ) the Board of Directors adopts a resolution to the effect that a likely Change in Control of the Company for purposes of this Agreement has occurred. You agree that, subject to the terms and conditions of this Agreement, in the consequence of a potential Change in Control of the Company, you will remain in the hire of the Company until the earliest of ( one ) the exhalation of nine ( 9 ) months from the happening of such potential Change in Control of the Company, ( two ) the termination by you of your employment by cause of Disability, or ( three ) the date on which you first become entitled under this Agreement to receive the benefits provided in section 4 ( three ) below. For purposes of this Agreement, `` disability '' shall mean a physical or genial incapacity which is incurred subsequent to a likely Change in Control of the Company which would allow you to receive benefits under the Company 's long-run Disability Income Plan ( or any ersatz plans adopted prior to a Change in Control of the Company ). 3. termination Following Change in Control. If any of the events described in Section 2 hereof constituting a Change in Control of the Company shall have occurred, you shall be entitled to the benefits provided in Section 4 hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is ( A ) because of your death, ( B ) by the Company for Cause or Disability or ( C ) by you other than for full Reason. For purposes of this Agreement, your use shall be deemed to have been terminated following a Change in Control by the Company without Cause or by you with Good Reason, if ( one ) your employment is terminated by the Company without Cause prior to a Change in Control ( whether or not a change in Control ever occurs ) and such ending was at the request or direction of a person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, ( two ) you terminate your employment for Good Reason prior to a Change in Control ( whether or not a change in Control ever occurs ) and the context or consequence which constitutes Good Reason occurs at the request or steering of such person, or ( three ) your employment is terminated by the Company without Cause prior to a Change in Control ( whether or not a change in Control ever occurs ) and you sanely demonstrate that such termination was differently in association with or in anticipation of a Change in Control. ( one ) disability. If, as a consequence of your incapacity due to physical or mental illness, you shall have been receiving payments under the Company's Long-Term Disability Income Plan, or any alternate plans adopted prior to the Change in Control, for a menstruation of twelve ( 12 ) consecutive months, and within thirty ( 30 ) days after written notice of termination is given you shall not have returned to the full-time operation of your duties, the Company may terminate your use for `` Disability ''. ( two ) Cause. termination by the Company of your employment for `` Cause '' shall mean end point upon ( A ) the willful and stay failure by you to substantially perform your duties with the Company ( other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipate failure after the issue of a Notice of Termination by you for Good Reason ), after a written demand for significant performance is delivered to you by the Board which specifically identifies the manner in which the Board believes that you have not well performed your duties, ( B ) the willful engage by you in demeanor which is demonstrably and materially deleterious to the Company, monetarily or differently, or ( C ) the conviction of any crime ( whether or not involving the Company ) which constitutes a felony. For purposes of this Subsection, no act, or bankruptcy to act, on your partially shall be considered `` willful '' unless done, or omitted to be done, by you not in good religion and without fair belief that your action or omission was in the best matter to of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a transcript of a resolution punctually adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a merging of the Board called and held for the purpose ( after fair poster to you and an opportunity for you, together with your guidance, to be heard before the Board ), finding that in the commodity faith opinion of the Board you were guilty of behavior set forth above in clauses ( A ), ( B ) or ( C ) of the first sentence of this Subsection and specifying the particulars thereof in detail. ( three ) Good Reason. You shall be entitled to terminate your employment for well Reason. For purposes of this Agreement, `` good reason '' shall mean, without your carry written consent, the happening after a Change in Control of the Company and during the term of this Agreement of any of the play along circumstances : A. the assignment to you of any duties inconsistent with your condition as a aged executive of the Company or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to a Change in Control of the Company ( including, without limitation, if you are an executive military officer of the Company prior to a Change in Control, ceasing to be an administrator military officer of a public company ) ; B. ( one ) a reduction in your annual basis wage and/or annual target bonus as in effect on the date hereof or as the same may be increased from time to clock, ( two ) a bankruptcy by the Company to increase your annual free-base wage following a Change in Control of the Company at such periodic intervals coherent with the Company 's practice prior thereto by at least a percentage adequate to the average of the percentage increases in your root wage for the three merit give periods immediately preceding such Change in Control or ( three ) the failure to increase your wage as the like may be increased from time to prison term for similarly situated aged executives, except that this subparagraph ( B ) shall not apply to across-the-board wage reductions similarly affecting all executives of the Company and all executives of any person in control of the Company ; C. the Company 's requiring you to be based anywhere early than in the metropolitan sphere in which you were based immediately anterior to the Change in Control, except for required travel on the Company 's business to an extent well consistent with your present occupation travel obligations ; D. the failure by the Company to continue in impression any recompense design in which you participate immediately anterior to the Change in Control of the Company, including but not circumscribed to the Company 's Unfunded Supplemental Retirement Plan, Unfunded Retirement Income Guarantee Plan, the 1976 Executive Long-Term Incentive Plan and 1991 long-run Incentive plan or any substitute plans adopted prior to such Change in Control ( except to the extent such plans terminate in accordance with their respective terms ), unless an equitable arrangement ( embodied in an ongoing alternate or alternative design ) has been made with obedience to such plan in connection with the Change in Control of the Company, or the failure by the Company to continue your engagement therein ( or in such substitute or alternative plan ) on a footing not materially less favorable, both in terms of the come of benefits provided and the level of your participation relative to other participants, than existed at the time of the Change in Control of the Company ; E. the failure by the Company to continue to provide you with benefits well exchangeable to those enjoyed by you under any of the Company 's pension, retirement, biography policy, checkup, health and accident, or disability plans in which you were participating at the fourth dimension of a Change in Control of the Company, the film of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material periphery benefit enjoyed by you at the time of the Change in Control of the Company, or the failure by the Company to provide you with the number of pay vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company 's normal vacation policy in effect at the time of the Change in Control ; F. the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof ; or G. any purport ending of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection ( four ) below ( and, if applicable, Subsection ( two ) above ) ; and for purposes of this Agreement, no such purported end point shall be effective. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continue employment shall not constitute accept to, or a release of rights with respect to, any circumstance constituting Good Reason hereunder. ( four ) Notice of Termination. Any purport termination by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a `` Notice of Termination '' shall mean a notice which shall indicate the particular ending provision in this Agreement relied upon and shall set away in reasonable contingent the facts and circumstances claimed to provide a basis for end point of your use under the provision therefore indicate. ( v ) Date of Termination, Etc. `` Date of Termination '' shall mean ( A ) if your use is terminated for Disability, thirty ( 30 ) days after Notice of Termination is given ( provided that you shall not have returned to the performance of your duties on a full-time footing during such thirty ( 30 ) day menstruation ), and ( B ) if your employment is differently terminated pursuant to Subsection ( two ) or ( three ) above or for any other reason, the date specified in the Notice of Termination ( which, in the case of a result pursuant to Subsection ( two ) above shall not be less than thirty ( 30 ) days, and in the subject of a termination pursuant to Subsection ( three ) above shall not be less than fifteen ( 15 ) days nor more than sixty ( 60 ) days, respectively, from the date such Notice of Termination is given ) ; provided that, if within thirty ( 30 ) days after any Notice of Termination is given the party receive such Notice of Termination notifies the other party that a quarrel exists concerning the termination, the Date of Termination shall be the date on which the dispute is ultimately determined, either by reciprocal written agreement of the parties, by a bind arbitration award, or by a final judgment, order or decree of woo of competent legal power ( the time for appeal thence having expired and no appeal having been perfected ) ; and provided, further, that the Date of Termination shall be extended by a poster of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such challenge, the Company will continue to pay you your full recompense in effect when the poster giving emanation to the quarrel was given ( including, but not circumscribed to, base wage ) and continue you as a participant in all compensation, benefit and policy plans in which you were participating when the detect giving rise to the dispute was given, until the dispute is last resolved in accord with this section. Amounts paid under this Subsection ( five ) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement and shall not be reduced by any compensation earned by you as the result of employment by another employer. 4. compensation Upon Termination or During Incapacity. Following a Change in Control of the Company, you shall be entitled to the take after benefits during a period of incapacity, or upon termination of your employment, as the case may be, provided that such period or ending occurs during the condition of this agreement : ( i ) During any period that you fail to perform your duties as a result of incapacity due to physical or mental illness, you shall continue to receive your full infrastructure wage at the pace then in effect, your bonus and all recompense, including under the 1991 long-run Incentive design, paid during the period until this Agreement is terminated pursuant to Section 3 ( i ) hereof. Your benefits shall thereafter be determined in accordance with the Company 's benefit benefit programs then in effect, and the Company 's Retirement Income Guarantee Plan, Unfunded Retirement Income Guarantee Plan and Unfunded Supplemental Retirement Plan ( the `` Pension Plans '' ) and profit Sharing Retirement and Savings Plan ( the `` profit sharing plan '' ). ( two ) If your use shall be terminated by the Company ( a ) for Cause or Disability or ( b-complex vitamin ) by you other than for effective Reason, the Company shall pay you your full base wage through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which you are entitled under any recompense plan of the company at the time such payments are due, and the Company shall have no far obligations to you under this Agreement. ( three ) If your employment by the Company shall be terminated ( a ) by the Company other than for Cause or Disability or ( bacillus ) by you for Good Reason, then you shall be entitled to the benefits provided below : A. The Company shall pay you your entire foundation wage through the Date of Termination at the rate in effect at the prison term Notice of Termination is given plus all other amounts to which you are entitled under any recompense plan of the Company, at the time such payments are due ; B. In stead of any far wage payments to you for periods subsequent to the Date of Termination, the Company shall pay as rupture pay to you, not later than the fifth day following the Date of Termination, a swelling total severance payment ( the `` Severance Payment '' ) equal to [ three ] [ two ] [ ( 3 ) ] [ 2 ] times the sum of ( iodine ) the greater of ( 1 ) your annual rate of basal wage in effect on the date Notice of Termination is given and ( 2 ) your annual rate of basis wage in effect immediately anterior to the Change in Control of the Company and ( two ) the greater of ( 1 ) the annual target bonus applicable to you for the year in which Notice of Termination is given and ( 2 ) the annual target bonus applicable to you for the year in which the Change in Control of the Company occurs. C. In addition to all other amounts collectible to you under this subsection 4 ( three ), you shall be entitled to receive all benefits account payable under the Pension Plans, the profit Sharing Plan and any other design or agreement associate to retirement benefits or to compensation previously earned and not so far paid, in accord with the respective terms of such plans or agreements. D. For the [ 36 ] [ 24 ] -month period immediately following the Date of Termination, the Company shall arrange to provide you and your dependents life, disability, accident and health policy benefits substantially exchangeable to those provided to you and your dependents immediately anterior to the Date of Termination or, if more favorable to you, those provided to you and your dependents immediately prior to the occurrence of a Change in Control, at no greater cost to you than the price to you immediately prior to such date or occurrence. Benefits differently receivable by you pursuant to this segment 4 ( three ) ( D ) shall be reduced to the extent benefits of the like type are received by or made available at no greater cost to you by a subsequent employer during the [ 36 ] [ 24 ] -month period following the Date of Termination ( and any such benefits received by or made available to you shall be reported by you to the Company ). ( four ) You shall not be required to mitigate the sum of any payment provided for in this section 4 by seeking other employment or differently, nor shall the amount of any payment or benefit provided for in this section 4 be reduced by any recompense earned by you as the result of use by another employer or by retirement benefits after the Date of Termination, or differently ( other than under Subsection ( three ) ( D ) of this section 4.. Notwithstanding the waive, if you become entitled to the Severance Payment, you shall not be entitled to receive severance yield under any rupture pay plan, policy or agreement maintained by the Company or any of its subsidiaries. If the Company is obligated by law or by abridge to pay severance pay, a termination indemnity, notice pay, or the wish, or if the Company is obligated by police or by contract to provide overture notice of separation ( `` Notice Period '' ), then the Severance Payment shall be reduced, but not below nothing, by the measure of any such rupture pay, ending indemnity, notice give or the like, as applicable, and by the measure of any compensation received by you during any Notice Period. ( five ) ( A ) Whether or not you become entitled to the rupture Payments, if any of the payments or benefits received or to be received by you in connection with a Change in Control or your ending of employment ( whether pursuant to the terms of this Agreement or any early design, placement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person ) ( all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the `` full Payments '' ) will be subject to the strike tax ( the '' excise Tax '' ) imposed under section 4999 of the Internal gross Code of 1986, as amended ( the `` Code '' ), the Company shall pay to you an extra sum ( the `` Gross-Up Payment '' ), not later than the former of ( 1 ) the fifth day following the Date of Termination and ( 2 ) the tenth day following the date of initial decision of the sum of the Gross-Up Payment ( as set forth in subparagraph ( B ) below ), such that the net amount retained by you, after subtraction of necessitate withholding taxes ( required to be withheld at the time of requital of the Gross-Up Payment ) plus any amounts collectible with your personal federal, state and local income tax returns for any Excise Tax on the entire Payments and any federal, country and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the sum Payments. ( B ) An initial decision of the total of the Gross-Up Payment ( if any ) shall be made by Tax Counsel ( as hereinafter defined ) not late than ten days following the Date of Termination. For purposes of determining whether any of the total Payments will be capable to the Excise Tax and the amount of such Excise Tax, ( i ) all of the full Payments shall be treated as '' chute payments '' ( within the meaning of section 280G ( b ) ( 2 ) of the Code ) unless, in the opinion of tax advocate ( `` Tax Counsel '' ) sanely satisfactory to you and the Company and selected by the accounting fast which was, immediately prior to the Change in Control, the Company 's freelancer hearer ( the '' Auditor '' ), such payments or benefits ( in whole or in separate ) do not constitute parachute payments, including by rationality of section 280G ( b ) ( 4 ) ( A ) of the Code, ( two ) all `` excess chute payments '' within the meaning of section 280G ( b ) ( 1 ) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such surfeit chute payments ( in wholly or in character ) represent reasonable recompense for services actually rendered ( within the think of of section 280G ( boron ) ( 4 ) ( B ) of the Code ) in excess of the basis sum allocable to such fair compensation, or are otherwise not subject to the Excise Tax, and ( three ) the value of any noncash benefits or any postpone requital or benefit shall be determined by the Auditor in accordance with the principles of sections 280G ( five hundred ) ( 3 ) and ( 4 ) of the Code. For purposes of determining the come of the Gross-Up Payment, you shall be deemed to pay federal income tax ( taking into account your filing status for the class ( s ) the Gross-Up Payment ( s ) are made ) at the highest marginal rate of federal income tax in the calendar year ( sulfur ) in which the Gross-Up Payment ( sulfur ) are to be made and state and local income taxes at the highest bare rate of taxation in the state and vicinity of your residency on the Date of Termination ( or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this incision 4 ( vanadium ) ), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. ( C ) In the consequence that the Excise Tax is ultimately determined by the Internal Revenue Service to be less than the come taken into bill hereinafter in calculating the Gross-Up Payment, you shall repay to the Company, within five business days following the clock time that the amount of such decrease in the Excise Tax is finally determined, the part of the Gross- Up Payment attributable to such reduction ( plus that share of the Gross-Up Payment attributable to the Excise Tax and federal, state of matter and local income and employment taxes imposed on the Gross-Up Payment being repaid by you ), to the extent that such refund results in a reduction in the Excise Tax and a dollar-for-dollar decrease in your taxable income and wages for purposes of union, department of state and local income and employment taxes, plus interest on the total of such refund at 120 % of the rate provided in section 1274 ( bel ) ( 2 ) ( B ) of the Code. In the consequence that the Excise Tax is ultimately determined by the Internal Revenue Service to exceed the measure taken into score hereinafter in calculating the Gross-Up Payment ( including by reason of any requital the universe or amount of which can not be determined at the time of the Gross-Up Payment ), the Company shall make an extra Gross-Up Payment in deference of such excess ( plus any matter to, penalties or additions collectible by you with obedience to such excess ) within five business days following the time that the total of such excess is last determined. The company and you shall each collaborate with the other in connection with any administrative or judicial proceedings concerning the being or total of liability for Excise Tax with deference to the sum Payments. For purposes of the foregoing prison term, cooperation shall include ( but not be limited to ) providing to the Company and/or Tax Counsel copies of your Forms W-2 issued by the Company, together with your federal, state and local anesthetic income tax returns, for the five calendar years immediately preceding the calendar year in which the Change in Control occurs ( excluding any such year, if at no sharpen during such class were you employed by the Company ), ( six ) The caller besides shall pay to you all legal fees and expenses incurred by you with respect to the initial decision by Tax Counsel ( as set away in subsection 4 ( volt ) ( B ) above ) of the come of the Gross-Up Payment ( if any ), ampere well as in disputing in adept faith any publish hereinafter relating to the result of your use, in seeking in thoroughly faith to obtain or enforce any benefit or correct provided by this Agreement or in association with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any requital or benefit put up hereunder. such payments shall be made within five business days after delivery of your written request for payment accompanied with such evidence of fees and expenses incurred as the Company sanely may require. 5. Successors ; Binding Agreement. ( one ) The Company will require any successor ( whether direct or indirect, by buy, amalgamation, consolidation or differently ) to all or well all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the lapp manner and to the lapp extent that the Company would be required to perform it if no succession had taken invest. failure of the Company to obtain such assumption and agreement anterior to the effectiveness of any such succession shall be a rupture of this Agreement and shall entitle you to compensation from the company in the lapp total and on the same terms as you would be entitled hereunder if you terminated your use for dear Reason following a Change in Control of the Company, except that for purposes of implementing the forfeit, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, `` caller '' shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of jurisprudence or otherwise. ( two ) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would hush be account payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accord with the terms of this Agreement to your devisee, legatee or other designee or if no such designee, to your estate. 6. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in write and shall be deemed to have been punctually given when delivered or mailed by United States registered mail, return reception requested, postage postpaid, addressed to the respective addresses set away on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other savoir-faire as either party may have furnished to the other in writing in accordance hereby, except that notice of deepen of address shall be effective entirely upon reception. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such release, alteration or drop is agreed to in writing and signed by you and such officeholder as may be specifically designated by the Board. No release by either party hereto at any fourth dimension of any rupture by the other party hereto of, or submission with, any condition or provision of this Agreement to be performed by such other party shall be deemed a release of like or unalike provisions or conditions at the same or at any prior or subsequent fourth dimension. No agreements or representations, oral or differently, press out or implied, with obedience to the capable topic hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and operation of this Agreement shall be governed by the laws of the State of New York without see to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed besides to refer to any successor provisions to such sections. Any payments provided for hereinafter shall be paid net of any applicable withholding tax required under federal, country or local law. The obligations of the Company under section 4 shall survive the passing of the term of this Agreement. This Agreement shall not be construed as creating an express or implied narrow of employment and, except as otherwise agreed in writing between you and the Company, you shall not have any proper to be retained in the hire of the Company. 8. validity. The invalidity or unenforceability of any planning of this Agreement shall not affect the cogency or enforceability of any early planning of this Agreement, which shall remain in full moon coerce and consequence. 9. Counterparts. This agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the like instrument. 10. Entire Agreement. This agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and during the condition of the Agreement supersedes the provisions of all anterior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or example of any party hereto with respect to the subjugate matter hereof ( including, without limitation, the Severance Agreement previously entered into between you and the Company as thereafter amended and/or extended ). 11. effective Date. This Agreement shall become effective as of the date set forth above. If this letter correctly sets forth our agreement on the topic topic hereof, charitable sign and return to the Company the enclose copy of this letter which will then constitute our agreement on this subject. sincerely, XEROX CORPORATION By name : championship : Agreed to as of the day of October 15, 2000 
 expose 10 ( thousand ) As amended through October 9, 2000 XEROX CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS ( once 1989 Deferred Compensation Plan For Directors ) 1997 AMENDMENT AND RESTATEMENT preamble. This plan is a private unfunded nonqualified submit compensation arrangement for Directors and all rights shall be governed by and construed in accordance with the laws of New York, except where preempted by federal law. It is intended to provide a fomite for setting aside funds for retirement. section 1. effective Date. The original effective date of the Plan is January 1, 1989. The effective date of this amendment and restatement is October 9, 2000. section 2. Eligibility. Any Director of Xerox Corporation ( the `` Company '' ) who is not an officeholder or employee of the Company or a subordinate of the Company is eligible to participate in the Plan ( a director who has indeed elected to participate is hereinafter referred to as a `` Participant '' ). A participant who terminates an election to defer reception of compensation is not eligible to participate again in the Plan until twelve months after the effective date of such termination. part 3. Deferred Compensation Accounts. There shall be established for each Participant one or more postpone compensation Accounts ( as hereinafter defined ). section 4. total of Deferral. ( a ) A player may elect to defer acknowledge of all or a specify depart, expressed as a percentage of the cash recompense differently account payable to the Participant for serving on the Company 's Board of Directors or committees of the Board of Directors. Any come deferred is credited to the Participant's Accounts on the date such amount is otherwise account payable. ( boron ) In accession to the foregoing, there shall be credited to the submit compensation accounts of each person who is serving as a Director on May 17, 1996 a union computed by the Company as the present measure of his or her accrue benefit under the Company 's Retirement Income Plan For Directors, if any, as of such date and each such Director shall be given notice of such come. The amount so calculate shall be final and binding on the Company and each such Director. Within 30 days of the giving of such notice, each such Director shall make an election on a form provided by the Company as to the conjectural investment of such sum and the payment methods as permitted under Sections 6 and 8 hereof as in impression on such date under the administrative rules adopted by the Administrator. section 5. time of Election to Defer. The election to defer will be made prior to the person 's beginning of services as a Director for amounts to be earned for the remainder of the calendar class. In the sheath of an individual presently serving as a Director, the election to defer must be made prior to December 31, of any class for amounts to be earned in a subsequent calendar year or years. An election to wholly end deferrals may be made at any time prior to the relevant requital date. section 6. conjectural Investment. Deferred compensation is assumed to be invested, without charge, in the ( a ) Balanced Fund, Income Fund, U.S. Stock Fund, International Stock Fund, Small Company Stock Fund or Xerox Stock Fund ( or the successors thereto ) ( the `` Funds '' ) established from time to time under the Xerox Corporation Profit Sharing and Savings Plan ( the `` profit share plan '' ) ( bel ) a store with a variable fix rate of render based upon the prime or root rate charged by one or more banks ( `` Prime Rate Investment '' ) and ( c ) such other pay back income tax return investments ( `` Fixed Return Investment '' ), all as shall be made available from time to time by the Administrator in his or her administrative discretion ( `` Investments '' ) as elected by the player It is anticipated that the Administrator will substitute the Prime Rate Investment for the Income Fund effective January 1, 1998. Amounts deferred prior to January 1, 1998 shall have a rate of tax return at the Income Fund or the Prime Rate Investment as elected by Participants on forms provided by the Administrator in connection with the implementation of the Prime Investment Rate. Elections to make hypothetical investments in any one or more of the Investments shall be subject to administrative rules adopted by the Administrator from fourth dimension to clock. No shares of Xerox sprout will always actually be issued to a Participant under the Plan. part 7. Value of Deferred Compensation Accounts and Installment Payments. The rate of each Participant 's Accounts shall reflect all amounts deferred, gains, losses and rates of reappearance from the Investments, and shall be determined at the close of commercial enterprise on each sidereal day on which securities are traded on the New York Stock Exchange. Hypothetical investments in the net income Sharing Plan shall be valued on each business day based upon the value of such conjectural investing as determined under such design on the valuation date under such Plan coincident with or end preceding such occupation day. The value of Investments not made under the profit Sharing Plan shall be determined from such available source or sources as the Administrator in his or her lone delicacy shall from time to time decide. The date as of which investments are valued pursuant to the waive sentences are referred to herein as a valuation Date. section 8. manner of Electing Deferral. A participant may elect to defer compensation by giving written notification to the Administrator on a shape provided by the Company, which notice shall include ( 1 ) the share to be deferred ; ( 2 ) if more than one is offered under the Plan, the conjectural investment applicable to the total deferred ; and ( 3 ) the payment method acting that will apply to the postpone recompense. A participant may elect to a maximum of four separate payment methods during his or her participation in the Plan ( `` Accounts '' ). such requital methods once made may never be changed. Each election to defer compensation under the Plan shall specify an explanation from which requital will be made. The Accounts available under the Plan shall be : Account 1 which shall be account payable beginning the July 15 of a calendar year that follows the calendar year of retirement by the number of years elected by the Participant ( 0, 1, 2, 3, 4, or 5 years ). The last requital shall be on the July 15 of the year in which the Participant attains a certain senesce elected by the Participant. Account 2 which shall be account payable beginning the July 15 of a calendar class that follows the calendar year of retirement by the number of years elected by the Participant ( 0, 1, 2, 3, 4, or 5 years ) and is collectible on each subsequent July 15 until the total of payments elected by the Participant have been made. Account 3 which shall be account payable on the July 15 of a calendar year that follows the calendar year of retirement by the numeral of years elected by the Participant ( 0, 1, 2, 3, 4, or 5 years ) and is account payable as a single sum. Account 4 shall be available with deference to amounts deferred during 1998 and late years. This report is collectible beginning on the July 15 of a specify year whether before or after retirement. In accession to this payment go steady, the Participant must elect the number of payments that are to commence on this go steady. The payment ( s ) from this explanation can be as a individual kernel or collectible in up to four annual installments. once Account 4 is established ( an election is made to defer and the requital date is defined ), deferrals to Account 4 shall cease for any calendar year in which a payment is scheduled to be made from this Account. The full account balance shall be distributed by the end of the episode period. Once the final payment is made from this Account, the Participant may elect to create a new Account 4. The initial election or any subsequent election to use this Account must be made by December 31 of the year preceding the calendar year in which deferrals will be allocated to this Account. The first requital date that can be elected is the July 15 of the calendar year that follows the calendar year of election ( calendar year containing the December 31 due date for election ) by three years. not late than December 31, 1997, Participants who are presently serving as Directors of the Company may change their payment elections previously made under the Plan which specified payment dates relating to termination, retirement, death, or disability, by selecting payments pursuant to the methods described in Accounts 1 through 3 above. such change shall be effected by the Participant filing with the Administrator a change of election on a form or forms established by the Administrator for such determination. such exchange shall be effective entirely with regard to payments in 1999 or late for Participants who are serving on the Company 's Board of Directors as of December 31, 1998. The Administrator may adopt rules of general applicability for presidency of payments under the Plan which may be elected by Participants, including without restriction, fixing the maximal age selected for payments to terminate and the utmost number of payments. department 9. requital of Deferred Compensation. ( a ) No withdrawal may be made from the Participant 's Account, except as provided under this section and Sections 10 and 11. ( b ) Payments from a Participant 's Account are made in cash in accord with the elections made under Section 8 of the Plan based on the value of the Participant 's postpone recompense Accounts as of the Valuation Date immediately preceding the date of payment. ( coke ) Unless differently elected by a player with the written approval of the Administrator, payments of submit compensation shall be made pursuant to the watch convention : the measure of the first requital shall be a fraction of the value of the Participant 's postpone compensation account on the preceding valuation Date, the numerator of which is one and the denominator of which is the sum number of installments elected, and the amount of each subsequent payment shall be a fraction of the measure on the Valuation Date preceding each subsequent requital date, the numerator of which is one and the denominator of which is the entire number of installments elected minus the number of installments previously paid. Any other payment method acting selected with the written blessing of the Administrator must in all events provide for payments in well peer installments. ( five hundred ) Upon ending of avail on the Board of Directors, other than end point resulting from death, prior to retirement, the sum value of the Participant 's Accounts under the Plan shall be paid to the Participant arsenic soon as administratively potential after his or her date of end point. ( e ) Upon the death of a Participant either before or after retirement the total value of the Participant 's Accounts under the Plan shall be paid in accordance with an election made by such Participant in a swelling total or in installments, as appropriate, from the Accounts established under section 8 to the beneficiary ( ies ) designated by the Participant. ( f ) If a Participant dies either before or after retirement without having made such an election, the sum value of his or her Accounts under the Plan shall be paid in a individual payment to the Participant 's estate deoxyadenosine monophosphate soon as administratively potential after notice of his or her date of death has been received by the Administrator. department 10. acceleration of Payment for Hardship. ( a ) For Hardship. Upon written blessing from the Board of Directors ( with the Participant requesting the withdrawal not participating ) a participant may be permitted to receive all or separate of his accumulate benefits if, in the discretion of such Board of Directors, it is determined that an emergency event beyond the Participant 's control exists and which would cause such Participant severe fiscal adversity if the payment of his benefits were not approved. Any such distribution for adversity shall be limited to the sum needed to meet such emergency. A player who makes a hardship secession can not reenter the design for twelve months after the date of withdrawal. ( b-complex vitamin ) Upon a Change in Control. Within 5 days following the occurrence of a change in control of the Company ( as hereinafter defined ), each Participant shall receive a collocate sum payment equal to the prize of his or her account. For purposes hereof, a `` switch in control of the caller '' shall be deemed to have occurred if ( A ) any `` person '' ( as such term is used in Sections 13 ( five hundred ) and 14 ( vitamin d ) of the Securities Exchange Act of 1934, as amended ( the `` Exchange Act '' ) ), other than ( 1 ) the company, ( 2 ) any trustee or other fiduciary holding securities under an employee profit plan of the Company, ( 3 ) any company owned, directly or indirectly, by the shareholders of the Company in substantially the like proportions as their ownership of stock of the Company, or ( 4 ) any person who becomes a `` beneficial owner '' ( as defined below ) in connection with a transaction described in clause ( 1 ) of subparagraph ( C ) below, is or becomes the `` beneficial owner '' ( as defined in Rule 13d-3 under the Exchange Act ), directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired immediately from the Company or its affiliates ) representing 20 % or more of the unite vote world power of the Company 's then outstanding securities ; ( B ) the follow individuals cease for any reason to constitute a majority of the directors then serving : individuals who, on October 9, 2000 form the Board and any new film director ( other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company ) whose date or election by the Board or nomination for election by the Company 's shareholders was approved or recommended by a vote of at least two-thirds of the directors then distillery in office who were directors on October 9, 2000 or whose appointment, election or nomination for election was previously so approved or recommended ; ( C ) there is consummated a fusion or consolidation of the Company or any directly or indirect auxiliary of the Company with any other pot early than ( 1 ) a fusion or consolidation which results in the directors of the Company immediately anterior to such amalgamation or consolidation continuing to constitute at least a majority of the board of directors of the Company, the surviving entity or any rear thereof or ( 2 ) a fusion or consolidation effected to implement a recapitalization of the Company ( or similar transaction ) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates ) representing 20 % of more of the compound vote exponent of the Company 's then outstanding securities ; or ( D ) the shareholders of the Company approve a plan of complete elimination or dissolution of the Company or there is consummated an agreement for the sale or disposal by the Company of all or substantially all of the Company 's assets, other than a sale or disposal by the Company of all or well all of the Company 's assets to an entity, at least 50 % of the combine vote ability of the voting securities of which are owned by stockholders of the Company in well the same proportions as their ownership of the Company immediately anterior to such sale. section 11. early punish Withdrawals. Notwithstanding the provisions of Sections 9 and 10, a Participant may be permitted to receive all or function of his accrued benefits at any time provided that ( A ) the Administrator approves such distribution in his or her sole discretion, and ( B ) the Participant forfeits a share of his explanation balance equal to a share of the measure distributed. The percentage reduction shall be the greater of ( A ) six percentage, or ( B ) a percentage equal to one-half of the choice interest rate, as determined by the Administrator. section 12. time Of Investment. Amounts deferred under the Plan shall begin to be credited with gains, losses and rates of return from Investments commencing on the date credited to the Participant 's Accounts. incision 13. Participant 's Rights Unsecured. The benefits account payable under this Plan shall be unfunded. consequently, no assets shall be segregated for purposes of this design and placed beyond the pass of the Company 's general creditors. The right of any Participant to receive future installments under the provisions of the Plan shall be an unguaranteed claim against the general assets of the Company. section 14. statement of Account. Statements will be sent to each Participant by February and August and more frequently if the Administrator sol determines as to the value of their postpone recompense accounts as of the end of December and June, respectively. section 15. Assignability. no right to receive payments hereunder shall be movable or assignable by a Participant, except by will or by the laws of descent and distribution or except as provided under section 9. part 16. Business Days. In the consequence any date specified herein falls on a Saturday, Sunday or legal vacation, such date shall be deemed to refer to the next business day thereafter. section 17. presidency. The Plan shall be administered by the Vice President of the Company having duty for human resources ( the '' Administrator '' ). The Administrator shall have the authority to adopt rules and regulations for carrying out the design, and interpret, interpret and implement the provisions of the Plan. section 18. Amendment. The Company expressly reserves the right to amend the design at any time and in any particular manner. such amendments, other than amendments relating to ending of the Plan or relating to Investments under Section 6 of the Plan, may be effected by ( i ) the Board of Directors, ( two ) a punctually establish committee of the Board of Directors ( `` Committee '' ), or ( three ) the Vice President of the Company creditworthy for human resources or a congressman thereof. In the event such position is vacant at the meter the amendment is to be made, the Chief Executive Officer of the Company shall approve such amendment or appoint a spokesperson. Amendments relating to result of the Plan or relating to Investments under Section 6 of the Plan shall be effected pursuant to a resolution punctually adopted by the Board of Directors of the Company, or a punctually appoint committee of the Board of Directors of the Company, in accord with the Business Corporation Law of the State of New York. Any amendment, alteration, alteration or suspension under subsection ( three ) of the preceding paragraph shall be set forth in a written instrument executed by any Vice President of the Company and by the Secretary or an Assistant Secretary of the Company. Upon termination the Administrator in his or her sole discretion may pay out explanation balances to participants. No amendment, modification or end point shall, without the accept of a Participant, adversely affect such Participant's accruals in his/her Accounts .
 exhibit 10 ( fifty ) ( As amended through 10/9/00 ) XEROX CORPORATION DEFERRED COMPENSATION PLAN FOR EXECUTIVES ( once 1989 Deferred Compensation Plan For Executives ) 1997 AMENDMENT AND RESTATEMENT Preamble. This postpone Compensation plan For Executives, 1997 Amendment and Restatement ( the `` Plan '' ) is a secret unfunded nonqualified postpone compensation arrangement for executives and all rights shall be governed by and construed in accordance with the laws of New York, except where preempted by federal law. It is intended to provide a vehicle for setting aside funds for retirement. department 1. effective Date. The original effective date of the Plan is January 1, 1989. The effective date of this amendment and restatement is October 13, 1997. section 2. Eligibility. Any employee of Xerox Corporation ( the `` Company '' ), and any employee of a wholly owned auxiliary of the Company which has adopted this design with the approval of the Company 's Board of Directors or the Committee ( as hereinafter defined ) ( `` Participating Subsidiary '' ), who is in Corporate B and A ( or its equivalent ) or above, and such extra group or groups of employees of the Company or of a Participating Subsidiary as designated from prison term to time by the Administrator, are eligible to participate in the Plan ( an individual who has so elected to participate is hereinafter referred to as a `` Participant '' ). A player who terminates an election to defer receipt of compensation is not eligible to make deferrals again in the Plan until twelve months after the effective date of such end point. section 3. Deferred Compensation Account. There shall be established for each Participant one or more submit compensation Accounts ( as hereinafter defined ). section 4. sum of Deferral. A player may elect to defer receipt of compensation for services ( up to 50 % in the case of base wage and up to 100 % in the case of any early long or light terminus compensation that is eligible for postponement ) as an employee of the Company or a enter subsidiary company differently collectible to the Participant in the imprint of cash. Any sum deferred is credited to the Participant 's Accounts on the date such amount is otherwise account payable. To adjust for the reduce contribution differently collectible in cash, if applicable, to a Participant 's report under the Xerox Corporation Profit Sharing and Savings Plan ( the 'Profit Sharing Plan ' ) because of the deferral of recompense under the design at the time of each annual employer contribution to the Participant 's account under the profit Sharing Plan, the submit compensation account of each active Participant shall be credited with an extra conjectural amount equal to the merchandise of ( a ) the amount of postpone compensation under the Plan which would have been included in the calculation of such profit sharing contribution if such compensation had not been deferred ( b ) by the contribution share account payable in cash under the profit Sharing design for the relevant calendar year. section 5. time of Election of Deferral. An election to defer compensation must be made by a Participant prior to the year in which the Participant would differently have an unrestricted correct to such recompense. When an employee first gear becomes eligible to participate in the design, he or she may elect to defer any compensation to which he or she has so far to have an unrestricted right to payment. An election to wholly terminate future deferrals may be made at any time prior to the relevant payment date. section 6. conjectural Investment. Deferred compensation is assumed to be invested, without blame, in ( a ) the Balanced Fund, Income Fund, U. S. Stock Fund, International Stock Fund, Small Company Stock Fund or Xerox Stock Fund ( or the successors thereto ) established from time to time under the profit Sharing Plan, ( bel ) a fund with a variable fix rate of return based upon the prime or base pace charged by one or more banks ( `` Prime Rate Investment '' ) and ( degree centigrade ) such early cook income return key investments ( `` Fixed Return Investment '' ), all as shall be made available from clock time by the Administrator in his or her administrative discretion ( `` Investments '' ), as elected by the Participant. It is anticipated that the Administrator will substitute the Prime Rate Investment for the Income Fund effective January 1, 1998. Amounts deferred anterior to January 1, 1998 shall have a rate of return at the Income Fund or the Prime Rate Investment as elected by Participants on forms provided by the Administrator in association with the implementation of the Prime Investment Rate. Elections to make conjectural investments in any one or more of the Investments shall be subject to administrative rules adopted by the Administrator from clock time to clock. No shares of Xerox stock will ever actually be issued to a Participant under the Plan. section 7. Value of Deferred Compensation Accounts and Installment Payments. The value of each Participant 's Accounts shall reflect all amounts deferred, gains, losses and rates of retort from the Investments, and shall be determined at the close of clientele on each day on which securities are traded on the New York Stock Exchange. Hypothetical investments in the profit Sharing Plan shall be valued on each business day based upon the measure of such hypothetical investing as determined under such design on the evaluation date under such Plan coincident with or last preceding such business day. The value of Investments not made under the net income Sharing Plan shall be determined from such available reference or sources as the Administrator in his or her sole delicacy shall from time to time determine. The go steady as of which investments are valued pursuant to the foregoing sentences are referred to herein as a valuation Date. section 8. manner of Electing Deferral. A participant may elect to defer recompense by giving written poster to the Administrator on a form provided by the Company, which notice shall include ( 1 ) the share to be deferred ; ( 2 ) if more than one is offered under the Plan, the Investment applicable to the come deferred ; and ( 3 ) the payment method that will apply to the submit recompense. A participant may elect up to a utmost of four classify requital methods during his or her engagement in the Plan ( `` Accounts '' ). such payment methods once made may never be changed. Each election to defer compensation under the Plan shall specify an account from which payment will be made. The Accounts available under the Plan shall be : Account 1 which shall be collectible beginning the July 15 of a calendar class that follows the calendar year of retirement by the number of years elected by the Participant ( 0, 1, 2, 3, 4, or 5 years ). The last requital shall be on the July 15 of the year in which the Participant attains a certain long time elected by the Participant. Account 2 which shall be collectible beginning the July 15 of a calendar class that follows the calendar class of retirement by the number of years elected by the Participant ( 0, 1, 2, 3, 4, or 5 years ) and is account payable on each subsequent July 15 until the numeral of payments elected by the Participant have been made. Account 3 which shall be collectible on the July 15 of a calendar year that follows the calendar year of retirement by the number of years elected by the Participant ( 0, 1, 2, 3, 4, or 5 years ) and is account payable as a individual sum. Account 4 shall be available with esteem to amounts deferred during 1998 and later years. This history is collectible beginning on the July 15 of a pin down year whether before or after retirement. In addition to this payment date, the Participant must elect the number of payments that are to commence on this date. The payment ( s ) from this bill can be as a single sum or account payable in up to four annual installments. once Account 4 is established ( an election is made to defer and the payment date is defined ), deferrals to Account 4 shall cease for any calendar year in which a payment is scheduled to be made from this Account. The full account balance shall be distributed by the end of the installment period. Once the final examination payment is made from this Account, the Participant may elect to create a new Account 4. The initial election or any subsequent election to use this Account must be made by December 31 of the class preceding the calendar year in which deferrals will be allocated to this Account. The beginning payment date that can be elected is the July 15 of the calendar year that follows the calendar year of election ( calendar year containing the December 31 ascribable go steady for election ) by three years. not late than December 31, 1997, participants who are presently employed by the Company may change their payment elections previously made under the Plan which specified payment dates relating to ending, retirement, death, or disability, by selecting payments pursuant to the methods described in Accounts 1 through 3 above. such exchange shall be effected by the Participant file with the Administrator a change of election on a phase or forms established by the Administrator for such purpose. such change shall be effective entirely with regard to payments in 1999 or late for participants who are employed by Xerox as of December 31, 1998. The Administrator may adopt rules of general applicability for presidency of payments under the Plan which may be elected by participants, including without limit, fixing the maximal age selected for payments to terminate and the utmost number of payments. section 9. requital of Deferred Compensation. ( a ) No secession may be made from the Participant 's Account, except as provided under this section and Sections 10 and 11. ( barn ) Payments from a Participant 's Account are made in cash in accordance with the elections made under Section 8 of the Plan based on the rate of the Participant 's submit compensation Accounts as of the Valuation Date immediately preceding the date of payment. ( c ) Unless differently elected by a participant with the written approval of the Administrator, payments of postpone compensation shall be made pursuant to the watch formula : the measure of the first gear payment shall be a fraction of the value of the Participant 's submit compensation account on the preceding valuation Date, the numerator of which is one and the denominator of which is the total number of installments elected, and the amount of each subsequent requital shall be a fraction of the measure on the Valuation Date preceding each subsequent payment date, the numerator of which is one and the denominator of which is the full total of installments elected minus the count of installments previously paid. Any other payment method selected with the written approval of the Administrator must in all events provide for payments in well equal installments. ( five hundred ) Upon result of employment, including termination resulting from death, prior to retirement, the entire value of the participants Accounts under the Plan shall be paid to the Participant, or his or her estate, as the subject may be, american samoa soon as administratively possible after his or her go steady of ending. ( e ) Upon the death of a Participant following retirement the sum value of the Participant 's Accounts under the Plan shall be paid in accord with a erstwhile, irrevocable election made by such Participant as follows : 1. The total respect shall be paid to the Participant 's estate of the realm angstrom soon as administratively possible after the death of a Participant, or 2. Payments shall continue under the election made by the Participant to the Participant 's surviving spouse until the surviving spouse 's death. Any remaining payments shall be paid as a single sum to the surviving spouse's estate of the realm. ( degree fahrenheit ) If a Participant dies after retirement without having made such irrevocable election, the total value of his or her Accounts under the Plan shall be paid in a single requital to the player 's estate of the realm adenine soon as administratively possible after notice of his or her date of death has been received by the Administrator. section 10. acceleration of Payment. ( a ) For Hardship. Upon written approval from the Company 's Chief Executive Officer ( the Company 's Board of Directors, in the lawsuit of a request from the Chief Executive Officer ), a Participant may be permitted to receive all or part of his accumulate benefits if, in the delicacy of the Chief Executive Officer ( or the Board, if applicable ), it is determined that an emergency consequence beyond the Participant 's master exists and which would cause such Participant severe fiscal asperity if the payment of his benefits were not approved. Any such distribution for asperity shall be limited to the come needed to meet such emergency. A participant who makes a hardship secession can not reenter the plan for twelve months after the date of withdrawal. ( boron ) Upon a Change in Control. Within 5 days following the occurrence of a change in control of the Company ( as hereinafter defined ), each Participant shall receive a lout summarize payment equal to the respect of his Account. For purposes hereof, a `` variety in master of the company '' shall be deemed to have occurred if ( A ) any `` person '' ( as such term is used in Sections 13 ( five hundred ) and 14 ( vitamin d ) of the Securities Exchange Act of 1934, as amended ( the `` Exchange Act '' ) ), early than ( 1 ) the company, ( 2 ) any regent or other fiduciary holding securities under an employee benefit design of the Company, ( 3 ) any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of sprout of the Company, or ( 4 ) any person who becomes a `` beneficial owner '' ( as defined below ) in joining with a transaction described in clause ( 1 ) of subparagraph ( C ) below, is or becomes the '' beneficial owner '' ( as defined in Rule 13d-3 under the Exchange Act ), directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates ) representing 20 % or more of the blend vote exponent of the Company 's then outstanding securities ; ( B ) the follow individuals cease for any cause to constitute a majority of the directors then serving : individuals who, on October 9, 2000 form the Board and any fresh director ( other than a film director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a accept solicitation, relating to the election of directors of the Company ) whose date or election by the Board or nominating speech for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who were directors on October 9, 2000 or whose appointment, election or nominating speech for election was previously so approved or recommended ; ( C ) there is consummated a fusion or consolidation of the Company or any direct or indirect subsidiary company of the Company with any other pot early than ( 1 ) a fusion or consolidation which results in the directors of the Company immediately prior to such fusion or consolidation continuing to constitute at least a majority of the board of directors of the Company, the surviving entity or any parent thence or ( 2 ) a amalgamation or consolidation effected to implement a recapitalization of the Company ( or similar transaction ) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates ) representing 20 % of more of the aggregate vote might of the Company 's then great securities ; or ( D ) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or well all of the Company 's assets, early than a sale or disposition by the Company of all or substantially all of the Company 's assets to an entity, at least 50 % of the compound vote ability of the voting securities of which are owned by stockholders of the Company in well the lapp proportions as their ownership of the Company immediately anterior to such sale. department 11. early punish Withdrawals. Notwithstanding the provisions of Sections 9 and 10, a Participant may be permitted to receive all or part of his accrued benefits at any prison term provided that ( A ) the Administrator approves such distribution in his or her sole free will, and ( B ) the Participant forfeits a helping of his account libra equal to a share of the amount distributed. The share decrease shall be the greater of ( A ) six percentage, or ( B ) a percentage equal to one-half of the prime matter to rate, as determined by the Administrator. section 12. time Of Investment. Amounts deferred under the Plan shall begin to be credited with gains, losses and rates of return from Investments commencing on the date credited to the Participant 's Accounts. section 13. Participant 's Rights Unsecured. The benefits collectible under this Plan shall be unfunded. consequently, no assets shall be segregated for purposes of this plan and placed beyond the reach of the Company 's general creditors. The right of any Participant to receive future installments under the provisions of the Plan shall be an unguaranteed title against the general assets of the Company. section 14. statement of Account. Statements will be sent to each Participant by February and August and more frequently if the Administrator sol determines as to the prize of their submit recompense accounts as of the end of December and June, respectively. section 15. Assignability. no proper to receive payments hereunder shall be assignable or assignable by a Participant, except by will or by the laws of descent and distribution or except as provided under part 9. segment 16. Business Days. In the event any date specified herein falls on a Saturday, Sunday or legal vacation, such date shall be deemed to refer to the adjacent occupation day thereafter. section 17. administration. The Plan shall be administered by the Vice President of the Company having responsibility for human resources ( the '' Administrator '' ). The Administrator shall have the assurance to adopt rules and regulations for carrying out the plan, and interpret, interpret and implement the provisions of the Plan. department 18. Amendment. The Company expressly reserves the right to amend the design at any time and in any particular manner. such amendments, other than amendments relating to end point of the Plan or relating to Investments under Section 6 of the Plan, may be effected by ( one ) the Board of Directors, ( two ) a punctually form committee of the Board of Directors ( `` Committee '' ), or ( three ) the Vice President of the Company responsible for human resources or a spokesperson thence. In the consequence such office is vacant at the time the amendment is to be made, the Chief Executive Officer of the Company shall approve such amendment or appoint a representative. Amendments relating to termination of the Plan or relating to Investments under Section 6 of the Plan shall be effected pursuant to a resolution punctually adopted by the Board of Directors of the Company, or a punctually established committee of the Board of Directors of the Company, in accordance with the business Corporation Law of the State of New York. Any amendment, alteration, modification or suspension under subsection ( three ) of the preceding paragraph shall be set forth in a written legal document executed by any Vice President of the Company and by the Secretary or an Assistant Secretary of the Company. Upon termination the Administrator in his or her sole discretion may pay out score balances to participants. No amendment, modification or end point shall, without the consent of a Participant, adversely affect such Participant's accruals in his/her Accounts .
 display 10 ( newton ) As Amended By B/D 10/9/00 XEROX CORPORATION 1998 EMPLOYEE STOCK OPTION PLAN ARTICLE I -- Purpose of the Plan The purpose of the Xerox Corporation 1998 Employee Stock Option Plan ( `` Plan '' ) is to increase the possession interest in the Company of eligible employees of the Company indeed as to align such interests with those of the shareholders of the Company and to provide a far incentive to serve as an employee of the Company through the issue of livestock options. ARTICLE II -- Definitions Unless the context distinctly indicates differently, the following terms shall have the following meanings : 2.1 `` Administrator '' means the individual and/or Committee or subcommittee referred to in Paragraph 3.1 as the case may be. 2.2 `` Award Summary '' means the award summary or the agreement delivered by or on behalf of the Administrator to each Optionee upon concede of an Option under the design which shall set forth details of each Option, including, without limit, count of shares, option exercise monetary value, Exercise Period, Waiting Period and use dates. 2.3 `` Board '' means the Board of Directors of the Company. 2.4 `` Change in Control '' shall be deemed to have occurred if ( A ) any `` person '' ( as such term is used in Sections 13 ( five hundred ) and 14 ( five hundred ) of the Securities Exchange Act of 1934, as amended ( the `` Exchange Act '' ) ), other than ( 1 ) the caller, ( 2 ) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, ( 3 ) any company owned, immediately or indirectly, by the shareholders of the Company in well the like proportions as their ownership of store of the Company, or ( 4 ) any person who becomes a `` beneficial owner '' ( as defined below ) in association with a transaction described in article ( 1 ) of subparagraph ( C ) below, is or becomes the `` beneficial owner '' ( as defined in Rule 13d-3 under the Exchange Act ), directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired immediately from the Company or its affiliates ) representing 20 % or more of the compound vote ability of the Company 's then outstanding securities ; ( B ) the watch individuals cease for any reason to constitute a majority of the directors then serving : individuals who, on October 9, 2000 form the Board and any fresh director ( early than a film director whose initial assumption of office is in connection with an actual or threaten election contest, including but not restrict to a accept solicitation, relating to the election of directors of the Company ) whose date or election by the Board or nomination for election by the Company 's shareholders was approved or recommended by a vote of at least two- thirds of the directors then still in position who were directors on October 9, 2000 or whose appointment, election or nominating speech for election was previously so approve or recommended ; ( C ) there is consummated a amalgamation or consolidation of the Company or any direct or indirect subordinate of the Company with any other corporation other than ( 1 ) a amalgamation or consolidation which results in the directors of the Company immediately anterior to such amalgamation or consolidation continuing to constitute at least a majority of the dining table of directors of the Company, the surviving entity or any rear thence or ( 2 ) a amalgamation or consolidation effected to implement a recapitalization of the Company ( or similar transaction ) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company ( not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates ) representing 20 % of more of the aggregate vote power of the Company 's then outstanding securities ; or ( D ) the shareholders of the Company approve a design of complete extermination or dissolution of the Company or there is consummated an agreement for the sale or inclination by the Company of all or substantially all of the Company 's assets, other than a sale or disposal by the Company of all or substantially all of the Company 's assets to an entity, at least 50 % of the compound vote world power of the voting securities of which are owned by stockholders of the Company in well the like proportions as their ownership of the Company immediately prior to such sale. 2.5 `` CIC Price '' means the higher of ( a ) the highest price paid for a plowshare in the transaction or series of transactions pursuant to which a change in manipulate of the Company shall have occurred, or ( boron ) the highest price paid for a Share during the 60 day period immediately preceding the date upon which the event constituting a Change in Control shall have occurred as reported in The Wall Street Journal in the New York Stock Exchange Composite Transactions or similar successor consolidated transactions reports. 2.6 `` Company '' means Xerox Corporation. 2.7 `` Employee '' means each employee of the Company or of any entity that is directly or indirectly controlled by the Company all of whom are eligible for grants under the Plan. 2.8 `` Exercise Period '' means the date which is eight years after the Option Grant Date of such Option. 2.9 `` Fair Market Value '' means, with deference to any date, the average between the highest and lowest sale prices per share in the New York Stock Exchange Composite Transactions on such date as reported in the Wall Street Journal, provided that if there should be no sale of Shares reported on such date, the Fair Market Value of a Share on such date shall be deemed equal to the average between the highest and lowest sale prices per share in such complex Transactions for the survive precede date on which sales of Shares were reported. 2.10 `` Option '' means an choice to purchase Shares awarded under the Plan which does not meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, or any successor law. 2.11 `` Option Grant Date '' means the effective date of an option grant under the terms of the Plan. 2.12 `` Option Surrender Right '' has the mean specified in Paragraph 6.4. 2.13 `` Optionee '' means each person to whom an option has been granted. 2.14 `` design '' means the Xerox Corporation 1998 Employee Stock Option Plan, as amended and restated from clock time to time. 2.15 `` Shares '' means shares of the Common Stock, par value $ 1.00 per partake, of the Company. ARTICLE III -- Administration of the Plan 3.1 Administrator of Plan. The Plan shall be administered by the person who is the Vice President of the Company then having province for Human Resources other than in respect of matters relating to officers of the company who are subject to Section 16 under the Securities Exchange Act of 1934, as amended ( `` part 16 Officers '' ). The Plan shall be administered in regard of Section 16 Officers by the Executive Compensation and Benefits Committee of the Board of Directors of the Company or the successor to such Committee or by a subcommittee of such Committee. 3.2 authority of the Administrator. Except as otherwise provided herein, the Administrator shall have full baron and authority to ( one ) designate the Employees to whom Options are to be granted, ( two ) determine the phone number of Shares to be covered by each option, ( three ) determine the terms and conditions of Options granted under plan, ( intravenous feeding ) understand and construe the plan, ( five ) espouse such rules and regulations as the Administrator shall deem necessary and advisable to implement and administer the plan and ( six ) designate persons to carry out the Administrator 's responsibilities, capable to such limitations, restrictions and conditions as the Administrator may prescribe, such determinations to be made in accord with the Administrator 's best business judgment as to the best interests of the Company and its shareholders and in accord with the purposes of the Plan. Options granted and the numeral of shares covered by Options shall be based upon one or more measures of Company performance selected by the Administrator. ARTICLE IV -- Shares subject to the Plan The full number of Shares which may be issued upon use of Options under the Plan shall be 25,000,000 subject to adaptation as provided in Article IX. Any Shares issued under the plan may consist of empower and unissued Shares or of treasury Shares. ARTICLE V -- Non-Transferability of Options All Options under the Plan will be nontransferable and shall not be assignable, alienable, salable or otherwise assignable by the Optionee other than by will or the laws of descent and distribution except pursuant to a domestic relations order entered by a court of competent legal power or as otherwise determined by the Administrator. During the life of the Optionee, Options under the Plan shall be exercisable only by him or her. If thus permitted by the Administrator, an Optionee may designate a beneficiary or beneficiaries to exercise the rights of the Optionee under this Plan upon the death of the Optionee. ARTICLE VI -- Options Each Option shall be subject to the postdate terms and conditions : 6.1 Purchase Price. The purchase price per Share under each Option granted pursuant to this Article shall be 100 % of the Fair Market Value per Share on the Option Grant Date. Any Option granted to replace an earlier unexercised option Grant shall have a price per share not less than the price per plowshare of the option being replaced. 6.2 Option Waiting Period and Exercise Dates. The Shares subject to an option may be purchased commencing on the January 1 future following the Option Grant Date ( the `` wait Period '' ) as follows : 33-1/3 % of such Shares commencing at the end of the Waiting Period ; 33-1/3 % of such Shares commencing on the first day of the second base class following the Waiting Period ; and 33-1/3 % of such Shares commencing on the inaugural day of the one-third year following the Waiting Period. subjugate to Article VII, an option may be exercised until the end of the Exercise Period. An option, or assign thereof, may be exercised in solid or in function only with respect to unharmed Shares. To the extent that an choice is not exercised when it becomes initially exercisable, it shall not expire but shall be carried forth and shall be exercisable until the termination of the Exercise Period. Partial drill will be permitted from meter to time within the share restriction described above provided that no overtone use may be for less than the lesser of twenty Shares or the total number of Shares remaining unexercised under the Option. 6.3 Method of Exercising Option. The Options may be exercised from time to prison term by written detect to the Company, which shall state the election to exercise the Options and the number of shares with respect to which the Options are being exercised, and shall be signed by the person exercising the Options. such notice must be accompanied by a see account payable to the Company in requital of the broad purchase price. After reception of such notice, the Company will advise the person exercising the choice of the total of withholding tax which must be paid under U.S. Federal, and where applicable, state and local law resulting from such exercise. Upon receipt of payment of the purchase price and the withholding tax the Company shall, without transfer or issue tax to the person exercising the Options, issue a certificate or certificates for the number of shares covered by such notice of exercise. In the event that the Options are being exercised through the Company 's cashless drill course of study, there shall be no necessity for the Employee to deliver a see in payment of the buy price or for the withholding tax, all of which shall be effectuated between the Company and its then acting agent appointed to administer the cashless exercise program. 6.4 Option Surrender Rights. All Options granted hereunder shall be accompanied by choice capitulation rights ( `` OSRs '' ) covering an adequate phone number of shares as are covered under the refer option. Upon the occurrence of an event constituting a Change in Control, all OSRs, to the extent that the CIC Price exceeds the exercise price of the relate Options, shall be paid in cash angstrom soon as may be feasible. Upon such payment, such rights and any relate Option shall be canceled. The measure of cash account payable in respect of an OSR shall be determined by multiplying the act of unexercised shares under the Option to which the right relates by the difference between the option monetary value of such shares and the CIC Price. 6.5 Award Summary. Each option granted under the Plan shall be evidenced by an Award Summary. 6.6 recharge Options. Options shall not be granted which by the terms of the grant provide for automatic rifle award of extra Options upon exercise thereof. ARTICLE VII -- Termination of Service Unless otherwise determined by the Administrator, termination of service, disability, retirement or end of an Optionee shall have the follow effects on Options : 7.1 result of Service. If an Optionee ceases to be an employee of the Company or any of its subsidiaries other than by reason of disability, retirement or end, each Option held by such Optionee may thereafter be exercised by such Optionee ( or such Optionee 's executor, administrator, defender, legal representative, benefactive role or similar person ) entirely to the extent that they were exercisable on the go steady of such termination and shall expire on the earlier of : ( one ) three months from the date of such termination or ( two ) exhalation of the Exercise Period. Options which are not exercisable on the date the Optionee ceases to be such an employee shall terminate. 7.2 Disability, Retirement or Death. If an Optionee ceases to be an employee of the Company or any of its subsidiaries by reason of disability or retirement, each Option held by such Optionee may thereafter be exercised by such Optionee in accord with the provisions of Article VI. If the Optionee dies following result of service by reason of retirement or disability, outstanding Options shall be exercisable to the extent that they were exercisable on the date of death by such Optionee 's executor, administrator, defender, legal representative, benefactive role or alike person and shall expire on the earlier of : one year following the date of end or termination of the Exercise Period. If the Optionee ceases to be such an employee as a consequence of death after the passing of the Waiting Period for an Option award, such Option shall be immediately invest and exercisable by the Optionee 's legal representative at any time within one year of the Optionee 's death but in no event after the termination of the Exercise Period. Options which are not exercisable on the date the Optionee ceases to be such an employee in accord with the foregoing shall terminate. ARTICLE VIII -- Amendment and Termination The Board may amend the plan from time to time or terminate the plan at any time except to the extent otherwise required by the Business Corporation Law of the State of New York ; provided, however, that no action authorized by this Article shall adversely change the terms and conditions of an outstanding choice without the Optionee 's accept. ARTICLE IX -- Adjustment Provisions 9.1 If the Company shall at any time change the number of issue Shares without new consideration to the Company ( such as by sprout dividend, stock split, recapitalization, reorganization, exchange of shares, extermination, combination or other change in corporate structure affecting the Shares ) or make a distribution of cash or property which has a solid affect on the value of publish Shares, the total of Shares covered by each outstanding choice and the purchase price per Share under each outstanding Option shall be adjusted so that the aggregate consideration collectible to the Company and the value of each such Option shall not be changed. 9.2 Notwithstanding any early provision of the Plan, and without affecting the number of Shares reserved or available hereinafter, the Administrator shall authorize the issue, good continuation or premise of outstanding Options or provide for other equitable adjustments after changes in the Shares resulting from any fusion, consolidation, sale of assets, acquisition of property or stock, recapitalization, reorganization or exchangeable occurrence in which the company is the continuing or surviving corporation, upon such terms and conditions as it may deem necessity to preserve Optionees ' rights under the Plan. 9.3 In the case of any sale of assets, fusion, consolidation or combination of the company with or into another pot early than a transaction in which the company is the continuing or surviving corporation and which does not result in the outstanding Shares being converted into or exchanged for unlike securities, cash or other property, or any combination thence ( an '' Acquisition '' ), any Optionee who holds an great option shall have the right ( subject to the provisions of the Plan and any restriction applicable to the Option ) thereafter and during the term of the Option, to receive upon exercise thereof the Acquisition Consideration ( as defined below ) receivable upon the Acquisition by a holder of the number of Shares which would have been obtained upon exert of the Option or part thence, as the lawsuit may be, immediately anterior to the Acquisition. The condition `` Acquisition Consideration '' shall mean the kind and sum of shares of the surviving or new pot, cash, securities, evidence of indebtedness, other property or any combination thereof receivable in regard of one parcel of the Company upon consummation of an Acquisition. 9.4 Notwithstanding anything to the contrary in this Article IX, if any of the events or transactions described herein constitute a Change in Control, to the extent that the CIC Price exceeds the exercise price of the related Options, then in stead of the adjustments provided for in this Article IX, the provisions of Paragraph 6.4 shall apply and outstanding Options shall be cashed out as provided for therein. ARTICLE X -- effective Date The Plan shall be submitted to the shareholders of the Company for borrowing in accordance with the provisions of Section 505 of the Business Corporation Law of the State of New York and, if adopted by a majority of the votes cast at the 1998 annual meet of shareholders, shall become effective as of the date of adoption by shareholders. ARTICLE XI -- many-sided Provisions 11.1 Governing Law. The robustness, construction and consequence of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of New York and applicable Federal law. 11.2 Successors and Assigns. The Plan shall be binding on all successors and permitted assigns of an Optionee, including, without limitation, the estate of the realm of such Optionee and the executor, administrator or trustee of such estate, or any receiver or regent in bankruptcy or example of the Optionee 's creditors. 11.3 general Restriction. Each Option shall be submit to the requirement that, if at any time the Administrator shall determine, in its sole free will, that the list, registration or qualification of any Option under the Plan upon any securities exchange or under any department of state or federal police, or the accept or blessing of any politics regulative body, is necessary or desirable as a condition of, or in connection with, the concede of such Options or the award or settlement thereof, such choice may not be exercised or settled in hale or in part unless such list, registration, qualification, accept or approval shall have been effected or obtained complimentary of any conditions not acceptable to the Administrator. 11.4 future Rights. No Employee shall have any rights by cause of the grant of any Options under the plan to continue as an employee of the Company or any subordinate of the Company for any period of time, or at any particular rate of compensation. 11.5 Rights as a Shareholder. An Optionee shall have no rights as a stockholder with obedience to shares covered by Options granted hereunder until the date of issue of a stock certificate certificate therefor, and no adaptation will be made for dividends or early rights for which the record date is anterior to the date such certificate is issued. 11.6 Fractions of Shares. The Company shall not be required to issue fractions of shares. Whenever under the terms of the Plan a fractional share would be required to be issued the Optionee shall be paid in cash for such fractional contribution based upon Fair Market Value at the prison term of exercise of the Option. 11.7 Term of the Plan. No Option shall be granted under the Plan after May 21, 2003. however, any Option theretofore granted may extend beyond such date and continue to be exercisable pursuant to its terms for its remaining Exercise Period .
 parade 10 ( oxygen ) CEO Challenge Bonus A CEO Challenge Bonus program was established for the calendar years 2000 and 2001. The goals of the CEO Challenge Bonus program are to support the Company's need to retain samara executives and provide extra incentives to improve the fiscal performance of the Company. executive officers are eligible to participate in the CEO Challenge Bonus. The CEO Challenge bonus provides an annual opportunity equal to one-half of each executive 's annual bonus target measure collectible over a period of four quarters if performance targets are met. For 2000, the CEO Challenge Bonus was based on quarterly EPS targets. The EPS target for the first draw was achieved and bonus amounts were paid consequently. For the remaining quarters of 2000, EPS targets were not achieved and bonus opportunities were forfeited. For 2001, the CEO Challenge bonus will besides be based on quarterly EPS targets .
 exhibit 10 ( p ) THE DOCUMENT COMPANY XEROX CONFIDENTIAL Xerox Corporation 800 Long Ridge Road Stamford, CT 06904 Paul A. Allaire Chairman of the Board December 4, 2000 Mr. William F. Buehler 535 Smith Ridge Road New Canaan, CT 06840 Dear Bill : The purpose of this letter is to summarize the arrangements for your retirement from Xerox Corporation ( the company ) as follows : final day of active use : January 15, 2001 wage continuance : 12 months January 16, 2001 to January 15, 2002 Salary Continuance Amount : $ 56,250 per calendar month Retirement Date : January 16, 2002 If you obtain employment as an employee of, or adviser to, another firm or pot ( other than the Company or an consort ) that is a direct rival of the Company in any business soon engaged in by the Company or in which the Company as of the date hereof may reasonably be expected to engage in the future, or is or may become such a rival indirectly through a partnership, joint venture or other business placement with, or as a supplier or adviser to, such a calculate rival ( `` Competitor '' ), the wage duration described above will terminate upon the commencement of such use. however, if the company advises you in writing that in its fair judgment such other firm or pot is not a rival, the remaining wage duration will continue to be paid. We will provide poster to you upon your request as to the competitive nature of a prospective employer. The caller may besides terminate the wage duration in the event you disclose confidential business information or if you publicly make any derogative or disparage statements about the Company, its management or its business. If your wage duration ends pursuant to the preceding paragraph, your employment with the Company will terminate on the lapp date that wage continuance terminates and any benefits described below or otherwise that are dependent upon continue employment, including without limitation, continued vest of benefits and determination of years of service for retirement, will besides terminate. In accession, breed options both vest and unexercised and non-vested will be cancelled immediately. As denote to in this letter, your retirement date means January 16, 2002 or the earlier termination of your wage continuance pursuant to this paragraph. BONUS Your 2000 bonus will be paid in February 2001 based on accomplishment against metrics. No bonus will be paid during the time you receive wage duration. Summarized below are the relevant provisions that apply to your long-run bonus awards, profit share and savings accounts, pension benefits, animation policy benefits and other benefits arrangements. In case of inconsistencies between this compendious and the relevant plan, the terms of the plan will govern. long-run INCENTIVE AWARDS Grant Grant Amount Vesting Payment Date Price Remaining Date Date N/Q Stock Options : 12/31/97 $ 36.7032 109,634 53,997 ( now ) Options continue to be ( LEEP ) 55,637 on available as if an active 1/1/2001 employee. 10/12/98 $ 46.8750 70,128 46,752 ( now ) Options continue to be ( LEEP ) 23,376 on available as if an active 1/1/2001 employee. 12/7/98 $ 54.8594 104,440 52,220 ( now ) Options continue to be ( LEEP ) 52,220 on available as if an active 1/1/2001 employee. 1/1/99 $ 59.4375 2,154 718 ( now ) All vested options remain ( profit 718 on 1/1/2001 exercisable for 12 months Sharing ) following retirement date. 718 on 1/1/2002 11/9/99 $ 25.8125 21,563 21,563 on Options will vest as ( SO Bonus ) 3/1/2003 indicated for retirees and the exercise period will be until 12/31/09. 2/7/2000 $ 21.7812 50,000 50,000 on Options not vested at ( CEO 1/1/2005 clock of retirement are Challenge ) cancelled. 5/18/00 $ 27.0000 100,000 50,000 on Options continue to be ( Non-trad 1/1/2001 available as if an active NQ ) 50,000 on employee. 1/1/2002 total 457,919 Incentive Stock Rights 10/13/97 20,000 20,000 on 10/13/2001 12/31/97 15,896 15,896 on ISRs vest if EPS targets ( LEEP ) 3/1/2001 are met. 12/7/98 10,444 10,444 on ISRs vest if EPS targets ( LEEP ) 3/1/2001 are met. 5/18/00 30,000 15,000 on ( particular ISR ) 1/1/2001 15,000 on 1/1/2002 entire 76,340 profit share AND SAVINGS ACCOUNTS As you know, under relevant design provisions, you have choices available regarding the continue investment of your bill balances and the meter and form of distribution. Please refer to You and Xerox : Wealthwise for a description. A decision of your account balances will be done at retirement. EMPLOYEE STOCK OWNERSHIP PLAN ( ESOP ) Upon retirement, your ESOP report can be taken as cash, in stock certificate, or rolled over to the Xerox 401 ( kilobyte ) savings plan. A decision of your final design benefit will be done at retirement. PENSION BENEFITS Effective on your retirement date, you will become a retiree of Xerox. As a retiree, you will receive pension benefits accrued in the Retirement Income Guarantee Plan ( RIGP ). In summation to your vest RIGP benefit, you will receive a benefit under the Supplemental Executive Retirement Plan ( SERP ), which as you know, will allow you to begin to receive retirement income benefits unreduced for age and will be offset by your RIGP benefits. This profit will commence on your retirement date, and will be paid in monthly installments reflecting your survivor election. This benefit is unfunded and is not tax qualified. In addition to RIGP and SERP benefits you will receive a retirement supplement approved by the ECBC and communicated to you stopping point November. It will provide the equivalent of $ 75K per year and will be paid in 3 peer installments of $ 280,746 beginning 1/1/02. You can elect a individual ball sum requital ( $ 842,238 ) of this part of your retirement benefits if you make that election prior to December 31, 2001. aesculapian BENEFITS As a retiree, you are eligible to receive medical coverage under Xerox Retiree Flex. This program will include, among other things, coordination of benefits if you are covered by more than one plan including Medicare. As you get closer to your retirement date, an information box will be sent to you from United HealthCare. LIFE INSURANCE Your Contributory Life Insurance coverage of $ 1,500,000 will continue during your wage duration time period. During this menstruation, both you and the Company will continue to share in the monetary value of premiums according to the original plan agreement. In the consequence of your death during wage duration, wage would cease and your beneficiaries will, topic to applicable plan provisions receive the proceeds of your biography insurance coverage. extra information will be sent to you from LongMiller, our consultants for this platform. DEFERRED COMPENSATION PLAN Your postpone recompense accounts will be paid out according to the terms of your prior elections following retirement. OTHER ARRANGEMENTS You will be paid for any accrued and fresh vacation upon beginning of wage duration. You will not accrue any further vacation. Your ship's company fiscal guidance program will be continued through the end of 2002. Tax readiness will be extended through 2002 for the 2001 tax year. When wage duration begins, you will not be entitled to any future Executive Expense Allowance payments. INDEMNITY You will be entitled to be indemnified with respect to all periods of your service as a film director or policeman of the Company or any of its subsidiaries in accord with 1 ) the provisions of Sections 721 through 725 of the Business Corporation Law of the State of New York, 2 ) section 2 of Article VIII of the by-laws of the Company as in effect on the date hereof and 3 ) the Company directors and officers liability indemnity policies with Federal Insurance Company, National Union Fire Insurance Company Of Pittsburgh P.A., Reliance Insurance Company, Chubb Atlantic Ltd., Gulf Insurance Company and A.C.E Insurance Company, Ltd., or any successor indemnity caller. RELEASE This agreement shall not become effective until you execute and delivery to the Company the release in the shape attached. COOPERATION IN LITIGATION You will cooperate in full with the Company and its advocate in any litigation that arises out of or is related to your service with the Company or any of its subsidiaries, or in which you are named as a party. That cooperation includes making yourself available for reasonable periods of prison term for consultation with the Company 's rede in any such litigation and to testify in such litigation at the Company 's expense for travel and lodging, if required. Margie Filter will contact you regarding your resignation as a bodied officer and Vice Chairman of the Board of Directors. Bill, if you have any questions on the above, please call me or Pat Nazemetz at ( 203 ) 968-3158. differently, please sign this letter and return it to me. sincerely, /s/ Paul A. Allaire Paul A. Allaire PAA/bjf Attachment Copies : HJMotroni PMNazemetz RLStrahota AGREED AND ACCEPTED /s/ W. F. Buehler William F. Buehler Date : 12/8/00
 display 10 ( south ) THE DOCUMENT COMPANY XEROX CONFIDENTIAL Xerox Corporation 800 Long Ridge Road Stamford, CT 06904 Anne M. Mulcahy President and Chief Operating Officer April 2, 2001 Mr. Carlos Pascual 7 Ridge Road Weston, CT 06883 Dear Carlos : This letter will summarize our agreement and agreement regarding your employment condition. I appreciate your agreement to remain hire at Xerox Corporation ( `` Xerox '' or the `` Company '' ) until the end of 2002. I am counting on your hold to help us during this turnaround period. I know your pension and other aspects of your pay have been of concern to you. I have received Executive Compensation and Benefits Committee approval for the follow actions, assuming you remain use through 12/31/2002 : At the earliest possible date, Xerox will direct Xerox Spain to move to '' externalize '' your spanish pension in a manner reproducible with propose spanish law requirements. For purposes of this agreement, `` externalization '' of the spanish pension plans refers to actions taken by Xerox in Spain under spanish legislation which results, bury alia, in the complete segregation of pension assets for the benefit of design beneficiaries and the denial of any creditor access to such plan assets unless and until all plan liabilities are settled. You will sign documents as may be necessity to enable vesting at age 60 and benefits payments beginning at long time 60. Your benefits will be based on your notional Salary in spanish Pasetas at the meter of `` externalization '' updated by the Company 's statistician with the general rules applied to the participants of the Xerox Spain Pension Fund. To the extent `` externalization '' results in an imposition of U.S. Tax to you, Xerox will indemnify you for the actual measure of such tax arising from the '' externalization '' of your spanish pension for the period ending 12/31/2006. For purposes of this Agreement, 'Tax '' shall be : ( i ) the incremental sum of U.S. and state person income taxes ( including any penalties or pastime ) net of any foreign tax credit you actually receive in Spain or any early foreign jurisdiction for such Tax ( two ) plus a gross-up amount in an sum that makes you economically whole on an after-tax footing. For the sake of clarity it is understand between the parties hereto that the Tax shall be calculated by comparing the Tax you would owe with the inclusion body of your spanish pension versus the Tax you would owe without inclusion of your spanish pension. The calculation of Tax shall be made by tax advisors satisfactory to the Company. You agree that you will cooperate with the Company and its advisors in order to determine the proper amount of Tax. such cooperation shall include but not be limited to ; providing Xerox with copies of all your relevant tax returns plus any relevant parallelism from the appropriate tax jurisdictions and ; instructing your advisors to cooperate with Xerox including sharing copies of all their relevant tax workpapers. You will be responsible for payment of taxes in Spain, or other jurisdictions. You will be responsible for any U.S. tax payments after 12/31/2006. Xerox shall have the right to contest any imposition with the Internal Revenue Service and/or the allow state taxing legal power ( `` Contest '' ). Xerox shall control such Contest. No payment of Tax will be due until the conclusion of the Contest. You will, and you will instruct your tax advisors, to cooperate with Xerox in a Contest. Following the completion of your active agent employment on 12/31/2002, the Company will provide resettlement aid per the terms of the Transferred Relocation policy, at a cost not to exceed $ 100,000, and you will remain as an employee of Xerox Espana, S.A. on wage continuance for the three-year period ending 12/31/2005. Your retirement will be effective 1/1/2006. Your pace of wage paid during wage continuance will be Pesetas 4,389,600 per calendar month for 36 months, less applicable taxes. You agree to waive any early rupture benefits that you otherwise may be eligible to receive. If you can not waive rights to any extra severance benefit, the amount of wage duration shall be reduced by an amount peer to the early amounts collectible. Required withholding taxes will be taken out of all such payments and reported on the appropriate Form W-2 or Form 1099. During wage continuance, you will remain as Chairman of Xerox Espana, S.A. at the free will of the CEO of Xerox Corporation. Salary duration will be conditioned upon your signing a General Release satisfactory to the Company anterior to the beginning of wage continuance. You agree that your awards under the New LEEP platform granted effective on 1/1/2001 and to be granted effective on 1/1/2002 will vest 100 % on 1/1/2007 notwithstanding any early terms or provisions of the prize. You agree that these awards will be forfeited in their entirety if the Company is required to make tax reimbursement and refer payments in excess of the Value of the New LEEP awards as a resultant role of U.S. tax income of your spanish pension. If the tax reimbursement and related payments made by the Company are less than the Value of your New LEEP awards, you will continue to vest, per the terms of the awards, in that assign of the New LEEP awards that the Value exceeds the amount of tax reimbursement and associate payments made by the Company. For purposes of this paragraph, Value means an amount peer to the total of the pursue : - Number of shares of restrict standard granted to you under the New LEEP plan times the Fair Market Value of each partake on 1/1/2007, or any earlier invest date ; and - An come equal to the total spread ( the Fair Market Value of Xerox stock as of 1/1/2007, or any earlier vest date, less the choice Purchase Price ) on the store options awarded to you under the New LEEP program. . You will not be eligible for a New LEEP award in 2003. Should you leave the Company 's use for any reason other than death or under circumstances which would give you the correct to receive rupture payments under the Severance Agreement between you and the Company dated as of October 15, 2000 anterior to 12/31/2002 : - Unless the CEO authorizes ( subject to ECBC approval ) sequel of vesting in some or all LEEP awards granted 1/1/2001 and 1/1/2002 they will immediately cancel ; - You will not be eligible for any wage duration or other end point benefits any ; - The Company 's promise to reimburse you for any U.S. tax on your spanish pension will immediately expire ; and - You will immediately reimburse the Company for any tax related payments made to you with deference to your spanish pension. This letter agreement supersedes and replaces the letter agreement dated December 21, 2000. sincerely, /s/ ANNE M. MULCAHY Anne M. Mulcahy AMM/pba AGREED AND ACCEPTED /s/ Carlos Pascual -- -- -- -- -- -- -- -- -- -- -- -- - Carlos Pascual Date : Copies : - -- -- -- - HJMotroni PMNazemetz RLStrahota
 show 11 Computatio north of net Income Per Common Share ( Dollars in millions, except per-share data ; shares in thousands ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - I. basic net Income ( Loss ) Per Common Share Income from continuing operations Accrued dividends on ESOP favored livestock, net Accrued dividends on redeemable prefer breed Adjusted income from continuing operations Discontinued operations Adjusted net income ( loss ) Average common shares outstanding during the menstruation Common shares issuable with esteem to exchangeable shares Adjusted average shares great for the period Basic earnings ( loss ) per share : Continuing operations Discontinued operations basic earnings ( loss ) per share II. Diluted net Income ( Loss ) Per Common Share Income from continuing operations Accrued dividends on ESOP prefer stock, net Accrued dividends on redeemable prefer standard ESOP expense alteration, net of tax interest on convertible debt, final of tax Adjusted income from continuing operations Discontinued operations Adjusted final income ( loss ) Average park shares outstanding during the menstruation Common shares issuable with deference to : neckcloth options, incentive and exchangeable shares convertible debt ESOP preferred livestock Adjusted average shares outstanding for the period Diluted earnings ( loss ) per share : Continuing operations Discontinued operations Diluted earnings ( loss ) per plowshare page 82 2000 1999 1998 1997 1996 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ ( 257 ) $ 1,339 $ 463 $ 1,452 $ 1,206 ( 35 ) ( 38 ) ( 46 ) ( 44 ) ( 43 ) - - - - ( 1 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ( 292 ) 1,301 417 1,408 1,162 - - ( 190 ) - - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ ( 292 ) $ 1,301 $ 227 $ 1,408 $ 1,162 ====================================================================== 666,663 661,917 655,676 649,608 648,924 918 1,576 3,280 3,763 5,464 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 667,581 663,493 658,956 653,371 654,388 ====================================================================== $ ( .44 ) $ 1.96 $ .63 $ 2.16 $ 1.78 - - ( .29 ) - - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ ( .44 ) $ 1.96 $ .34 $ 2.16 $ 1.78 ====================================================================== $ ( 257 ) $ 1,339 $ 463 $ 1,452 $ 1,206 ( 35 ) - ( 46 ) - - - - - - ( 1 ) - 5 - - ( 3 ) - 17 3 3 3 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ( 292 ) 1,361 420 1,455 1,205 - - ( 190 ) - - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ ( 292 ) $ 1,361 $ 230 $ 1,455 $ 1,205 ====================================================================== 666,663 661,917 655,676 649,608 648,924 918 10,303 13,091 11,691 16,106 - 13,191 5,287 5,287 5,288 - 51,989 - 54,687 55,962 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 667,581 737,400 674,054 721,273 726,280 ====================================================================== $ ( .44 ) $ 1.85 $ .62 $ 2.02 $ 1.66 - - ( .28 ) - - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ ( .44 ) $ 1.85 $ .34 $ 2.02 $ 1.66 ====================================================================== Page 83
 exhibit 12 calculation of Ratio of Earnings to Fixed Charges Year ended December 31 ( in millions ) 2000 1999 1998 1997 1996 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Fixed Charges : Interest expense $ 1,031 $ 803 $ 749 $ 617 $ 592 Rental expense 115 132 145 140 140 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- entire fix charges before capitalize interest and choose livestock dividend of subordinate 1,146 935 894 757 732 capitalize interest 3 8 - - - prefer banal dividend of auxiliary 55 55 55 50 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- entire pay back charges $ 1,204 $ 998 $ 949 $ 807 $ 732 ====================================== Earnings available for specify charges : Earnings** $ ( 323 ) $ 1,976 $ 653 $ 2,132 $ 2,045 Less undistributed income in minority owned companies ( 20 ) ( 68 ) ( 27 ) ( 84 ) ( 84 ) Add fixed charges before capitalize interest and prefer stock dividend of subsidiary company 1,146 935 894 757 732 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total earnings available for specify charges $ 803 $ 2,843 $ 1,520 $ 2,805 $ 2,693 ====================================== Ratio of earnings to fixed charges ( 1 ) ( 2 ) * 2.85 1.60 3.48 3.68 ( 1 ) The ratio of earnings to fixed charges has been computed based on the Company 's continuing operations by dividing full earnings available for fixed charges, excluding capitalized sake, by sum fixed charges. Fixed charges consist of interest, including capitalized interest and prefer lineage dividend requirements of subsidiaries, and one-third of rent expense as representative of the pastime share of rentals. ( 2 ) The Company 's ratio of earnings to fixed charges includes the effect of the Company 's finance subsidiaries, which chiefly finance Xerox equipment. finance businesses are more highly leverage and, therefore, tend to operate at lower earnings to fixed charges ratio levels than do non-financial businesses. * Earnings for the year ended December 31, 2000 were inadequate to cover fixed charges. The coverage lack was $ 401. ** Sum of `` Income before Income Taxes, Equity Income and Minorities ' Interests '' and `` Equity in Net Income of Unconsolidated Affiliates. '' page 84
 exhibit 13 Management 's Discussion and Analysis of Results of Operations and Financial Condition Summary of Total Company Results As more fully discussed below and in Note 2 to the Consolidated Financial Statements, the Company has restated its 1999 and 1998 fiscal statements. All dollar and per share amounts and fiscal ratios have been revised, as allow, for the effects of the restatements. We were advised in June, 2000 that the Securities and Exchange Commission ( SEC ) had entered an order of a conventional, non-public probe into our accounting and fiscal report practices in Mexico and other areas. The SEC is continuing its investigation into mexican account issues and other accountancy matters which include consideration of the attached Consolidated Financial Statements including all the items affected by the restatements. We continue to amply cooperate with the investigation. The company can not predict when the SEC will conclude its investigation or its consequence. Management intends to restate, as allow, the Company 's quarterly fiscal data, and to refile any repeat quarterly fiscal information with the SEC. At such time, the Company 's Annual Report on Form 10-K will bere-filed, as amended, for any restatement of quarterly data. Our mugwump auditors ' opinion on the Consolidated Financial Statements for each of the years in the three year menstruation ended December 31, 2000, presently contains an explanatory paragraph referring to our supplementary quarterly fiscal data and to the fact that the independent auditors were ineffective to complete their reviews of such quarterly data due to matters related to the restatement issues as described in Note 2 to the Consolidated Financial Statements. After we have completed our restatement of such quarterly information, the Company believes that our autonomous auditors will be able to complete their reviews and modify their Report of Independent Auditors consequently. The business challenges that began to impact our performance in the second one-half of 1999 continued to adversely affect our fiscal performance in 2000. We reported a net personnel casualty of $ 257 million or 44 cents per share in 2000 compared with a net income of $ 1,339 million or $ 1.85 per parcel in 1999. These business challenges included company specific issues such as the realignment of our sales violence from a geographic to an diligence social organization resulting in higher sales force dollar volume, open sales territories and lower sales productivity ; the disruption and incremental costs associated with consolidation of our U.S. customer administration centers and changes in our european infrastructure ; competitive and diligence changes ; and adverse economic conditions in our romance american affiliates and in the U.S. toward the latter part of the year. These operational challenges, exacerbated by significant technology and skill investments, have resulted in credit rating downgrades, limited access to capital markets and market concerns regarding our fluidity. To counter these challenges, in October of 2000 we announced a turnaround program including anticipate asset sales totaling $ 2 - $ 4 billion, accelerated cost reductions and plans to transition the equipment finance business to third party vendors. At this time we believe our plan is on lead as our prime objective of cash generation is being realized. We strengthened our cash place in the fourth quarter and ended the year with more than $ 1.7 billion in cash and equivalents, with approximately $ 400 million positive cash hang from operations in the fourth quarter. We concluded 2000 by selling our China operations to Fuji Xerox for $ 550 million. In January 2001, we obtained $ 435 million in finance from an consort of General Electric Capital Corporation ( GE Capital ) and announced that we were besides discussing possible plans for GE Capital to provide ongoing equipment financing for Xerox customers in respective european countries. In March 2001, we sold half of our possession matter to in Fuji Xerox to Fuji Photo Film Co., Ltd. ( Fujifilm ) for $ 1,283 million in cash. In April 2001, we entered an agreement to sell our leasing businesses in four Euro paean countries to Resonia Leasing AB for approximately $ 370 million in cash at approximately reserve rate. In addition to our asset disposition initiatives, we are aggressively finalizing and implementing cost-reduction plans, which we anticipate will yield at least $ 1 billion in annualized savings by the end of 2001. Since the third base quarter of 2000, we have taken actions that account for more than one-half of this target, including the reduction of approximately 2,000 and 4,300 jobs in the fourth quarter of 2000 and the inaugural quarter of 2001, respectively. 1 We have restated our consolidate Financial Statements for the fiscal years ended December 31, 1999 and 1998 as a result of two freestanding investigations conducted by the Audit Committee of the Board of Directors. These investigations involved previously disclosed issues in our Mexico operations and a review of our account policies and procedures and application thence. As a result of these investigations, it was determined that certain accounting practices and the application thereof misapplied generally accepted accountancy principles ( GAAP ) and certain account errors and irregularities were identified. The ship's company has corrected the account errors and irregularities in its Consolidated Financial Statements. The consolidate Financial Statements have been adjusted as follows : In fiscal 2000 the Company had recorded charges totaling $ 170 million ( $ 120 million after taxes ) which arose from imprudent and improper commercial enterprise practices in Mexico that resulted in certain accounting errors and irregularities. Over a period of years, respective senior managers in Mexico had collaborated to circumvent certain Xerox account policies and administrative procedures. The charges related to provisions for bad long-run receivables, the record of liabilities for amounts ascribable to conces-sionaires and, to a lesser extent, for contracts that did not in full meet the requirements to be recorded as sales-type leases. The probe of the accounting issues discovered in Mexico has been completed. The ship's company has restated its prior years' Consolidated Financial Statements to reflect reductions to pre-tax income ( passing ) of $ 53 million and $ 13 million in 1999 and 1998, respectively. The huge majority of the approximate remaining $ 101 million of the fiscal 2000 mexican charge relates to bad debt provisions. In connection with our acquisition of the remaining 20 percentage of Xerox Limited from Rank Group, Plc in 1997, we recorded a indebtedness of $ 100 million for contingencies identified at the date of acquisition. One of the investigations conducted by the Audit Committee of the Board of Directors expressed a judgment that this liability should not have been recorded. however, management believes that the liability and corresponding good will asset were established appropriately in 1997 ; such asset and liability were lone 0.4 percentage and 0.5 percentage, respectively of total assets and total liabilities. During 1998, we determined that the indebtedness was nobelium long required. During 1998 and 1999, we charged to the liability certain expenses incurred as separate of the consolidation of our european back-office operations. This reversal should have been recorded as a decrease of Goodwill and Deferred tax assets. therefore, we have restated our previously reported Consolidated Financial Statements to reflect decreases of $ 67 million to Goodwill and $ 33 million to Deferred tax assets and increases in Selling, administrative and general expenses of $ 76 million in 1999 and $ 24 million in 1998. In summation to the above items, we have made adjustments in connection with certain misapplications of GAAP under Statement of Financial Accounting Standards No. 13, `` accountancy for Leases '' ( SFAS No. 13 ). These adjustments chiefly relate to the account for lease modifications and remainder values deoxyadenosine monophosphate well as certain other items. The following table presents the effects of all the aforesaid items on our pre-tax income ( loss ). * year ended December 31, ( in millions ) 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - increase ( decrease ) to pre-tax income ( passing ) * Mexico $ 69 $ ( 53 ) $ ( 13 ) Rank Group Acquisition 6 ( 76 ) ( 24 ) Lease issues, net income 87 83 ( 165 ) early, net 10 ( 82 ) 18 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - full $ 172 $ ( 128 ) $ ( 184 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - * Pre-tax income ( loss ) refers to income ( loss ) from Continuing Operations before income taxes ( benefits ), Equity Income and Minorities Interests. For convenience, that fiscal statement caption is hereafter referred to as pre-tax income ( loss ). These adjustments resulted in the accumulative net decrease of Common shareholders ' fairness and Consolidated Tangible Net Worth ( as defined in our $ 7 Billion Revolving Credit Agreement ) of $ 137 million and $ 76 million, respectively, as of December 31, 2000. Retained earnings at December 31, 1997 were restated from $ 3,960 million to $ 3,852 million as a result of the effect of these aforesaid adjustments on years anterior to 1998. Throughout the follow Management 's Discussion and Analysis of Results of Operation and Financial Condition all referenced amounts reflect the above described restatement adjustments. Revenues of $ 18.7 billion in 2000 declined 4 percentage ( 1 percentage pre-currency ) from 1999. Excluding the beneficial impact of the January 1, 2000 acquisition of the Tektronix, Inc. Color Printing and Imaging Division ( CPID ), 2000 revenues declined 8 percentage ( 5 percentage pre-currency. ) Revenues were impacted by a combination of company particular issues, an increased competitive environment and some weaker economies toward the latter contribution of the year. Revenues of $ 19.6 billion in 1999 were flat ( and increased 1 percentage pre-currency ) from 1998, including a very solid tax income refuse in Brazil due to the currentness devaluation and subsequent economic weakness. In reviewing our performance, we discuss our results of operations, as reported in our consolidated fiscal statements and besides angstrom adjusted for the effects of certain 2 special items. This means that we analyze our results both before and after the effects of these special items. We believe that this will assist readers in better understanding the swerve in our results. A discussion of these extra items, including a postpone which illustrates their effects on our consolidate Statement of Operations, appears below. ( In millions, except per-share data ) 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - memo : Pre-tax income ( loss ) $ ( 384 ) $ 1,908 $ 579 Pre-tax income before restructure and special items 62 1,908 2,223 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income ( loss ) from Continuing operations $ ( 257 ) $ 1,339 $ 463 Loss from Discontinued operations - - ( 190 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - web income ( passing ) ( 257 ) 1,339 273 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - restructure and other special items ( 353 ) - ( 1,107 ) income before limited items $ 96 $ 1,339 $ 1,380 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Earnings ( passing ) per share Income ( loss ) from Continuing operations $ ( 0.44 ) $ 1.85 $ 0.62 Loss from Discontinued operations - - ( 0.28 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Diluted earnings ( passing ) per share ( 0.44 ) 1.85 0.34 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - restructure and particular items ( 0.53 ) - ( 1.64 ) income from Continuing operations before particular items $ 0.09 $ 1.85 $ 2.26 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - net loss in 2000 includes a $ 200 million pre-tax gain ( $ 119 million after taxes ) related to the Company 's December 2000 sale of its China operations to Fuji Xerox, $ 619 million of restructure, inventory and asset disability charges ( $ 456 million after taxes and including our $ 37 million plowshare of a Fuji Xerox restructuring charge ), and a $ 27 million ( $ 16 million after taxes ) in-process research and growth cathexis from the CPID skill. The final loss in 2000 was $ 257 million including these items or income of $ 96 million excluding these special items. Excluding the 1998 restructure charge, income from continuing operations decreased 3 percentage in 1999. Including these particular items, our dilute loss per partake was $ 0.44 in 2000. Excluding these special items, diluted earnings per share declined 95 percentage in 2000 and decreased 18 percentage in 1999. In the ordinary course of business, management makes many estimates in the accounting for items that affect our report results of operations and fiscal position. The following postpone summarizes the more significant of these estimates, and changes therein, and their impacts on pre-tax income ( loss ) : -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Increase ( decrease ) in Pre-tax income ( in millions ) 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Provisions for doubtful accounts $ ( 647 ) $ ( 406 ) $ ( 303 ) Provisions for disused and overindulgence ( 146 ) ( 158 ) ( 85 ) stock Revenue allocations 44 102 101 finance discount rates 24 101 128 Indirect taxes 17 35 21 Sales and consumption taxes 11 -- 51 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- The precede items are analyzed as appropriate in succeeding sections of this Management 's Discussion and Analysis of Operations and Financial Condition and/or the accompanying Notes to Consolidated Financial Statements. Pre-Currency Growth To understand the trends in the business, we believe that it is helpful to adjust gross and expense increase ( except for ratios ) to exclude the affect of changes in the translation of european and canadian currencies into U.S. dollars. We refer to this adjusted growth as `` pre-currency growth. '' latin american currencies are shown at actual exchange rates for both pre-currency and post-currency coverage, since these countries by and large have explosive currency and inflationary environments, and our operations in these countries have historically implemented pricing actions to recover the affect of inflation and devaluation. A solid fortune of our consolidate revenues is derived from operations outside of the United States where the U.S. dollar is not the functional currency. When compared with the average of the major european and canadian currencies on a revenue-weighted basis, the U.S. dollar was approximately 10 percentage firm in 2000 and 4 percentage strong in 1999. As a resultant role, extraneous currency translation unfavorably impacted tax income growth by approximately 3 percentage points in 2000 and 1 share detail in 1999. In the early character of 1999, the brazilian real was devalued substantially against the U.S. dollar. For the full year, the average actual exchange pace declined 36 percentage to 1.80 in 1999 from 1.16 in 1998. The unfavorable impact of our brazilian operation on our entire tax income growth was approximately 4 percentage points in 1999. This included the shock of the currency devaluation and the subsequent weak economic environment. We do not hedge the translation consequence of revenues denominated in currencies where the local currentness is the functional currency. tax income by Segment At the beginning of 2000, we realigned our arrangement according to the segments identified below. It was impracticable for us to reclassify our 1998 results to conform to these segments. consequently no discussion of the changes in revenues for 1999 as compared to 3 1998 is presented here. Revenues and year-over-year gross growth rates by segment are as follows : Revenues/1/ Growth -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - post Pre- ( in billions ) 2000 1999 Currency Currency -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total Revenues $ 18.7 $ 19.6 ( 4 ) % ( 1 ) % Industry Solutions 9.2 10.1 ( 10 ) ( 6 ) General Markets 5.3 4.9 8 12 Developing Markets 2.7 2.8 ( 2 ) ( 1 ) early Businesses 1.5 1.8 ( 14 ) ( 10 ) memo : Fuji Xerox/2/ 8.4 7.8 8 4 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - /1/ Revenues have been restated as required by FASB EITF 2000-10 for all periods presented to include ship and wield charges billed to customers. These amounts were historically reported as a reduction of monetary value of goods sold. /2/ Represents total gross of Fuji Xerox, of which approximately 10 % represents sales to the Company. Industry Solutions Operations ( ISO ) covers the direct sales and military service organization in North America and Europe. 2000 revenues declined 10 percentage ( 6 percentage pre-currency ) as the affect of the January 2000 final examination phase of the realignment of the sales force from a geographic to an diligence overture first base necessitate establishment of many raw customer relationships and subsequently resulted in increase sales turnover, open sales territories and less know sales personnel. This was compounded by a strengthen of our rival 's product capabilities, an increase in distributed printing which has adversely impacted fresh equipment sales and recurring revenues on our equipment population and, toward the latter separate of the year, a weakening U.S. economic environment. U.S. revenues were further adversely impacted by customer administration issues. Revenues declined in the U.S., France and Germany, reflected thoroughly growth in the U.K. and grew modestly in Canada. General Markets Operations ( GMO ) includes sales agents in North America, concessionaires in Europe and our Channels Group, which includes retailers and resellers. Including the CPID acquisition, GMO 2000 gross grew 8 percentage ( 12 percentage pre-currency ). Excluding CPID, GMO gross declined 5 percentage ( 1 percentage pre-currency ). potent european concessionaire growth was offset by weak union american sales agent revenues and the adverse impact of declining office black and white laser printer unit sales, which was reproducible with the swerve throughout the industry. As a resultant role of the January 2000 CPID acqui-sition, equipment sales and supplies revenues from office color network printers were impregnable reflecting the insertion of raw CPID color laser and solid ink products throughout the year. excellent growth in inkjet equipment placements, including the new DocuPrint M series resulting from our alliance with Sharp Corporation and Fuji Xerox Co., Ltd. ( Fuji Xerox ), was mitigated by significant inkjet equipment pricing pressures. Developing Market Operations ( DMO ) includes operations in Latin America, China ( sold in December 2000 ), Russia, India, the Middle East and Africa. The 2 percentage decay in DMO revenues reflected compressed revenues in Brazil, a significant decline in Mexico associated with the dislocation in that operation, declines throughout the stay of Latin America and excellent growth in China, India and the Middle East. Revenues in Brazil reflected an better economic environment but this improvement was offset by increase competitive bodily process and lower prices during the latter part of the class as the Company focused on reducing inventory. The Company 's Latin America operations can be subject to explosive economies and currentness fluctuations. While our brazilian operations presently represent less than 5 percentage of full tax income they continue to have an adverse impingement on the Company 's results of operations. Historically, the brazilian operations have managed to offset the economic impact of devaluation through price changes, customer upgrades and reductions in its cost base and accordingly have successfully managed their operations so as to moderate the effects of these economic events. The brazilian economy remains changeable, and as a consequence the recovery in our Brazil operation has not returned to pre-1999 levels, nor is recovery expected in 2001. The Company sells most of its products and services under bundled arrangements which contain multiple deliverable elements, or alternatively sells its equipment and services on a stand-alone basis. In 2000, bundled transactions represented approximately 64 percentage, 65 percentage, and 57 percentage of the sum value of transactions in the U.S., Europe ( excluding collateral sales channels ) and DMO ( primarily Brazil ), respectively. multiple component arrangements typically include equipment, services, supplies and financing components for which the customer pays a single specify price. These arrangements typically besides include a variable star serve part for copy volumes in excess of stated minimums. Prices listed in these multiple chemical element arrangements with our customers may not be representative of the fairly value of those elements because the prices of the different components of the placement may be altered in customer negotiations, although the aggregate retainer may remain the lapp. Management 's objective is to ensure that revenues under these arrangements are allocated based upon estimated fairly values of the elements in accord with GAAP. The fair value of each chemical element is estimated based on a review of a total of factors including modal sell prices for the elements when they are sold on a stand-alone basis. The average sell prices are 4 based on management 's best estimates of market conditions and competitive pricing considerations. The principal change in calculate relating to such gross allocations among multiple elements is made with respect to the estimated average value of those elements and their related margins. This is a significant agent considered in our tax income allocation process along with early factors, such as price changes and customer discounts, besides affect the overall allocation process. The consequence of such changes in estimates of fair values and associate margins in the years 2000, 1999 and 1998 was $ 193 million, $ 202 million, and $ 141 million, respectively, which management understand to result, by and large, in increases of sales revenues and decreases to submit elements of those arrangements. The net effects of such allocations when offset by corresponding decreases in submit revenues was to increase pre-tax income in 2000, 1999 and 1998 by $ 44 million, $ 102 million, and $ 101 million, respectively. As we transition to third-party seller financing, the proportion of our sales to customers through bundle arrangements containing the same multiple deliverable elements will decrease, as one-third parties will finance stand-alone equipment sales. Our basal arrangements with customers conform with SFAS No. 13 as sales-type leases allowing the recording of equipment sale gross. Certain customer arrangements which did not meet the sales-type rent criteria for tax income recognition were recorded as engage leases. Since 1985 the Company, chiefly in North America, has sold pools of equipment national to operate on leases to third party finance companies ( the counter-party ) and recorded these transactions as sales at the time the equipment is accepted by the counter-party. The respective programs provided us with extra fund sources and/or enhanced credit positions. The counter-party accepts the risks of ownership of the equipment. Remanufacturing and remarketing of off-lease equipment belonging to the counter-party is performed by the Company on a nondiscriminatory basis for a fee. north american transactions are structured to provide cash proceeds up front from the counter-party versus collection over meter from the underlying customer lessees. The pursuit shows the effects of such sales of equipment under manoeuver leases, offset by the consort reductions of operate on rent revenues from current and anterior years transactions : ( in millions ) 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Sales of equipment $ 22 $ 120 $ 74 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Reduced Operating Lease Revenue ( 106 ) ( 104 ) ( 123 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ ( 84 ) $ 16 $ ( 49 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Beginning in 1999 several latin american affiliates entered into certain structure transactions involving contractual arrangements which transferred the risks of possession of equipment capable to operational leases to third party fiscal companies who are obligated to pay the Company a fixed amount each calendar month. The company accounts for these transactions similar to its sales-type leases. The counter-party assumes the risks associated with the payments from the underlying customer lessees therefore mitigating risk and variability from the cash hang pour. The following shows the effects of such sales of equipment under structured finance arrangements offset by the consort reductions of manoeuver lease revenues from current and anterior year transactions : ( in millions ) 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Sales of equipment $ 126 $ 280 $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Reduced Operating Lease Revenue ( 132 ) ( 17 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - $ ( 6 ) $ 263 $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Over time the number and value of the contracts will vary depending on the number of function leases entered into in any given menstruation, the willingness of third party financing institutions to accept the risks of ownership, and our retainer as to the sex appeal of entering into such arrangements. For exemplar, the decline in 2000 from 1999 was driven by the lower volume of sales in 2000, reduced equipment on operate rent available for sale and the absence of rental tax income from sales of function leases in anterior years. The increase in 1999 resulted from a commercialize strategy in Brazil following the maxi-devaluation of that area 's currency in the first quarter of 1999. The strategy emphasized offering function leases to our customers and subsequently selling the equipment under these leases to third party fiscal institutions to mitigate the credit risk of the portfolio. By the end of 1999 operating rent contracts increased to approximately 11 percentage of total activity versus diachronic levels of approximately 6 percentage. As more fully discussed in the accompanying Capital Resources and Liquidity, the Company presently has limited access to the capital markets. This situation besides impacts our current ability to enter into transactions for the sales of equipment subject to operate leases. Gross Margin, Cost and Expenses The swerve in arrant margin was as follows : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - entire Gross Margin* 37.4 % 43.3 % 44.4 % Gross margin by gross pour : Sales*** 37.5 43.1 43.8 Service and rental 44.1 47.4 47.6 Document outsourcing** 24.0 29.6 32.9 Finance Income 34.5 49.4 50.1 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - * Includes inventory charges associated with the 2000 and 1998 restructurings. If excluded, the gross margins would have been 37.9 % and 45.0 %, respectively. ** equipment sales included in Document outsourcing arrangements are included in the Sales Margin. *** Includes inventory charges associated with the 2000 and 1998 restructure. If excluded, sales gross margins would have been 38.4 percentage and 44.9 percentage in 2000 and 1998, respectively. 5 Gross margin of 37.4 percentage in 2000 was 5.9 share points below 1999 or 5.4 share points lower excluding the 2000 restructure stock charge. approximately half of the 5.4 percentage point 2000 gross allowance decline was the result of the ISO segment 's decrepit DocuTech and production print equipment sales. Higher growth in the lower-margin document outsourcing business of the ISO segment, and in the humble office/home office commercial enterprise of the GMO segment, reduced the arrant allowance by approximately 1.5 percentage points. Our inkjet strategy for the little office/home position is to build an equipment population that will generate profitable supplies tax income over time. significant competitive equipment price pressures have strained profits and liquidity as we build the inkjet equipment population. finally, gross margin was adversely impacted by competitive monetary value blackmail, unfavorable transaction currency and temp price actions to reduce inventory on sealed products in the latter separate of the year. Manufacturing and other productiveness improvements only partially offset the above items. The 1999 gross margin of 43.3 percentage was 1.1 share points below 1998. Excluding the 1998 inventory restructuring charge, the 1.7 share point 1999 gross margin decline was due chiefly to higher tax income growth in the lower-margin document outsource and channels businesses and the significant tax income decline in the higher-margin brazilian operation, together with a lower crying allowance in Brazil compared with the prior year. In addition, the gross allowance was adversely impacted by unfavorable merchandise mix, unfavorable currency and a decline in service gross margins as serve tax income declines had not been accompanied by corresponding cost reductions. substantial competitive price pressures were partially offset by some fabricate and other productiveness improvements. We expect that the entire arrant margin will stabilize in 2001 at the one-fourth one-fourth 2000 level of 33.7 percentage which was importantly lower than the full year megascopic margin. We expect equipment sales margins will continue to be under atmospheric pressure as our business mix continues to shift to lower equipment margin products and due to competitive price pressures. We expect equipment allowance declines will be offset by improving service margins in 2001 as productiveness savings are expected to be achieved. Financing income is determined by the deduction applied to minimum shrink payments, excluding service and supplies, used in the appraisal of the fair measure of the equipment. finance interest rates include the aforesaid rebate rates in customer arrangements ampere well as related sources of income. Over the years the Company 's finance interest rates have changed as a result of a number of factors including money market conditions ; the economic environment ; debt coverage ; return on equity ; debt to equity ratios and other external factors which are peculiarly relevant to our finance business. During the period from 1998 to 2000 such finance concern rates and the Company 's average cost of funds used in our customer finance activities were : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - average finance Interest Rates 8.3 % 9.2 % 9.3 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - average monetary value of Funds 5.4 % 4.7 % 5.1 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - In line with grocery store comparables, the Company 's financing operations are targeted to achieve a 15 percentage return on fairness. The Company sporadically reviews, and may change, the rebate rates in order to be reproducible with this objective and to reflect the estimated fair rate of the finance part in its lease arrangements. Changes in the rate applied to a bundled placement may affect one or more elements of the arrangement. In general, the follow changes in discount rate rates are reflected as reciprocal cross changes in equipment revenues, partially offset by the resulting change in customer finance income. such changes in report estimate had the follow approximate effects on pre-tax income ( loss ) : Increase/ ( Decrease ) 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- effect of changes in deduction Interest rates/1/ $ 24 $ 101 $ 128 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /1/ Represents the impingement of changes in dismiss rates final of amortization of the associate accumulative unearned income effects. Gross residual values on our finance receivables declined in 2000 by $ 16 million and increased in 1999 by $ 80 million from 1998. Unguaranteed remainder values are assigned chiefly to our high gear bulk copy, impression and production publish products. residual values are reviewed on a quarterly footing as to their ultimate realization using both internal and external data. Impairments, if any, are recorded equally necessary as a result of these reviews. The assign values are by and large established in ordering to result in a normal profit allowance on the subsequent transaction. The tendency in Selling, administrative and general expenses as a percentage of gross is as follows : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - SAG % Revenue 30.2 % 27.0 % 27.3 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - betray, administrative and cosmopolitan expenses ( SAG ) grew 7 percentage in 2000 ( 3 percentage excluding CPID ). Excluding the friendly consequence of currency, SAG grew 10 percentage, or 7 percentage excluding CPID. SAG includes bad debt provisions of $ 647 million in 2000 which is $ 241 million higher than 1999. The increase reflects higher cosmopolitan provisions of approximately $ 50 6 million due to stay resolution of aged bill and receivables issues in the U.S., an increase of over $ 100 million in Mexico, and unsettled clientele and economic conditions in many latin american countries. A review of our worldwide inner controls to determine that the issues identified in Mexico were not present elsewhere has been completed. The issues identified in Mexico were not found to be in tell in any other major unit in which we operate however several small Developing Markets Operations affiliates were found to have used imprudent business practices resulting in certain adjustments and contributing to the impact of the restatement. SAG growth in 2000 besides includes increase salesforce payscale and bonus recompense, significant transition costs associated with execution of the European shared services constitution, continued impacts of the U.S. customer administration issues and significant selling, advertise and promotional investments for our major inkjet printer enterprise. When combined with the lower revenues, SAG as a percentage of tax income deteriorated to 30.2 percentage in 2000. SAG declined 1 percentage in 1999 ( and was flatcar pre-currency ). The improved ratio of SAG to tax income in 1999 reflected meaning declines in general and administrative expenses ascribable to restructure, expense controls, well lower management and employee bonuses and profit share and the beneficial currency translation shock, including the devaluation of the brazilian currentness, partially offset by the unfavorable affect of U.S. customer administration issues. Provisions for bad accounts and receivables issues were $ 647 million in 2000, $ 406 million in 1999 and $ 303 million in 1998. Research and development ( R & D ) expense grew 5 percentage in 2000 including CPID and declined 4 percentage in 1999. Increased outgo in 2000 reflected increased program spend chiefly for solid ink, solutions and FutureColor, an advance next-generation digital printing press engineering which we expect will begin early customer battle late this year. The 1999 reduction is largely ascribable to well lower management and employee bonuses and profit share and lower overhead. We continue to invest in technological development to maintain our placement in the quickly changing document processing market with an add concenter on increasing the potency and value of our R & D investment. Xerox R & D is strategically coordinated with Fuji Xerox, which invested $ 615 million in R & D in 2000 for a aggregate sum of $ 1.7 billion. We expect R & D spending in 2001 will be basically unaltered from 2000 and believe this tied is adequate to remain technologically competitive. restructure Charges On March 31, 2000, we announced details of a global restructure program. In joining with this program we recorded a pre-tax provision of $ 596 million ( $ 423 million after taxes, including our $ 18 million share of a restructuring commission recorded by Fuji Xerox ). The $ 596 million pre-tax charge included severance costs related to the elimination of 5,200 positions cosmopolitan. approximately 65 percentage of the positions to be eliminated are in the U.S., 20 percentage are in Europe, and the remainder are predominantly in Latin America. The employment reductions chiefly affect employees in fabrication, logistics, customer avail and back office support functions. For facility fixed assets classified as assets to be disposed of, the stultification loss recognized is based on the honest value less cost to sell, with honest value based on estimates of existing market prices for like assets. The stock charges relate primarily to the consolidation of distribution centers and warehouses and the exit from sealed merchandise lines. Weakening occupation conditions and operating results during 2000 required a re-evaluation of the initiatives announced in March 2000. consequently, during the fourthly quarter of 2000, $ 71 million, chiefly rela-ted to severance costs for 1,000 positions, of the original $ 596 million provision, was reversed. The reversals primarily relate to delays in the consolidation and outsource of certain of our repositing and logistics operations and the cancellation of certain european initiatives no long necessary as a result of higher than expected grinding. besides during the one-fourth quarter of 2000, we announced a turnaround program, which includes a wide-ranging design to sell assets, cut costs and strengthen effect operations. additionally, we have initiated discussions with third parties to provide finance for customers in a manner that does not involve the Xerox balance sheet. As partially of this enterprise we announced the sale of certain european finance businesses, in April 2001, to Resonia Leasing AB. As more in full discussed below, in December 2000 we sold to Fuji Xerox our operations in China and Hong Kong for $ 550 million, and in March 2001, we sold half of our 50 percentage ownership interest in Fuji Xerox to Fujifilm for $ 1,283 million, in cash. We are in discussions to form a strategic alliance for our european paper commercial enterprise. We are actively engaged in discussions to sell certain other assets, including : photocopy Engineering Systems and our interests in by-product companies such as ContentGuard and Inxight. We are seeking fairness investors for our inkjet business and we are exploring a joint speculation with non-competitive partners for certain of our inquiry centers including the Palo Alto Research 7 Center. last, we are pursuing outsourcing or selling certain manufacturing operations. It is expected that in most cases asset sales will result in a gain. Regarding the price reductions, we are finalizing and aggressively implement plans designed to reduce costs by at least $ 1.0 billion per annum. During the fourthly quarter of 2000, we recorded an extra pre-tax restructure provision totaling $ 105 million ( $ 87 million after taxes, including our $ 19 million plowshare of an extra restructure charge recorded by Fuji Xerox ) in connection with finalize initiatives under the reversal program. This charge included estimate costs of $ 71 million for rupture costs associated with work force reductions related to the elimination of 2,300 positions global and $ 34 million associated with the disposition of a noncore occupation. The severance costs relate to further streamline of existing workplace processes, elimination of pleonastic resources and the consolidation of existing activities into early existing operations. At December 31, 2000, the ending liability balance is $ 209 million for the March 2000 restructuring program and $ 71 million for the turnaround broadcast result in a total liability balance wheel of $ 280 million as of December 31, 2000. For the 1998 restructure, the liability balance as of December 31, 2000 is $ 107 million, the majority of which will be utilized throughout 2001 as all initiatives have been substantially completed. Worldwide employment decreased by 2,100 in 2000 to 92,500, including 4,600 employees leaving the Company under the restructure programs and a reduction of 1,300 associated with the sale of our China operations to Fuji Xerox. These reductions were partially offset by the acquisition of CPID with 2,200 employees and the net lease of 1,600 people in the early contribution of the year, chiefly for the Company 's aggressive document outsourcing business. Gain on Affiliate 's Sale of Stock Gain on consort 's sale of breed of $ 21 million reflects our proportionate contribution of the increase in equity of Scansoft Inc. ( NASDAQ : SSFT ) resulting from Scansoft 's issue of breed in connection with an acquisition. This reach is partially offset by a $ 5 million charge reflecting our share of Scansoft's write-off of in-process research and growth associated with this acquisition, which is included in Equity in net income of unconsolidated affiliates. Scansoft, an equity affiliate, is a developer of digital imaging software that enables users to leverage the exponent of their scanners, digital camera, and other electronic devices. Sale of China Operations In December 2000, we completed the sale of our China operations to Fuji Xerox for a purchase price of $ 550 million and assumption of $ 118 million of debt. The pre-tax reach recorded in the one-fourth quarter of 2000 was $ 200 million. other, net other expenses, net, were $ 341 million in 2000, $ 285 million in 1999 and $ 219 million in 1998. The $ 56 million increase in other, internet in 2000 reflects increased non-financing interest expense and good will and intangible asset amortization offset by gains on sales of businesses, as described below, and aggregate foreign currency exchange gains. Non-financing pastime expense was $ 426 million in 2000, $ 256 million in 1999 and $ 179 million in 1998. The significant increase in 2000 is the result of the CPID acquisition, by and large higher debt levels and increase matter to rates. Goodwill and intangible asset amortization was $ 87 million in 2000, $ 53 million in 1999 and $ 38 million in 1998. 2000 expenses were offset by $ 99 million of mark-to-market gains resulting from unhedged extraneous currency-denominated assets and liabilities. This includes $ 69 million which arose as a direct result of a December 1, 2000 rat agency downgrade of our debt, resulting in extermination of certain derived function contracts in space to hedge our exposure to currentness fluctuations. The gains represent the change in the value of the fundamental assets and liabilities from the date the related derivatives were terminated. Due to the implicit in volatility in the extraneous currency markets, we are unable to predict the sum of any such mark-to-market gains or losses in future periods. In April 2000, we sold a 25 percentage possession pastime in our wholly-owned auxiliary, ContentGuard, to Microsoft, Inc. for $ 50 million and recognized a pre-tax gain of $ 23 million, which is included in other, net. An extra pre-tax acquire of $ 27 million was deferred pending the accomplishment of sealed performance criteria. In association with the sale, ContentGuard besides received $ 40 million from Microsoft for a non-exclusive license of its patents and early intellectual property and a $ 25 million gain against future royalty income from Microsoft on sales of products incorporating ContentGuard 's technology. The license payment is being amortized over the life sentence of the license agreement of 10 years and the royalty promote will be recognized in income as earned. In June 2000, we sold the U.S. and canadian commodity newspaper occupation, including an exclusive license for the Xerox brand, to Georgia Pacific and recorded a 8 pre-tax gain of approximately $ 40 million which is included in other, net. In addition to the proceeds from the sale of the occupation, the Company will receive royalty payments on future sales of Xerox branded commodity paper by Georgia Pacific and will earn commissions on Xerox originated sales of commodity wallpaper as an agent for Georgia Pacific. The increase of $ 66 million in other, net for 1999 primarily reflected increase non-financing interest expense and good will amortization associated with our $ 45 million 1999 skill of Omnifax, our $ 62 million 1999 learning of majority possession in India and our $ 413 million May 1998 acquisition of XLConnect Solutions ; higher non-financing interest expense related to an addition in working capital ; and increased environmental expense provisions following an update review of our environmental liabilities. These increases were partially offset by lower year 2000 ( Y2K ) redress spend and net gains from several minor asset sales including the sale of our european headquarter in 1998 for a pre-tax gain of $ 36 million. Income Taxes and Equity in Net Income of Unconsolidated Affiliates Pre-tax income/ ( loss ) was a loss of $ 384 million in 2000 including the gain from the China sale, restructure and asset impairments and CPID in-process R & D write-off. Excluding these items, the income before income taxes was $ 62 million. Pre-tax income was $ 1,908 million in 1999 and $ 579 million in 1998. Excluding the 1998 restructure and armory charges, 1998 income was $ 2,223 million. The effective tax rates, were 28.4 percentage in 2000, 30.8 percentage in 1999 and 25.0 percentage in 1998. Excluding the aforesaid items, the effective tax pace was 32.1 percentage in 2000, 30.8 percentage in 1999 and 31.5 percentage in 1998. The increase in the effective tax rate before special items in 2000 compared with 1999 is ascribable chiefly to losses in a depleted tax rate jurisdiction, offset in part by a benefit of approximately $ 125 million related to golden resolution of tax audits. The 1999 and 1998 rates benefited from increases in extraneous tax credits and refunds of foreign taxes, vitamin a well as shifts in the mix of our global profits. Equity in Net Income of Unconsolidated Affiliates is chiefly Xerox Limited 's contribution of Fuji Xerox income. sum fairness in net income declined to $ 61 million in 2000 from $ 68 million in 1999 and $ 74 million in 1998. The 2000 descent reflected our $ 37 million share of Fuji Xerox restructure charges and reductions in income from respective smaller investments which offset improved Fuji Xerox fundamental results. The decline in 1999 reflected difficult economic conditions in Japan and other Asia Pacific countries, and reductions in income from respective smaller investments partially offset by favorable currency transformation ascribable to the tone of the hankering compared with the U.S. dollar. Fuji Xerox, an unconsolidated entity jointly owned by Xerox Limited and Fuji Photo Film Co., Ltd., develops, manufactures and distributes document march products in Japan and the Pacific Rim. approximately 80 percentage of Fuji Xerox revenues are generated in Japan, with Australia, New Zealand, Singapore, Malaysia, Korea, Thailand and the Philippines representing another 10 percentage. Fuji Xerox conducts occupation in other Pacific Rim countries through joint ventures and distributors. Xerox 's exposure to economic agitation in Asia is mitigated by our joint possession of Fuji Xerox. The remaining 10 percentage of Fuji Xerox revenues are sales to Xerox. In March 2001, we sold half of our ownership interest in Fuji Xerox to Fujifilm for $ 1,283 million, in cash. The sale resulted in a pre-tax addition of $ 769 million ( $ 300 million after taxes ). Under the agreement, Fujifilm's possession concern in Fuji Xerox is increased from 50 percentage to 75 percentage. While Xerox 's possession concern is decreased to 25 percentage, we retain rights as a minority stockholder. All product and technology agreements between us and Fuji Xerox continue, ensuring that the two companies by and large retain continuous access to each other 's portfolio of patents, engineering and products. With its business telescope focused on text file action, Fuji Xerox will continue to provide color agency merchandise engineering to us and collaborate with us on inquiry and growth. We maintain our agreement with Fuji Xerox to provide them high-end production publish and firm ink products. Fuji Xerox 2000 revenues of $ 8.4 billion grew 8 percentage ( 4 percentage pre-currency ) reflecting meek tax income growth in Japan and potent gross increase in Fuji Xerox 's other Asia Pacific territories. Excluding Fuji Xerox sales to Xerox Corporation and subsidiaries, Fuji Xerox 2000 revenues grew 8 percentage to $ 7.6 billion. total Fuji Xerox web income was $ 214 million before after-tax restructure expenses of $ 74 million, increasing 94 percentage from 1999 reflecting crying margin improvements, operating expense controls, gains on sales of assets and a lower tax rate in Japan. Fuji Xerox revenues increased 14 percentage ( declined 1 percentage pre-currency ) to $ 7.8 billion in 1999. Revenue growth benefited from favorable currency translation and reflected flat revenues in Japan and in Fuji Xerox 's other Asia Pacific territories. full Fuji Xerox net income, before restructure expenses, was $ 110 million in 1999 and $ 144 million in 1998. Fuji Xerox had after-tax restructure expenses of $ 36 million in 1998. The Xerox Limited 9 share of these restructuring expenses was $ 18 million. Xerox Limited 's 50 percentage plowshare of Fuji Xerox income before restructure expenses was $ 107 million in 2000, $ 55 million in 1999 and $ 72 million in 1998. Acquisition of the Color Printing and Imaging Division of Tektronix In January 2000, we acquired the Color Printing and Imaging Division of Tektronix ( CPID ) for $ 925 million in cash including $ 73 million paid by Fuji Xerox for the Asia/Pacific operations of CPID. CPID manufactures and sells color printers, ink and associate products and supplies. The acquisition accelerated Xerox to the number 2 commercialize placement in office color impression, doubled our reseller and trader distribution network and provided us with scalable upstanding ink technology. The acquisition besides enabled significant merchandise development and SAG synergies with our black and white printer administration. The acquisition is subject to certain post-closing adjustments which may potentially reduce the purchase price paid. The excess of cash paid over the bonny value of final assets acquired has been allocated to identifiable intangible assets and good will using a dismiss cash menstruation access by an mugwump appraiser. The value of the identifiable intangible assets includes $ 27 million for purchased in-process research and development which was written off in 2000. other identifiable intangible assets and grace are being amortized on a straight-line basis over their estimated useful lives which range from 7 to 25 years. Share Repurchase In April 1998, we announced that we were reactivating our $ 1 billion stock buy back program, which was suspended in April 1997 when we acquired the remaining fiscal concern in Xerox Limited. Although we did not repurchase any shares during 1999 or 2000, since origin of the plan we have repurchased 20.6 million shares for $ 594 million. We have no plans to repurchase stock in 2001. Delay in Filing our consolidate Financial Statements The probe of the Company 's account policies and procedures, conducted by our Audit Committee in cooperation with our independent auditors, has delayed the file of our annual report on Form 10-K with the U.S. Securities and Exchange Commission ( SEC ). Until we are in conformity with the SEC 's annual charge requirements the Company is ineffective to raise capital through register securities offerings. New Accounting Standards In 1998, the Financial Accounting Standards Board ( FASB ) issued Statement of Financial Accounting Standards ( SFAS ) No. 133, `` accounting for derivative instrument Instruments and Hedging Activities. '' SFAS No. 133 requires companies to recognize all derivatives as assets or liabilities measured at their fair measure. Gains or losses resulting from changes in the bazaar value of derivatives would be recorded each time period in current earnings or other comprehensive examination income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. SFAS No. 133, as amended, is effective for the Company as of January 1, 2001. With the adoption of SFAS No. 133, we will record a net accumulative after-tax accusation of $ 2 million in our consolidate Statements of Operations and a net accumulative after-tax loss of $ 19 million in accumulate early comprehensive income. far, as a result of recognizing all derivatives at fair respect, including the differences between the carrying values and bazaar values of associate hedge assets, liabilities and firm commitments, we will recognize a $ 403 million increase in entire Assets and a $ 424 million addition in total Liabilities. The Company expects that the adoption of SFAS 133 will increase the future volatility of reported earnings and other comprehensive examination income. In general, the measure of volatility will vary with the horizontal surface of derivative activities during any menstruation. Capital Resources and Liquidity The handiness of worldwide cash, cash equivalents and fluidity resources for Xerox and its material subsidiaries and affiliates is managed by the companies through cash management systems and home policies and procedures. The management of such global cash, cash equivalents and liquid resources is besides discipline to statutes, regulations and practices of local jurisdictions in which the companies operate, the legal agreements to which the companies are parties and the continuing cooperation and policies of fiscal institutions utilized by the companies to maintain the cash management systems. At December 31, 2000, 1999 and 1998, cash and equivalents on pass was $ 1,741 million, $ 126 million and $ 79 million, respectively, and sum debt, including ESOP debt, was $ 18,097 million, $ 15,001 million and $ 15,107 million, respectively. total debt, net of cash on hand, increased by $ 1,481 million in 2000, decreased by $ 153 million in 1999, and increased by $ 2,200 million in 1998. The consolidate ratio of entire debt to common and favored equity was 4.4:1, 2.8:1 and 2.8:1 as of December 31, 2000, 1999 and 1998, respectively. The increase in this proportion is attributable to the 2000 manoeuver loss and the shock of currency devaluation on the net equity of our extraneous operations. This ratio besides reflects the full draw-down on our $ 7.0 billion Revolving 10 credit rating Agreement ( the `` Revolver '' ) during 2000 to maintain fiscal flexibility, as discussed below, which resulted in cash and equivalents on hand of $ 1.7 billion at December 31, 2000. Had the Company 's cash poise at December 31, 2000 been coherent with historic levels, the debt to equity proportion would have been approximately 4.0:1. We have announced our purpose to exit customer equipment financing as part of our global Turnaround Program. This, together with the fact that for much of 2000 and subsequently we have managed liquidity on a total company basis without reference book to non-financing and finance capital structures, means that it is appropriate to review the sum Company 's cash flows on this footing. accordingly, we believe that a review of operating cash hang, and earnings before interest, income taxes, depreciation and amortization ( EBITDA ) provides the most meaningful understanding of our changes in cash and debt balances. The watch is a compendious of EBITDA, operate and other cash flows for each of the three years in the period ended December 31, 2000 : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income ( Loss ) from Continuing operations $ ( 257 ) $ 1,339 $ 463 Income tax provision ( benefit ) ( 109 ) 588 145 depreciation and amortization 948 779 727 restructure charges 619 - 1,644 Interest expense ( income ), net 107 ( 278 ) ( 394 ) Gains on sales of businesses ( 263 ) ( 97 ) - other Items 18 114 33 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ebitda 1,063 2,445 2,618 Working das kapital and early changes 403 ( 316 ) ( 1,183 ) On-Lease inventory spend ( 519 ) ( 238 ) ( 387 ) capital spend ( 452 ) ( 594 ) ( 566 ) restructure payments ( 372 ) ( 437 ) ( 332 ) finance cash flow, net of matter to ( 1,165 ) ( 80 ) ( 1,581 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - operate on Cash ( Usage ) / Generation* ( 1,042 ) 780 ( 1,431 ) Dividends ( 587 ) ( 586 ) ( 531 ) Asset sale proceeds 640 65 - Acquisitions ( 856 ) ( 107 ) ( 380 ) other non-operating items ( 113 ) 78 ( 91 ) debt borrowings ( repayments ), net income 3,573 ( 183 ) 2,437 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - net change in Cash $ 1,615 $ 47 $ 4 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - * The primary variation from cash menstruation from operations as reported on the Consolidated Statement of Cash Flows is the inclusion above of capital spend as an functional consumption of cash. Operating cash ( custom ) /generation was $ ( 1,042 ) million in 2000 versus $ 780 million in 1999. Lower EBITDA reflected our poor people 2000 operate results. significant improvements in working capital and capital spend were more than offset by higher investments in on-lease equipment, and a significant reduction in financing cash stream. The work capital improvements stem largely from a decrease in inventories, offset partially by a net increase in accounts receivable and tax payments. The inventory decrease reflects management actions to improve stock turns, including price reductions on slower-moving products in the latter function of 2000 and changes in the supply/demand and logistics processes. We expect to reduce inventory levels further in 2001. The accounts receivable increase largely reflects the affect of unwind 1999 securitization transactions which did not recur in 2000. In 2000, we began to make progress reducing our receivables balances, which has been hampered by the prevail effects of changes we made in 1998 to the U.S. customer administration centers. The capital spending includes production joyride and our investments in Ireland, where we are consolidating european customer support centers and investing in inkjet supplies manufacturing. The meaning decay in 2000 spend versus 1999 is ascribable chiefly to substantial completion of the Ireland projects a well as significant spending constraints. We expect 2001 spend to be approximately 25 percentage below 2000 levels. Investments in on-lease equipment reflect the increase in our document outsourcing clientele, which we expect will continue to grow in 2001. The significant decrease in finance cash stream in 2000 largely reflects the increase in matter to costs during 2000 plus higher finance receivables in 2000 resulting from the occurrence in 1999 of several securitization transactions which did not recur in 2000 due to the downgrades of our debt explained below. Certain lease originations in 1999 were securitized in transactions treated as asset sales, thereby generating cash and removing the relate finance assets from our symmetry tabloid, while rent originations in 2000 were not securitized and consequently remained on our balance sheet at December 31, 2000. Operating cash coevals was $ 780 million in 1999 versus cash use of $ ( 1,431 ) million in 1998 reflecting meaning improvements in working capital performance and finance cash run. The knead capital improvements resulted largely from a modest reduction in inventories versus growth of over $ 500 million in 1998 and improvement in accounts receivable. The accounts receivable decrease and the significant improvement in financing cash menstruate compared to 1998 are the leave of several 1999 securitization transactions, discussed below, which generated cash in 1999 and were treated as asset sales, thereby removing the assets from our remainder sheet at December 31, 1999. 11 Cash restructure payments were $ 372 million, $ 437 million and $ 332 million in 2000, 1999 and 1998, respectively. The 2000 spend includes $ 217 million related to the 1998 program, reflecting the overall wind-down of the 1998 platform. The remaining $ 155 million reflects raw 2000 initiatives. The status of the restructure reserves is included in Note 3 of the `` Notes to Consolidated Financial Statements '' of this annual Report. Liquidity and Funding Plans for 2001 Historically, our primary sources of fund have been cash flows from operations, borrowings under our commercial newspaper and term support programs, and securitizations of finance and trade receivables. Our overall fund requirements have been to finance customers ' purchases of Xerox equipment, to fund working capital requirements and to finance acquisitions. During 2000, the agencies that assign ratings to our debt downgraded the Company 's senior debt and short-run debt respective times. As of May 29, 2001, debt ratings by Moody 's are Ba1 and not Prime, respectively, and the ratings lookout is negative ; debt ratings by Fitch are BB and B, respectively, and the ratings expectation is stable ; and debt ratings by Standard and Poors ( S & P ) are BBB- and A-3, respectively, and the ratings lookout is negative. Since October 2000, the capital markets and available savings bank lines of credit rating have been, and are expected to continue to be, largely unavailable to us. We expect this to result in higher borrow costs going forward. consequently, in the fourth quarter 2000, we drew down the integral $ 7.0 billion available to us under the revolver, chiefly to maintain fiscal flexibility and pay down debt obligations as they came ascribable. At December 31, 2000, $ 5.6 billion of the proceeds under the Revolver was used, with the balance of $ 1.4 billion invested in short-run securities and included in Cash and cash equivalents in our consolidate Balance Sheets. We are in conformity with the covenants, terms and conditions in the Revolver, which matures on October 22, 2002. The only fiscal covenant in the Revolver requires we maintain a minimum of $ 3.2 billion of Consolidated tangible Net Worth, as defined ( CTNW ). At December 31, 2000, our CTNW was $ 600 million in excess of the minimal necessity. Further operate losses, restructuring costs and adverse currentness transformation adjustments would erode this excess, while gains on asset sales, operating profits and favorable currency translation would improve the excess. The above referenced downgrades and the resulting withdrawal by certain banks of uncommitted lines of credit eliminated a primary beginning of liquidity for many of our latin american affiliates. As a resultant role, the Company has increased its level of intercompany lend to those affiliates to replace the remove accredit facilities. As of December 31, 2000, we had approximately $ 2.7 billion and $ 9.0 billion of commercial paper, medium term notes and bank obligations maturing in 2001 and 2002, respectively, as summarized below : ( in billions ) 2001 2002 -- -- -- -- -- -- -- -- -- -- -- -- - first Quarter $ 0.6 $ 0.3 Second Quarter 0.9 0.9 third gear Quarter 0.2 - fourth Quarter 1.0 7.8* -- -- -- -- -- -- -- -- -- -- -- -- - entire Year $ 2.7 $ 9.0 -- -- -- -- -- -- -- -- -- -- -- -- - * Includes $ 7.0 billion maturity under the Revolver. In April 2001, letters of credit rating totaling $ 660 million, which supported Ridge Reinsurance ceded reinsurance obligations were replaced with trusts collateralized by the Ridge Reinsurance investment portfolio of approximately $ 405 million plus approximately $ 255 million in cash. Except as discussed above, the company does not have any other fabric obligations scheduled to mature in 2001. We are implementing a global turnaround broadcast which includes initiatives to reduce costs, improve operations, and sell certain assets that we believe will positively affect our capital resources and fluidity placement when completed. In connection with these initiatives, we announced and completed the sale of our China operations to Fuji Xerox in the fourth quarter of 2000, which generated $ 550 million of cash and transfer debt of $ 118 million to Fuji Xerox. In March 2001, we sold half of our interest in Fuji Xerox to Fujifilm for $ 1,283 million, in cash. We have initiated discussions to implement third-party seller finance programs which, when implemented, will significantly reduce our debt and finance receivable levels going fore. In accession, we are in discussions to consider selling portions of our existing finance receivables portfolio, and we continue to actively pursue option forms of finance including securitizations and guarantee borrowings. In connection with these initiatives, in January 2001, we received $ 435 million in finance from an affiliate of GE Capital, secured by our portfolio of rent receivables in the United Kingdom. In April 2001, we announced the sales of our lease businesses in four european countries to Resonia Leasing AB for approx- 12 imately $ 370 million. These sales are part of an agreement under which Resonia will provide ongoing, exclusive equipment finance to our customers in those countries. We have besides initiated a worldwide monetary value reduction program which is expected to result in annualized expense savings of at least $ 1 billion by the end of 2001. We believe our fluidity is soon sufficient to meet current and expect needs going forward, subject to seasonably execution and execution of the assorted ball-shaped initiatives discussed above. Should the Company not be able to successfully complete these initiatives on a timely or satisfactory basis, we will need to obtain extra sources of funds through other operating improvements, financing from third parties, extra asset sales, or a combination thereof. The sufficiency of our continuing liquid depends on our ability to successfully generate positive cash flow from an allow combination of these sources. On December 1, 2000, Moody 's reduced its rat of our debt below investment grade, efficaciously eliminating our ability to enter into modern foreign-currency and sake rate derivative agreements and requiring us to immediately repurchase certain of its then-outstanding derived function agreements in the aggregate total of $ 108 million, including $ 16 million of accrue interest. In accession, we negotiated with sealed counterparties to maintain certain other outstanding derivative agreements, for which we posted collateral totaling approximately $ 5 million. To minimize the leave exposures, we besides voluntarily terminated other derived function agreements, which required gross payments to counterparties of $ 42 million and resulted in gross receipts from counterparties of $ 50 million. At December 31, 2000, the remaining derivative instrument portfolio has a current net positive value to the Company of $ 70 million. Should our debt ratings be downgraded by Standard and Poors to below investment grade, the party may be required to repurchase sealed of the out-of-the-money derivative agreements presently in place, in the approximate aggregate sum as of December 31, 2000 of $ 100 million, including accrued matter to of $ 5 million. however, it is besides possible that some counterparties may require, or agree to, the redemption of certain of the in-the-money derivatives presently in stead, which could reduce or eliminate this cash necessity. There is no assurance that our credit ratings will be maintained, or that the assorted counterparties to derivative instrument agreements would not require us to repurchase the obligations in cases where the agreements permit such termination. In the fourth quarter 2000, we recorded mark-to-market gains of $ 69 million on foreign currency-denominated assets and liabilities which were not hedged following the buy back of the derivative contracts described above. Due to the implicit in volatility in the foreign currentness and concern rate markets, we are unable to predict the sum of any such mark-to-market gains or losses in future periods. In the third base quarter 2000, Xerox Credit Corporation ( XCC ) securitized certain finance receivables in the United States, generating gross proceeds of $ 411 million. This facility was accounted for as a plug borrowing. In joining with the December 2000 credit rating rate downgrade, the Company renegotiated the securitization transaction, resulting in a erstwhile payment of approximately $ 40 million, and bringing the outstanding balance on the adeptness to $ 325 million at December 31, 2000. In the third gear quarter 2000, Xerox Corporation securitized certain accounts receivable in the United States, generating gross proceeds of $ 315 million. This revolving facility was accounted for as a sale of receivables, and the related amounts were removed from our remainder sheet. As a result of the debt downgrade in December 2000, Xerox Corporation renego-tiated the facility, which might otherwise have been required to be runoff, reducing the adeptness size by $ 25 million to $ 290 million. In the absence of any event of default, the facility size will remain at $ 290 million, unless and until our debt is downgraded to or below BB by Standard and Poors and Ba2 by Moody 's. In this event, the facility could go into wind-down mode and cease to be a generator of liquidity, as new receivables would not be purchased under the facility unless the company were to successfully renegotiate its terms. Given the nature of the facility, no repayment obligations would be imposed on the Company. In the fourth quarter 2000, Xerox Canada Limited securitized certain accounts receivable in Canada, generating gross proceeds of $ 38 million. This revolving adeptness was accounted for as a sale of receivables and the refer amounts were removed from our libra sheet. The debt downgrade in December 2000 could besides have required the runoff of this facility, however, this necessity was waived by the counterparty until and unless the counterparty delivers further poster. The time of delivery of such far notice, if any, remains entirely at the option of the counterparty. angstrom retentive as this downgrade condition continues to exist, such notice, if given, could cause the facility to go into wind-down mode, with consequences similar to the Xerox Corporation facility described above. In 1999, XCC and Xerox Canada Limited securitized certain finance receivables in the United States and 13 Canada, generating crude proceeds of $ 1,150 million and $ 345 million, respectively. These amortizing facilities were accounted for as sales of receivables, and the relate amounts were removed from the respective balance wheel sheets. In December 1999, chiefly to provide extra liquid in advance of Y2K, Xerox Corporation and certain of its subsidiaries factored accounts receivable, generating aggregate gross proceeds of $ 288 million. These short-run transactions were accounted for as sales of receivables, and the relate amounts were removed from the respective libra sheets. In 1998, Xerox Canada Limited and Xerox France securitized accounts receivable, generating aggregate crude proceeds of $ 20 million and $ 36 million, respec-tively. These short-run transactions were accounted for as sales of receivables, and the relate amounts were removed from the respective balance sheets. During 2000, 1999, and 1998, we sold 7.5 million, 0.8 million and 1.0 million equity frame options, respectively, for proceeds of $ 24 million, $ 0.4 million, and $ 5.8 million, respectively. Equity put options give the counterparty the right to sell our common shares bet on to us at a specified strike price. In the one-fourth draw 2000, we were required to pay $ 92 million to settle the frame options that we issued in 2000. In 1999, we paid $ 5 million to settle the arrange options that we issued in 1998. As of December 31, 2000, the put options we issued in 1999 remained outstanding, at a come to price of approximately $ 41 per plowshare. In January 2001, we paid $ 28 million to settle these put options, which we funded by issuing 5.9 million unregistered common shares. During the first five months of 2001, we retired $ 128 million of long-run debt through the central of 16 million shares of coarse lineage of the Company, which increased CTNW by approximately $ 117 million. On May 10, 2001, a european affiliate of Xerox Corporation convened a meeting of holders of its ( Pounds ) 125 million 8 3/4 percentage Guaranteed Bonds, issued in 1993 and maturing in 2003 ( the `` Bonds '' ), which are guaranteed by Xerox Limited, in order to consider a proposal to repay the Bonds early at par plus accrue concern. Repaying the Bonds early would reduce great indebtedness and pastime costs, and would eliminate certain restrictive covenants in the Bonds and related documents, thereby providing extra flexibility to Xerox and its subsidiaries and affiliates in connection with their cash management systems and practices. At the May 10 meet, the Bondholders rejected the marriage proposal to repay the Bonds early. therefore, the Bonds remain outstanding and are scheduled to mature in 2003. Relating to these bonds, we are maintaining a cash situation of $ 194 million in a reliance explanation repre-senting the par measure and one year 's interest on these bonds. This cash is withdrawable upon 21 days written detect to the Trustee. Risk Management Xerox is distinctive of multinational corporations because it is exposed to market risk from changes in foreign currency switch over rates and interest rates that could affect our results of operations and fiscal condition. We have historically entered into certain derivative contracts to manage interest rate and foreign currentness exposures. These instruments are held entirely for hedging purposes. As described above, our ability to presently enter into newly derivative contracts is badly constrained. therefore, while the follow paragraph describe our overall gamble management strategy, our ability to employ that scheme effectively has been sternly limited. Any future downgrades of our debt could further limit our ability to execute this risk management strategy efficaciously. The derivative instrument instruments we utilize include interest rate swap agreements, forward exchange contracts and foreign currency trade agreements. We do not enter into derivative instrumental role transactions for trading purposes, and we employ long-standing policies prescribing that derived function instruments are only to be used to achieve a specify of very limit objectives. currency derivatives are chiefly arranged in conjunction with underlie transactions that give emanation to extraneous currency-denominated payables and receivables. For model, we would purchase an choice to buy foreign currency to settle the import of goods from extraneous suppliers denominated in that same currency, or a forward central contract to fix the dollar rate of a alien currency-denominated lend. Our primary alien currentness market exposures include the japanese ache, Euro, brazilian substantial, british pound greatest and canadian dollar. In order to manage the hazard of alien currency exchange rate fluctuations, we hedge a significant helping of all cross-border cash transactions denominated in a currency other than the running currency applicable to each of our legal entities. From clock time to time ( when cost-efficient ) foreign currentness debt and currency derivatives are used to hedge international equity investments. consistent with the nature of economic hedges of such extraneous currency exchange contracts, associated unfulfilled gains or losses would be offset by corresponding changes in the respect of the implicit in asset or liability being hedged. 14 Assuming a 10 percentage appreciation or depreciation in extraneous currency switch over rates from the quoted foreign currency rally rates at December 31, 2000, the potential transfer in the carnival value of foreign currency-denominated assets and liabilities in each entity would aggregate approximately $ 43 million, and a 10 percentage appreciation or depreciation of the U.S. dollar against all currencies from the quoted foreign currency central rates at December 31, 2000, would have a $ 664 million impingement on our accumulative Translation Adjustment helping of equity. The sum permanently invested in extraneous subsidiaries and affiliates - primarily Xerox Limited, Fuji Xerox and Xerox do Brasil - and translated into dollars using the year-end exchange rate, was $ 6.6 billion at December 31, 2000, net of foreign currency-denominated liabilities designated as a hedge of our net investment. virtually all customer-financing assets earn fixed rates of interest. therefore, within industrialize economies, we have historically `` locked in '' an concern rate spread by arranging fixed-rate liabilities with like maturities as the underlie assets, and we have funded the assets with liabilities in the like currency. We refer to the impression of these practices as '' match fund '' customer finance assets. This practice efficaciously eliminates the hazard of a major decline in concern margins during a time period of rising sake rates. conversely, this practice efficaciously eliminates the opportunity to materially increase margins when pastime rates are declining. Pay-fixed-rate/receive-variable-rate interest-rate swaps are frequently used in place of more expensive fixed-rate debt. additionally, pay-variable-rate/receive-fixed-rate swaps are used from time to time to transform longer-term fixed-rate debt into variable-rate obligations. The transactions performed within each of these categories enable more cost-efficient management of concern rate exposures. The potential risks attendant to this strategy is the non-performance of the swap counterparty. We address this gamble by arranging swaps with a diverse group of strong-credit counterparties, regularly monitoring their citation ratings and determining the successor cost, if any, of existing transactions. On a consolidate footing, including the impact of our hedge activities, weighted-average interest rates for 2000, 1999 and 1998 approximated 6.2 percentage, 5.6 percentage and 6.1 percentage, respectively. Many of the fiscal instruments we use are medium to changes in pastime rates. hypothetically, interest pace changes result in gains or losses related to the market measure of our term debt and interest rate swaps ascribable to differences between stream marketplace interest rates and the state sake rates within the instrument. Applying an assume 10 percentage reduction or increase in the output curves at December 31, 2000, the fair prize of our interest rate swaps would increase or decrease by approximately $ 16 million. Because the honest value of our debt instruments has been badly constrained by our current debt ratings, normal changes in interest rates will not materially affect the fair value of our debt instruments. Our currency and pastime rate hedge are typically unaffected by changes in market conditions as fore contracts, options and swaps are normally held to maturity consistent with our aim to lock in currency rates and interest pace spreads on the fundamental transactions. As described above, the downgrades of our debt during 2000 significantly reduced our access to capital markets. furthermore, the specific downgrade of our debt on December 1, 2000 triggered the redemption of a number of derivative contracts which were in plaza at that clock, and further downgrades could require the Company to repurchase extra outstanding contracts. consequently, the Company 's ability to continue to efficaciously manage the risks associated with interest rate and foreign currency fluctuations, including our ability to continue effectively employing our equal fund strategy, is sternly constrained, and we anticipate increased excitability in our results of operations due to market changes in sake rates and foreign currentness rates. advanced cautionary Statements This Annual Report contains advanced statements and data refer to Xerox that are based on our beliefs, angstrom well as assumptions made by and data presently available to us. The words `` anticipate, '' `` believe, '' '' estimate, '' `` expect, '' `` mean, '' `` will '' and like expressions, as they relate to us, are intended to identify advanced statements. actual results could differ materially from those projected in such advanced statements. information concerning certain factors that could cause actual results to differ materially is included in the Company 's 2000 10-K filed with the SEC on June 7, 2001. We do not intend to update these advanced statements. 15 consolidate Statements of Operations Year ended December 31 ( in millions, except per-share data ) 2000 1999* 1998* - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Revenues Sales $ 10,059 $ 10,441 $ 10,668 Service, outsourcing, and rentals 7,718 8,045 7,783 Finance income 924 1,081 1,142 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - entire Revenues 18,701 19,567 19,593 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Costs and Expenses Cost of sales 6,197 5,944 5,880 inventory charges 90 - 113 cost of service, outsourcing, and rentals 4,813 4,599 4,323 equipment financing interest 605 547 570 research and development expenses 1,044 992 1,035 sell, administrative and general expenses 5,649 5,292 5,343 Restructuring charge and asset impairments 540 - 1,531 reach on affiliate 's sale of stock ( 21 ) - - Purchased in-process research and development 27 - - acquire on sale of China operations ( 200 ) - - early, net 341 285 219 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total Costs and Expenses 19,085 17,659 19,014 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income ( Loss ) from Continuing Operations before Income Taxes ( Benefits ) Equity Income and Minorities ' Interests ( 384 ) 1,908 579 Income taxes ( benefits ) ( 109 ) 588 145 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income ( loss ) from Continuing Operations after Income Taxes ( Benefits ) before Equity Income and Minorities ' Interests ( 275 ) 1,320 434 equity in net income of unconsolidated affiliates 61 68 74 Minorities ' interests in earnings of subsidiaries 43 49 45 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income ( Loss ) from Continuing Operations ( 257 ) 1,339 463 Discontinued operations - - ( 190 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - net Income ( Loss ) $ ( 257 ) $ 1,339 $ 273 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - basic Earnings ( Loss ) per contribution Continuing operations $ ( 0.44 ) $ 1.96 $ 0.63 Discontinued operations - - ( 0.29 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - basic Earnings ( Loss ) per Share $ ( 0.44 ) $ 1.96 $ 0.34 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Diluted Earnings ( Loss ) per plowshare Continuing operations $ ( 0.44 ) $ 1.85 $ 0.62 Discontinued operations - - ( 0.28 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Diluted Earnings ( Loss ) per Share $ ( 0.44 ) $ 1.85 $ 0.34 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - The accompanying notes on pages 20 to 47 are an integral separate of the consolidate fiscal statements. * As restated, see note 2. 16 consolidate Balance Sheets December 31 ( in millions ) 2000 1999* - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Assets Cash and cash equivalents $ 1,741 $ 126 Accounts receivable, net 2,281 2,633 finance receivables, net 5,097 4,961 Inventories, net 1,932 2,290 equipment on operational leases, web 724 695 Deferred taxes and other current assets 1,247 1,230 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- sum Current Assets 13,022 11,935 finance receivables due after one year, net 7,957 8,058 Land, buildings and equipment, net 2,495 2,456 Investments in affiliates, at fairness 1,362 1,615 intangible and other assets, net 3,061 2,810 Goodwill, net income 1,578 1,657 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total Assets $ 29,475 $ 28,531 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Liabilities and Equity Short-term debt and current assign of long-run debt $ 2,693 $ 3,957 Accounts account payable 1,033 1,016 Accrued recompense and benefits costs 662 715 unearned income 250 186 early current liabilities 1,630 2,176 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total Current Liabilities 6,268 8,050 long-run debt 15,404 11,044 Postretirement medical benefits 1,197 1,133 Deferred taxes and other liabilities 1,876 2,521 Deferred ESOP benefits ( 221 ) ( 299 ) Minorities ' interests in equity of subsidiaries 141 127 obligation for equity put options 32 - Company-obligated, compulsorily redeemable choose securities of subordinate faith holding entirely subordinate debentures of the Company 638 638 Preferred stock 647 669 common shareholders ' equity 3,493 4,648 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total Liabilities and Equity $ 29,475 $ 28,531 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Shares of common stock issued and outstanding at December 31, 2000 were ( in thousands ) 668,576. Shares of common stock issued and great at December 31, 1999 were ( in thousands ) 665,156. The accompanying notes on pages 20 to 47 are an integral part of the consolidate fiscal statements. * As restated, see note 2. 17 consolidate Statements of Cash Flows Year ended December 31 ( in millions ) 2000 1999* 1998* - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- cash Flows from Operating Activities Income ( loss ) from continuing operations $ ( 257 ) $ 1,339 $ 463 Adjustments required to reconcile income ( loss ) from continuing operations to cash flows from operate activities, final of effects of acquisitions : disparagement and amortization 948 779 727 provision for doubtful accounts 647 406 303 restructure and other charges 646 - 1,644 Gains on sales of businesses and assets ( 295 ) ( 97 ) ( 36 ) cash payments for restructurings ( 372 ) ( 437 ) ( 332 ) Minorities ' interests in earnings of subsidiaries 43 49 45 undistributed fairness in income of affiliate companies ( 20 ) ( 68 ) ( 27 ) Decrease ( increase ) in inventories 279 67 ( 558 ) increase in on-lease equipment ( 519 ) ( 238 ) ( 387 ) Increase in finance receivables ( 1,058 ) ( 1,854 ) ( 1,975 ) Proceeds from securitization of finance receivables - 1,495 - increase in accounts receivable ( 270 ) ( 400 ) ( 596 ) Proceeds from securitization of accounts receivable 328 288 56 ( Decrease ) increase in accounts collectible and accrued compensation and benefit costs ( 3 ) ( 94 ) 127 internet transfer in current and submit income taxes ( 534 ) 234 ( 254 ) change in early current and non-current liabilities 22 126 100 other, net ( 248 ) ( 301 ) ( 256 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- net cash ( used in ) provided by operate activities ( 663 ) 1,294 ( 956 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- cash Flows from Investing Activities Cost of additions to land, buildings and equipment ( 452 ) ( 594 ) ( 566 ) Proceeds from sales of land, buildings and equipment 44 99 74 Proceeds from sale of China operations 550 - - Proceeds from sales of other businesses 90 65 - Acquisitions, net of cash acquired ( 856 ) ( 107 ) ( 380 ) other, net ( 20 ) ( 25 ) 5 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- net income cash used in investing activities ( 644 ) ( 562 ) ( 867 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- cash Flows from Financing Activities Net switch in debt 3,573 ( 183 ) 2,437 Dividends on coarse and preferable malcolm stock ( 587 ) ( 586 ) ( 531 ) Proceeds from sales of coarse banal - 128 126 Settlements of fairness put options, internet ( 68 ) ( 5 ) - redemption of favored and coarse stock certificate - - ( 172 ) Dividends to minority shareholders ( 7 ) ( 30 ) ( 4 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- final cash provided by ( used in ) financing activities 2,911 ( 676 ) 1,856 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Effect of exchange rate changes on cash and cash equivalents 11 ( 9 ) ( 29 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Increase in cash and cash equivalents 1,615 47 4 Cash and cash equivalents at begin of year 126 79 75 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Cash and cash equivalents at end of year $ 1,741 $ 126 $ 79 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- The accompanying notes on pages 20 to 47 are an built-in depart of the consolidated fiscal statements. * As restated, see note 2. 18 consolidate Statements of Shareholders ' fairness Accumulated Common Common Additional other Treasury Treasury Stock Stock Paid-In Retained Comprehensive Stock Stock ( In millions, except share data ) Shares Amount Capital Earnings Income/1/ Shares Amount Total - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- balance at December 31, 1997* 652,482 $ 655 $ 1,075 $ 3,852 $ ( 705 ) - $ - $ 4,877 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- net income 273 273 net loss during butt time period ( 6 ) ( 6 ) translation adjustments ( 50 ) ( 50 ) -- -- -- comprehensive examination income 217 Purchase of treasury stock ( 3,683 ) ( 172 ) ( 172 ) Stock option and incentive plans 3,899 4 69 ( 65 ) 2,364 111 119 Xerox Canada convertible stock 350 12 convertible securities 465 1 28 ( 51 ) 898 42 20 Cash dividends declared Common stock ( $ 0.72 per share ) ( 475 ) ( 475 ) Preferred stock ( $ 6.25 per share ) ( 56 ) ( 56 ) Premiums from sale of arrange options 5 5 Tax benefits on benefit plans 88 10 98 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- balance at December 31, 1998* 657,196 $ 660 $ 1,265 $ 3,482 $ ( 755 ) ( 409 ) $ ( 19 ) $ 4,633 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- net income 1,339 1,339 translation adjustments ( 957 ) ( 957 ) Minimum pension indebtedness ( 32 ) ( 32 ) -- -- -- comprehensive income 350 Stock choice and bonus plans 5,331 6 136 ( 5 ) 270 12 149 Xerox Canada exchangeable stock 1,362 convertible securities 1,267 1 63 ( 52 ) 139 7 19 Cash dividends declared Common stock ( $ 0.80 per share ) ( 532 ) ( 532 ) Preferred stock ( $ 6.25 per share ) ( 54 ) ( 54 ) settlement of put options ( 5 ) ( 5 ) Tax benefits on benefit plans 80 8 88 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- balance at December 31, 1999* 665,156 $ 667 $ 1,539 $ 4,186 $ ( 1,744 ) - $ - $ 4,648 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- net loss ( 257 ) ( 257 ) translation adjustments ( 430 ) ( 430 ) Minimum pension liability 5 5 unfulfilled loss on securities ( 5 ) ( 5 ) -- -- -- comprehensive passing ( 687 ) Stock choice and incentive plans 940 1 93 94 Xerox Canada exchangeable stock 29 convertible securities 2,451 2 23 ( 8 ) 17 Cash dividends declared Common stock ( $ 0.65 per plowshare ) ( 434 ) ( 434 ) Preferred lineage ( $ 6.25 per plowshare ) ( 53 ) ( 53 ) arrange options, net ( 100 ) ( 100 ) Tax benefits on benefit plans 1 7 8 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- balance wheel at December 31, 2000 668,576 $ 670 $ 1,556 $ 3,441 $ ( 2,174 ) - $ - $ 3,493 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /1/ At December 31, 2000 Accumulated early Comprehensive Income is composed of accumulative translation of $ ( 2,142 ), minimal pension liability of $ ( 27 ) and unfulfilled personnel casualty on securities of $ ( 5 ). The accompanying notes on pages 20 to 47 are an integral separate of the consolidate fiscal statements. * As restated, see note 2. 19 Notes to Consolidated Financial Statements ( Dollars in millions, except per-share data and unless otherwise indicated ) 1. Summary of Significant Accounting Policies Description of Business. Xerox Corporation is The Document Company and a leader in the global document market, selling equipment and providing document solutions including hardware, services and software that enhance productiveness and cognition sharing. Our activities encompass developing, fabrication, selling, service, and financing a complete crop of document process products and solutions. footing of Consolidation. The consolidate fiscal statements include the accounts of Xerox Corporation and all majority owned subsidiaries ( the ship's company ). All significant intercompany accounts and transactions have been eliminated. References herein to `` we '' or `` our '' refer to Xerox and consolidate subsidiaries unless the context specifically requires otherwise. Xerox Limited, Xerox Holding ( Nederland ) BV, Xerox Investments ( Bermuda ) Limited, Xerox Holdings ( Bermuda ) Limited and their respective subsidiaries are referred to as Xerox Limited. Investments in which we have a 20 to 50 percentage ownership matter to are generally accounted for on the equity method. Upon the sale of store by a auxiliary, we recognize a gain or personnel casualty in our consolidate argument of operations adequate to our proportionate share of the increase or decrease in the subsidiary company 's fairness. For acquisitions accounted for by the purchase method acting, operating results are included in the consolidate statements of operations from the date of learning. See Note 4 on page 25. Earnings per Share. basic earnings per share are based on net income less favored breed dividend requirements divided by the average common shares great during the period. Diluted earnings per share assume exercise of in-the-money standard options great and full conversion of convertible debt and convertible prefer breed into common stock at the late of the begin of the year or date of issue, unless they are antidilutive. Income ( loss ) from Continuing Operations before Income Taxes ( Benefits ), Equity Income and Minorities ' Interests. Throughout these notes to consolidate fiscal statements, we refer to the effects of certain changes in estimates and other adjustments on Income ( personnel casualty ) from Continuing Operations before Income Taxes ( Benefits ), Equity Income and Minorities ' Interests. For public toilet and facilitate of reference book, that fiscal statement caption is hereafter referred to as '' pre-tax income ( passing ). '' use of Estimates. The readiness of fiscal statements in accord with by and large accepted account principles requires management to make estimates and assumptions that affect the report amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the fiscal statements, and the report amounts of revenues and expenses during the report period. Estimates are used for, but not limited to : account for residual values ; allotment of revenues and fair values in multiple element arrangements ; valuation reserve for doubtful accounts ; inventory evaluation ; fusion, restructure and other relate charges ; asset impairments ; depreciable lives of assets ; useful lives of intangible assets and grace ; pension assumptions ; and tax valuation allowances. future events and their effects can not be perceived with certainty. accordingly our account estimates require the exert of judgment. The accountancy estimates used in the training of our consolidated Financial Statements will change as new events occur, as more experience is acquired, as extra information is obtained and as the Company 's operational environment changes. actual results could differ from those estimates. Changes in Estimates. In the ordinary course of accounting for items such as tax income allocations and related estimated clean values in multiple element arrangements, allowances for doubtful accounts, inventory valuation, and remainder values, among others, we make changes in estimates as appropriate in the circumstances. such changes and refinements in estimate methodologies are reflected in report results of operations and, if substantial, the estimate effects of changes in estimates are disclosed in the Notes to our amalgamate Financial Statements. Accounting Changes-Accounting for derivative Instruments. In 1998, the Financial Accounting Standards Board ( FASB ) issued Statement of Financial Accounting Standards ( SFAS ) No. 133, `` accounting 20 for derivative Instruments and Hedging Activities. '' SFAS No. 133 requires companies to recognize all derivatives as assets or liabilities measured at their fair measure. Gains or losses resulting from changes in the fair value of derivatives would be recorded each period in current earnings or other comprehensive examination income, depending on whether a derivative is designated as separate of a hedge transaction and, if it is, depending on the type of hedge transaction. SFAS No. 133, as amended, is effective for the Company as of January 1, 2001. With the adoption of SFAS No. 133, we will record a internet accumulative after-tax charge of $ 2 in our statements of operations and a net accumulative after-tax loss of $ 19 in Accumulated other Comprehensive Income. far, as a solution of recognizing all derivatives at fair value, including the differences between the carrying values and fair values of related hedge assets, liabilities and firm commitments, we will recognize a $ 403 increase in sum Assets and a $ 424 increase in total Liabilities. We expect that the adoption of SFAS 133 will increase the future excitability of reported earnings and other comprehensive income. In general, the total of excitability will vary with the degree of derivative and hedge activities and the market volatility during any period. Reclassifications. The FASB Emerging Issues Task Force ( EITF ) issued a pronouncement that requires a change in the way we classify shipping and handling costs billed to customers. Commencing in the fourth quarter of 2000, the EITF required that all amounts billed to a third base party customer related to product embark and cover must be classified as tax income, and costs incurred must be classified as an expense. transportation and handling amounts billed to customers have historically been recorded as a decrease of cost of goods sold. Prior period fiscal statements have been reclassified to conform with the 2000 presentation. Revenue Recognition. In the convention course of business the Company generates tax income through the sale of equipment, services, and supplies and income associated with the finance of its equipment sales. tax income is recognized when earned. More specifically gross related to the Company 's sales of its products and services are as follows : equipment : Revenues from the sale of equipment under episode arrangements, from sales-type leases or on accredit are recognized at the time of sale or at the origin of the lease, respectively. For equipment sales which require the company to install the product at the customer location, tax income is recognized when the equipment has been delivered to and installed at the customer location. Sales of customer installable and retail channels type products are recognized upon cargo. Revenues from equipment under other leases and like arrangements are accounted for by the function lease method and are recognized over the lease term. Sales of equipment subject to the Company 's function leases to third party finance companies ( the counter-party ) or through structured financings with third parties are recorded as sales at the clock time the equipment is accepted by the counter-party. The counter-party accepts the risks of ownership of the equipment. Remanufacturing and remarketing of off-lease equipment belonging to the counter-party is performed by the Company for a fee on a non-discriminatory basis. In North America these transactions are structured to provide cash proceeds up front from the counter-party versus solicitation over time. In Latin America the counter-party pays the Company a situate sum each month, mitigating gamble and variability from the cash hang stream. Services : Service revenues are derived chiefly from alimony contracts on our equipment sold to custom-ers and are recognized over the term of the contracts. Supplies : Supplies gross by and large is recognized upon dispatch. finance : Finance income is earned on an accumulation footing under an effective annual succumb method acting. The Company sells its equipment and services on a stand-alone basis and besides enters into bundled arrangements which contain multiple deliverable elements. These multiple element arrangements typically include equipment, services, supplies and finance components for which the customer pays a single define price for all elements. These arrangements typically besides include a varying service component for copy volumes in overindulgence of stated minimums. When offprint prices are listed in these multiple element arrangements with our customers they may not be representative of the fair values of those elements because the prices of the unlike components of the agreement may be altered in customer negotiations, 21 although the aggregate consideration may remain the lapp. therefore, revenues under these arrangements are allocated based upon estimated fairly values of each component, in accord with Generally Accepted Accounting Principles ( GAAP ). The fairly respect of each chemical element is estimated based on a recapitulation of a act of factors including average betray prices for the elements when they are sold on a stand-alone footing. The modal sell prices are based on management 's best estimates of market conditions and competitive pricing considerations. The principal deepen in estimate relating to such gross allocations among multiple elements is made with deference to the estimated fairly value of those elements and their associate margins. This is a significant gene considered in our gross allotment action along with early factors, such as pricing changes and customer discounts, which besides affect the overall allocation action. The effect of such changes in estimates of fair values and associate margins in the years 2000, 1999 and 1998 was $ 193, $ 202, and $ 141, respectively, which generally resulted in increases of sales revenues and decreases to submit elements of those arrangements. The net effects of such allocations when offset by corresponding decreases in the amortization of postpone revenues was to increase pre-tax income in 2000, 1999 and 1998 by $ 44, $ 102, and $ 101, respectively. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 `` Revenue Recognition in Financial Statements '' ( SAB 101 ). SAB 101 sum up certain of the staff 's views in applying generally accepted report principles to tax income recognition in fiscal statements. We conducted a inspection of our gross recognition policies during the one-fourth quarter of our fiscal year ended December 31, 2000. We have determined that our policies are in conformity with SAB 101 in all material respects. Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand and investments with original maturities of three months or less. Provisions for Losses on bad Receivables. The provisions for losses on bad barter and finance receivables are determined chiefly on the basis of past solicitation experience. Inventories. Inventories are carried at the lower of average price or realizable values. Buildings and Equipment and Equipment on Operating Leases. Our fixate assets are depreciated over their estimated utilitarian lives. equipment on engage leases is depreciated to its estimated residual measure. Depreciation is computed using chiefly the straight-line method acting. significant improvements are capitalized ; maintenance and repairs are expensed. See Notes 7 and 8 on page 28. Goodwill. Goodwill represents the price of acquired businesses in excess of the fair value of identifiable net assets purchased, and is amortized on a straight-line basis over periods ranging from 15 to 40 years. Goodwill is reported internet of accumulated amortization, and the recoverability of the carrying value is evaluated on a periodic basis by assessing current and future levels of income and cash flows american samoa well as other factors. Accumulated amortization at December 31, 2000 and 1999 was $ 220 and $ 176, respectively. classification of commercial Paper and Bank Notes Payable. As of December 31, 2000, all indebtedness is classified as a short-run or long-run indebtedness based upon its contractual maturity date. In prior years, it was our policy to classify as long-run debt that fortune of commercial paper and notes collectible that was intended to match fund finance receivables due after one year to the extent that we had the ability under our revolving credit agreement to refinance such commercial newspaper and notes collectible on a long-run basis. See Note 12 on page 32. Foreign Currency Translation. The functional currency for most alien operations is the local currency. net assets are translated at current rates of exchange, and income and expense items are translated at the average change rate for the year. The resulting translation adjustments are recorded in Accumulated other Comprehensive Income. The U.S. dollar is used as the functional currency for certain subsidiaries that conduct their business in U.S. dollars or operate in hyperinflationary economies. A combination of current and diachronic exchange rates is used in remeasuring the local currency transactions of these subsidiaries, and the result commute adjustments are included in income. Aggregate extraneous currency gains/ ( losses ) were $ 99, $ ( 1 ) and $ ( 29 ) in 2000, 1999 and 1998, respectively, and are included in early, net in the consolidate statements of operations. Stock-Based compensation. The caller follows the intrinsic value-based method of account for its stock-based compensation. 22 2. restatement We have restated our consolidate Financial Statements for the fiscal years ended December 31, 1999 and 1998 as a resultant role of two separate investigations conducted by the Audit Committee of the Board of Directors. These investigations involved previously disclosed issues in our Mexico operations and a follow-up of our account policies and procedures and application thence. As a result of these investigations, it was determined that certain account practices and the application thereof misapplied GAAP and certain accounting errors and irregularities were identified. The party has corrected the accounting errors and irregularities in its Consolidated Financial Statements. The consolidated Financial Statements have been adjusted as follows : In fiscal 2000 the Company had initially recorded charges totaling $ 170 ( $ 120 after taxes ) which arose from imprudent and improper business practices in Mexico that resulted in certain accounting errors and irregularities. Over a period of years, several senior managers in Mexico had collaborated to circumvent certain of Xerox 's accounting policies and administrative procedures. The charges related to provisions for bad long-run receivables, the commemorate of liabilities for amounts due to concessionaires and, to a lesser extent, for contracts that did not in full meet the requirements to be recorded as sales-type leases. The investigation of the accounting issues discovered in Mexico has been completed. The company has restated its prior year Consolidated Financial Statements to reflect reductions to pre-tax income of $ 53 and $ 13 in 1999 and 1998, respectively. It is not practical to determine what fortune, if any, of the estimate remaining $ 101 of the Mexican charge reflected in adjust 2000 results of operations relates to prior years. In association with our skill of the remaining 20 percentage of Xerox Limited from Rank Group, Plc in 1997, we recorded a liability of $ 100 for contingencies identified at the date of skill. During 1998, we determined that the liability was no retentive required. During 1998 and 1999, we charged to the indebtedness certain expenses incurred as separate of the consolidation of our european back-office operations. This reverse should have been recorded as a decrease of Goodwill and Deferred tax assets. consequently, we have restated our previously reported Consolidated Financial Statements to reflect decreases of $ 67 to Goodwill and $ 33 of Deferred tax assets and increases in Selling, administrative and cosmopolitan expenses of $ 76 in 1999 and $ 24 in 1998. In addition to the above items, we have made adjustments in association with certain misapplications of GAAP under SFAS No. 13, `` account for Leases. '' These adjustments chiefly relate to the accounting for lease modifications and residual values vitamin a well as sealed other items. The following board presents the effects of all of the aforesaid adjustments on pre-tax income ( loss ). year Ended December 31, 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Increase ( decrease ) to pre-tax income ( loss ) : Mexico $ 69 $ ( 53 ) $ ( 13 ) Rank Group skill 6 ( 76 ) ( 24 ) Lease issues, net income 87 83 ( 165 ) other, net 10 ( 82 ) 18 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total $ 172 $ ( 128 ) $ ( 184 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- These adjustments resulted in the accumulative net decrease of Common shareholders ' equity and Consolidated Tangible Net Worth ( as defined in our $ 7 Billion Revolving Credit Agreement ) of $ 137 and $ 76, respectively, as of December 31, 2000. Retained earnings at December 31, 1997 was restated from $ 3,960 to $ 3,852 as a resultant role of the effect of these aforesaid adjustments on years anterior to 1998. The succeed tables present the affect of the adjustments and restatements on a condense footing. Amount previously As Reported Adjusted -- -- -- -- - -- -- -- - ( in millions, except per contribution amounts ) year ended December 31, 2000 : * Statement of operations : Revenues $ 18,632 $ 18,701 Costs and expenses 19,188 19,085 Income ( passing ) from continuing operations ( 384 ) ( 257 ) Basic loss per share $ ( 0.63 ) $ ( 0.44 ) Diluted passing per share $ ( 0.63 ) $ ( 0.44 ) Balance Sheet : current finance receivables, net $ 5,141 $ 5,097 Inventories, net 1,930 1,932 equipment and engage leases, net 717 724 Deferred taxes and other current assets 1,284 1,247 finance receivables due after one year, final 8,035 7,957 intangible and other assets, net income 3,062 3,061 Goodwill, net 1,639 1,578 other stream liabilities 1,648 1,630 Deferred taxes and other liabilities 1,933 1,876 common shareholders ' equity 3,630 3,493 23 Amount previously As Reported Restated -- -- -- - -- -- -- - ( in millions, except per share amounts ) year ended December 31, 1999 : ** Statement of operations : Revenues $ 19,548 $ 19,567 Costs and expenses 17,512 17,659 Income ( loss ) from continuing operations 1,424 1,339 basic earnings per share $ 2.09 $ 1.96 Diluted earnings per contribution $ 1.96 $ 1.85 Balance Sheet : Accounts receivable, final $ 2,622 $ 2,633 Current finance receivables, net 5,115 4,961 Inventories, net 2,285 2,290 equipment and manoeuver leases, web 676 695 finance receivables due after one year, net 8,203 8,058 intangible and other assets, net 2,831 2,810 Goodwill, net 1,724 1,657 other current liabilities 2,163 2,176 Deferred taxes and other liabilities 2,623 2,521 common shareholders ' fairness 4,911 4,648 year ended December 31, 1998 : ** Statement of operations : Revenues $ 19,747 $ 19,593 Costs and expenses 18,984 19,014 Income ( passing ) from continuing operations 585 463 basic earnings per share $ 0.82 $ 0.63 Diluted earnings per parcel $ 0.80 $ 0.62 * As reported in the Company 's unaudited fiscal statements included in its report on Form 8-K dated April 19, 2001. ** Revenues and costs and expenses have been reclassified to reflect the Change in classification of transport and treatment costs as discussed in Note 1. 3. Restructuring March 2000 Restructuring. In March 2000, we announced details of a cosmopolitan restructure program. In joining with this program, we initially recorded a pre-tax provision of $ 596 ( $ 423 after taxes, including our $ 18 share of a restructure provision recorded by Fuji Xerox, an unconsolidated affiliate ). The $ 596 pre-tax charge included severance costs related to the elimination of 5,200 positions global. approximately 65 percentage of the positions to be eliminated are in the U.S., 20 percentage are in Europe, and the remainder are predominantly in Latin America. The employment reductions primarily affected employees in manufacture, logistics, customer servicing and back office support functions. For facility fixed assets to be disposed of, the stultification passing recognized is based on the fair value less price to sell, with fair rate based on estimates of existing market prices for similar assets. The inventory charges relate primarily to the consolidation of distribution centers and warehouses and the passing from certain intersection lines. Included in the original provision were reserves related to the incurrence of liabilities due to versatile third parties and several asset disability charges. Liabilities recorded for lease cancellation and other costs primitively aggregated $ 51 and included $ 32 for versatile contractual commitments, other than facility occupation leases, that will be terminated early on as a result of the restructure. The commitments include cancellation of add contracts and outsource seller contracts. Included in the asset deterioration charge of $ 71 was : $ 44 for machinery and tooling for products that were discontinued or will be alternatively sourced ; $ 7 for leasehold improvements at facilities that will be closed ; and $ 20 of assorted excess assets, individually insignificant, from diverse parts of our business. These mar assets were chiefly located in the U.S. and the related intersection lines generated an incorporeal total of gross. approximately $ 71 of the $ 90 of inventory charges related to excess armory in many intersection lines created by the consolidation of distribution centers and warehouses. The remainder was chiefly related to the transition to inkjet technology in our broad format print occupation. Weakening clientele conditions and operating results during 2000 required a re-evaluation of the initiatives announced in March 2000. As a leave, we were unable to, and do not expect to, complete certain actions originally contemplated at the fourth dimension that the March 2000 restructuring provision was recorded. accordingly, during the fourth quarter of 2000, and in connection with the reversion program discussed below, $ 71 ( $ 47 after taxes ), $ 59 related to rupture costs for 1,000 positions and $ 12 related to lease cancellation and other costs, of the original $ 596 provision, was reversed. The reversals primarily relate to delays in the consolidation and outsource of certain of our warehouse and logistics operations and the cancellation of sealed european initiatives nobelium longer necessity as a consequence of higher than expected attrition. As of December 31, 2000, approximately 2,400 employees have left the Company under the March 2000 restructuring plan. Turnaround Program. During 2000, the meaning business challenges that we began to experience in the second half of 1999 continued to adversely affect our fiscal performance. These challenges include : the ineffective execution of a major sales impel realignment, the ineffective consolidation of our U.S. customer administrative centers, increased competition and adverse economic conditions. These functional challenges, exacerbated by meaning technology and acquisition investments, have led to a net passing in 2000, credit rate representation downgrades, limited access to capital markets and market-place concerns regarding our liquid. In response to these challenges, in October 2000, we announced a 24 turnaround course of study which includes a wide-ranging plan to sell assets, cut costs and strengthen core operations. additionally, we are exploring alternatives to provide finance for customers in a manner that does not involve the Xerox balance plane, and over fourth dimension will provide finance for customers using third parties. As more fully discussed in Note 5 on page 26, in December 2000, we sold our operations in China to Fuji Xerox for $ 550. We are engaged in early activities which will enhance our fluidity. These activities include asset sales, strategic alliances, and the sale or outsource of sealed manufacture operations. It is expected that in most cases asset sales will result in a addition. Regarding the price reductions, we are in the procedure of finalizing plans designed to reduce costs by at least $ 1.0 billion per annum. In connection therewith, during the fourth quarter of 2000, we recorded an extra pre-tax restructure provision totaling $ 105 ( $ 87 after taxes, including our $ 19 share of an extra provision recorded by Fuji Xerox ) in connection with finalize initiatives under the reversion broadcast. This tear included calculate costs of $ 71 for severance costs associated with oeuvre force reductions related to the elimination of 2,300 positions cosmopolitan and $ 34 of asset impairments associated with the disposition of a non-core commercial enterprise. The rupture costs relate to further streamline of existing work processes, elimination of pleonastic resources and the consolidation of existing activities into other existing operations. The following table summarizes the condition of the March 2000 restructuring substitute and the turnaround program : Charges Original Against 12/31/00 Reserve Reversals Reserve Balance -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- March 2000 restructure : cash charges Severance and relate costs $ 384 $ ( 59 ) $ ( 130 ) $ 195 Lease cancellation and early costs 51 ( 12 ) ( 19 ) 20 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- subtotal 435 ( 71 ) ( 149 ) 215 Non-cash charges Asset damage 71 - ( 71 ) - inventory charges 90 - ( 90 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- subtotal 161 - ( 161 ) - currency changes - - ( 6 ) ( 6 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- subtotal 596 ( 71 ) ( 316 ) 209 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Turnaround Program : rupture and related costs 71 - - 71 Asset stultification 34 - ( 34 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- subtotal 105 - ( 34 ) 71 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- entire $ 701 $ ( 71 ) $ ( 350 ) $ 280 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- With esteem to the March 2000 restructuring program as of March 31, 2001, the remaining indebtedness is $ 131. All remaining liabilities represent attached obligations of the Company to be paid primarily during 2001 and are included in the caption other stream liabilities in the consolidate balance sheet. 1998 Restructuring. In 1998, we announced a cosmopolitan restructure broadcast. In joining with this program, we recorded a pre-tax provision of $ 1,644. As of December 31, 2000, this program has been well completed and the remaining liability balance is $ 107 after fourth one-fourth reversals of $ 11. The remaining liability is for wage duration payments and the overflow of lease cancellation payments. There were no material changes to the program since its announcement in April 1998. The remaining liability is amply committed and the majority will be utilized throughout 2001. 4. Acquisitions In January 2000, we and Fuji Xerox completed the learning of the Color Printing and Imaging Division of Tektronix, Inc. ( CPID ). The aggregate circumstance paid of $ 925 in cash, which includes $ 73 paid immediately by Fuji Xerox, is subject to certain post-closing adjustments. CPID manufactures and sells semblance printers, ink and refer products, and supplies. The skill was accounted for in accordance with the purchase method of accounting. The excess of cash paid over the fair value of net income assets acquired has been allocated to identifiable intangible assets and good will using a dismiss cash stream approach by an autonomous appraiser. The value of the identifiable intangible assets includes $ 27 for purchased in-process research and development which was written off in 2000. This charge represents the fairly value of certain acquired research and development projects that were determined not to have reached technological feasibility as of the date of the skill and was determined based on a methodology that focused on the after-tax cash flows of the in-process products and the stage of completion of the person research and growth projects. other identifiable intangible assets are exclusive of intangible assets acquired by Fuji Xerox, and include the install customer establish ( $ 209 ), the distribution net ( $ 123 ), the existing technology ( $ 103 ), the work force ( $ 71 ), and trademarks ( $ 23 ). These identifiable assets are included in Intangibles and other assets in the Consolidated Balance Sheets. 25 The remaining excess has been assigned to Goodwill, however such total may be affected by any post-closing adjustments which could potentially reduce the leverage price. early identifiable intangible assets and Goodwill are being amortized on a straight-line basis over their estimated utilitarian lives which range from 7 to 25 years. In connection with the CPID acquisition we recorded approximately $ 45 for predict costs associated with exiting certain activities of the acquired operations. These activities include : the consolidation of duplicate distribution facilities ; the rationalization of the overhaul organization ; and the die of certain lines of the CPID business. The costs associated with these activities include inventory write-offs, severance charges, narrow cancellation costs and repair asset stultification charges. We expect these actions to be completed in 2001. In August 1999, we purchased the OmniFax division from Danka Business Systems for $ 45 in cash. OmniFax is a supplier of business laser multifunction facsimile systems. The acquisition resulted in good will of approximately $ 22 ( including transaction costs ), which is being amortized over 15 years. besides during 1999, we paid $ 62 to increase our possession in our India operations from approximately 40 percentage to 68 percentage. This transaction resulted in extra good will of $ 48, which is being amortized over 40 years. In May 1998, we acquired XLConnect Solutions, Inc., an data engineering services caller, and its parent company, Intelligent Electronics, Inc., for $ 413 in cash. The transaction resulted in good will of $ 395, which is being amortized over 25 years. The company is continuing to integrate XLConnect Solutions Inc. with its Industry Solutions business segment. This consolidation is designed to increase the tax income of our industry solutions operations, and to achieve cost savings and synergies. While this integration is taking longer than primitively anticipated, the Company believes that events and changes in circumstances since the acquisition do not presently indicate an deterioration of good will. however, the Company intends to continue the consolidation efforts and will perform an appraisal of the recoverability of good will should circumstances change. 5. Divestitures In December 2000 we sold our China operations to Fuji Xerox for $ 550. In connection with the sale, Fuji Xerox assumed $ 118 of obligation. The pre-tax gain recorded in the fourth quarter of 2000, was $ 200. In June 2000, we sold the U.S. and canadian commodity newspaper business, including an exclusive license for the Xerox post, to Georgia Pacific and recorded a pre-tax gain of approximately $ 40 which is included in other, net. In addition to the proceeds from the sale of the business, the Company will receive royalty payments on future sales of Xerox branded commodity paper by Georgia Pacific and will earn commissions on Xerox originated sales of commodity composition as an agent for Georgia Pacific. In April 2000, we sold a 25 percentage ownership interest in our wholly owned subordinate, ContentGuard, to Microsoft, Inc. for $ 50 and recognized a pre-tax profit of $ 23, which is included in early, net. An extra pre-tax advance of $ 27 was deferred, pending the resolution of certain performance criteria, and is included in unearned income in the Consolidated Balance Sheets. In connection with the sale, ContentGuard besides received $ 40 from Microsoft for a non-exclusive license of its patents and other intellectual property and a $ 25 progress against future royalty income from Microsoft on sales of products incorporating ContentGuard 's engineering. The license requital is being amortized over the life of the license agreement of 10 years and the royalty advance will be recognized in income as earned. 6. Receivables, Net Finance Receivables. Finance receivables solution from installment arrangements and sales-type leases arising from the market of our clientele equipment products. These receivables generally mature over two to five years and are typically collateralized by a security pastime in the underlie assets. The components of Finance receivables, net at December 31, 2000, 1999 and 1998 surveil : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Gross receivables $ 14,556 $ 14,478 $ 15,957 Unearned income ( 1,733 ) ( 1,733 ) ( 2,185 ) Unguaranteed residual values 681 697 617 allowance for doubtful accounts ( 450 ) ( 423 ) ( 441 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- finance receivables, net 13,054 13,019 13,948 Less current fortune 5,097 4,961 5,055 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Amounts due after one year, net income $ 7,957 $ 8,058 $ 8,893 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- contractual maturities of our megascopic finance receivables subsequent to December 31, 2000 pursue : 2001 2002 2003 2004 2005 Thereafter -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - $ 5,654 $ 3,980 $ 2,706 $ 1,580 $ 540 $ 96 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 26 experience has shown that a fortune of these finance receivables will be prepaid prior to adulthood. consequently, the preceding schedule of contractual maturities should not be considered a prognosis of future cash collections. Unguaranteed residual values are assigned primarily to our high volume replicate, impression and production publish products. The assign values are broadly established in order to result in a normal profit allowance in the subsequent transaction. In September 2000, we transferred $ 457 of finance receivables to a special function entity for cash proceeds of $ 411 and a retain interest of $ 46. The transfer agreement includes a redemption option ; consequently the proceeds were accounted for as a batten adopt. At December 31, 2000 the proportion of receivables transferred was $ 411 and is included in Finance receivables, net in the Consolidated Balance Sheets. The remaining plug borrowing libra of $ 325 is included in Debt. In 1999, we sold $ 1,495 of finance receivables and recorded a web increase in finance income of approximately $ 17 which includes the unfavorable flow-through impacts. The retained interests remaining from these sales were not fabric at December 31, 2000. Beginning in 1999 respective latin american affiliates entered into certain structure transactions involving contractual arrangements which transferred the risks of possession of equipment discipline to engage leases to third party finance companies, who are obligated to pay the Company a fixed measure each calendar month. The company accounts for these transactions similar to its sales-type leases. These transactions resulted in sales of $ 126 and $ 280 in 2000 and 1999, respectively. The contribution to Pre-tax income resulting from these transactions was $ 92 and $ 155 in 2000 and 1999, respectively. finance Interest Rates Financing income is determined by the discount rate applied to minimum contract payments, excluding service and supplies, used in the appraisal of the average value of the equipment. finance interest rates include the aforesaid discount rates in customer arrangements, ampere well as related sources of income. Over the years, the Company 's finance interest rates have changed as a consequence of a number of factors including money marketplace conditions ; the economic environment ; debt coverage ; return on equity ; debt to fairness ratios and other external factors which are particularly relevant to our financing commercial enterprise. During the period of 1998 to 2000 such finance interest rates as a share of the average finance receivables portfolio and the Company 's average cost of funds used in our customer financing activities were : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - average finance Interest Rates 8.3 % 9.2 % 9.3 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - average price of Funds 5.4 % 4.7 % 5.1 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - In channel with marketplace comparables, the Company 's finance operations are targeted to achieve a 15 percentage reelect on fairness. The Company sporadically reviews, and may change, the rebate rates in order to be consistent with this objective and to reflect the estimated bazaar value of the finance component in its rent arrangements. Changes in the rate applied to a bundled agreement may affect one or more elements of the musical arrangement. In general, the follow changes in dismiss rates are reflected as multiplicative inverse changes in equipment revenues, partially offset by the resulting change in customer finance income. such changes in account estimate had the follow approximate effects on pre-tax income ( passing ) : Increase/ ( Decrease ) 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- effect of changes in discount rates/1/ $ 24 $ 101 $ 128 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 1 Represents the affect of changes in customer finance rate estimates net of amortization of the related accumulative unearned income effects. Accounts receivable. In 2000, we entered into agreements to sell, on an ongoing footing, a defined pool of accounts receivable to special purpose entities. At December 31, 2000, the total consortium of accounts receivable transferred was approximately $ 900. The special function entities, in bend, sell participating interests in such accounts receivable to investors up to a maximum sum of $ 330. Under the terms of the agreement, new receivables are added to the pond as collections reduce previously sold accounts receivable. Investors have a priority collection interest in the stallion pool of receivables, and as a leave, we have retained credit risk to the extent the pool exceeds the sum sold to investors. We continue to service the receivables on behalf of the especial aim entities and receive a servicing tip adequate to compensate for our responsibilities. At December 31, 2000, $ 328 in net proceeds were received from sales of participating interests to investors and were recorded as a reduction in Accounts receivable, final in the Consolidated Balance Sheets. The earnings impingement related to the receivables sold under these agreements was not material. 27 Our retain interests, which are included in Accounts receivable, net, are recorded at fairly value using estimates of dilution based on diachronic have. These estimates are adjusted regularly based on actual experience with the pool, including defaults and credit deterioration. If historical dilution percentages were to increase one percentage point, the value of the Company 's retain interest would be reduced by approximately $ 9. Allowances for doubtful accounts on our accounts receivable balances at December 31, 2000, 1999 and 1998 amounted to $ 282, $ 137 and $ 102, respectively. 7. Inventories and Equipment on Operating Leases, Net The components of inventories at December 31, 2000, 1999 and 1998 postdate : 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Finished goods $ 1,439 $ 1,805 $ 1,929 Work in summons 147 122 111 bleak materials 346 363 464 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Inventories $ 1,932 $ 2,290 $ 2,504 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- equipment on function leases and similar arrangements consists of our business equipment products that are rented to customers and are depreciated to estimated residual value. Equipment on operate on leases and the refer accumulate depreciation at December 31, 2000, 1999 and 1998 follow : 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - equipment on manoeuver leases $ 2,124 $ 1,777 $ 2,057 Less : accumulate disparagement 1,400 1,082 1,260 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - equipment on operate leases, net income $ 724 $ 695 $ 797 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - We sold equipment national to manoeuver leases and alike arrangements to third party finance companies for cash in the amounts of $ 22, $ 120 and $ 74 in 2000, 1999 and 1998, respectively. The contribution to Pre-tax income resulting from these transactions was $ 9, $ 65 and $ 24 in 2000, 1999 and 1998, respectively. Depreciable lives vary from two to four years. Our business equipment operating lease terms vary, generally from 12 to 36 months. Scheduled minimum future rental revenues on operate on leases with original terms of one year or longer are : 2001 2002 2003 Thereafter - -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 320 $ 151 $ 71 $ 43 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- sum contingent rentals, chiefly use charges in excess of minimum allowances relating to operating leases, for the years ended December 31, 2000, 1999 and 1998 amounted to $ 120, $ 163 and $ 161, respectively. 8. Land, Buildings and Equipment, Net The components of land, buildings and equipment, net income at December 31, 2000, 1999 and 1998 take after : Estimated utilitarian Lives ( Years ) 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Land $ 70 $ 66 $ 80 Buildings and build equipment 25 to 50 1,064 1,087 973 leasehold improvements Lease term 426 434 425 implant machinery 4 to 12 1,981 1,897 1,926 Office furniture and equipment 3 to 15 1,304 1,339 1,299 early 3 to 20 199 235 260 construction in build up 295 328 283 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- subtotal 5,339 5,386 5,246 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Less accumulated depreciation 2,844 2,930 2,880 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Land, buildings and equipment, net $ 2,495 $ 2,456 $ 2,366 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- We lease certain domain, buildings and equipment, substantially all of which are accounted for as operate leases. full rend expense under operate leases for the years ended December 31, 2000, 1999 and 1998 amounted to $ 344, $ 397 and $ 436, respectively. Future minimum operating rent commitments that have remaining non-cancelable lease terms in excess of one year at December 31, 2000 be : 2001 2002 2003 2004 2005 Thereafter - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 290 $ 238 $ 193 $ 155 $ 132 $ 426 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- In certain circumstances, we sublease distance not presently required in operations. Future minimal -sub-lease income under leases with non-cancelable terms in excess of one year amounted to $ 50 at December 31, 2000. In 1994, we awarded a contract to Electronic Data Systems Corp. ( EDS ) to operate our cosmopolitan data march and telecommunication net through the class 2004. Xerox has the right to terminate this agreement with six months' notice to EDS. minimum payments due EDS under the compress follow : 2001 2002 2003 2004 - -- -- -- -- -- -- -- -- -- -- -- $ 217 $ 198 $ 183 $ 95 - -- -- -- -- -- -- -- -- -- -- -- 28 9. Investments in Affiliates, at Equity Investments in corporate joint ventures and other companies in which we by and large have a 20 to 50 percentage ownership interest at December 31, 2000, 1999 and 1998 stick to : 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Fuji Xerox $ 1,259 $ 1,513 $ 1,354 other investments 103 102 102 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Investments in affiliates, at fairness $ 1,362 $ 1,615 $ 1,456 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Xerox Limited owned 50 percentage of the outstanding store of Fuji Xerox, a corporate joint venture with Fuji Photo Film Co., Ltd. ( Fujifilm ) at December 31, 2000. See Note 20 on page 46. Fuji Xerox is headquartered in Tokyo and operates in Japan and other areas of the Pacific Rim, Australia and New Zealand. Condensed fiscal data of Fuji Xerox for its last three fiscal years follow : 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - compendious of Operations Revenues $ 8,401 $ 7,751 $ 6,809 Costs and expenses 8,115 7,440 6,506 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income before income taxes 286 311 303 Income taxes 146 201 195 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - net income $ 140 $ 110 $ 108 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - libra Sheet Data Assets Current assets $ 3,162 $ 3,521 $ 2,760 Non-current assets 3,851 3,521 3,519 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total assets $ 7,013 $ 7,042 $ 6,279 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Liabilities and Shareholders' Equity Current liabilities $ 3,150 $ 2,951 $ 2,628 long-run debt 445 297 234 other non-current liabilities 852 951 895 Shareholders ' equity 2,566 2,843 2,522 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - sum liabilities and shareholders' equity $ 7,013 $ 7,042 $ 6,279 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 10. segment coverage In the beginning quarter of 2000, we completed the realignment of our operations to better align the company to serve its diverse customers/distribution channels and to provide an industry-oriented focus for global text file services and solutions. As a result of this realignment, our reportable segments have been revised consequently and are as follows : industry Solutions, General Markets, Developing Markets and other businesses. The Industry Solutions operating segment ( ISO ) covers the direct sales and service organizations in North America and Europe. It is organized around keystone industries and focused on providing our largest customers with text file solutions consisting of hardware, software and services, including document outsource, systems integration and document consult. The General Markets operating segment ( GMO ) includes sales agents in North America, concessionaires in Europe and our Channels Group which includes retailers and resellers. It is responsible for increasing penetration of the general market space, including little office solutions, products for network work group environments and personal/ home office products. In addition, it has responsibility for product development and acquisition for its markets, providing customer and channel-ready products and solutions. The Developing Markets operating segment ( DMO ) includes operations in Latin America, Russia, India, the Middle East and Africa. It takes advantage of emergence opportunities in emerging markets/countries around the populace, building on the leadership Xerox has already established in a number of those markets. other businesses includes several units, none of which met the thresholds for separate segment report. The revenues included in this group are primarily from Xerox Supplies Group ( XSG ) and Xerox Engineering Systems ( XES ) and corporate inter-segment eliminations. All bodied and divided service unit expenses, including interest and depreciation, have been allocated to the manoeuver segments. early businesses ' sum assets include XES, XSG, deferred tax assets, which have not been allocated, the investment in Fuji Xerox and the remaining investments in break operations. The accountancy policies of the engage segments are the lapp as those described in the summary of significant account policies. It is not operable to discern the segment data for 1998 for the above segments due to inner reorganizations. accordingly, 1998 realigned segment amounts have not been presented. 29 operational section profit or personnel casualty information for the years ended December 31, 2000 and 1999 for our realign segments is as follows : Industry General Developing other Solutions Markets Markets Businesses Total - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 2000 information about net income or personnel casualty Revenues from external customers $ 8,619 $ 4,827 $ 2,533 $ 1,798 $ 17,777 Finance income 529 238 157 - 924 Intercompany revenues 38 215 - ( 253 ) - sum segment revenues 9,186 5,280 2,690 1,545 18,701 depreciation and amortization 584 227 132 5 948 Interest expense 584 272 165 10 1,031 segment profit ( loss ) /1/ 110 ( 126 ) ( 116 ) 194 62 Earnings ( loss ) of non-consolidated affiliates/2/ ( 1 ) - - 99 98 information about assets Investments in non-consolidated affiliates 16 - 7 1,339 1,362 total assets 18,662 3,129 4,470 3,214 29,475 capital expenditures 184 137 79 52 452 1999/3/ information about profit or passing Revenues from external customers $ 9,463 $ 4,489 $ 2,542 $ 1,992 $ 18,486 Finance income 622 249 210 - 1,081 Intercompany revenues 60 132 - ( 192 ) - total section revenues 10,145 4,870 2,752 1,800 19,567 depreciation and amortization 486 182 106 5 779 Interest expense 488 189 120 6 803 section profit 1,328 162 214 204 1,908 Earnings ( loss ) of non-consolidated affiliates 4 - ( 5 ) 69 68 information about assets Investments in non-consolidated affiliates 25 - 8 1,582 1,615 entire assets 18,487 1,703 4,636 3,705 28,531 capital expenditures 300 153 94 47 594 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /1/ section net income ( loss ) excludes the impact of the 2000 restructuring charge $ ( 619 ), the buy in-process research and development $ ( 27 ), and the gain on sale of our China operations $ 200. /2/ Excludes our $ 37 partake of a restructuring agitate recorded by Fuji Xerox. /3/ 1999 amounts as restated, see note 2. Products and services and geographic area data follow : Revenues - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - information about products and services Black and white office and little office/home position ( SOHO ) $ 7,410 $ 8,150 $ 8,384 Black and white output 4,940 5,904 5,954 Color copy and print 2,897 1,851 1,726 other products and services 3,454 3,662 3,529 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total $ 18,701 $ 19,567 $ 19,593 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Revenues Long-Lived Assets - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 2000 1999 1998 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - information about Geographic Areas United States $ 10,397 $ 10,585 $ 10,211 $ 2,282 $ 2,228 $ 2,085 Europe 4,870 5,414 5,237 968 616 503 other Areas 3,434 3,568 4,145 600 751 804 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - sum $ 18,701 $ 19,567 $ 19,593 $ 3,850 $ 3,595 $ 3,392 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 30 operate segment profit or passing data, using the prior years ' footing of presentation, for the years ended December 31, 2000, 1999, and 1998 is as follows : Paper Core Fuji and Business Xerox Media other Total - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 2000 information about net income or loss Revenues from external customers $ 14,493 - $ 1,156 $ 2,128 $ 17,777 Finance income 918 - - 6 924 Intercompany revenues ( 294 ) - - 294 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- entire segment revenues 15,117 - 1,156 2,428 18,701 disparagement and amortization 943 - - 5 948 Interest expense 1,031 - - - 1,031 segment net income ( loss ) /1/ 352 - 85 ( 375 ) 62 Earnings ( loss ) of non-consolidated affiliates/2/ 4 $ 107 - ( 13 ) 98 information about assets Investments in non-consolidated affiliates 71 1,259 - 32 1,362 sum assets 26,224 1,259 69 1,923 29,475 capital expenditures 430 - - 22 452 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 1999/4/ information about profit or loss Revenues from external customers $ 15,501 - $ 1,148 $ 1,837 $ 18,486 Finance income 1,071 - - 10 1,081 Intercompany revenues ( 206 ) - - 206 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- full segment revenues 16,366 - 1,148 2,053 19,567 depreciation and amortization 774 - - 5 779 Interest expense 803 - - - 803 section net income ( loss ) 1,886 - 62 ( 40 ) 1,908 Earnings of non-consolidated affiliates 13 $ 55 - - 68 information about assets Investments in non-consolidated affiliates 102 1,513 - - 1,615 Total assets 25,036 1,513 86 1,896 28,531 capital expenditures 580 - - 14 594 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 1998/4/ information about net income or personnel casualty Revenues from external customers $ 15,623 - $ 1,162 $ 1,666 $ 18,451 Finance income 1,133 - - 9 1,142 Intercompany revenues ( 326 ) - - 326 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total section revenues 16,430 - 1,162 2,001 19,593 depreciation and amortization 709 - - 18 727 Interest expense 749 - - - 749 segment profit ( loss ) /3/ 2,240 - 58 ( 75 ) 2,223 Earnings of non-consolidated affiliates/2/ 19 $ 72 - 1 92 information about assets Investments in non-consolidated affiliates 81 1,354 - 21 1,456 sum assets 25,842 1,354 84 2,348 29,628 capital expenditures 539 - - 27 566 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - /1/ segment net income ( loss ) excludes the affect of the 2000 restructuring charge $ ( 619 ), the buy in-process research and development $ ( 27 ), and the gain on sale of our China operations $ 200. /2/ Excludes our $ 37 and $ 18 plowshare of a restructuring charge recorded by Fuji Xerox in 2000 and 1998, respectively. /3/ section profit ( passing ) excludes the affect of the 1998 restructuring charge of $ 1,644. /4/ 1999 and 1998 amounts as restated, see eminence 2. 31 11. Discontinued Operations Our remaining investment in our indemnity and other Financial Services ( IOFS ) and Third-Party finance and real Estate discontinued businesses is included in the Consolidated Balance Sheets at December 31, 2000 and 1999 as follows : Balance Sheet Caption 2000 1999 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- intangible and other assets $ 534 $ 1,130 long-run debt - 50 Deferred taxes and other liabilities - 378 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- final investing $ 534 $ 702 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- The majority of the remaining investment relates to a $ 462 performance-based instrument received from the sale of one of the Talegen Holdings, Inc. ( Talegen ) policy companies, The Resolution Group, Inc. ( TRG ). The instrument is Class 2 preferred sprout of TRG. TRG has two classes of stock outstanding. The class 1 shares are 100 percentage owned by Fairfax Financial Holdings Limited, one of the largest insurers in North America. We own substantially all of the Class 2 shares. The terms of the performance criteria relate to TRG 's available cash flow as defined. Commencing in January 2001, the course 2 shareholders are entitled to receive 72.5 percentage of the available cash and the course 1 holder receives the remaining 27.5 percentage. An initial distribution of $ 4 was received by us in January 2001. current projections indicate that we expect to amply recover the remaining $ 458 by 2018. Xerox Financial Services, Inc. ( XFSI ), a wholly owned auxiliary, continues to provide aggregate excess of loss reinsurance coverage ( the Reinsurance Agreements ) to one of the early Talegen units and TRG through Ridge Reinsurance Limited ( Ridge Re ), a wholly own auxiliary of XFSI. The coverage limits for these two remaining reinsurance Agreements sum $ 578. Both the Company and XFSI have guaranteed that Ridge Re will meet all of its fiscal obligations under the two remaining reinsurance Agreements. In April 2001 we replaced $ 660 of letters of credit, which supported Ridge Re ceded reinsurance obligations, with trusts which include the Ridge Re investing portfolio of $ 405 plus approximately $ 255 in cash. These trusts are required to provide security with obedience to aggregate excess of personnel casualty reinsurance obligations under the two remaining reinsurance Agreements. 12. Debt short-run Debt. short-run borrowings data at December 31, 2000 and 1999 follow : weighted average interest Rates at 12/31/00 2000 1999 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Notes account payable 10.20 % $ 169 $ - commercial newspaper 7.01 141 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total short-run debt 310 - current maturities of long-run debt 2,383 3,957 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - entire $ 2,693 $ 3,957 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - debt classification. Prior to the year 2000 we had employed a match fund policy for customer financing assets and related liabilities. Under this policy, the matter to and currentness characteristics of the indebtedness were, in most cases, matched to the matter to and currency characteristics of the finance receivables. At December 31, 1999, our debt was classified based on the expect date of repayment of such obligation in accordance with our match fund policy. Further, at December 31, 1999, certain early short-run obligations were classified as long-run based on management 's purpose to refinance certain of these obligations on a long term basis and the ability to do so with credit available under the Revolving Credit Agreement ( Revolver ). The entire utilization of our Revolver and our recent credit downgrades importantly changed the nature of our obligation and impacted our ability to continue with our historical catch fund policy. We no longer match investment company our indebtedness with cash collections expected to be generated from finance receivables. We expect to pay down our outstanding obligations as they mature. accordingly, at December 31, 2000, our debt has been classified in the Consolidated Balance Sheets, based on the contractual maturity dates of the underlie debt instruments. Prior years ' balances have not been reclassified. The Company believes its liquid is presently sufficient to meet current and anticipate needs going forward, subject to the timely implementation and execution of diverse business initiatives as discussed in Note 3 on page 24. 32 long-run Debt. A compendious of long-run debt by final examination maturity date at December 31, 2000 and 1999 follows : burden average pastime Rates at 12/31/00 2000 1999 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - U.S. Operations Xerox Corporation ( parent company ) Guaranteed ESOP notes due 2000-2003 7.53 % $ 221 $ 299 Notes due 2000 - - 2,041 Notes due 2001 6.50 737 721 Notes due 2002 7.59 330 230 Notes due 2003 5.61 1,313 1,398 Notes due 2004 5.01 483 502 Notes due 2006 7.25 25 - Notes due 2007 7.38 25 - Notes due 2011 7.01 50 - Notes due 2016 7.20 250 250 convertible notes ascribable 2018 3.63 617 601 Notes due 2038 5.96 25 25 Revolving accredit agreement, maturing in 2002 6.93 4,400 - capital leases and other debt due 2000-2018 8.17 91 120 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - subtotal 8,567 6,187 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - photocopy Credit Corporation Notes due 2000 - - 2,026 Notes due 2001 6.66 326 401 Notes ascribable 2002 2.80/1/ 666 668 Notes ascribable 2003 6.61 460 200 Notes due 2005 1.50/1/ 904 - Notes due 2007 2.00/1/ 270 - Notes due 2008 6.30 25 - Notes due 2012 7.09 125 - Notes due 2013 6.50 60 - Notes due 2014 6.06 50 - Notes due 2018 7.00 25 - Secured borrowings/2/ due 2001-2003 6.70 325 - Revolving credit agreement, maturing in 2002 6.94 1,020 - Floating rate notes due 2048 6.44 60 60 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - subtotal 4,316 3,355 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - full U.S. operations $ 12,883 $ 9,542 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 1 leaden average interest rates include japanese hankering bonds of $ 1,174 and $ 488 issued by Xerox Credit Corporation in 2000 and 1999, respectively, with concern rates ranging from 1.50-2.00 % and 0.80 %, respectively. 2 Refer to Note 6 on page 26 for far discussion of batten borrowings. leaden average interest Rates at 12/31/00 2000 1999 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - International Operations Xerox Capital ( Europe ) plc respective obligations, account payable in : Euros ascribable 2000-2008 5.50 % $ 698 $ 755 japanese yen due 2001-2005 0.53 950 - U.S. dollars due 2000-2008 6.10 1,025 1,991 Revolving credit agreement, maturing in 2002 ( U.S. Dollars ) 6.96 1,080 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - subtotal 3,753 2,746 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - other International Operations Various obligations, account payable in : canadian dollars due 2000-2007 11.74 55 88 Pounds greatest due 2000-2003 9.00 187 202 italian lire due 2000-2001 4.72 117 133 Euros due 2000-2008 7.90 159 194 U.S. dollars ascribable 2000-2008 7.67 128 249 Revolving credit agreement, maturing in 2002 ( U.S. dollars ) 6.83 500 - capital leases and other debt due 2000-2004 6.23 5 20 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - subtotal 1,151 886 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total international operations 4,904 3,632 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - other borrowings deemed long-run - 1,827 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - subtotal 17,787 15,001 Less current maturities 2,383 3,957 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - sum long-run debt $ 15,404 $ 11,044 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - amalgamate long-run Debt Maturities. Payments due on long-run debt for the adjacent five years and thereafter follow : 2001 2002 2003 2004 2005 Thereafter -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - $ 2,383 $ 8,994 $ 2,630 $ 1,718 $ 1,010 $ 1,052 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - certain of our debt agreements allow us to redeem outstanding debt anterior to scheduled adulthood. Outstanding debt issues with birdcall features are classified in the preceding five-year maturity table in accord 33 with management 's stream expectations. The actual decision as to early redemption will be made at the time the early redemption choice becomes exercisable and will be based on liquid, prevailing economic and business conditions, and the proportional costs of newly adopt. convertible Debt. In 1998, we issued convertible subordinate debentures for net proceeds of $ 575. The come due upon maturity in April 2018 is $ 1,012, resulting in an effective interest rate of 3.625 percentage per annum, including 1.003 percentage collectible in cash semiannually beginning in October 1998. These debentures are convertible at any time at the choice of the holder into 7.808 shares of our malcolm stock per $ 1,000 principal amount at maturity of debentures. This debt contains a invest option which requires us to purchase any debenture, at the choice of the holder, on April 21, 2003, for a monetary value of $ 649 per $ 1,000 principal. We may elect to settle the obligation in cash, shares of common lineage, or any combination thence. Lines of Credit. We have a $ 7 billion revolving credit rating agreement with a group of banks, which matures in October 2002. This revolver is besides accessible by the following wholly owned subsidiaries : Xerox Credit Corporation ( up to a $ 7 billion limit ) and Xerox Canada Capital Ltd. and Xerox Capital ( Europe ) plc ( up to a $ 4 billion limit ) with our guarantee. Amounts borrowed under this adeptness are at rates based, at the borrower 's option, on spreads above sealed reference rates such as LIBOR. This agreement contains certain covenants the most restrictive of which require that we maintain a minimal charge of palpable net income deserving and limit the amounts of great secured borrowings, as defined in the agreement. We are in submission with these covenants at December 31, 2000. The poise outstanding under this line of credit was $ 7 billion at December 31, 2000. In addition, our foreign subsidiaries had unused committed long-run lines of credit used to back short-run indebtedness that aggregate $ 43 in respective currencies at prevail interest rates. Guarantees. At December 31, 2000, we have guaranteed the borrowings of our ESOP and $ 4,710 of indebtedness of our foreign subsidiaries. Interest. Interest paid by us on our short- and long-run debt, amounted to $ 1,024, $ 787 and $ 859 for the years ended December 31, 2000, 1999 and 1998, respectively. A compendious of the cash related changes in consolidate obligation for the three years ended December 31, 2000 follows : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - cash proceeds from ( payments of ) short-run debt, web $ ( 1,234 ) $ ( 4,140 ) $ 553 Cash proceeds from long-run debt 10,520 5,446 3,464 star payments on long-run debt ( 5,713 ) ( 1,489 ) ( 1,580 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total net cash changes in debt $ 3,573/1/ $ ( 183 ) /2/ $ 2,437 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - /1/ Excludes debt of $ 118, which was assumed by Fuji Xerox in association with the divestiture of our China operations, and accretion of $ 16 on convertible debt. /2/ Excludes debt of $ 51 assumed with the increased ownership in our India joint venture and accretion of $ 26 on convertible debt. 13. fiscal Instruments derivative Financial Instruments. Certain fiscal instruments with off-balance-sheet risk have been entered into by us to manage our matter to rate and foreign currentness exposures. These instruments are held entirely for hedging purposes and include matter to pace barter agreements, advancing exchange contracts and alien currentness swap agreements. We do not enter into derived function instrument transactions for trade or other bad purposes. We typically enter into simple, unleveraged derivative transactions which, by their nature, have depleted credit and market risk. Our policies on the use of derivative instrument instruments prescribe an investment-grade counterparty credit floor and at least quarterly monitoring of market risk on a counterparty-by-counterparty footing. We utilize numerous counterparties to ensure that there are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. Based upon our ongoing evaluation of the replacement cost of our derivative transactions and counterparty credit- worthiness, we consider the risk of citation default option importantly affecting our fiscal position or results of operations to be distant. We employ the manipulation of hedges to reduce the risks that quickly changing marketplace conditions may have on the underlie transactions. typically, our currentness and interest rate hedge activities are not affected by changes in market conditions, as forward contracts and swaps are arranged and normally held to maturity in orderliness to lock in currentness rates and interest rate spreads related to underlie transactions. During 2000 the agencies that assign ratings to our debt downgraded our debt. These downgrades significantly reduced our access to capital markets. furthermore, the particular downgrade of our debt on December 1, 2000 triggered the repurchases of a number of derivative contracts, which were in place at 34 that clock time, and farther downgrades could require that we repurchase extra outstanding contracts. therefore, our ability to continue to efficaciously manage the risks associated with concern rate and foreign currency fluctuations, including our ability to employ our match fund scheme, has been hard constrained. These derivative sign repurchases resulted in un-hedged extraneous currentness denominated assets and liabilities. We recorded mark-to-market gains during December 2000 of $ 69 as a direct result of these un-hedged exposures. none of our hedge activities involves exchange-traded instruments. Interest rate Swaps. We enter into interest rate trade agreements to manage interest rate exposure, although the holocene downgrades of our indebtedness have limited our ability to manage this exposure. An interest rate swap is an agreement to exchange interest rate payment streams based on a fanciful principal amount. We follow colonization accounting principles for concern rate swaps whereby the net interest rate differentials to be paid or received are recorded presently as adjustments to interest expense. about all customer financing assets earn fixed rates of interest. consequently, through the consumption of sake rate swaps in junction with the contractual maturity terms of outstanding debt, we `` lock in '' an pastime spread by arranging fixed-rate interest obligations with maturities alike to the fundamental assets. additionally, in industrialize countries customer financing assets are funded with liabilities denominated in the same currentness. We refer to the effects of these cautious practices as `` match fund '' our customer finance assets. This drill effectively eliminates the risk of a major worsen in interest margins resulting from adverse changes in the pastime rate environment. conversely, this commit does efficaciously eliminate the opportunity to materially increase margins when matter to rates are declining. As previously disclosed, our credit ratings have been downgraded during 2000. These downgrades have hard limited our current ability to manage our exposure to sake rate changes which has historically been managed through the practice of equal fund our finance receivables. More specifically, pay-fixed/receive-variable interest pace swaps are frequently used in set of more expensive fixed-rate debt for the function of equal financing fixed-rate customer contracts. Pay-variable/receive-variable interest pace swaps ( basis swaps ) are used to transform varying rate, medium-term debt into commercial newspaper or local currency LIBOR pace obligations. Pay-variable/receive-fixed concern rate swaps are used to transform term fixed-rate debt into varying rate obligations. The transactions performed within each of these three categories enable the cost-efficient management of interest pace exposures. During 2000, the average fanciful amount of an interest rate trade agreement was $ 25. The total notional amounts of these transactions at December 31, 2000 and 1999, based on contract maturity, follow : 2000 1999 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- commercial paper/bank borrowings $ 4,538 $ 5,352 Medium-term debt 8,666 10,493 long-run debt 2,267 4,238 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total $ 15,471 $ 20,083 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- The aggregate conceptional amounts of concern rate swaps by adulthood date and type at December 31, 2000 and 1999 adopt : 2002- 2005- 2000 2001 2004 2018 Total -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 2000 Pay fixed/receive variable $ - $ 1,321 $ 4,490 $ 1,319 $ 7,130 Pay variable/receive varying - 1,677 1 - 1,678 Pay variable/receive fixed - 1,540 4,175 948 6,663 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total $ - $ 4,538 $ 8,666 $ 2,267 $ 15,471 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - memo : interest rate paid - 5.74 % 5.95 % 7.01 % 6.04 % Interest rate received - 5.08 % 5.85 % 5.36 % 5.55 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 1999 Pay fixed/receive variable $ 2,699 $ 2,202 $ 6,742 $ 340 $ 11,983 Pay variable/receive variable 443 550 - - 993 Pay variable/receive fixed 2,210 718 3,544 635 7,107 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - entire $ 5,352 $ 3,470 $ 10,286 $ 975 $ 20,083 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - memo : matter to rate paid 5.94 % 4.39 % 5.41 % 6.25 % 5.42 % Interest rate received 5.48 % 5.18 % 5.38 % 6.75 % 5.44 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 35 Forward Exchange Contracts. We utilize forward substitution contracts to hedge against the potentially adverse impacts of extraneous currency fluctuations on foreign currency-denominated receivables and payables ; firm alien currentness commitments ; and investments in alien operations. Firm extraneous currency commitments generally represent committed purchase orders for foreign-sourced inventory. These contracts broadly mature in six months or less. At December 31, 2000 and 1999, we had great forward exchange contracts of $ 1,788 and $ 3,838, respectively. Of the great contracts at December 31, 2000, the largest single currency represented was the Euro. Contracts denominated in Euros, canadian dollars, U.S. dollars, brazilian reais and japanese yen accounted for over 90 percentage of our fore exchange contracts. On contracts that hedge alien currency-denominated receivables and payables, gains or losses are reported presently in income, and premiums or discounts are amortized to income and included in other, internet in the consolidate Statements of Operations. Gains or losses, a well as premiums or discounts, on contracts that hedge firm commitments are deferred and subsequently recognized as part of the underlying transaction. At December 31, 2000, we had a net submit loss of $ 8. Gains or losses on contracts that hedge an investing in a foreign process are reported presently in the poise sail as a component of accumulative translation adjustments. The premium or discount rate on contracts that hedge an investing in a foreign mathematical process are amortized to income and included in other, net in the consolidate Statements of Operations. During 2000, the average notional sum of a ahead exchange condense amounted to $ 14. Foreign Currency Swap Agreements. We enter into cross-currency pastime rate swap agreements, whereby we issue foreign currency-denominated debt and swap the proceeds with a counterparty. In return, we receive and efficaciously denominate the debt in local currencies. currency swaps are utilized as hedges of the fundamental alien currency borrowings, and change gains or losses are recognized presently in other, net in the consolidate Statements of Operations. At December 31, 2000 and 1999, we had outstanding cross-currency pastime pace barter agreements with aggregate notional amounts of $ 4,222 and $ 3,968, respectively. Of the great agreements at December 31, 2000, the largest single currency represented was the U.S. dollar. Contracts denominated in U.S. dollars, british pounds sterling, japanese ache and french francs accounted for over 75 percentage of our currency interest rate barter agreements. Fair Value of Financial Instruments. The estimate clean values of our fiscal instruments at December 31, 2000 and 1999 follow : 2000 1999 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Carrying Fair Carrying Fair Amount Value Amount Value -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - cash and cash equivalents $ 1,741 $ 1,741 $ 126 $ 126 Accounts receivable, web 2,281 2,281 2,633 2,633 short-run debt 2,693 2,356 3,957 3,957 long-run debt 15,404 9,433 11,044 10,882 interest rate and currency barter agreements - 129 - ( 40 ) Forward substitute contracts - ( 59 ) - 131 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - The fair value amounts for Cash and cash equivalents and Accounts receivable, net approximate carry amounts ascribable to the short-change maturities of these instruments. The fair value of Short and Long-term debt was estimated based on quote market prices for these or similar issues or on the stream rates offered to us for debt of the same remaining maturities. The remainder between the fair value and the carrying value represents the theoretical net bounty or rebate we would pay or receive to retire all debt at such date. We have no plans to retire significant portions of our debt prior to scheduled adulthood. We are not required to determine the carnival rate of our finance receivables. The fair values for interest rate and cross-currency barter agreements and forward exchange contracts were calculated by us based on market conditions at year-end and supplemented with quotes from brokers. They represent amounts we would receive ( pay ) to terminate/replace these contracts. We have no present plans to terminate/replace meaning portions of these contracts. 36 14. Employee Benefit Plans We sponsor numerous pension and early postretirement profit plans in our U.S. and external operations. Pension Benefits other Benefits - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 2000 1999 2000 1999 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- change in Benefit Obligation Benefit obligation, January 1 $ 8,418 $ 8,040 $ 1,060 $ 1,095 Service cost 167 191 24 27 interest cost 453 1,009 85 77 plan participants ' contributions 19 14 - - plan amendments 1 - - - Actuarial ( gain ) /loss 48 ( 79 ) 218 ( 78 ) Currency exchange rate changes ( 197 ) ( 139 ) ( 2 ) 2 Divestitures ( 15 ) - - - Curtailments ( 10 ) ( 3 ) - - Settlements - 2 - - special ending benefits 34 11 4 2 Benefits paid ( 663 ) ( 628 ) ( 75 ) ( 65 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- benefit duty, December 31 8,255 8,418 1,314 1,060 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- variety in Plan Assets Fair value of plan assets, January 1 8,771 7,958 - - actual return on design assets 651 1,422 - - employer contribution 84 96 75 65 plan participants ' contributions 19 14 - - currency exchange rate changes ( 218 ) ( 91 ) - - Divestitures ( 18 ) - - - Benefits paid ( 663 ) ( 628 ) ( 75 ) ( 65 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Fair value of design assets, December 31 8,626 8,771 - - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Funded status ( including under-funded and non-funded plans ) 371 353 ( 1,314 ) ( 1,060 ) Unamortized transition assets ( 15 ) ( 36 ) - - Unrecognized prior service cost 17 21 ( 3 ) ( 4 ) Unrecognized net actuarial ( addition ) personnel casualty ( 433 ) ( 381 ) 120 ( 69 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- net income measure recognized $ ( 60 ) $ ( 43 ) $ ( 1,197 ) $ ( 1,133 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Amounts recognized in the consolidate balance sheets consist of : Prepaid benefit cost $ 378 $ 377 $ - $ - Accrued benefit liability ( 468 ) ( 456 ) ( 1,197 ) ( 1,133 ) intangible asset 3 4 - - Accumulated other comprehensive income 27 32 - - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- net measure recognized $ ( 60 ) $ ( 43 ) $ ( 1,197 ) $ ( 1,133 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Under-funded or non-funded plans Aggregate benefit obligation $ 348 $ 497 $ 1,314 $ 1,060 Aggregate fair measure of plan assets $ 180 $ 174 $ - $ - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- leaden average assumptions as of December 31 Discount rate 7.0 % 7.4 % 7.5 % 8.0 % Expected render on plan assets 8.9 8.9 rate of compensation increase 3.8 4.2 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 37 pension Benefits other Benefits - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 2000 1999 1998 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Components of net Periodic Benefit Cost Defined benefit plans Service cost $ 167 $ 191 $ 172 $ 24 $ 27 $ 26 Interest cost 453 1,009 916 85 77 72 Expected return on plan assets ( 522 ) ( 1,090 ) ( 1,010 ) - - - Recognized net actuarial ( profit ) /loss 4 11 10 - 1 - amortization of anterior service cost 4 8 6 - - - Recognized net transition asset ( 16 ) ( 18 ) ( 19 ) - 2 - Recognized curtailment/settlement profit ( 46 ) ( 9 ) ( 60 ) - - - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - net periodic benefit monetary value 44 102 15 109 107 98 Defined contribution plans 14 28 32 - - - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total $ 58 $ 130 $ 47 $ 109 $ 107 $ 98 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Assumed health care cost course rates have a significant impression on the amounts reported for the health care plans. For measurement purposes, an 8.5 percentage annual rate of increase in the per caput cost of traverse health care benefits was assumed for 2000. The rate was assumed to decrease to 5.25 percentage in 2005 and thereafter. A one-percentage-point change in simulate health care price swerve rates would have the succeed effects : One- One- percentage- percentage- point point increase decrease - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Effect on full service and interest cost components $ 4 $ ( 3 ) consequence on postretirement benefit obligation $ 75 $ ( 60 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- employee Stock Ownership Plan ( ESOP ) Benefits. In 1989, we established an ESOP and sold to it 10 million shares of Series B Convertible Preferred Stock ( convertible Preferred ) of the Company for a leverage price of $ 785. Each ESOP share is convertible into six common shares of the Company. The convertible Preferred has a $ 1 equality rate and a undertake minimum respect of $ 78.25 per share and accrues annual dividends of $ 6.25 per contribution. The ESOP borrowed the purchase monetary value from a group of lenders. The ESOP debt is included in our consolidate balance wheel sheets because we guarantee the ESOP borrowings. A match amount classified as Deferred ESOP benefits represents our commitment to future compensation expense related to the ESOP benefits. The ESOP will repay its borrowings from dividends on the convertible Preferred and from our contri-butions. The ESOP 's debt service is structured such that our annual contributions ( in overindulgence of dividends ) basically correspond to a specified level percentage of player compensation. As the borrowings are repaid, the convertible Preferred is allocated to ESOP participants and Deferred ESOP benefits are reduced by principal payments on the borrowings. Most of our domestic employees are eligible to participate in the ESOP. information relating to the ESOP for the three years ended December 31, 2000 follows : 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Interest on ESOP Borrowings $ 24 $ 28 $ 33 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Dividends declared on convertible Preferred Stock $ 53 $ 54 $ 56 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- cash contribution to the ESOP $ 49 $ 44 $ 41 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Compensation expense $ 48 $ 46 $ 44 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- We recognize ESOP costs based on the come committed to be contributed to the ESOP plus related trustee, finance and other charges. 15. Income and early Taxes The parent company and its domestic subsidiaries file consolidate U.S. income tax returns. Generally, pursuant to tax allotment arrangements, domestic subsidiaries record their tax provisions and make payments to the parent company for taxes due or get payments from the parent ship's company for tax benefits utilized. Income ( personnel casualty ) before income taxes from continuing operations for the three years ended December 31, 2000 consists of the follow : 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - domestic income $ 49 $ 1,176 $ 616 Foreign income ( personnel casualty ) ( 433 ) 732 ( 37 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income ( personnel casualty ) before income taxes $ ( 384 ) $ 1,908 $ 579 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 38 Provisions ( benefits ) for income taxes from continuing operations for the three years ended December 31, 2000 consist of the follow : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - federal income taxes Current $ 8 $ 168 $ 265 Deferred ( 131 ) 166 ( 152 ) Foreign income taxes Current 76 124 178 Deferred ( 77 ) 51 ( 201 ) State income taxes Current 23 52 70 Deferred ( 8 ) 27 ( 15 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income taxes $ ( 109 ) $ 588 $ 145 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - A reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate for continuing operations for the three years ended December 31, 2000 follows : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- U.S. federal statutory income tax rate ( 35.0 ) % 35.0 % 35.0 % Foreign earnings and dividends taxed at different rates 40.7 ( 7.0 ) ( 9.0 ) Goodwill amortization 3.0 .7 1.0 tax-exempt income ( 4.1 ) ( 1.0 ) ( 3.0 ) State taxes 1.6 2.7 6.2 audited account resolutions ( 32.6 ) - - other ( 2.0 ) .4 ( 5.2 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- effective income tax rate ( 28.4 ) % 30.8 % 25.0 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- The 2000 effective tax rate of ( 28.4 ) percentage includes a tax benefit for the 2000 restructure, the CPID in-process inquiry and development write-off, and the tax provision for the addition on sale of the China operations. Excluding these items, the 2000 effective tax rate is 32.1 percentage which is 1.3 percentage points higher than 1999. The increase in the effective tax pace is due primarily to losses in a low-tax rate legal power offset by favorable resolving power of tax audits. The 1999 effective tax rate of 30.8 percentage is 0.7 percentage points lower than 1998 after excluding the 1998 cosmopolitan restructuring program from the 1998 effective tax rate. On a consolidated basis, we paid a sum of $ 354, $ 238 and $ 217 in income taxes to federal, foreign and state income-taxing authorities in 2000, 1999 and 1998, respectively. entire income tax expense ( benefit ) for the three years ended December 31, 2000 was allocated as follows : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- income taxes ( benefits ) on income ( personnel casualty ) from continuing operations $ ( 109 ) $ 588 $ 145 Tax benefit included in minorities ' interests/1/ ( 20 ) ( 20 ) ( 20 ) Discontinued operations - ( 26 ) ( 54 ) Goodwill ( 42 ) - - common shareholders' equity/2/ 39 ( 106 ) ( 140 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total $ ( 132 ) $ 436 $ ( 69 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- /1/ Benefit relates to preferred securities as more in full described in Note 17 on page 43. /2/ For dividends paid on shares held by the ESOP, accumulative translation adjustments and tax benefit on nonqualified stock options. postpone income taxes have not been provided on the undistributed earnings of foreign subsidiaries and early alien investments carried at equity. The amount of such earnings included in consolidate retain earnings at December 31, 2000 was approximately $ 5.0 billion. These earnings have been well reinvested, and we do not plan to initiate any natural process that would precipitate the payment of income taxes thereon, except for any actions contemplated by the Company 's turnaround broadcast which are disclosed in Note 3 on page 24. It is not operable to estimate the total of extra tax that might be account payable on the foreign earnings. The tax effects of irregular differences that give upgrade to significant portions of the submit taxes at December 31, 2000 and 1999 postdate : 2000 1999 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- tax consequence of future tax deductions Depreciation $ 386 $ 385 Postretirement medical benefits 448 438 Restructuring reserves 143 175 early operating reserves 162 199 allowance for doubtful accounts 170 111 Deferred recompense 149 159 Tax credit carryforwards 159 116 research and development 866 641 other 270 283 $ 2,753 $ 2,507 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- valuation allowance ( 51 ) ( 49 ) entire $ 2,702 $ 2,458 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- tax effect of future taxable income Installment sales and leases $ ( 872 ) $ ( 962 ) Deferred income ( 1,017 ) ( 846 ) early ( 298 ) ( 348 ) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- total $ ( 2,187 ) $ ( 2,156 ) The evaluation allowance for postpone tax assets as of January 1, 1999 was $ 53. The net change in the 39 entire evaluation allowance for the years ended December 31, 2000 and 1999 was an addition of $ 2 and a decrease of $ 4, respectively. The valuation allowance relates to alien credit carryforwards and foreign net income function loss carryforwards for which the company has concluded it is more likely than not that these tax credits and internet function personnel casualty carryforwards will not be realized in the ordinary course of operations. The above amounts are classified as current or long-run in the Consolidated Balance Sheets in accord with the asset or liability to which they relate. Current submit tax assets at December 31, 2000 and 1999 amounted to $ 450 and $ 478, respectively. Although realization is not assured, we have concluded that it is more likely than not that the submit tax assets for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of operations based on schedule of submit tax liabilities and income from operate activities. The sum of the net postpone tax assets considered realizable, however, could be reduced in the near terminus if actual future income taxes are lower than estimated, or if there are differences in the clock or sum of future reversals of existing taxable irregular differences. A solid dowry of our web deferred tax assets are in jurisdictions where the net manoeuver personnel casualty carryforward periods are either unlimited ( final deferred tax asset of $ 64 ) or 20 years ( net deferred tax asset of $ 1.2 billion ). At December 31, 2000, we have tax credit carryforwards for income tax purposes of $ 159 available to offset future income taxes, of which $ 136 is available to carryforward indefinitely. We besides have net operating loss carryforwards for income tax purposes of $ 157 that are available to offset future taxable income through 2007 and $ 1.0 billion available to offset future taxable income indefinitely. The Company incurs collateral taxes such as property and payroll taxes in the versatile countries in which it operates. Changes in estimates for these taxes occur in the ordinary course of accounting for such items. Changes resulting from, but not limited to, refinements of tax computations, systems and early adjective changes a well as other factors amounted to an increase in pre-tax income ( loss ) of $ 17, $ 35 and $ 21 in the years 2000, 1999 and 1998, respectively. The company is besides national to sales and consumption taxes in the respective countries in which it operates. Changes in estimates for these taxes resulting from morphologic realignments or other factors amounted to an increase in pre-tax income ( passing ) of $ 11 and $ 51 in the years 2000 and 1998, respectively. Xerox 's brazilian operations have received assessments for indirect taxes totaling approximately $ 400 million related chiefly to the internal transplant of inventory. We do not agree with these assessments and intend to vigorously defend our put. We, as supported by the opinion of legal guidance, do not believe that the ultimate resolution of these assessments will materially impact the consolidate fiscal statements. 16. litigation On April 11, 1996, an action was commenced by Accuscan Corp. ( Accuscan ), in the United States District Court for the Southern District of New York, against the company seeking unspecified damages for misdemeanor of a patent of Accuscan which expired in 1993. The suit, as amended, was directed to facsimile and certain other products containing scanning functions and sought damages for sales between 1990 and 1993. On April 1, 1998, the jury entered a verdict in favor of Accuscan for $ 40. however, on September 14, 1998, the court granted the Company 's motion for a modern trial on damages. The trial ended on October 25, 1999 with a jury verdict of $ 10. The Company 's movement to set aside the verdict or, in the option, to grant a new trial was denied by the court. The company is appealing to the Court of Appeals for the Federal Circuit. Accuscan is appealing the new trial grant which reduced the verdict from $ 40 and seeking a reverse of the jury 's find of no willful violation. Briefing at the Court of Appeals for the Federal Circuit is dispatch and oral argument took place on May 9, 2001. On June 24, 1999, the Company was served with a summons and ailment filed in the Superior Court of the State of California for the County of Los Angeles. The complaint was filed on behalf of 681 individual plaintiffs claiming damages as a resultant role of the Company 's alleged disposal and/or passing of hazardous substances into the territory, air and groundwater. On July 22, 1999, April 12, 2000, November 30, 2000, and March 31, 2001 respectively, four extra complaints were filed in the lapp woo on behalf of an extra 79, 141, 76, and 51 plaintiffs, respectively, with the like claims for damages as the June 1999 action. Three of the four extra cases have been served on the Company. Plaintiffs in all five cases further allege that they have been exposed to such hazardous substances by inhalant, consumption and cuticular contact, including but not restrict to hazardous substances contained within 40 the municipal drink water supplied by the City of Pomona and the Southern California Water Company. Plaintiffs ' claims against Registrant include personal injury, wrongful death, property wrong, negligence, transgress, pain, deceitful concealment, absolute liability for ultra-hazardous activities, civil conspiracy, battery and rape of the California Unfair Trade Practices Act. Damages are unspecified. The Company denies any liability for the plaintiffs ' alleged damages and intends to vigorously defend these actions. The caller has not answered or appeared in any of the cases because of an agreement among the parties and the woo to stay these cases pending resoluteness of several similar cases presently pending before the California Supreme Court. however, the woo recently directed that the five cases against the company be coordinated with a number of early unrelated groundwater cases pending in Southern California. A amalgamate securities jurisprudence action entitled In rhenium Xerox Corporation Securities Litigation is pending in the United States District Court for the District of Connecticut. Defendants are Registrant, Barry Romeril, Paul Allaire and G. Richard Thoman, former Chief Executive Officer, and purports to be a class legal action on behalf of the named plaintiffs and all other purchasers of Common Stock of the Company during the time period between October 22, 1998 through October 7, 1999 ( Class Period ). The amended amalgamate ailment in the action alleges that in misdemeanor of section 10 ( b ) and/or 20 ( a ) of the Securities Exchange Act of 1934, as amended ( 34 Act ), and Securities and Exchange Commission Rule 10b-5 thereunder, each of the defendants is liable as a participant in a deceitful scheme and class of business that operated as a imposter or deception on purchasers of the Company 's Common Stock during the Class Period by disseminating materially delusive and mislead statements and/or concealing substantial facts. The amended ailment further alleges that the alleged scheme : ( one ) deceived the investing public regarding the economic capabilities, sales proficiencies, emergence, operations and the intrinsic value of the Company 's Common Stock ; ( two ) allowed respective corporate insiders, such as the named person defendants, to sell shares of privately carry Common Stock of the Company while in possession of materially adverse, non-public information ; and ( three ) caused the individual plaintiffs and the other members of the purport class to purchase Common Stock of the Company at high-flown prices. The amended consolidated charge seeks unspecified compensatory damages in favor of the plaintiffs and the early members of the aim class against all maintain ants, jointly and respectively, for all damages sustained as a leave of defendants ' alleged wrongdoing, including interest thereon, together with fair costs and expenses incurred in the carry through, including advocate fees and technical fees. The defendants ' motion for dismissal of the complaint is pending. The named individual defendants and the Company deny any wrongdoing and mean to vigorously defend the action. Two putative stockholder derivative instrument actions are pending in the Supreme Court of the State of New York, County of New York on behalf of the Company against all current members of the Board of Directors ( with the exception of Anne M. Mulcahy ) and G. Richard Thoman ( in one of the actions ) and the Company, as a nominal defendant. Another, nowadays dismissed, putative stockholder derivative action was pending in the United States District Court for the District of Connecticut. Plaintiffs claim transgress of fiduciary duties and/or gross mismanagement related to certain of the allege report practices of the Company 's operations in Mexico. The complaints in all three actions alleged that the individual named defendants breached their fiduciary duties and/or mismanaged the company by, among other things, permitting wrongful business/accounting practices to occur and inadequately supervising and failing to instruct employees and managers of the Company. In one of the New York actions it is claimed that the individual defendants disseminated or permitted the dispersion of misleading information. In the other New York action it is besides alleged that the person defendants failed to vigorously investigate electric potential and known problems relating to account, auditing and fiscal functions and to take affirmative steps in thoroughly religion to remediate the alleged problems. In the federal legal action in Connecticut it was besides alleged that the individual defendants failed to take steps to institute appropriate legal legal action against those responsible for unspecified wrongful conduct. Plaintiffs claim that the Company has suffered unspecified damages. Among early things, the pending complaints search unspecified monetary damages, removal and refilling of the individuals as directors of the Company and/or mental hospital and enforcement of appropriate adjective safeguards to prevent the alleged wrongdoing. Defendants filed a motion to dismiss in one of the New York actions. subsequently, the parties to the federal natural process in Connecticut agreed to dismiss that action without bias in favor of the earlier-filed New York action. The parties besides agreed, subject to woo approval, to seek consolidation of the New York actions and a coitus interruptus, without bias, of the 41 movement to dismiss. On May 10, 2001 the court entered an arrange which, among other things, approved that agreement. The individual defendants deny the wrongdoing alleged in the complaints and intend to vigorously defend the actions. Twelve purported class actions had been pending in the United States District Court for the District of Connecticut against Registrant, KPMG LLP ( KPMG ), and Paul A. Allaire, G. Richard Thoman, Anne M. Mulcahy and Barry D. Romeril. A court regulate consolidated these twelve actions and established a routine for consolidating any subsequently filed refer actions. The amalgamate action purports to be a class action on behalf of the named plaintiffs and all purchasers of securities of, and bonds issued by, Registrant during the period between February 15, 1998 through February 6, 2001 ( Class ). Among early things, the consolidated complaint broadly alleges that each of the Company, KPMG, the individuals and extra defendants Philip Fishbach and Gregory Tayler violated Sections 10 ( b ) and/or 20 ( a ) of the 34 Act and Securities and Exchange Commission Rule 10b-5 thereunder, by participating in a deceitful scheme that operated as a fraud and fraudulence on purchasers of the Company 's Common Stock by disseminating materially assumed and mislead statements and/or concealing corporeal adverse facts relating to the Company 's mexican operations and other matters relating to the Company 's fiscal discipline beyond the Company's Mexican operations. The amended complaint by and large alleges that this scheme deceived the investing populace regarding the true department of state of the Company's fiscal condition and caused the named plaintiff and other members of the alleged class to purchase the Company 's Common Stock and Bonds at artificially inflate prices. The amended complaint seeks unspecified compensatory damages in favor of the named plaintiff and the early members of the alleged class against the Company, KPMG and the individual defendants, jointly and individually, including interest thereon, together with reasonable costs and expenses, including rede fees and technical fees. Following the submission of the ordain of consolidation, at least five extra related classify carry through complaints were filed in the like Court. In each of these cases, the plaintiffs defined a class consist of persons who purchased the Common Stock of the Company during the time period February 15, 1998 through and including February 6, 2001. Some of these plaintiffs filed objections to the consolidation rate, challenging the appointee of conduct plaintiffs and lead and liaison advocate and have individually moved for the appointment of lead plaintiff and lead advocate. The court has not rendered a decision with regard to the objections. The individual defendants and the Company deny any error alleged in the complaints and intend to vigorously defend the actions. A lawsuit has been instituted in the Superior Court, Judicial District of Stamford/Norwalk, Connecticut, by James F. Bingham, a former employee of the Company against the Company, Barry D. Romeril, Eunice M. Filter and Paul Allaire. The ailment alleges that he was wrongfully terminated in trespass of populace policy because he attempted to disclose to senior management and to remedy allege accounting fraud and report irregularities. He foster claims that the Company and the individual defendants violated the Company's policies/commitments to refrain from retaliating against employees who report ethics issues. The plaintiff besides asserts claims of aspersion and tortious noise with a contract. He seeks : ( a ) unspecified compensatory damages in excess of $ 15 thousand, ( bacillus ) punitive damages, and ( coulomb ) the cost of bringing the action and other relief as deemed allow by the court. The individuals and the Company deny any error alleged in the complaint and mean to vigorously defend the military action. A putative stockholder derivative action is pending in the Supreme Court of the State of New York, Monroe County against certain current and erstwhile members of the Board of Directors, namely G. Richard Thoman, Paul A. Allaire, B. R. Inman, Antonia Ax : son Johnson, Vernon E. Jordan Jr., Yotaro Kobayashi, Ralph S. Larsen, Hilmar Kopper, John D. Macomber, George J. Mitchell, N. J. Nicholas, Jr., John E. Pepper, Patricia L. Russo, Martha R. Seger and Thomas C. Theobald ( jointly, the `` individual Defendants '' ), and the Company, as a noun phrase defendant. Plaintiff claims the individual Defendants breached their fiduciary duties of care and commitment to the Company and engaged in gross mismanagement by allegedly awarding erstwhile CEO, G. Richard Thoman, compensation including elements that were unrelated in any reasonable way to his tenure with the ship's company, his subcontract performance, or the Company 's fiscal operation. The complaint further specifically alleges that the Individual Defendants failed to exercise business opinion in granting Thoman life compensation, a special bonus award, end point payments, early vest of stock compensation, and certain department of transportation perquisites, all which allegedly constituted crying, piddle and foolhardy neutralize of corporate assets of the Company and its shareholders. plaintiff claims that the Company has suffered damages and seeks opinion against the individual Defendants in an 42 measure peer to the sum of the limited bonus, the portray respect of the $ 800 thousand per year life compensation, the evaluation of all options unexercised upon termination, the cost of transportation system to and from France, and/or an total equal to costs already incurred under the respective compensation programs, cancellation of unpaid balances of these obligations, and/or cancellation of unexercised options and other postpone recompense at the time of his resignation, plus the monetary value and expenses of the litigation, including fair attorneys ', accountants ' and experts ' fees and other costs and disbursements. The individual Defendants deny the error alleged in the charge and mean to vigorously defend the action. A class was recently certified in an action originally filed in the United States District Court for the Southern District of Illinois final August. Plaintiffs bring this action on behalf of themselves and an allege classify of over 25,000 persons who received collocate kernel distributions from the Company's Retirement Income Guarantee Plan after January 1, 1990. Plaintiffs assert violations of ERISA, claiming that the lout sum distributions were improperly calculated. The damages sought are not specified. The Company has asked the woo to reconsider its certificate of the classify. The Company denies any wrongdoing and intends to vigorously defend the natural process. In 2000, the Company was advised that the Securities and Exchange Commission ( SEC ) had entered an club of a formal, non-public probe into our accountancy and fiscal report practices in Mexico and other areas. We are cooperating amply with the SEC. The company can not predict when the SEC will conclude its probe or its result. 17. choose Securities As of December 31, 2000, we have four series of outstanding preferable securities. In sum we are authorized to issue 22 million shares of accumulative prefer stock, $ 1 equality value. convertible prefer Stock. As more amply described in Note 14 on foliate 37, we sold, for $ 785, 10 million shares of our Series B Convertible Preferred Stock ( ESOP shares ) in 1989 in connection with the establishment of our ESOP. As employees with vested ESOP shares leave the company, these shares are redeemed by us. We have the choice to settle such redemptions with either shares of common store or cash. Outstanding prefer banal related to our ESOP at December 31, 2000 and 1999 follows ( shares in thousands ) : 2000 1999 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Shares Amount Shares Amount - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - convertible Preferred Stock 8,260 $ 647 8,551 $ 669 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - preferable Stock Purchase Rights. We have a stockholder rights plan designed to deter coercive or unfair takeover tactics and to prevent a person or persons from gaining control of us without offering a fair price to all shareholders. Under the terms of the plan, one-half of one prefer store purchase mighty ( Right ) accompanies each partake of great park stock. Each full moon Right entitles the holder to purchase from us one three-hundredth of a modern serial of choose store at an exercise price of $ 250. Within the time limits and under the circumstances specified in the plan, the Rights entitle the holder to acquire either our coarse lineage, the surviving caller in a business combination, or the buyer of our assets, having a value of two times the exercise price. The Rights may be redeemed prior to becoming exercisable by action of the Board of Directors at a redemption price of $ .01 per Right. The Rights exhale in April 2007. The Rights are non-voting and, until they become exercisable, have no dilutive effect on the earnings per share or book value per partake of our common stock. Deferred Preferred Stock. In 1996, a subordinate of ours issued 2 million postpone prefer shares for Canadian ( Cdn. ) $ 50 million. The U.S. dollar value was $ 37 and is included in Minorities ' interests in fairness of subsidiaries in the Consolidated Balance Sheets. These shares are compulsorily cashable on February 28, 2006 for Cdn. $ 90 million. The remainder between the redemption come and the proceeds from the write out is being amortized, through the redemption date, to Minorities ' interests in earnings of subsidiaries in the consolidated Statements of Operations. We have guaranteed the redemption respect. Company-obligated, compulsorily redeemable prefer securities of subsidiary company trust holding entirely subordinate debentures of the Company. In 1997, a trust sponsored and wholly owned by the Company issued $ 650 sum liquidation amount prefer securities ( the Original Preferred Securities ) to investors and 20,103 shares of common securities to 43 the Company, the proceeds of which were invested by the trust in $ 670 sum principal total of the Company 's newly issued 8 percentage Junior Subordinated Debentures due 2027 ( the Original Debentures ). In June 1997, pursuant to a registration argument filed by the Company and the trust with the Securities and Exchange Commission, Original Preferred Securities with an aggregate extermination preference measure of $ 644 and Original Debentures with a principal sum of $ 644 were exchanged for a like amount of choose securities ( together with the Original Preferred Securities, the Preferred Securities ) and 8 percentage Junior Subordinated Debentures due 2027 ( together with the Original Debentures, the Debentures ) which were registered under the Securities Act of 1933. The Debentures represent all of the assets of the trust. The proceeds from the issue of the original Debentures were used by the Company for general corporate purposes. The Debentures and refer income statement effects are eliminated in the Company 's consolidate fiscal statements. The Preferred Securities accrue and pay cash distributions semiannually at a rate of 8 percentage per annum of the stated elimination amount of $ 1,000 per Preferred Security. The Company has guaranteed ( the Guarantee ), on a subordinate basis, distributions and other payments due on the Preferred Securities. The guarantee and the Company 's obligations under the Debentures and in the indentation pursuant to which the Debentures were issued and the Company 's obligations under the Amended and Restated Declaration of Trust governing the trust, taken together, provide a full and categoric guarantee of amounts ascribable on the Preferred Securities. The Preferred Securities are compulsorily redeemable upon the maturity of the Debentures on February 1, 2027, or earlier to the extent of any redemption by the Company of any Debentures. The redemption price in either such case will be $ 1,000 per share plus accrued and unpaid distributions to the date fixed for redemption. 18. coarse Stock We have 1.05 billion empower shares of common stock, $ 1 par value. At December 31, 2000 and 1999, 98.1 and 84.3 million shares, respectively, were reserved for issue under our incentive compensation plans. In addition, at December 31, 2000, 13.2 million common shares were reserved for the conversion of $ 670 of convertible debt, and 48.9 million common shares were reserved for conversion of ESOP-related Convertible Preferred Stock. Treasury Stock. The Board of Directors has authorized us to repurchase up to $ 1 billion of our common standard. The stock certificate may be repurchased from prison term to time on the open grocery store depending on commercialize and other conditions. No shares were repurchased during 2000 or 1999. During 1998, we repurchased 3.7 million shares for $ 172. Since origin of the program we have repurchased 20.6 million shares for $ 594. common shares issued for stock option exercises, conversion of convertible securities and early exchanges were partially satisfied by reissuances of treasury shares. Put Options. In association with the share redemption program, during 2000, 1999 and 1998, we sold 7.5 million, 0.8 million and 1.0 million put options, respectively, that entitle the holder to sell one share of our common stock to us at adulthood at a intend price. These put options can be settled in cash at our option. The place options had master maturities ranging from six months to two years. In 2000, we recorded the receipt of a bounty of approximately $ 24 on the sale of equity put options. This agio was recorded as an addition to Common shareholders ' equity. In October 2000, the holder of these fairness put options exercised their option for early termination and settlement. The cost of this liquidation to the Company was approximately $ 92 for 7.5 million shares with an modal hit price of $ 18.98 per share. This transaction was recorded as a reduction of Common shareholders ' equity. At December 31, 2000, 0.8 million put option options remain outstanding with a affect price of $ 40.56 per share. Under the terms of this compress we had the choice of physical or net cash colonization. consequently, this come is classified as temp equity in the consolidate poise sheets at December 31, 2000. In January 2001 these put options were net cash settled for $ 28. Funds for this internet cash village were obtained by selling 5.9 million unregistered shares of our common sprout for proceeds of $ 28. In 1999, put options on 1.0 million shares of common malcolm stock were exercised and settled for a net cash requital of $ 5. Stock Option and Long-Term Incentive Plans. We have a long-run bonus plan whereby eligible employees may be granted nonqualified stock options and performance unit of measurement rights. Beginning in 1998 and capable to vesting and other requirements, operation unit rights are typically paid in our common neckcloth. The rate of each performance whole is based on 44 the growth in earnings per plowshare during the class in which granted. Performance units ratably vest in the three years after the year awarded. Stock options and rights are settled with newly issued or, if available, treasury shares of our common stock. store options broadly vest in three years and run out between eight and ten years from the date of grant. The exercise price of the options is equal to the market value of our coarse stock on the effective date of grant. At December 31, 2000 and 1999, 36.0 million and 36.2 million shares, respectively, were available for award of options or rights. The comply table provides information relating to the status of, and changes in, options granted : Employee Stock Options 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- modal average average Stock Option Stock Option Stock Option ( Options in thousands ) Options Price Options Price Options Price -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Outstanding at January 1 43,388 $ 42 30,344 $ 33 27,134 $ 26 Granted 19,338 22 19,059 51 8,980 47 Cancelled ( 4,423 ) 38 ( 870 ) 47 ( 199 ) 37 Exercised ( 70 ) 22 ( 5,145 ) 23 ( 5,571 ) 20 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Outstanding at December 31 58,233 35 43,388 42 30,344 33 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Exercisable at end of class 23,346 13,467 9,622 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Options outstanding and exercisable at December 31, 2000 are as follows : Thousands except per-share data Options Outstanding Options Exercisable - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - slant Range of Average Remaining burden Average Number leaden Average exercise Prices Number Outstanding Contractual Life Exercise Price Exercisable Exercise Price - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - $ 10.94 to $ 16.38 319 8.25 $ 14.59 - $ - 16.91 to 23.25 22,694 7.34 21.47 5,780 20.59 25.38 to 36.70 13,799 5.67 31.43 7,794 33.04 41.72 to 60.95 21,421 6.33 53.26 9,772 51.45 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - $ 10.94 to $ 60.95 58,233 6.58 $ 35.48 23,346 $ 37.66 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - We do not recognize recompense expense relating to employee stock options because the excercise price of the option equals the bazaar value of the stock on the effective date of concession. If we had determined the recompense based on the value as determined by the modified Black-Scholes option pricing model, the pro forma net income ( loss ) and earnings ( personnel casualty ) per share woud be as follows : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- net income ( personnel casualty ) - as reported $ ( 257 ) $ 1,339 $ 273 final income ( loss ) - pro forma ( 359 ) 1,238 228 basic EPS - as reported ( 0.44 ) 1.96 0.34 basic EPS - pro forma ( 0.59 ) 1.81 0.27 Diluted EPS - as reported ( 0.44 ) 1.85 0.34 Diluted EPS - pro forma ( 0.59 ) 1.71 0.27 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- These professional forma disclosures are not necessarily indicative of future amounts. As reflected in the pro forma amounts in the previous table, the clean value of each option granted in 2000, 1999 and 1998 was $ 7.50, $ 15.83 and $ 13.31, respectively. The honest value of each choice granted was estimated on the date of grant using the follow leaden average assumptions : 2000 1999 1998 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - risk-free interest 6.7 % 5.1 % 5.2 % Expected life in years 7.1 6.2 5.3 Expected volatility 37.0 % 28.0 % 24.9 % Expected dividend render 3.7 % 1.8 % 1.4 % -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 45 19. Earnings per Share A reconciliation of the numerators and denominators of the basic and diluted EPS calculation follows : 2000 1999 1998 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income Shares Per- Income Shares Per- Income Shares Per- ( Numer- ( Denom- Share ( Numer- ( Denom- Share ( Numer- ( Denom- Share ( Shares in thousands ) ator ) inator ) Amount ator ) inator ) Amount ator ) inator ) Amount - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - basic EPS Income ( loss ) from continuing operations $ ( 257 ) $ 1,339 $ 463 Accrued dividends on favored stock, net ( 35 ) ( 38 ) ( 46 ) Basic EPS $ ( 292 ) 667,581 $ ( 0.44 ) $ 1,301 663,493 $ 1.96 $ 417 658,956 $ 0.63 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - load EPS Stock options and other incentives 8,727 9,811 ESOP Adjustment, net of tax 43 51,989 convertible debt, net of tax 17 13,191 3 5,287 Diluted EPS $ ( 292 ) 667,581 $ ( 0.44 ) $ 1,361 737,400 $ 1.85 $ 420 674,054 $ 0.62 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - note : recalculation of per-share amounts may be off by $ 0.01 in certain instances due to rounding. 20. subsequent Events In January 2001, we transferred $ 898 of finance receivables to a particular purpose entity for cash proceeds of $ 435, received from an affiliate of General Electric Capital Corporation ( GE Capital ), and a retain concern of $ 474. The proceeds were accounted for as a fasten borrowing. At March 31, 2001 the balance of receivables transferred was $ 734 and is included in Finance receivables, web in the Consolidated Balance Sheets. The remaining plug adopt poise of $ 340 is included in Debt. The sum proceeds of $ 435 are included in the net deepen in debt in the amalgamate Statements of Cash Flows. The borrow will be repaid over 18 months and bears interest at the rate of 8.98 percentage. In the first five months of 2001, we retired $ 128 of long-run debt through the exchange of 16 million shares of coarse broth valued at $ 100. The retirements resulted in a pre-tax extraordinary derive of $ 28 ( $ 17 after taxes or $ 0.02 per partake ) for a final fairness increase of approximately $ 117. In March 2001, we completed the sale of half of our ownership concern in Fuji Xerox to Fujifilm for $ 1,283, in cash. The sale resulted in a pre-tax derive of $ 769 ( $ 300 after taxes ). Under the agreement, Fujifilm 's ownership interest in Fuji Xerox increased from 50 percentage to 75 percentage. While Xerox 's ownership pastime decreased to 25 percentage, we retain rights as a minority stockholder. All product and technology agreements between us and Fuji Xerox will continue, ensuring that the two companies retain continuous access to each others portfolio of patents. We maintain a cash position of approximately $ 194 in a trust account representing the equality value and one years interest associate to the bonds issued by our subsidiary company Xerox Finance ( Nederland ) BV. This cash is withdrawable upon 21 days written notice to the Trustee. During the first quarter of 2001, and in connection with the turnaround program, we recorded an extra pre-tax restructure planning totaling $ 108 ( $ 73 after taxes ), in connection with finalize initiatives under the turnaround plan. This cathexis includes estimated costs of $ 97 for rupture costs associated with study force reductions related to the elimination of 1,000 positions cosmopolitan and $ 11 of asset impairments. The rupture costs relate to continued streamlining of existing employment processes, elimination of pleonastic resources and the consolidation of existing activities into other existing operations. In April 2001, we announced the sale of our lease businesses in four european countries to Resonia Leasing AB ( Resonia ) for approximately $ 370 in cash. The assets were sold for approximately book value and include the rent portfolios in the respective countries, title to the fundamental equipment included 46 in the rent portfolios and certain employees and systems used in the operations of the businesses. Under the terms of the agreement Resonia will provide ongoing single equipment financing to Xerox customers in those countries. The Company 's Audit Committee, in cooperation with our independent auditors, undertook an investigation of sealed of the Company 's accounting policies and procedures. This investigation began in April 2001 and was well completed by the end of May 2001, resulting in the account adjustments and restatements described in Note 2. A number of securities and early litigation is pending against the Company. See Note 16 for a description of those items including disclosure of certain associate subsequent events. 47 quarterly Results of Operations ( Unaudited ) First Second Third Fourth Full In millions, except per-share data Quarter Quarter Quarter Quarter Year - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 2000/2,3/ Revenues $ 4,540 $ 4,778 $ 4,552 $ 4,831 $ 18,701 Costs and Expenses 4,884 4,531 4,706 4,964 19,085 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income ( Loss ) before Income Taxes ( Benefits ), Equity Income and Minorities ' Interests ( 344 ) 247 ( 154 ) ( 133 ) ( 384 ) Income Taxes ( Benefits ) ( 112 ) 73 ( 17 ) ( 53 ) ( 109 ) equity in net income of Unconsolidated Affiliates 4 46 10 1 61 Minorities ' Interests in Earnings of Subsidiaries 11 12 10 10 43 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - net Income ( Loss ) $ ( 239 ) $ 208 $ ( 137 ) $ ( 89 ) $ ( 257 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - basic Earnings ( Loss ) per Share $ ( 0.38 ) $ 0.30 $ ( 0.22 ) $ ( 0.15 ) $ ( 0.44 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Diluted Earnings ( Loss ) per Share/1/ $ ( 0.38 ) $ 0.28 $ ( 0.22 ) $ ( 0.15 ) $ ( 0.44 ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 1999/2,3/ Revenues $ 4,327 $ 4,902 $ 4,733 $ 5,605 $ 19,567 Costs and Expenses 3,933 4,368 4,235 5,123 17,659 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - income before Income Taxes, Equity Income and Minorities ' Interests 394 534 498 482 1,908 Income Taxes 120 160 154 154 588 equity in net income of Unconsolidated Affiliates 10 24 5 29 68 Minorities ' Interests in Earnings of Subsidiaries 8 13 14 14 49 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - net Income $ 276 $ 385 $ 335 $ 343 $ 1,339 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - basic Earnings per Share $ 0.40 $ 0.56 $ 0.49 $ 0.50 $ 1.96 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - diluted Earnings per Share/1/ $ 0.38 $ 0.53 $ 0.46 $ 0.47 $ 1.85 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - /1/ The sum of quarterly diluted earnings per share disagree from the full-year amounts because securities that are antidilutive in certain quarters are not antidilutive on a full-year basis. /2/ As restated. See annotate No. 2. The above restated quarterly fiscal statements may be subjugate to extra adaptation, among quarters within years. /3/ The above data has not been reviewed by our independent auditors in accord with standards etablished by the American Institute of Certified Public Accountants. 48 Report of Independent Auditors Report of Independent Auditors To the Board of Directors and Shareholders of Xerox Corporation : We have audited the amalgamate balance sheets of Xerox Corporation and consolidate subsidiaries as of December 31, 2000 and 1999, and the related consolidate statements of operations, cash flows, and shareholders ' fairness for each of the three years in the three year period ended December 31, 2000. These consolidated fiscal statements are the province of the Company's management. Our responsibility is to express an impression on these consolidate fiscal statements based on our audits. We conducted our audits in accordance with audit standards by and large accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidate fiscal statements are absolve of material misstatement. An audited account includes examining, on a test footing, evidence supporting the amounts and disclosures in the amalgamate fiscal statements. An audit besides includes assessing the accountancy principles used and meaning estimates made by management, equally well as evaluating the overall consolidate fiscal statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our impression, the consolidate fiscal statements appearing on pages 16 through 47 portray reasonably, in all substantial respects, the fiscal situation of Xerox Corporation and consolidated subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the three year time period ended December 31, 2000, in accord with account principles by and large accepted in the United States of America. As discussed in Note 2 to the consolidate fiscal statements, the accompanying consolidate libra sheet as of December 31, 1999, and the related consolidate statements of operations, cash flows, and shareholders' equity for the years ended December 31, 1999 and December 31, 1998 have been restated. The supplementary quarterly fiscal information on page 48 of the Company's Annual Report contains information that we did not audited account, and accordingly, we do not express an impression on that information. We did not have an adequate basis to complete reviews of the quarterly information in accordance with standards established by the American Institute of Certified Public Accountants, due to the matters related to the restatement issues as described in Note 2 to the consolidate fiscal statements. /s/ KPMG LLP KPMG LLP Stamford, Connecticut May 30, 2001 49 Five Years in Review ( Dollars in millions, except per-share data ) 2000* 1999* 1998* 1997* 1996* - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Per-Share Data Earnings ( passing ) from continuing operations Basic $ ( 0.44 ) $ 1.96 $ 0.63 $ 2.01 $ 1.75 Diluted ( 0.44 ) 1.85 0.62 1.89 1.64 Dividends declared 0.65 0.80 0.72 0.64 0.58 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Operations Revenues/1/ $ 18,701 $ 19,567 $ 19,593 $ 18,225 $ 17,609 Research and development expenses 1,044 992 1,035 1,065 1,044 Income ( loss ) from continuing operations ( 257 ) 1,339 463 1,359 1,191 web income ( loss ) ( 257 ) 1,339 273 1,359 1,191 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - fiscal Position Accounts and finance receivables, net income $ 15,335 $ 15,652 $ 16,618 $ 14,323 $ 13,395 Inventories, net 1,932 2,290 2,504 2,058 1,972 equipment on operate leases, net 724 695 797 760 704 Land, buildings and equipment, net 2,495 2,456 2,366 2,377 2,256 investment in discontinued operations 534 702 1,670 3,025 4,398 sum assets 29,475 28,531 29,628 27,582 26,819 amalgamate capitalization Short-term debt 2,693 3,957 4,104 3,707 3,536 long-run debt 15,404 11,044 11,003 8,946 8,697 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - sum debt 18,097 15,001 15,107 12,653 12,233 Deferred ESOP benefits ( 221 ) ( 299 ) ( 370 ) ( 434 ) ( 494 ) Minorities ' interests in equity of subsidiaries 141 127 124 127 843 obligation for equity put options 32 - - - - Company-obligated, compulsorily redeemable preferable securities of subordinate hope holding entirely subordinate debentures of the Company 638 638 638 637 - prefer lineage 647 669 687 705 721 common shareholders ' equity 3,493 4,648 4,633 4,877 4,352 sum capitalization/3/ 22,827 20,784 20,819 18,565 17,655 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Selected Data and Ratios Common shareholders of criminal record at year-end 59,874 55,297 52,048 54,689 55,908 Book prize per coarse share/2/ $ 5.20 $ 6.96 $ 7.01 $ 7.43 $ 6.69 year-end common banal market monetary value $ 4.63 $ 22.69 $ 59.00 $ 36.94 $ 26.31 Employees at year-end 92,500 94,600 92,700 91,500 86,700 Working capital $ 6,754 $ 3,885 $ 3,932 $ 3,026 $ 2,925 Current ratio 2.1 1.5 1.5 1.4 1.4 Additions to land, buildings and equipment $ 452 $ 594 $ 566 $ 520 $ 510 Depreciation on buildings and equipment $ 417 $ 416 $ 362 $ 400 $ 372 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - 1 Revenues for 1996 through 2000 have been restated to include ship and wield charges billed to customers as revenues. These amounts were historically reported as a reduction of price of goods sold. 2 Book value per common share is computed by dividing common shareholders' equity by outstanding coarse shares plus common shares reserved for the conversion of the Xerox Canada Inc. exchangeable classify B Stock. 3 In 1997, $ 100 of liabilities were recorded and which were reversed in 1998 and 1999. The effects of such reversion on pre-tax income have been restated ( see note 2 to the Consolidated Financial Statements ). The $ 100 represents .5 percentage of both total liabilities and full capitalization. * Amounts as adjusted or restated. 50 Officers Paul A. Allaire Chairman of the Board and Chief Executive Officer Chairman of the Executive Committee Anne M. Mulcahy President and Chief Operating Officer Barry D. Romeril Vice Chairman and Chief Financial Officer Allan E. Dugan Executive Vice President President, Worldwide Business Services Carlos Pascual Executive Vice President President, Developing Markets Operations Ursula M. Burns Senior Vice President Corporate Strategic Services Worldwide Business Services Thomas J. Dolan Senior Vice President President, Global Solutions Group James A. Firestone Senior Vice President Corporate Strategy and Marketing Group Herve J. Gallaire Senior Vice President Xerox Research and Technology and Chief Technical Officer Anshoo S. Gupta Senior Vice President President, Production Solutions Group Global Solutions Group Gilbert J. Hatch Senior Vice President President, Office Systems Group Michael C. Mac Donald Senior Vice President President, North American Solutions Group Hector J. Motroni Senior Vice President and Chief Staff Officer Gerald K. Perkel Senior Vice President President, Office Printing Business Brian E. Stern Senior Vice President President, Xerox Technology Enterprises Guilherme M.N. Bettencourt Vice President Presidente, Xerox do Brasil, Ltda. Developing Markets Operations John Seely Brown Vice President and Chief Scientist Christina E. Clayton Vice President and General Counsel Patricia A. Cusick Vice President and Chief Information Officer Worldwide Business Services J. Michael Farren Vice President External Affairs Anthony M. Federico Vice President General Manager, Production Solutions Business Team Global Solutions Group Eunice M. Filter Vice President, Treasurer and Secretary Emerson U. Fullwood Vice President President, Regional Operations Developing Markets Operations William R. Goode Vice President Deputy Managing Director, european Solutions Group James H. Lesko Vice President President, Xerox Supplies Group Worldwide Business Services Rafik O. Loutfy Vice President and Center Manager Xerox Canada Research Centre Jean-Noel Machon Vice President President, European Solutions Group Diane E. McGarry Vice President Operations Support, Office of the President and Chief Operating Officer James J. Miller Vice President General Manager, Small Office / Home Office Business Group Patricia M. Nazemetz Vice President Human Resources Russell Y. Okasako Vice President Taxes Ronald E. Rider Vice President Digital Imaging Technology Center Xerox Research and Technology 51 Directors Frank D. Steenburgh Vice President Senior Vice President/General Manager, e-Services Global Solutions Group Gregory B. Tayler Vice President and Controller Joseph M. Valenti Vice President Senior Vice President, North American Solutions Group Services Armando Zagalo de Lima Vice President Senior Vice President and Chief Operating Officer European Solutions Group Myra R. Drucker Assistant Treasurer and Chief Investment Officer Gary R. Kabureck Assistant Controller Richard Ragazzo Assistant Treasurer Martin S. Wagner Assistant Secretary Associate General Counsel, Corporate Finance and Ventures Paul A. Allaire /1/ Chairman of the Board and Chief Executive Officer Chairman of the Executive Committee Xerox Corporation Stamford, Connecticut Antonia Ax : son Johnson /2, 3/ Chairman Axel Johnson Group Stockholm, Sweden Vernon E. Jordan, Jr. /1, 4, 5/ Senior Managing Director Lazard Freres & Co., LLC New York, New York Of Counsel Akin, Gump, Strauss, Hauer & Feld, LLP Attorneys-at-Law Washington, DC Yotaro Kobayashi Chairman of the Board Fuji Xerox Co., Ltd. Tokyo, Japan Hilmar Kopper /2, 5/ Chairman of the Supervisory Board Deutsche Bank AG Frankfurt, Germany Ralph S. Larsen /1, 3, 5/ Chairman and Chief Executive Officer Johnson & Johnson New Brunswick, New Jersey George J. Mitchell /4, 5/ limited Counsel Verner, Liipfert, Bernhard, McPherson & Hand Washington, DC Anne M. Mulcahy /1/ President and Chief Operating Officer Xerox Corporation Stamford, Connecticut N. J. Nicholas, Jr. /2, 4/ Investor New York, New York John E. Pepper /2, 3/ Chairman of the Board and Chairman, Executive Committee of the Board The Procter & Gamble Company Cincinnati, Ohio Barry D. Romeril Vice Chairman and Chief Financial Officer Xerox Corporation Stamford, Connecticut Martha R. Seger /2, 4/ Principal Martha R. Seger Financial Group, Inc. Birmingham, Michigan Thomas C. Theobald /2, 3/ Managing Director William Blair Capital Partners, LLC Chicago, Illinois /1/ Member of the Executive Committee /2/ Member of the Audit Committee /3/ Member of the Executive Compensation and Benefits Committee /4/ Member of the Finance Committee /5/ Member of the Nominating Committee 52 How to Reach Us Xerox Corporation Xerox Europe Fuji Xerox Co., Ltd. 800 Long Ridge Road Riverview 2-17-22 Akasaka P.O. Box 1600 Oxford Road Minato-ku, Tokyo 107 Stamford, CT 06904 Uxbridge Japan 203 968-3000 Middlesex 81 3 3585-3211 United Kingdom UB8 1HS 44 1895 251133 Shareholder information For Shareholder Services, call 800-828-6396 ( TDD : 800-368-0328 ) For Investor Information, including comprehensive examination earnings releases : www.xerox.com/investor or www.xerox.com and blue-ribbon `` investor information ''. Earnings releases besides available by mail : 800-828-6396 Products and Services www.xerox.com or by phone :. 800 ASK-XEROX ( 800 275-9376 ) for any merchandise or avail. 800 TEAM-XRX ( 800 832-6979 ) for any modest office or home office merchandise. 877 362-6567 for network products sold through resellers Additional Information The Xerox Foundation and Community Involvement Program : 203 968-3333 Xerox diversity programs and EEO-1 reports : 716 423-6157 Environmental, Health and Safety Progress Report : 800 828-6571 Questions from Students and Educators : e-mail : Nancy.Dempsey @ usa.xerox.com Dividends Paid to Shareholders At its February 5, 2001, meet, the Company 's Board of Directors declared the regular quarterly dividend of $ .05 per partake on the park stock and a quarterly dividend of $ 1.5625 per share on the prefer sprout. previously, at its October meeting, the Board voted to decrease the dividend to $ .05 per share, from the $ .20 per share in anterior quarters, account payable January 1, 2001. The series B Convertible Preferred stock was issued in July 1989 in joining with the geological formation of a Xerox Employee Stock Ownership Plan. Xerox Common Stock Prices and Dividends New York Stock Exchange composite prices first second Third Fourth 2000 Quarter Quarter Quarter Quarter -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- high gear $ 29.75 $ 29.31 $ 20.38 $ 15.31 Low 20.13 17.75 14.75 4.44 Dividends Paid $ 0.20 $ 0.20 $ 0.20 $ 0.20 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- first base second Third Fourth 1999 Quarter Quarter Quarter Quarter -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- high $ 63.00 $ 63.69 $ 59.75 $ 42.81 Low 51.63 52.50 40.50 19.88 Dividends Paid $ 0.18 $ 0.20 $ 0.20 $ 0.20 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Stock Listed and Traded Xerox common broth ( XRX ) is listed on the New York Stock Exchange and the Chicago Stock Exchange. It is besides traded on the Boston, Cincinnati, Pacific Coast, Philadelphia, London and Switzerland exchanges. Auditors KPMG LLP Certified Public Accountants Stamford Square 3001 Summer Street Stamford, CT 06905 203 356-9800 Copyright ( R ) Xerox Corporation 2001. All rights reserved. Xerox ( R ), The Document Company ( R ) and the stylized X ( R ) are trademarks of Xerox Corporation, as are ColorSeries, Document Centre ( R ), DocuPrint ( R ), DocuShare ( R ), DocuTech ( R ) and Phaser ( R ). DocuColor ( R ) is a trademark of Identix Inc., licensed to Xerox Corporation. 53
 parade 21 Subsidiaries of Xerox Corporation The follow companies are subsidiaries of Xerox Corporation as of May 1, 2001. The names of a total of other subsidiaries have been omitted as they would not, if considered in the aggregate as a single subordinate, constitute a significant subordinate : name of Subsidiary Incorporated In - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - intelligent Electronics, Inc. Pennsylvania Intellinet, Ltd. Pennsylvania RNTS, Inc. Colorado Xerox Connect, Inc. Pennsylvania Kapwell, Ltd Bermuda Proyectos Inverdoco, C.A. Venezuela Goodkap, Ltd. Bermuda Kapskew, Ltd. Bermuda Xerox de Venezuela, C.A. Venezuela Pacific Services and Development Corporation Delaware Inversiones San Simon, S.A. Venezuela Estacionamiento Bajada III, C.A. Venezuela Xerox Argentina, I.C.S.A. Argentina Xerox Canada Capital Ltd. Ontario Xerox Canada Inc. Ontario Xerox Canada Acceptance Inc. Canada Xerox Canada Facilities Management Ltd. Ontario Xerox Canada Finance Inc. Ontario Xerox Canada Ltd. Canada Xerox Canada Manufacturing & Research Inc. Ontario Xerox de Chile S.A. Chile Xerox Financial Services, Inc. Delaware OakRe Life Insurance Company Missouri Ridge Reinsurance Limited Bermuda Talegen Holdings, Inc. Delaware VRN Inc. Delaware Xerox Credit Corporation Delaware XFS Merchant Partner, Inc. Delaware Xerox Foreign Sales Corporation Barbados Xerox Investments ( Europe ) BV Netherlands Xerox Holdings ( Ireland ) Limited Ireland Xerox ( Europe ) Limited Ireland Xerox XF Holdings ( Ireland ) Limited Ireland Xerox Israel Ltd. Israel Xerox UK Holdings Limited United Kingdom Triton Business Finance Limited United Kingdom Xerox Engineering Systems Europe Limited United Kingdom Xerox Research ( UK ) Limited ( in elimination ) United Kingdom Xerox Trading Enterprises Limited United Kingdom Xerox Overseas Holdings Limited United Kingdom Xerox Holding ( Nederland ) B.V. Netherlands Xerox XHB Limited Bermuda Xerox XIB Limited Bermuda Page 85 Xerox Limited United Kingdom Fuji Xerox Co., Ltd. * Japan Xerox ( Hong Kong ) Limited Hong Kong NV Xerox Credit S.A. Belgium NV Xerox Management Services S.A. Belgium N.V. Xerox S.A. Belgium The Limited Liability Company Xerox ( Ukraine ) Limited Ukraine Xerox AB Sweden Xerox AG Switzerland Xerox A/S Denmark Xerox AS Norway Xerox Austria GmbH Austria Xerox Beograd d.o.o. Yugoslavia Xerox Bulgaria Bulgaria Xerox Buro Araciari Ticaret ve Servis A.S. Turkey Xerox ( C.I.S. ) LLC Russia Xerox Czech Republic s r.o. Czech Republic Xerox Direct Nord GmbH Germany Xerox Direct Ost GmbH Germany Xerox Direct Rhein-Main GmbH Germany Xerox Direct Sud GmbH Germany Xerox Direct Sud-West GmbH Germany Xerox Espana-The Document Company, S.A.U. Spain Xerox ( Nigeria ) Limited Nigeria Xerox Oy Finland Xerox Polska Sp.zo.o Poland Xerox Portugal Equipamentos de Escritorio, Limitada Portugal Xerox ( Romania ) Echipmante Si Servici S.A. Romania Xerox ( Romania ) SRL Romania Xerox Slovenia d.o.o. Slovenia Xerox South Africa ( Proprietary ) Limited South Africa Xerox S.p.A. Italy Xerox - THE DOCUMENT COMPANY S.A.S. France Xerox Hellas AEE Greece Xerox Hungary Trading Company Ltd. Hungary Xerox Kenya Limited Kenya Xerox Mexicana, S.A. de C.V Mexico Xerox Middle East Investments ( Bermuda ) Limited Bermuda Bessemer Insurance Limited Bermuda Investissements Xerographiques Marocains S.A. Morocco Reprographics Egypt Limited Egypt Xerox Egypt S.A.E. Egypt Xerox Finance Leasing S.A.E. Egypt Xerox Participacoes Ltda. Brazil Xerox do Brasil Ltda. Brazil Xerox Comercio e Industria Ltda Brazil Xerox Desenvolvimento de Sistemas e de Technologia Ltda Brazil Xerox Real Estate Services, Inc. New York Xerox Realty Corporation Delaware Xerox Servicios Tecnicos, C.A. Venezuela XESystems, Inc. Delaware ================================================================================ * Indicates only 50 % is owned, directly or indirectly, by Xerox Corporation. page 86
 display 23 accept of Independent Auditors To the Board of Directors and Shareholders of Xerox Corporation : We consent to the incorporation by citation in the Registration Statements of Xerox Corporation on Forms S-8 ( Nos. 333-93269, 333-09821, 333-22059, 333-22037, 333-22313, 33-65269, 33-44314, 33-44313, 33-18126, 2-86275, 2-86274 ) and Forms S-3 ( Nos. 33-9486, 33-32215, 333-59355 and 333-73173 ) of our report dated May 30, 2001 relating to the consolidate symmetry sheets of Xerox Corporation and subsidiaries as of December 31, 2000 and 1999, and the relate consolidate statements of operations, cash flows, and shareholders ' equity and related fiscal instruction schedule for each of the years in the three-year time period ended December 31, 2000, which report appears in the 2000 Annual Report on Form 10-K of Xerox Corporation. Our report dated May 30, 2001 indicates that the Company 's consolidated balance tabloid as of December 31, 1999, and the refer consolidate statements of operations, cash flows, and stockholder 's equity for the years ended December 31, 1999 and December 1998, have been restated. Our audit report besides indicates that the supplementary quarterly fiscal data included in the Company 's amalgamate fiscal statements contains data that we did not audit, and consequently, we do not express an impression on that information. We did not have an adequate basis to complete reviews of the quarterly data in accordance with standards established by the American Institute of Certified Public Accountants due to the matters related to the restatement issues as described in Note 2 to the amalgamate fiscal statements. /s/ KPMG LLP Stamford, Connecticut June 7, 2001
 exhibit 99 DIRECTORS AND OFFICERS INFORMATION Directors Of Xerox Shareholders per annum elect directors to serve for one class and until their successors have been elected and shall have qualified. Summary of Director Annual Compensation Cash ... ... ... ... $ 40,000 Restricted Stock $ 25,000 ( number of shares based upon market prize at time tip is payable-quarterly ) Options ... ... ... 5,000 shares Expenses ... ... .. out-of-pocket expenses in connection with service eligibility : Directors who are our employees receive no compensation for service as a director. Directors who are employees of subsidiary company companies are not eligible to receive standard choice awards. Options : Issued at the honest market value on date of grant ( generally on the date of the annual meet of shareholders ). The options vest over a three year period. Upon the happening of a change in operate, as defined, all outstanding options become exercisable. Restricted stock : The number of shares issued is based on the market respect at the time the fee is collectible, which is in quarterly installments. The shares held by directors under this plan are included in the Xerox securities owned shown in the biographies of the directors. The shares may not be sold or transferred except upon end, retirement, disability, change in restraint or ending as a director with the consent of the majority of the Board. Terms Used in Biographies Certain terms used in the biographies may be unfamiliar to you, so we are defining them here. Xerox securities owned means the party 's Common Stock, including restrict shares of Common Stock issued under the Restricted Stock Plan For Directors, and Series B Convertible Preferred Stock. Series B shares are owned through the individual 's account in the Xerox Employee Stock Ownership Plan. none of the nominees owns any of the Company 's other securities. Options/Rights is the total of the Company 's shares of Common Stock submit to broth options and incentive lineage rights held by a campaigner. Immediate family means the spouse, the child children and any relatives sharing the same home as the campaigner. Unless differently noted, all Xerox securities held are owned beneficially by the campaigner. This means he or she has or shares voting power and/or investment might with respect to the securities, even though another name -- that of a agent, for case -- appears in the Company 's records. All possession figures are as of March 30, 2001. Paul A. Allaire Age : 62 Director since : 1986 Xerox securities owned : 390,083 common shares ; 381 series B Convertible Preferred shares Options/Rights : 3,563,144 coarse shares Occupation : Chairman of the Board and Chief Executive Officer, Xerox Corporation other Directorships : Lucent Technologies Inc. ; priceline.com, Incorporated ; Sara Lee Corporation ; and SmithKline Beecham plc other Background : Joined Xerox in 1966. Stepped down vitamin a foreman Executive Officer in April 1999 and returned to the place in May 2000. 1 Antonia Ax : son Johnson Age : 57 Director since : 1996 Xerox securities owned : 4,707 common shares and an indirect interest in approximately 8,664 common shares through the Deferred Compensation Plan Options/Rights : 25,000 common shares Occupation : Chairman, Axel Johnson Group other Directorships : Axel Johnson AB ; Axel Johnson Inc. ; Axel Johnson International ; Ahlens AB ; Axfood AB ; Nordstjernan AB ; NCC AB Vernon E. Jordan, Jr. Age : 65 Director since : 1974 Xerox securities owned : 30,745 coarse shares and an indirect matter to in approximately 6,960 common shares through the Deferred Compensation Plan Options/Rights : 25,000 common shares occupation : senior Managing Director, Lazared Freres & Co. LLC ; Of Counsel, Akin, Gump, Strauss, Hauer & Feld, LLP other Directorships : America Online Latin America, Inc. ; American Express Company ; Callaway Golf Company ; clear Channel Communications, Inc. ; Dow Jones & Co., Inc. ; FirstMark Communications International, LLC ; J.C. Penney Company, Inc. ; Revlon Group ; Ryder System, Inc. ; Sara Lee Corporation ; Shinsei Bank, Ltd ; and Union Carbide Corporation early background : Joined Lazard Freres & Co. LLC in January 2000. Became a spouse in the law tauten of Akin, Gump, Strauss, Hauer & Feld in 1982. Yotaro Kobayashi Age : 67 Director since : 1987 Xerox securities owned : 30,622 common shares Options/Rights : 16,700 coarse shares Occupation : Chairman of the Board, Fuji Xerox Co., Ltd. other Directorships : Fuji Xerox Co., Ltd. ; Callaway Golf Company ; Nippon Telegraph and Telephone Corporation ; and American Productivity & Quality Center. early setting : Joined Fuji Photo Film Co., Ltd. in 1958, was assigned to Fuji Xerox Co., Ltd. in 1963, named President and Chief Executive Officer in 1978 and Chairman and Chief Executive Officer in 1992. Hilmar Kopper Age : 66 Director since : 1991 Xerox securities owned : 21,328 common shares Options/Rights : 20,050 common shares Occupation : Chairman of the Supervisory Board, Deutsche BankAG other Directorships : Akzo Nobel NV ; Bayer AG ; DaimlerChrysler AG ; Solvay SA ; Unilever NV 2 Ralph S. Larsen Age : 62 Director since : 1990 Xerox securities owned : 24,490 common shares and an collateral interest in approximately 26,871 common shares through the Deferred Compensation Plan Options/Rights : 25,000 common shares Occupation : Chairman and Chief Executive Officer, Johnson & Johnson other Directorships : Johnson & Johnson ; AT & T George J. Mitchell Age : 67 Director since : 1996 Xerox securities owned : 6,749 common shares and an indirect matter to in approximately 5,286 coarse shares through the Deferred Compensation Plan Options/Rights : 25,000 common shares occupation : special Counsel, Verner, Liipfert, Bernhard, McPherson and Hand, Chartered other Directorships : Federal Express Corporation ; Starwood Hotels & Resorts ; UNUM Provident Corporation ; The Walt Disney Company ; Casella Waste Systems, Inc. ; Unilever ; Staples, Inc. Anne M. Mulcahy Age : 48 Director since : 2000 Xerox securities owned : 80,371 common shares ; 569 serial B Convertible Preferred shares Options/Rights : 1,796,848 park shares Occupation : President and Chief Operating Officer, Xerox Corporation early Directorships : target Corporation ; Axel Johnson Inc. ; Catalyst ; Fannie Mae ; Fuji Xerox Co., Ltd ; Xerox ( Europe ) Limited early Background : Joined Xerox in 1976 as a sales representative and held respective sales and senior management positions. Named Vice President for Human Resources in 1992 ; Senior Vice President in 1998 ; and Executive Vice President in 1999. Elected President and Chief Operating Officer in May 2000. N. J. Nicholas, Jr. Age : 61 Director since : 1987 Xerox securities owned : 22,703 common shares and an indirect interest in approximately 26,497 common shares through the Deferred Compensation Plan Options/Rights : 25,000 common shares Occupation : investor other Directorships : Boston Scientific Corporation ; priceline.com, Incorporated 3 John E. Pepper Age : 62 Director since : 1990 Xerox securities owned : 57,001 common shares and an indirect pastime in approximately 6,047 common shares through the Deferred Compensation plan : immediate syndicate owns 16,000 shares Options/Rights : 25,000 common shares Occupation : Chairman of the Board and Chairman of the Executive Committee, The Procter & Gamble Company early Directorships : Motorola, Inc. ; The Procter & Gamble Company ; Boston Scientific Corporation other background : Joined Procter & Gamble in 1963. Named Executive Vice President and elected to the Board of Directors in 1984, named President in 1986, Chairman and Chief Executive in 1995, Chairman in 1999, retired as an active agent employee in September 1999, and re-elected Chairman of the Board in June 2000. Barry D. Romeril Age : 57 Director since : 1999 Xerox securities owned : 144,021 common shares ; 227 series B Convertible Preferred shares and an indirect interest in approximately 31,154 shares through the Deferred Compensation Plan Options/Rights : 1,193,548 common shares Occupation : Vice Chairman and Chief Financial Officer, Xerox Corporation other Directorships : Billiton plc ; The Concours Group Inc ; Booktec.com ; Fuji Xerox Co., Ltd. ; Xerox ( Europe ) Limited ; Xerox Investments ( Nederland ) BV other Background : Joined Xerox in 1993 as Executive Vice President and Chief Financial Officer. Elected Vice Chairman of the Board of Directors in 1999. Martha R. Seger Age : 69 Director since : 1991 Xerox securities owned : 14,006 common shares and an indirect concern in approximately 10,949 common shares through the Deferred Compensation Plan Options/Rights : 25,000 coarse shares occupation : fiscal economist and Former Governor, Federal Reserve System ; presently Distinguished Visiting Professor of Finance, Arizona State University other Directorships : Fluor Corporation ; Michigan Mutual and the Amerisure Companies ; The Kroger Co. ; Tucson Electric Power Co. and its holding company, Unisouce Energy ; Massey Energy Thomas C. Theobald Age : 63 Director since : 1983 Xerox securities owned : 24,115 common shares and an indirect pastime in approximately 10,415 common shares through the Deferred Compensation Plan Options/Rights : 25,000 common shares Occupation : Managing Director, William Blair Capital Partners, LLC early Directorships : Anixter International ; Jefferson Wells International ; LaSalle U.S. Realty Income and Growth Fund ; Jones, Lane, LaSalle Inc. ; The MONY Group ; Liberty Funds 4 ownership of Company Securities We do not know of any person who, or group which, owns beneficially more than 5 % of any class of its equity securities as of December 31, 2000, except as set forth below/ ( 1 ) /. - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total Beneficially Percent Title of Class Name and Address of Beneficial Owner Owned of Class of Class - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - series B Convertible State Street Bank and Trust Company, as 8,256,791 100 % Preferred Stock/ ( 2 ) / Trustee, 225 Franklin Street, Boston, MA 02110/ ( 3 ) / Common Stock State Street Bank and Trust Company, as 90,912,742/ ( 4 ) / 12.7 % / ( 5 ) / Trustee under early plans and accounts 225 Franklin Street, Boston, MA 02110 Common Stock Capital Research and Management Company 36,095,700/ ( 6 ) / 5.4 % 333 South Hope Street Los Angeles, CA 90071 Common Stock Dodge & Cox 53,176,018/ ( 7 ) / 8.0 % One Sansome Street San Francisco, CA 94104 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ( 1 ) The words `` group '' and `` beneficial '' are as defined in regulations issued by the Securities and Exchange Commission ( SEC ). beneficial ownership under such definition means monomania of exclusive voting power, shared voting power, sole dispositive office or shared dispositive might. The data provided in this postpone is based entirely upon the information contained in the Form 13G filed by the named entity with the SEC. ( 2 ) These shares have equal vote rights with the Common Stock except that each plowshare of Preferred Stock has six votes per share. ( 3 ) Held as Trustee under the Xerox Employee Stock Ownership Plan. Each participant may direct the trustee as to the manner in which shares allocated to his or her bill shall be voted. The Trust Agreement provides that the Trustee shall vote any shares allocated to participants' accounts as to which it has not received vote instructions in the like proportions as shares in participants ' accounts as to which voting instructions are received. Shares which have not been allocated are voted in the lapp symmetry. The baron to dispose of shares is governed by the terms of the Plan and elections made by participants. ( 4 ) Within this sum as to certain of the shares, State Street Bank and Trust Company has sole voting might for 10,972,321 shares, shared voting power for 78,552,915 shares, lone dispositive power for 12,489,357 shares and shared dispositive exponent for 78,423,385 shares. ( 5 ) percentage based upon assumption that all Series B Convertible Preferred Stock were converted into 49,540,746 shares of Common Stock. ( 6 ) capital Research has sole dispositive power over all of the shares and no voting power. ( 7 ) Within this entire as to certain of the shares, Dodge & Cox has sole voting exponent for 49,638,318 shares, shared voting office for 469,300 shares, exclusive dispositive might for 53,176,018 shares and no shared dispositive exponent for any of the shares. 5 Shares of Common Stock and Series B Convertible Preferred Stock ( converted to Common Stock at a ratio of six to one ) of the Company owned beneficially by its stream ( as of May 30, 2001 ) directors, each of the administrator officers named in the Summary Compensation Table below and directors and all officers as a group, as of March 30, 2001, were as follows : Amount Total Name of Beneficially Stock Beneficial Owner Owned Interest -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Paul A. Allaire ... ... ... ... ... ... .... 3,031,790 3,955,514 Allan E. Dugan ... ... ... ... ... ... ... .. 475,111 917,998 Antonia Ax : son Johnson ... ... ... ... ... 24,706 38,371 Vernon E. Jordan, Jr ... ... ... ... ... .. 50,744 62,705 Yotaro Kobayashi ... ... ... ... ... ... ... 42,321 47,322 Hilmar Kopper ... ... ... ... ... ... ... ... 36,377 41,378 Ralph S. Larsen ... ... ... ... ... ... .... 44,489 76,361 George J. Mitchell ... ... ... ... ... .... 26,748 37,035 Anne M. Mulcahy ... ... ... ... ... ... .... 393,183 1,917,732 N. J. Nicholas, Jr ... ... ... ... ... .... 42,702 74,200 John E. Pepper ... ... ... ... ... ... ... .. 77,000 88,047 Barry D. Romeril ... ... ... ... ... ... ... 549,666 1,370,888 Martha R. Seger ... ... ... ... ... ... .... 34,005 49,955 Thomas C. Theobald ... ... ... ... ... .... 44,114 59,530 Directors and All Officers as a group 8,171,448 17,534,623 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- note : B.R. Inman and Patricia F. Russo resigned as directors of the Company on May 17, 2001 and April 6, 2001, respectively, and are not included in the table above. percentage Owned by Directors and Officers : Less than 1 % of the sum number of shares of Common Stock and Series B Stock great at March 30, 2001 is owned by each director and military officer. The sum beneficially owned by all directors and officers as a group amounted to approximately 1 %. Amount Beneficially Owned : The numbers shown are the shares of Common Stock considered owned by the directors and officers in accordance with SEC rules. Shares of Common Stock which officers and directors had a correct, within 60 days, to acquire upon the exercise of options or rights are included. All these are counted as great for purposes of computing the share of Common Stock and Series B Stock great and beneficially owned. total stock certificate sake : The numbers shown include the amount shown in the Amount Beneficially Owned column plus options held by officers not exercisable within 60 days, bonus stock units and restricted shares. The numbers besides include the interests of officers and directors in the Xerox Stock Fund under the net income Sharing and Savings Plan and the Deferred Compensation Plans. 6 Executive Compensation Report of the Executive Compensation and Benefits Committee of the Board of Directors Executive Officer Compensation The Executive Compensation and Benefits Committee ( Committee ) of the Board of Directors determines the compensation paid to the Company 's executive officers. The Committee 's members are all independent, non-employee directors of the Company. The Committee does the pursuit :. establishes the policies that govern the recompense paid to Xerox executive officers ;. determines overall and individual compensation goals and objectives ;. makes awards ; and. certifies accomplishment of performance under the Company 's assorted annual and long-run bonus plans and approves actual recompense payments. Under the Committee 's established policy, recompense and benefits provided executive officers are targeted at levels equal to or better than the compensation paid by a peer group of companies for equivalent skills and competencies for positions of like responsibilities and desire levels of performance. The Company 's executive recompense policies, plans and programs are designed to provide competitive levels of compensation that align pay with the Company 's annual and long-run performance objectives. They besides recognize corporate and individual accomplishment while supporting the Company objectives of attracting, motivating and retaining high-performing executives. In determining compensation levels to meet compensation policy objectives, the Committee annually reviews, evaluates and compares Xerox executive officer recompense to relevant external competitive recompense data. During the year, the Committee reviewed the reported compensation data of firms that were region of the Business Week Computers and Peripherals Industry Group ( included in the data shown on the performance graph below ). The Committee besides reviewed a broader group of organizations with which the company is likely to compete for executive expertness and which are of similar size and telescope. The latter group includes large capitalization, ball-shaped companies in engineering, function equipment and other industries. The Committee sets base salaries taking into report the competitive data referenced above. In addition, a hearty part, broadly two-thirds or more of target total compensation, of each executive officer 's sum compensation is at risk and variable from class to year because it is linked to specific performance measures of the business. The principal variable star pay up programs used in 2000 to align executive military officer pay with Company and person performance are briefly trace below : executive Performance Incentive Plan ( EPIP ) : Approved by shareholders at the Company 's Annual Meeting on May 18, 1995, EPIP provides the Committee with an incentive fomite to compensate eligible executives for significant contributions to the operation of the Company. By design, EPIP permits the tax deductibility of payments made under EPIP even if an executive's recompense exceeds $ 1,000,000 in any year. Under federal tax law under certain circumstances such excess would not be deductible. Under EPIP the Committee established a pool of 2 % of the Company 's Document Processing profit before tax ( PBT ) for the 2000 annual operation menstruation. For the three-year period commencing in 1998, a pool of 1 1/2 % of accumulative PBT was established. Ten percentage ( 10 % ) of the resulting PBT pool was made account payable to Mr. Allaire. Five percentage ( 5 % ) of the pool was made account payable to each of the early participants in EPIP. EPIP gives the Committee delicacy to reduce the come otherwise account payable under an award to any participant to any amount, including zero, except in the lawsuit of a change in control condition as defined. The Committee can not increase the amount determined by the above formula. For the full year 2000, Mr. Allaire and 15 early executive officers participated in EPIP. For 2000, the PBT pool amounted to $ 3,960,000 and because of the Company's failure to meet its performance goals, the Committee exercised its delicacy by reducing sum amounts account payable to participating administrator officers from the pool from $ 3,366,000 to $ 595,050. 7 annual Performance Incentive Plan ( APIP ) : Under APIP, executive officers of the Company may be entitled to receive performance-related cash payments. Payments are only made if Committee-established annual operation objectives are met. The Committee approved an annual bonus target and maximum opportunity, expressed as a percentage of 2000 base wage, for each participating officeholder. At its meet held on February 7, 2000, the Committee besides established overall Document Processing doorsill, target and utmost measures of performance and consort payment schedules. The performance measures and weightings for 2000 were earnings per share ( 35 % ), gross growth ( 25 % ), cash conversion cycle ( 20 % ), and customer satisfaction ( 20 % ). extra goals were besides established for each officeholder that included clientele unit particular and/or individual performance goals and objectives. The weights associated with each business-unit specific or person performance goal and objective used vary and image from 20 percentage to 50 percentage of the sum. For 2000, the performance against established measures was a significant disappointment. EPS was below threshold levels, gross growth was negative, and both cash conversion and customer satisfaction were below threshold levels. As a leave, no officers received a requital under APIP. The appoint officers did not receive a deservingness wage increase. Certain administrator officers received an adjustment to their base wage levels as a resultant role of new responsibilities and/or to reflect competitive market levels. Leveraged Executive Equity Plan ( LEEP ) : Under the terms of the 1991 long-run Incentive design, the Committee implemented a three-year plan beginning in 1998 for key management executives, including most executive officers. The plan focuses on the accomplishment of performance objectives of the Document Processing business of the Company. When the objectives of the plan are achieved, stockholder value is enhanced and the design provides for an opportunity to realize long-run fiscal rewards. The 1998-2000 performance cycle of LEEP required each executive player to maintain, immediately or indirectly, an investment in shares of common stock of the Company having a measure as of December 31, 1997 of either 100 %, 200 %, 300 % or 400 % of a participant 's annual establish wage ( investment shares ). In 1998 the Committee granted awards under LEEP to approximately 40 key executives that provided for non-qualified stock options for shares of coarse lineage and bonus stock units. The prize to each player was based on the ratio of ten-spot option shares and two bonus stock units for each investment share. The options became exercisable in three annual accumulative installments beginning in the year following the award. The bonus stock rights are collectible in shares of coarse stock and vest in three annual installments beginning in the class following the award, provided specific Document Processing earnings per share ( EPS ) goals were achieved for each preceding year. thirty-three percentage ( 33 % ) of the non-qualified stock options granted under the 1998 bicycle became exercisable on January 1, 1999, January 1, 2000 and January 1, 2001, respectively. For 2000, the EPS goal was not achieved and none of the incentive malcolm stock units vested. At its meet on December 4, 2000, the Committee approved a new three-year ( 2001-2003 ) operation cycle of LEEP ( New LEEP ). New LEEP is intended to deliver highly competitive recompense opportunities linked to the successful implementation of the Company 's turnaround design and to provide significant retention incentives for participating executives. New LEEP consists primarily of three adequate annual grants of sprout options and restrict sprout. Award levels are determined to provide competitive long-run incentive opportunities if the business reversion plan is successfully implemented. Stock options under New LEEP vest fully after three years and remain exercisable for ten years following their date of concession. Restricted breed awarded under New LEEP vests 100 % after one year. All executive officers and select other elder executives are eligible for New LEEP. The first annual grant under New LEEP was made on January 1, 2001. There is no necessity for investment shares under New LEEP. CEO Challenge Bonus : At its February 7, 2000 converge, the Committee established the CEO Challenge Bonus program for the calendar years 2000 and 2001. The goals of the CEO Challenge Bonus program are to support the Company 's want to retain samara executives and provide extra incentives to improve the fiscal performance of the Company. Participants in LEEP, including the executive officers, are eligible to participate in the CEO Challenge Bonus. The CEO Challenge bonus provides an annual opportunity equal to one-half of each executive 's annual bonus target amount account payable over a menstruation of four quarters if performance targets are met. For 2000, the CEO Challenge Bonus was based on quarterly EPS targets. The EPS aim for the first quarter was achieved and bonus amounts were paid accordingly. For the remaining quarters of 2000, EPS targets were not achieved and bonus opportunities were forfeited. For 2001, the CEO Challenge bonus will besides be based on quarterly EPS targets. 8 In its effort to retain keystone executives and to provide incentives that focus on stockholder value, the Committee awarded memory livestock options to select key executives, including the executive officers early than the Chairman and CEO. The memory broth options vest over two years if EPS targets are met ; and vest 100 % on December 31, 2004 if EPS targets are not met. The retention broth options provide for dividend equivalents paid in cash until the store options vest. Select executive officers besides were awarded bonus standard rights that amply vest on January 1, 2002. Beginning with the one-third quarter of 2000, the bonus lineage rights besides provide for the payment of dividend equivalents. Incentive standard rights were awarded to a blue-ribbon group of officers who are critical for the Company to retain in ordering for the Company to implement its reversion design. chief administrator Officer Compensation The compensation paid to G. Richard Thoman, President and Chief Executive Officer from January 1, 2000 until May 11, 2000, when he resigned, was established by the Committee at its December 6, 1999 and February 7, 2000 meetings. The Committee 's actions are described below as they relate to Mr. Thoman 's compensation as reported in the charts and tables that accompany this report. Base Salary : Mr. Thoman 's annualized base wage remained at $ 900,000. 2000 bonus : Mr. Thoman 's annual target bonus remained at 100 % and his quarterly CEO Challenge bonus prey was established at 13 %. long-run incentive : Mr. Thoman was granted a malcolm stock option award for 100,000 shares that was scheduled to vest over two years if EPS targets were met and vest 100 % on December 31, 2004, if EPS targets were not met. At its confluence on February 7, 2000, the Committee awarded Paul A. Allaire a stock option award for 200,000 shares that vested on January 1, 2001. The banal option award was made to retain Mr. Allaire in his function as Chairman of the Board of the Company. Upon the resignation of Mr. Thoman on May 11, 2000, the Board of Directors requested Mr. Allaire to assume the extra function of Chief Executive Officer of the Company. In recognition of Mr. Allaire 's extra function, and after reviewing the compensation levels provided to the Chairmen and Chief Executive Officers of other companies, the Committee authorized the stick to compensation : Base Salary : Mr. Allaire 's infrastructure wage was increased to $ 1,200,000 per class. 2000 bonus : Mr. Allaire 's annual bonus target share and quarterly CEO Challenge Bonus target remained at 100 % and 13 % respectively. long-run incentive : Mr. Allaire was granted a sprout option award for 250,000 shares, one-half of which vested on January 1, 2001 with the balance vesting on January 1, 2002 ; and incentive stock certificate rights for 100,000 shares, one-half of which vested on January 1, 2001, with the poise vesting on January 1, 2002. Mr. Allaire received an award under the New LEEP program as described earlier in the part summarizing Executive Officer Compensation. Under New LEEP, on January 1, 2001, Mr. Allaire received a breed choice grant for 350,000 shares that will vest on January 1, 2002, and a restrict stock award of 350,000 shares that will besides vest on January 1, 2002. In addition, effective January 1, 2001, Mr. Allaire was awarded engagement in a cash long-run incentive program that would pay Mr. Allaire $ 3,000,000 at prey levels of Company performance ( utmost of $ 5,000,000 ), discipline to damaging discretion by the Committee, for the operation cycle ending December 31, 2001. The Committee made these awards to provide the incentives necessary to retain and motivate Mr. Allaire to take the actions necessary to implement the turnaround plan, focus Mr. Allaire on the development of his potential successor and provide recompense competitive with the Chairmen and Chief Executive Officers of other companies. detail information concerning Mr. Allaire 's recompense arsenic well as that of early highly right executives is displayed on the accompanying charts and tables. Ralph S. Larsen, Chairman B. R. Inman Antonia Ax : son Johnson John E. Pepper Thomas C. Theobald February 5, 2001 9 Compensation Committee Interlocks and Insider Participation Paul A. Allaire, Chairman and Chief Executive Officer of the Company, serves on the recompense committee of Lucent Technologies, Inc. Until May 18, 2000 Patricia F. Russo, a conductor of the company until she resigned on April 6, 2001, served on the Executive Compensation and Benefits Committee of the Company and, at the lapp time, was an executive Vice President of Lucent. Summary Compensation Table The Summary Compensation Table below provides certain compensation data for the Chief Executive Officer and the most highly compensate key executive officers ( Named Officers ) serving at the end of the fiscal year ended December 31, 2000 and for G. Richard Thoman who served as Chief Executive Officer until May 11, 2000 for services rendered in all capacities during the fiscal years ended December 31, 2000, 1999, and 1998. The table includes the dollar value of base wage, bonus earned, option awards ( shown in numeral of shares ) and certain other compensation, whether paid or deferred. SUMMARY COMPENSATION TABLE long-run Annual Compensation Compensation Awards -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- annual Bonus -- -- -- -- -- -- -- -- -- -- -- -- -- -- - total Annual early Cash Bonus Annual Restricted Underlying All early Name and Salary Bonus 91 Plan ( $ ) ( C ) Compensation Stock Options/SARs Compensation Principal Position Year ( $ ) ( $ ) ( A ) ( $ ) ( B ) ( = A+B ) ( $ ) ( D ) ( $ ) ( E ) ( # ) ( F ) ( $ ) ( G ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Paul A. Allaire ... ... 2000 1,125,000 121,875 0 121,875 162,881 2,681,250 450,000 17,055 Chairman and Chief 1999 975,000 0 0 0 118,644 0 54,764 16,290 executive Officer 1998 975,000 1,600,000 2,924,133 4,524,133 177,310 0 239,082 318,455 Anne M. Mulcahy ... ... 2000 721,667 45,063 0 45,063 107,659 2,681,250 310,000 34,642 foreman operating 1999 425,000 0 0 0 88,647 0 15,328 13,578 military officer 1998 312,500 263,000 599,804 862,804 62,791 0 49,044 53,929 Barry D. Romeril ... .. 2000 641,667 57,500 0 57,500 114,894 804,375 150,000 27,729 Vice Chairman 1999 575,000 0 0 0 170,047 0 24,415 27,141 1998 513,333 488,000 909,740 1,397,740 138,049 1,145,903 178,822 114,853 William F. Buehler ... 2000 641,667 57,500 0 57,500 136,102 804,375 150,000 14,828 Vice Chairman 1999 575,000 0 0 0 100,575 0 23,717 14,374 1998 464,833 450,000 857,704 1,307,704 91,953 1,145,903 174,568 98,868 Allan E. Dugan ... .... 2000 462,500 37,188 0 37,188 91,746 0 50,000 29,702 executive 1999 425,000 0 0 0 109,414 0 16,066 29,085 Vice President 1998 359,000 306,000 717,719 1,023,719 81,092 0 58,686 95,955 G. Richard Thoman .... 2000 326,087 487,500 0 487,500 107,971 0 100,000 3,950,000 Chief Executive 1999 900,000 0 0 0 189,642 0 293,562 3,827,580 Officer ( H ) 1998 700,000 930,000 2,099,341 3,029,341 374,636 1,793,683 335,128 3,960,560 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ( A ) This column reflects annual cash bonuses earned during the years indicated under EPIP and for the year 2000, the CEO Challenge Bonus. In addition, the come shown for G.R. Thoman for 2000 includes a prorate 2000 bonus that was agreed to be paid in 2001 under the Letter Agreement entered into with Company in May 2000 in connection with his separation. ( B ) This column reflects amounts earned under the Company 's 1991 long-run Incentive Plan ( 1991 plan ). Under the 1991 plan, awards of incentive stock units were made in 1998 to each of the Named Officers which become account payable as to one-third of the sum if the Company 's Document Processing earnings per share reach a specified grade in 1998, 1999 and 2000. The 2000 grade was not reached and the final one-third of the units did not vest. The prize of one-third of the bonus stock units, is reported in the column above for the year 1998 in which the earnings per contribution objective was reached. The party and the Executive Compensation and Benefits Committee view these amounts as long-run bonus recompense. ( C ) Total annual Bonus is the kernel of the amounts under the EPIP, CEO Challenge Award and 1991 plan. ( D ) early annual Compensation includes executive expense allowance, dividend equivalents paid on outstanding incentive malcolm stock rights, prerogative compensation and above market interest on submit recompense. Included in other annual compensation for 2000 is $ 55,275 of prerogative recompense for William F. Buehler, $ 29,949 of which relates to personal use of bodied aircraft. besides included in other annual compensation for 1998 is $ 50,337 of prerogative compensation for G. Richard Thoman, $ 34,881 of which relates to personal manipulation of corporate aircraft. 10 ( east ) This column reflects bonus breed unit awarded under the 1991 plan or a predecessor plan where each whole represents one parcel of stock to be issued upon vesting at the attainment of a specific memory menstruation. Each unit is entitled to the requital of dividend equivalents at the lapp time and in the lapp amount declared on one parcel of the Company 's coarse stock. The number of units held by the Named Officers and their value as of December 31, 2000 ( based upon the closing market price on that date of $ 4.625 was as follows : P.A. Allaire -- 100,000 ( $ 462,500 ), A.M. Mulcahy -- 153,440 ( $ 709,660 ), B.D. Romeril -- 114,453 ( $ 529,345 ), W.F. Buehler -- 50,000 ( $ 231,250 ), and A.E. Dugan -- 63,456 ( $ 293,484 ) G. R. Thoman -- 80,000 ( $ 370,000 ). Excludes grants of restrict stock made on January 1, 2001 under New LEEP ( as described in the Report of the Executive Compensation and Benefits Committee ) as follows : P.A. Allaire -- 350,000 ( $ 1,662,500 ), A.M. Mulcahy -- 250,000 ( $ 1,187,500 ), B.D. Romeril -- 125,000 ( $ 593,750 ), A.E. Dugan -- 75,000 ( $ 326,250 ). ( F ) The Company no longer grants stock admiration rights ( SARs ) in tandem with broth options. All lineage options were awarded under the 1991 plan. As discussed under the report of the Executive Compensation and Benefits Committee, sprout options were awarded under a three-year operation cycle of LEEP that ended on December 31, 2000. Excludes grants of neckcloth options made on January 1, 2001 under New LEEP ( as described in the Report of the Executive Compensation and Benefits Committee as follows : P.A. Allaire -- 350,000, A.M. Mulcahy -- 934,600, B.D. Romeril -- 467,300, A.E. Dugan -- 280,400. ( G ) The sum amounts shown in this column consist of the Company 's profit sharing contribution, whether under the profit Sharing and Savings Plan or its policy of paying directly to the officeholder the measure which can not be made under the plan by rationality of the Employee Retirement Income Security Act of 1974, and the estimated dollar measure of the benefit to the officeholder from the Company 's helping of indemnity premium payments under the Company 's Contributory Life Insurance Plan on an actuarial footing. The Company will recover all of its premium payments at the conclusion of the condition of the policy, by and large at historic period 65. For 2000 the amounts were : P.A. Allaire : $ 0 profit share ; $ 17,055 life policy ; A.M. Mulcahy : $ 0 profit partake ; $ 34,642 life indemnity ; B.D. Romeril : $ 0 profit communion ; $ 27,729 life indemnity ; W.F. Buehler : $ 0 net income share ; $ 14,828 animation indemnity ; and A.E. Dugan : $ 0 profit sharing ; $ 29,702 life policy. In addition, the sum shown for G.R. Thoman includes a payment of $ 3.75 million, which was agreed to be paid in 1998, 1999 and 2000 under the Letter Agreement entered into with Company in June 1997 in connection with his joining the Company. The payments were intended to replace the value of forfeit in-the-money vest stock options from his erstwhile employer. besides included in the come shown for G.R. Thoman is a $ 200,000 requital in stead of good continuation of life policy benefits agreed to under the Letter Agreement entered into with Company in May 2000 in connection with his separation. ( H ) Resigned effective May 11, 2000. option Grants The following table sets forth information concerning awards of banal options to the Named Officers under the Company 's 1991 plan during the fiscal class ended December 31, 2000. The amounts shown for likely realizable values are based upon randomly assumed annualized rates of banal price appreciation of five and ten percentage over the wide ten-year term of the options, pursuant to SEC regulations. Based upon a ten-year choice condition, this would result in livestock price increases of 63 % and 159 % respectively or $ 35.479 and $ 56.495 for the options with the $ 21.7812 use price and $ 43.980 and $ 70.031 for the options with the $ 27.0000 exercise price. The amounts shown as potential realizable values for all shareholders represent the match increases in the market value of 668,576,389 shares outstanding held by all shareholders as of December 31, 2000. Any gains to the Named Officers and the shareholders will depend upon future operation of the common neckcloth of the Company angstrom well as overall commercialize conditions. 11 choice GRANTS IN LAST FISCAL YEAR Potential Realizable Value at Assumed Annual Rates of Stock Price Individual Grants ( 1 ) ( 2 ) appreciation for Option Term -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Number of Securities % of total Underlying Options Granted Exercise or Options to Employees in Base Price Expiration Name Granted ( # ) fiscal Year ( $ /Sh ) Date 5 % ( $ ) 10 % ( $ ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Paul A. Allaire ... 200,000/ ( 3 ) / 2.28 % $ 21.7812 12/31/09 $ 2,739,616 $ 6,942,725 250,000/ ( 5 ) / $ 27.0000 12/31/09 $ 4,245,039 $ 10,757,762 Anne M. Mulcahy ... 60,000/ ( 4 ) / 1.57 % $ 21.7812 12/31/09 $ 821,885 $ 2,082,817 250,000/ ( 5 ) / $ 27.0000 12/31/09 $ 4,245,049 $ 10,757.762 Barry D. Romeril.. 50,000/ ( 4 ) / 0.76 % $ 21.7812 12/31/09 $ 684,904 $ 1,735,681 100,000/ ( 5 ) / $ 27.0000 12/31/09 $ 1,698,015 $ 4,303,105 William F. Buehler 50,000/ ( 4 ) / 0.76 % $ 21.7812 12/31/09 $ 684,904 $ 1,735,681 100,000/ ( 5 ) / $ 27.0000 12/31/09 $ 1,698,015 $ 4,303,105 Allan E. Dugan .... 50,000/ ( 4 ) / 0.25 % $ 21.7812 12/31/09 $ 684,904 $ 1,735,681 G. Richard Thoman. 100,000/ ( 4 ) / 0.51 % $ 21.7812 12/31/09 $ 1,369,808 $ 3,471,362 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - All Shareholders.. N/A N/A N/A N/A $ 1,944,646,456 $ 4,928,115,928 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ( 1 ) drill price is based upon fairly market value on the effective date of the award. Excludes grants of stock options made on January 1, 2001 under New LEEP as described in the Report of the Executive Compensation and Benefits Committee as follows : P.A. Allaire -- 350,000, A.M. Mulcahy -- 934,600, B.D. Romeril -- 467,300, A.E. Dugan -- 280,400. ( 2 ) Options may be accelerated as a result of a change in master as described under `` Option Surrender Rights ''. ( 3 ) Exercisable 100 % on January 1, 2001 ( 4 ) Exercisable 100 % of January 1, 2005 ( 5 ) Exercisable 1/2 on January 1, 2001 and 1/2 on January 1, 2002 Option Exercises/Year-End Values The following mesa sets forth for each of the Named Officers the number of shares underlying options and SARs exercised during the fiscal class ended December 31, 2000, the rate realized upon practice, the numeral of options/SARs unexercised at year-end and the measure of unexercised in-the-money options/SARs at year-end. AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUE Number of Shares Value of Unexercised In- Underlying Unexercised the-Money Options /SARs Value of Options/SARs at at Shares FY-End ( # ) FY End ( $ ) ( B ) Underlying -- -- -- -- -- -- -- -- -- -- -- -- - -- -- -- -- -- -- -- -- -- -- -- -- - name Options/SARs Value Exercisable Unexercisable Exercisable Unexercisable Exercised ( # ) Realized ( $ ) ( A ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Paul A. Allaire ... 0 $ 0 2,042,033 771,111 $ 0 $ 0 Anne M. Mulcahy ... 0 $ 0 128,682 380,126 $ 0 $ 0 Barry D. Romeril.. 0 $ 0 217,305 309,490 $ 0 $ 0 William F. Buehler 0 $ 0 153,687 304,232 $ 0 $ 0 Allan E. Dugan .... 0 $ 0 283,445 131,481 $ 0 $ 0 G. Richard Thoman. 0 $ 0 777,170 1,052,060 $ 0 $ 0 - -- -- -- -- ( A ) The value realized is based upon the difference between the use price and the average of the high and low prices on the date of drill. ( B ) Excludes grants of stock options made on January 1, 2001 under New LEEP ( as described in the Report of the Executive Compensation and Benefits Committee as follows : P.A. Allaire -- 350,000, A.M. Mulcahy -- 934,600, B.D. Romeril -- 467,300, A.E. Dugan -- 280,400. ( C ) The measure of unexercised options/SARs is based upon the deviation between the exercise price and the average of the high and low prices on December 29, 2000 of $ 4.75. Option/SARs may be accelerated as a solution of a variety in control as described under `` Option Surrender Rights ''. 12 Retirement Plans Retirement benefits are provided to the executive officers of the Company including the Named Officers primarily under unfunded executive auxiliary plans and, due to Internal Revenue Code limitations, to a much lesser extent under the Company 's Retirement Income Guarantee Plan. The postpone below shows, under the plans, the approximate annual retirement benefit which would accrue for the total of years of accredit servicing at the respective wage rates. The earliest retirement long time for benefit commencement is age 60. In the consequence of a change in operate ( as defined in the plans ) there is no age necessity for eligibility. The benefit accrues by and large at the rate of 1 2/3 % per class of credit service, but for certain mid-career hire executives the rate is accelerated to 2 1/2 %, including Barry D. Romeril, William F. Buehler and Allan E. Dugan. No extra benefits are collectible for participation in excess of 30 years for those accruing benefits at the rate of 1 2/3 % per class and 20 years for those accruing benefits at 2 1/2 % per year. annual benefits for years of credit service indicated -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- average annual recompense for five 15 years 20 years 25 years 30 years highest years - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 400,000 ... ... ... ... 96,000 128,000 161,000 192,000 600,000 ... ... ... ... 146,000 195,000 243,000 242,000 800,000 ... ... ... ... 196,000 261,000 327,000 392,000 1,000,000 ... ... ... ... 246,000 328,000 410,000 492,000 1,200,000 ... ... ... ... 296,000 395,000 493,000 592,000 1,400,000 ... ... ... ... 346,000 461,000 577,000 692,000 1,600,000 ... ... ... ... 396,000 528,000 660,000 792,000 1,800,000 ... ... ... ... 446,000 595,000 743,000 892,000 2,000,000 ... ... ... ... 496,000 661,000 827,000 992,000 2,200,000 ... ... ... ... 546,000 728,000 910,000 1,092,000 2,400,000 ... ... ... ... 596,000 795,000 993,000 1,192,000 2,600,000 ... ... ... ... 646,000 861,000 1,077,000 1,292,000 2,800,000 ... ... ... ... 696,000 928,000 1,160,000 1,392,000 3,000,000 ... ... ... ... 746,000 995,000 1,243,000 1,492,000 3,200,000 ... ... ... ... 796,000 1,061,000 1,327,000 1,592,000 3,400,000 ... ... ... ... 846,000 1,128,000 1,410,000 1,692,000 3,600,000 ... ... ... ... 896,000 1,195,000 1,493,000 1,792,000 3,800,000 ... ... ... ... 946,000 1,261,000 1,577,000 1,892,000 - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- The maximum benefit is 50 % of the five highest years ' average annual compensation reduced by 50 % of the chief social security benefit account payable at age 65. The benefits shown are collectible on the basis of a straight liveliness annuity and a 50 % survivor annuity for a survive spouse. The plans provide a minimum benefit of 25 % of defined recompense reduced by such social security system benefit other than for the key executives accruing benefits at the accelerated rate. The follow individuals have the years of credit avail for purposes of the plans as follows : Years of Credited Name Service ( A ) - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - Paul A. Allaire ( B ) ... 30 Anne M. Mulcahy ... .... 24 Barry D. Romeril ... ... 11 William F. Buehler ( C ) 14 Allan E. Dugan ... ... .. 16 - -- -- -- -- ( A ) Thirty years is the maximal allow credited military service under the plans. Credited service shown reflects the accelerate accumulation for mid-career hire executives. The years credited service reflected can be applied to the annual profit table above to determine the annual benefit. Under the agreement with the party in connection with his resignation, G. Richard Thoman became entitled to a retirement benefit of $ 800,000 per year begin in May 2000. ( B ) Upon Mr. Allaire 's death, Mr. Allaire 's alternate payee will receive a full and unreduced 50 % survivor benefit based on Mr. Allaire 's accrued benefits under the plans. ( C ) In joining with his retirement, William F. Buehler became eligible for a retirement accessory collectible in three equal installments of $ 280,746 commencing January 1, 2002, or in a one hunk union of $ 842,238 if he elects prior to December 31, 2001. 13  compensation under the plans includes the amounts shown in the wage and bonus column under the Summary Compensation Table other than payments under the 1991 plan to the extent included in the bonus column. The five highest years average recompense for purposes of the plans as of the end of the concluding fiscal year for the Named Officers is P. A. Allaire $ 2,377,485 ; A. M. Mulcahy $ 550,336 ; B. D. Romeril $ 875,100 ; W. F. Buehler $ 817,451 ; and A. E. Dugan $ 673,651. Certain Transactions Severance Agreements In October, 2000, with the approval of the Executive Compensation and Benefits Committee and the Board, the company entered into agreements with five of its administrator officers, including Paul A. Allaire, Anne M. Mulcahy, Barry D. Romeril, and William F. Buehler, which provide rupture benefits in the consequence of end point of employment under certain circumstances following a change in control of the Company ( as defined ). The circumstances are ending by the Company, other than because of death or disability, commencing prior to a likely switch in control ( as defined ), or for cause ( as defined ), or by the officers for effective reason ( as defined ). The policeman would be entitled to receive a hunk sum rupture requital equal to three times the total of :. the greater of ( 1 ) the military officer 's annual rate of base wage on the date notice of ending is given and ( 2 ) his/her annual rate of base wage in effect immediately prior to the change in control and. the greater of ( 1 ) the annual target bonus applicable to such officer for the year in which such notice is given and ( 2 ) the annual target bonus applicable to such policeman for the year in which the exchange in control condition occurs. `` Cause '' for result by the Company is the : ( one ) froward and continue failure of the military officer to well perform his/her duties, ( two ) willful battle by the policeman in materially deleterious demeanor to the Company, or ( three ) conviction of any crime which constitutes a felony. `` thoroughly reason '' for termination by the officeholder includes, among other things : ( one ) the grant of duties inconsistent with the individual 's condition as an administrator or a hearty alteration in responsibilities ( including ceasing to be an administrator officeholder of a public company ), ( two ) a decrease in base wage and/or annual bonus, ( three ) the resettlement of the officer 's principal place of occupation, and ( four ) the failure of the Company to maintain compensation plans in which the officer participates or to continue providing certain other existing employment benefits. The agreements provide for the good continuation of certain benefit benefits for a menstruation of 36 months following ending of employment and contain a gross-up payment ( as defined ) if the total payments ( as defined ) are subject to excise tax imposed under section 4999 of the Internal Revenue Code of 1986, as amended. The agreements besides provide that in the event of a potential change in control ( as defined ) each officer, subject to the terms of the agreements, will remain in the use of the Company for nine months following the occurrence of any such potential change in control condition. The agreements are automatically renewed annually unless the Company gives notice that it does not wish to extend them. In addition, the agreements will continue in effect for two years after a change in see of the Company. The company has besides entered into agreements with 40 other officers or early key executives, including Allan E. Dugan, that provide identical benefits described above, except that these officers and key executives would be entitled to receive a lump-sum severance requital equal to two times their annual compensation and they would receive wellbeing benefits continuance for a period of 24 months. termination Arrangements In connection with his resignation as President and Chief Executive Officer and as a Director of the Company in May, 2000, G. Richard Thoman received certain benefits that had been approved by the Committee. These included requital of prorate 2000 14 bonus, a cash payment in stead of lengthiness of animation insurance ( which are reflected in the Summary Compensation Table above ) and approved an annual retirement benefit ( see note to the mesa under Retirement Plans above ). All of Mr. Thoman 's outstanding options were amended to be exercisable for the life sentence of the options ( see `` Aggregate Options/SAR Exercises in the last fiscal year and Fiscal Year-End Options/SAR Value '' above ) subject to Mr. Thoman not making any derogative remarks about the Company and not disclosing confidential information. The Company besides agreed to provide Mr. Thoman with an office and administrative confirm until May 14, 2002. In joining with his retirement and coherent with prior practice, the company entered into an agreement with William F. Buehler, Vice Chairman of the Board and a director. The agreement was approved by the Executive Compensation and Benefits Committee. Among other things, the agreement provides for wage continuance for twelve months commencing January 15, 2001 at the rate of $ 56,250 per month and a retirement supplement collectible in three equal installments of $ 280,746 commencing on January 1, 2002, or in a individual lump union of $ 842,238, if he elects prior to December 31, 2001. employment arrangement In joining with his continue employment, the company entered into an agreement with Carlos Pascual, Executive Vice President. The agreement was authorized by the Executive Compensation and Benefits Committee. The agreement arises out of changes made to Xerox Spain 's pension plans reproducible with propose spanish law requirements. It is designed to mitigate the likely impact of U.S. income tax on Mr. Pascual 's retirement benefit, if any, as a consequence of the change in spanish law. submit to certain conditions in the Agreement, the Company has agreed to indemnify Mr. Pascual for U.S. income tax on his spanish pension, if necessity. The Agreement besides provides that for a period of three years following Mr. Pascual 's employment with the company he will be provided with wage duration at a rate of spanish Pesetas 4,389,600 per month ( approximately $ 23,100 at stream exchange rates ) as he serves in the capacity of Chairman of Xerox Espana, S.A. at the discretion of the CEO of the Company. He will besides be provided with move aid in an sum not to exceed $ 100,000. A replicate of the Agreement is filed as parade 10 ( mho ) to this Form 10-K Report. Option Surrender Rights All non-qualified options under the 1991 and the 1998 Plans are accompanied by choice giving up rights. If there is a change in manipulate, as defined in the plans, all such rights which are in the money become collectible in cash based upon a change in control price as defined in the plans. The 1991 Plan besides provides that upon the occurrence of such an event, all incentive stock rights and operation unit of measurement rights become account payable in cash. In the case of rights account payable in shares, the amount of cash is based upon such change in control price and in the case of rights collectible in cash, the cash value of such rights. Rights account payable in cash but which have not been valued at the time of such an event are collectible at the maximum rate as determined by the Executive Compensation and Benefits Committee at the time of the award. Upon accelerate payment, such rights and any refer non-qualified stock options will be canceled. Grantor Trusts The caller has established grantor trusts with a savings bank for the purpose of paying amounts due under the submit compensation plan and the rupture agreements described above, and the unfunded supplementary retirement plans described above. The trusts are soon unfunded, but the Company would be required to fund the trusts upon the occurrence of certain events. Legal Services The law firm of Akin, Gump, Strauss, Hauer & Feld, of which Vernon E. Jordan, Jr. is of rede, was retained by and rendered services to the company in 2000. 15 Ten-Year Performance Comparison The graph below provides a comparison of Xerox accumulative total stockholder rejoinder with the Standard & Poor 's 500 Composite Stock Index and the Business Week Computers and Peripherals Industry Group, excluding Xerox ( Peer Group ). [ CHART ] Base Period Company/Index Name Dec 90 Dec 91 Dec 92 Dec 93 Dec 94 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- xerox CORPORATION $ 100 $ 203 $ 244 $ 286 $ 326 S & P 500 100 131 141 155 157 BUSINESS WEEK COMPUTERS & PERIPHERALS 100 97 83 92 118 Company/Index Name Dec 95 Dec 96 Dec 97 Dec 98 Dec 99 Dec 00 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- xerox CORPORATION $ 463 $ 546 $ 781 $ 1286 % 550 $ 105 S & P 500 215 265 353 454 496 499 BUSINESS WEEK COMPUTERS & PERIPHERALS 161 226 304 554 805 570 The Peer Group consists of the postdate companies as of December 31, 2000 : Apple Computer, Compaq Computer, Data General, Dell Computer, EMC, Gateway, Hewlett-Packard, International Business Machines, Iomega, Lexmark International Group, Micron Electronics, NCR, Quantum, Seagate Technology, Sequent, Silicon Graphics, Storage Technology, Sun Microsystems, Unisys and Western Digital. This graph assumes the investment of $ 100 on December 31, 1990 in Xerox Common Stock, the S & P 500 Index and the Peer Group Common Stock, and reinvestment of quarterly dividends at the monthly close up livestock prices. The returns of each company have been weighted per annum for their respective stock market capitalizations in computing the S & P 500 and Peer Group indices. section 16 ( a ) Beneficial Ownership Reporting Compliance There was a failure to file Form 3, Beneficial Ownership Report, on a timely footing with the SEC as required under department 16 ( a ) of the Securities Exchange Act of 1934 on behalf of Herve J. Gallaire and Rafik O. Loutfy with deference to Incentive Stock Rights which were separate of each of their respective initial holdings, and on behalf of Thomas J. Dolan with respect to his initial position in the Xerox Stock Fund. An amend class 3 was filed a soon as the omissions were discovered ; for Mr. Gallaire and Mr. Loutfy on March 8, 2000 and for Mr. Dolan on August 9, 2000. 16

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