5901
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ( )
Filed by a Party other than the Registrant (X)
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
XEROX CORPORATION
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(Name of Registrant as Specified In Its Charter)
DANIELS FINANCIAL
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required.
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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( ) Fee paid previously with preliminary materials:
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( ) Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
THE DOCUMENT COMPANY
XEROX
Xerox Corporation
800 Long Ridge Road
P.O. Box 1600
Stamford, Connecticut 06904
April 10, 1998
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of Xerox
Corporation to be held Thursday, May 21, 1998 at 10:00 a.m. at The Fairmont
Hotel, 200 North Columbus Drive, Chicago, Illinois. Your Board of Directors and
Management look forward to greeting personally those shareholders able to
attend.
At the Annual Meeting, in addition to the election of 14 directors and the
election of KPMG Peat Marwick LLP as independent auditors for 1998, you are
being asked to approve the 1998 Employee Stock Option Plan. The Board of
Directors unanimously recommends that you vote in favor of each of these
proposals.
Not standing for re-election as a director is Mr. John D. Macomber, who having
attained his 70th birthday since the last annual meeting is retiring from the
Board under the Company's retirement policy. Mr. Macomber has served a total of
seven years as a member of our Board of Directors. We are deeply grateful to
him for his many contributions to the success of our Company.
It is important that your shares be represented and voted at the Annual
Meeting, regardless of whether or not you plan to attend in person. You are
therefore urged to vote your shares. You may vote your shares via the toll free
telephone number, or via the Internet (see instructions on the enclosed proxy
card) or you may sign, date and mail the accompanying proxy card and return it
promptly in the postage paid envelope provided.
For the Board of Directors,
/s/Paul A. Allaire
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Paul A. Allaire
Chairman and Chief Executive Officer
<PAGE>
Notice of Annual Shareholders' Meeting
The Annual Meeting of Shareholders of Xerox Corporation will be held at The
Fairmont Hotel, 200 North Columbus Drive, Chicago, Illinois on Thursday, May
21, 1998, at 10:00 a.m. The purposes of the meeting will be to elect directors,
to elect independent auditors for 1998, to approve the 1998 Employee Stock
Option Plan described on pages 18 through 19, and to conduct any other business
as may properly come before the meeting.
The Board of Directors has determined that holders of Common Stock and Series B
Convertible Preferred Stock of the Company at the close of business on April 1,
1998 will be entitled to notice of and to vote at the Annual Meeting.
We urge you to submit a proxy.
By order of the Board of Directors,
/s/Eunice M. Filter
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Eunice M. Filter
Secretary
April 10, 1998
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Whether you plan to attend the meeting or not, please submit your proxy as soon
as possible. You may vote your shares via the toll free telephone number, or via
the Internet (see instructions on the enclosed proxy card), or you may fill in,
sign, date and mail the accompanying proxy. If you chose to mail your proxy, an
envelope, which requires no postage if mailed in the United States, is included
for your convenience.
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Proxy Statement
The Board of Directors of Xerox Corporation (Company or Xerox) is requesting
your proxy for the Annual Meeting of Shareholders on May 21, 1998, and any
adjournments thereof. Your proxy may be duly submitted either by executing and
returning the proxy card in the form enclosed or by use of the telephone or the
Internet. By such submission, you authorize the three directors whose names are
listed on the front of the proxy card accompanying this Proxy Statement to
represent you and vote your shares in connection with the purposes set forth in
the Notice of Annual Meeting. The holders of a majority of the shares entitled
to vote at the meeting must be present in person or represented by proxy in
order to constitute a quorum for all matters to come before the meeting.
If you attend the meeting, you may of course vote by ballot. But if you are not
present, your shares can be voted only when represented by a properly submitted
proxy. In this case you have several choices.
[bullet] You may vote on each proposal, in which case your shares will be voted
in accordance with your choices.
[bullet] You may indicate a preference to abstain on any proposal, in which
case no vote will be recorded.
[bullet] You may submit a proxy, without indicating your voting preferences, in
which case the proxies will vote your shares as follows: for election
of the directors nominated by the Board of Directors; and for election
of KPMG Peat Marwick LLP as the Company's independent auditors for
1998; and for approval of the 1998 Employee Stock Option Plan.
You may revoke or change your proxy at any time before it is exercised, either
in writing to the Corporate Secretary, or through Internet or telephone voting.
Under the law of New York, the Company's state of incorporation, only votes cast
"for" the election of directors or those cast "for" or "against" any other
proposal will be counted in determining whether a nominee for director has been
elected or whether any of the other proposals at this meeting have been
approved. Abstentions, broker non-votes and votes withheld are not treated as
votes cast at the meeting.
On April 1, 1998 the Company had outstanding 327,838,523 shares of Common Stock
and 8,974,940 shares of Series B Convertible Preferred Stock, each of which is
entitled to one vote on each proposal at the meeting. The Board of Directors has
set the close of business on April 1, 1998 as the record date for determining
the shareholders entitled to notice of and to vote at the meeting.
Proposal 1 -- Election of Directors
Shareholders annually elect directors to serve for one year and until their
successors have been elected and shall have qualified. The 14 persons whose
biographies appear on pages 4 through 8 have been proposed by the Board of
Directors based on a recommendation by the Nominating Committee of the Board of
Directors. The Nominating Committee consists of Vernon E. Jordan, Jr., Hilmar
Kopper, Ralph S. Larsen, George J. Mitchell, N. J. Nicholas, Jr. and Patricia F.
Russo, none of whom is an officer or employee of the Company.
Eleven of the 14 nominees are neither employees nor former employees of Xerox,
its subsidiaries or associated companies. These Board members bring to the
Company valuable experience from a variety of fields.
The By-Laws of the Company as in effect for this meeting require that all
nominees for director file with the Secretary, at least 24 hours prior to the
Annual Meeting, a statement indicating consent to being a nominee and, if
elected, intention to serve as a director. Each of the nominees proposed by the
Board of Directors has filed such a statement. See "Other Matters" below
regarding notice requirements at the annual meeting in 1999.
If for any reason, which the Board of Directors does not expect, a nominee is
unable to serve, the proxies may use their discretion to vote for a substitute
proposed by the Board of Directors.
The vote required for election as a director of the Company is a plurality of
the votes cast at the meeting.
Committee Functions, Membership and Meetings
The Company's Board of Directors has several standing committees: the Audit,
Nominating, Executive Compensation and Benefits, Finance and Executive
Committees.
Audit Committee: The Audit Committee is responsible for recommending to the
Board of Directors the engagement of independent auditors for the Company and
reviewing with the independent auditors the plan and results of the auditing
engagement. The committee reviews summaries of the year-end financial data and
significant changes in accounting policies and financial reporting practices
with management, the Company's Director, Corporate Audit and independent
auditors. In addition, the committee reviews the recommendations contained in
the independent auditors' audit management letter and management's response to
that letter. The Audit Committee also reviews the plan for and results of the
Company's internal audits. It is authorized to receive reports on such matters
from the internal and external auditors and the Company's General Counsel as may
be required by law. With the assistance of management it can review and
investigate any such matter to the extent deemed appropriate.
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The members of the Audit Committee are all non-employee directors: B. R. Inman,
Antonia Ax:son Johnson, John D. Macomber, John E. Pepper, Martha R. Seger and
Thomas C. Theobald. Mr. Macomber is the Chairman. Three meetings of the Audit
Committee were held during 1997.
Nominating Committee: The Nominating Committee recommends to the Board of
Directors nominees for election as directors of the Company. The committee
considers the performance of incumbent directors in determining whether to
recommend that they be nominated to stand for reelection.
The members of the Nominating Committee are Vernon E. Jordan, Jr., Hilmar
Kopper, Ralph S. Larsen, George J. Mitchell, N. J. Nicholas, Jr. and Patricia F.
Russo. Mr. Jordan is the Chairman of the Nominating Committee. The committee
held two meetings in 1997.
Shareholders who wish to recommend individuals for consideration by the
Nominating Committee may do so by submitting a written recommendation to the
Secretary of the Company, P.O. Box 1600, Stamford, Connecticut 06904.
Submissions must include sufficient biographical information concerning the
recommended individual, including age, employment and board memberships (if
any), for the committee to consider, as well as a written consent by the nominee
to stand for election if nominated by the Board of Directors and to serve if
elected by the shareholders. Recommendations received by December 31, 1998 will
be considered for nomination at the 1999 Annual Meeting of Shareholders.
Recommendations received after December 31, 1998 will be considered for
nomination at the 2000 Annual Meeting of Shareholders.
Executive Compensation and Benefits Committee: The Executive Compensation and
Benefits Committee is responsible for recommending to the Board of Directors
the remuneration arrangements for senior management of the Company, including
the adoption of compensation plans in which senior management is eligible to
participate and the granting of benefits under any such plans. The committee
also consults with the Chief Executive Officer and advises the Board with
respect to senior management succession planning.
B. R. Inman, Antonia Ax:son Johnson, Ralph S. Larsen, John D. Macomber, John E.
Pepper and Patricia F. Russo are the members of the Executive Compensation and
Benefits Committee, and are all non-employee directors of the Company. Mr.
Larsen is the Chairman. Four meetings of the committee were held in 1997.
Finance Committee: The Finance Committee oversees the investment management of
the Company's employee profit sharing and retirement plans. In addition, the
Finance Committee is responsible for reviewing the Company's asset mix, capital
structure and strategies, financing strategies, insurance coverage and dividend
policy.
The members of the Finance Committee, all of whom are non-employee directors,
are Vernon E. Jordan, Jr., Hilmar Kopper, George J. Mitchell, N. J. Nicholas,
Jr., Martha R. Seger and Thomas C. Theobald. Mr. Nicholas is the Chairman of
the Finance Committee. The Finance Committee held four meetings in 1997.
Executive Committee: The Executive Committee has all the authority of the Board
of Directors, except with respect to certain matters that by statute may not be
delegated by the Board of Directors. The committee acts only in the intervals
between meetings of the full Board of Directors. It acts usually in those cases
where it is not feasible to convene a special meeting or where the agenda is
the technical completion of undertakings already approved in principle by the
Board. The members of the Executive Committee are Paul A. Allaire, John D.
Macomber and N. J. Nicholas, Jr. Mr. Allaire is the Chairman. The Executive
Committee did not meet in 1997.
Attendance and Remuneration of Directors
Ten meetings of the Board of Directors and 13 meetings of the Board committees
were held in 1997. All incumbent directors other than Hilmar Kopper and Antonia
Ax:son Johnson attended at least 75 percent of the total number of meetings of
the Board of Directors and Board committees on which they served. The Company
believes that attendance at meetings is only one means by which directors may
contribute to the effective management of the Company and that the
contributions of all directors have been substantial and are highly valued.
Directors who are not employees of the Company receive $65,000 per year for
service as a director, an annual award of 2,500 stock options, and
reimbursement for out-of-pocket expenses incurred in connection with attendance
at meetings and other services as a director. Directors who are employees of
subsidiary companies are not eligible to receive stock option awards and
Directors who are employees of the Company do not receive any compensation for
service as a director.
Pursuant to the Restricted Stock Plan For Directors, $25,000 of the annual
director's fee of $65,000 is paid in the form of restricted shares of Common
Stock of the Company. The shares may not be sold or transferred except upon
death, retirement, disability, change in control or termination of service as a
director with the consent of a majority of the Board of Directors. If the
individual's service as a director is terminated for any other reason, the
shares are forfeited. The holders of restricted shares are entitled to all
distribution and voting rights of the Common Stock. The directors have the
option to receive part or all of their total cash fees for service on the Board
and committees of the Board in the form of shares of Common Stock, which may be
restricted or unrestricted at the election of the individual. The number of
shares issued is based on the market value at the time the fee is payable. The
shares held by directors under this Plan are included in the Xerox securities
owned shown in the biographies of the directors beginning on page 4.
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Terms Used in Biographies
To help you consider the nominees, we use a biographical format that provides a
ready reference on their backgrounds. Certain terms used in the biographies may
be unfamiliar to you, so we are defining them here.
Xerox securities owned means the Company's Common Stock, including restricted
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 number of the Company's shares of Common Stock subject to
stock options and incentive stock rights held by a nominee.
Immediate family means the spouse, the minor children and any relatives sharing
the same home as the nominee.
Unless otherwise noted, all Xerox securities held are owned beneficially by the
nominee. This means he or she has or shares voting power and/or investment
power with respect to the securities, even though another name--that of a
broker, for example--appears in the Company's records. All ownership figures
are as of April 1, 1998.
For information on compensation for officers, see the compensation section
starting on page 10.
[PHOTO OF PAUL A. ALLAIRE] Paul A. Allaire
Age: 59 Director since: 1986
Xerox securities owned: 226,262 common
shares; 512 Series B Convertible
Preferred shares
Options/Rights: 1,435,343 common shares
Occupation: Chairman and Chief Executive
Officer and Chairman of the Executive
Committee, Xerox Corporation
Education: BS, Worcester Polytechnic
Institute; MS, Carnegie-Mellon
University
Other Directorships: Fuji Xerox Co.,
Ltd.; J. P. Morgan; Lucent Technologies
Inc.; Sara Lee Corporation; SmithKline
Beecham plc; Xerox Financial Services,
Inc.; and Xerox Limited
Other Background: Joined Xerox in 1966. Member, Board of Trustees,
Carnegie-Mellon University and Member, Business Advisory Council of the
Graduate School of Industrial Administration, Carnegie-Mellon University.
Member, Board of Trustees, Worcester Polytechnic Institute. Member, The
Business Roundtable and The Business Council. Member of the Board of Directors
of the Council on Foreign Relations, the Ford Foundation, the New York City
Ballet, Catalyst and the Council on Competitiveness.
[PHOTO OF B.R. INMAN] B. R. Inman
Age: 67 Director since: 1987
Xerox securities owned: 4,288 common
shares and an indirect interest in
approximately 3,725 common shares
through the Deferred Compensation Plan
Options/Rights: 5,000
Occupation: Investor
Education: BA, University of Texas
Other Directorships: Fluor Corporation;
Science Applications International
Corporation; SBC Communications, Inc.;
and Temple-Inland Inc.
Other Background: Entered Naval Reserve in 1951, graduated from National War
College in 1972, promoted to Rear Admiral in 1974, to Vice Admiral in 1976 and
to Admiral in 1981. Retired with permanent rank of Admiral in 1982. Between
1974 and 1982 served as Director of Naval Intelligence, Vice Director of the
Defense Intelligence Agency, Director of the National Security Agency and
Deputy Director of Central Intelligence. Between 1983 and 1986 served as
Chairman and Chief Executive Officer of Microelectronics and Computer
Technology Corporation. Served as Chairman, President and Chief Executive
Officer, Westmark Systems, Inc., 1987 to 1989 and Chairman, Federal Reserve
Bank of Dallas, 1987 to 1990. Member, National Academy of Public
Administration. Trustee, the American Assembly, the Center for Excellence in
Education and the California Institute of Technology. Adjunct Professor at the
LBJ School of Public Affairs and at the Graduate School of Business of the
University of Texas at Austin. Member of the Audit and Executive Compensation
and Benefits Committees of Xerox.
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[PHOTO OF ANTONIA AX:SON JOHNSON] Antonia Ax:son Johnson
Age: 54 Director since: 1996
Xerox securities owned: 684 common
shares and an indirect interest in
approximately 1,325 common shares
through the Deferred Compensation Plan
Options/Rights: 5,000
Occupation: Chairman, Axel Johnson Group
Education: BA, MA, University of
Stockholm
Other Directorships: Axel Johnson AB,
Axel Johnson Inc., Axel Johnson
International, Hemkop AB, Nordstjernan
AB
Other Background: In 1971 joined the Axel Johnson Group; became primary
stockholder in 1975 and Owner and Chairman in 1982. Board Member, the Royal
Swedish Academy of Engineering Sciences, The International Institute for
Industrial Environmental Economics of the University of Lund, The World
Business Council for Sustainable Development, The Stockholm Environment
Institute, The Advisory Council of the Graduate Business School of Stanford
University, Chairman of the Axel and Margaret Ax:son Johnson Foundation, the
City Mission of Stockholm and The Business Leadership Academy. Member of the
Audit and Executive Compensation and Benefits Committees of Xerox.
[PHOTO OF VERNON E. JORDAN, JR.] Vernon E. Jordan, Jr.
Age: 62 Director since: 1974
Xerox securities owned: 12,792 common
shares and an indirect interest in
approximately 3,040 common shares
through the Deferred Compensation Plan
Options/Rights: 5,000
Occupation: Partner, Akin, Gump,
Strauss, Hauer & Feld, LLP
Education: BA, DePauw University; JD,
Howard University Law School
Other Directorships: American Express
Company; Bankers Trust Company; Bankers
Trust New York Corporation; Callaway
Golf Company; Chancellor Media
Corporation; Dow Jones & Co.; J.C.
Penney Company, Inc.; Revlon Group;
Ryder System, Inc.; Sara Lee
Corporation; and Union Carbide
Corporation
Other Background: Became a partner in the law firm of Akin, Gump, Strauss,
Hauer & Feld in 1982, following ten years as President of the National Urban
League, Inc. Member of the Bar of Arkansas, Georgia and the District of
Columbia as well as the U.S. Supreme Court Bar. Director of the LBJ Foundation,
Howard University, the NAACP Legal Defense and Education Fund, Inc. Trustee of
the Ford Foundation. Former Member of the National Advisory Commission on
Selective Service, the American Revolution Bicentennial Commission, the
Presidential Clemency Board, the Advisory Council on Social Security, the
Secretary of State's Advisory Committee on South Africa and the President's
Advisory Committee of the Points of Light Foundation. Chairman of the
Nominating Committee and member of the Finance Committee of Xerox.
[PHOTO OF YOTARO KOBAYASHI] Yotaro Kobayashi
Age: 64 Director since: 1987
Xerox securities owned: 8,475 common
shares
Options/Rights: 5,000
Occupation: Chairman and Co-Chief
Executive Officer, Fuji Xerox Co., Ltd.
Education: BA, Keio University; MBA,
Wharton Graduate School, University of
Pennsylvania
Other Directorships: Fuji Xerox Co.,
Ltd.; ABB Asea Brown Boveri Ltd.; and
Japan Research Center Co., Ltd.
Other Background: 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. Vice-Chairman, Japan
Association of Corporate Executives. Member of the Trilateral Commission;
University Council and Curriculum Council of the Ministry of Education,
Science, Sports and Culture; Economic Council of the Economic Planning Agency;
the International Council of JP Morgan; the International Advisory Board of
Northern Telecom Limited; the International Advisory Board of the Council on
Foreign Relations; the Board of Trustees, University of Pennsylvania; the
Advisory Council of the Graduate School of Business, Stanford University and
the Advisory Council of the Institute for International Studies, Stanford
University. Vice-Chairman, Board of Trustees, International University of Japan
and member of the Board of Trustees, Keio University.
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[PHOTO OF HILMAR KOPPER] Hilmar Kopper
Age: 63 Director since: 1991
Xerox securities owned: 7,625 common
shares
Options/Rights: 5,000
Occupation: Chairman of the Supervisory
Board, Deutsche Bank AG
Education: High school diploma
Other Directorships: Akzo Nobel NV;
Bayer AG; Daimler-Benz AG; Mannesmann
AG; Solvay SA
Other Background: Apprenticeship with Rheinisch-Westfalischen Bank AG in
Cologne, 1954. Management trainee at J. Henry Schroder Banking Corporation, New
York. Foreign Department, Deutsche Bank's Central Office in Dusseldorf and
Manager, Leverkusen branch, 1969. Appointed to the Board of Managing Directors
of Deutsche Bank subsidiary European Asian Bank AG in Hamburg, 1972. Executive
Vice President, Deutsche Bank AG, 1975; and Member of the Board of Managing
Directors, Deutsche Bank AG, 1977. Succeeded Alfred Herrhausen as Spokesman of
the Board of Managing Directors, December 1989 to May 1997. Member of the
Finance and Nominating Committees of Xerox.
[PHOTO OF RALPH S. LARSEN] Ralph S. Larsen
Age: 59 Director since: 1990
Xerox securities owned: 9,784 common
shares and an indirect interest in
approximately 9,278 common shares
through the Deferred Compensation Plan
Options/Rights: 5,000
Occupation: Chairman and Chief Executive
Officer, Johnson & Johnson
Education: BBA, Hofstra University
Other Directorships: Johnson & Johnson;
AT&T; The New York Stock Exchange, Inc.
Other Background: Joined Johnson & Johnson in 1962, was named Vice President of
Marketing, McNeil Consumer Products Company in 1980. President of Becton
Dickinson's Consumer Products Division, 1981 to 1983. Returned to Johnson &
Johnson as President of its Chicopee subsidiary in 1983. Named a company Group
Chairman in 1986, and Chairman of the Board and Chief Executive Officer in
1989. Member, Board of the Tri-State United Way. Member of The Business Council
and the Policy Committee of The Business Roundtable. Served two years in the
U.S. Navy. Chairman of the Executive Compensation and Benefits Committee and
member of the Nominating Committee of Xerox.
[PHOTO OF GEORGE J. MITCHELL] George J. Mitchell
Age: 64 Director since: 1996
Xerox securities owned: 1,609 common
shares and an indirect interest in
approximately 806 common shares through
the Deferred Compensation Plan
Options/Rights: 5,000
Occupation: Special Counsel, Verner,
Liipfert, Bernhard, McPherson and Hand,
Chartered
Education: BA, Bowdoin College; LLB,
Georgetown University Law Center
Other Directorships: Federal Express
Corporation; Starwood Lodging Trust;
UNUM Corporation; The Walt Disney
Company
Other Background: Trial lawyer with the U.S. Department of Justice Antitrust
Division, 1960 to 1962. Served as Executive Assistant to U.S. Senator Edmund S.
Muskie from 1962 to 1965. Private law practice from 1965 to 1977. Served as
U.S. Attorney for Maine, 1977 to 1979; appointed U.S. District Court Judge in
1979; resigned in 1980 to accept appointment to the U.S. Senate. Elected U.S.
Senator from the State of Maine in 1982, serving as Majority Leader of the
Senate from 1989 to 1995 when he retired from the Senate and joined the law
firm of Verner, Liipfert, Bernhard, McPherson and Hand. Member, Board of
Directors, Council on Foreign Relations; Chairman, Ethics Committee, U.S.
Olympic Committee; Chairman, National Health Care Commission; Chairman,
International Crisis Group; and Chairman, The Peace Negotiations in Northern
Ireland. Member of the Finance and Nominating Committees of Xerox.
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[PHOTO OF N.J. NICHOLAS, JR.] N. J. Nicholas, Jr.
Age: 58 Director since: 1987
Xerox securities owned: 9,982 common
shares and an indirect interest in
approximately 9,115 common shares
through the Deferred Compensation Plan
Options/Rights: 5,000
Occupation: Investor
Education: BA, Princeton University;
MBA, Harvard University Graduate School
of Business Administration
Other Directorships: Bankers Trust New
York Corporation; Boston Scientific
Corporation
Other Background: President and Co-Chief Executive Officer, Time-Warner Inc.,
1990 to 1992. Former member of the President's Advisory Committee on Trade
Policy and Negotiations and the President's Commission on Environmental
Quality. Chairman of the Advisory Board of Columbia University Graduate School
of Journalism. Chairman of the Finance Committee and Member of the Nominating
and Executive Committees of Xerox.
[PHOTO OF JOHN E. PEPPER] John E. Pepper
Age: 59 Director since: 1990
Xerox securities owned: 18,440 common
shares and an indirect interest in
approximately 2,641 common shares
through the Deferred Compensation Plan;
immediate family owns 3,000 shares
Options/Rights: 5,000
Occupation: Chairman of the Board and
Chief Executive, The Procter & Gamble
Company
Education: BA, Yale University
Other Directorships: Motorola, Inc.; The
Procter & Gamble Company
Other Background: Joined Procter & Gamble in 1963. Named Executive Vice
President and elected to the Board of Directors in 1984, named President in
1986 and Chairman and Chief Executive in 1995. Co-Chair, Governor's Education
Council of the State of Ohio and Cincinnati Youth Collaborative. Member,
Cincinnati Business Committee, Grocery Manufacturers of America, The Business
Council and The Business Roundtable. Fellow, Yale Corporation. Trustee, Christ
Church Endowment Fund, Center for Strategic and International Studies. Served
three years in the U.S. Navy. Member of the Audit and Executive Compensation
and Benefits Committees of Xerox.
[PHOTO OF PATRICIA F. RUSSO] Patricia F. Russo
Age: 45 Director since: 1997
Xerox securities owned: 144 common
shares
Options/Rights/Restricted Shares: 1,473
Occupation: Executive Vice President,
Chief Staff Officer, Lucent Technologies
Inc.
Education: BA, Georgetown University
Other Directorships: New Jersey
Manufacturers Insurance Company;
Schering-Plough Corporation
Other Background: Joined International Business Machines Corporation in 1973
and held various sales and marketing management positions. Joined AT&T in 1981
and held executive positions in strategic planning, marketing, human resources,
and operations. Named President, Business Communications Systems of Lucent
Technologies Inc. in 1992; named Executive Vice President and Chief Staff
Officer, 1997. Member of the Board of Directors of the New Jersey Business and
Industry Association; the Board of Regents, Georgetown University, the
Committee of 200. Member of the Executive Compensaton and Benefits Committee
and the Nominating Committee of Xerox.
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[PHOTO OF MARTHA R. SEGER] Martha R. Seger
Age: 66 Director since: 1991
Xerox securities owned: 4,662 common
shares and an indirect interest in
approximately 4,339 common shares
through the Deferred Compensation Plan
Options/Rights: 5,000
Occupation: Financial economist and
Former Governor, Federal Reserve System;
currently Distinguished Visiting
Professor of Finance, Northern Arizona
University
Education: BBA, MBA, PhD, University of
Michigan
Other Directorships: Fluor Corporation;
Michigan Mutual and the Amerisure
Companies; Amoco Corporation; The Kroger
Co.; and Tucson Electric Power Co.
Other Background: Financial Economist, Federal Reserve Board, 1964 to 1967.
Chief Economist, Detroit Bank & Trust, 1967 to 1974, elected Vice President in
1971. Vice President, Economics and Investments, Bank of the Commonwealth
(Detroit), 1974 to 1976. Adjunct Associate Professor, University of Michigan,
1976 to 1979. Associate Professor of Economics and Finance, Oakland University,
1980. Commissioner of Financial Institutions, State of Michigan, 1981 to 1982.
Professor of Finance, Central Michigan University, 1983 to 1984. Governor,
Federal Reserve System, 1984 to 1991. Member of the Audit and Finance
Committees of Xerox.
[PHOTO OF THOMAS C. THEOBALD] Thomas C. Theobald
Age: 60 Director since: 1983
Xerox securities owned: 4,888 common
shares and an indirect interest in
approximately 4,549 common shares
through the Deferred Compensation Plan
Options/Rights: 5,000
Occupation: Managing Director, William
Blair Capital Partners, LLC
Education: AB, College of the Holy
Cross; MBA, Harvard University Graduate
School of Business Administration
Other Directorships: Anixter
International; LaSalle U.S. Realty
Income and Growth Fund; LaSalle
Partners; Mutual Life Insurance Company
of New York; RxRemedy; Stein Roe Funds;
U.S. Timberlands, LLC
Other Background: Began career with Citibank in 1960, appointed Vice Chairman
and elected a Director of Citicorp in 1982. Chairman, Continental Bank
Corporation, 1987 to 1995. Director of the Associates of the Harvard Business
School, The MacArthur Foundation and the Chicago Council on Foreign Relations.
Trustee, Northwestern University. Member of the Committee on Architecture of
the Art Institute of Chicago. Member of the Audit and Finance Committees of
Xerox.
[PHOTO OF G. RICHARD THOMAN] G. Richard Thoman
Age: 53 Director since: 1997
Xerox securities owned: 26,587 common
shares
Options/Rights/Restricted Shares:
1,037,742 common shares
Occupation: President and Chief
Operating Officer, Xerox Corporation
Education: BA, McGill University; MA,
PhD, Fletcher School of Law and
Diplomacy, Tufts University
(co-administered by Harvard University);
MA, Graduate Institute of International
Studies
Other Directorships: Bankers Trust New
York Corporation; Fuji Xerox Co., Ltd.
Other Background: Joined Xerox in 1997 as President and Chief Operating
Officer. Prior to this he was with International Business Machines Corporation
as Senior Vice President and Chief Financial Officer, 1995 to 1997, and Senior
Vice President and Group Executive, IBM Personal Systems (PC) Group, 1994 to
1995. From 1992 to 1994 he was President and Chief Executive Officer, Nabisco
International. He was with the American Express Company from 1979 to 1992,
joining as Executive Vice President and Chief Financial Officer, Travel Related
Services. He was named President, Travel Related Services International in
1985, and Chairman and Co-Chief Executive Officer, Travel Related Services in
1989. He was with McKinsey and Company as a Senior Associate from 1972 to 1979;
and with Exxon Corporation as a Senior Financial Analyst from 1970 to 1972.
Member of the Council on Foreign Relations. Member of the Board of Directors of
Union Bancaire Privee and the Americas Society. Awarded the Legion of Honor by
the government of France.
8
<PAGE>
Ownership of Company Securities
The Company knows of no person who, or group which, owns beneficially more than
5% of any class of its equity securities as of December 31, 1997, except as set
forth below(1).
<TABLE>
<CAPTION>
Amount
Beneficially Percent
Title of Class Name and Address of Beneficial Owner Owned of Class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series B Convertible Preferred State Street Bank and Trust Company, 9,012,603 100%
Stock(2) as Trustee,
225 Franklin Street, Boston, MA(3)
Common Stock State Street Bank and Trust Company, 8,982,702(4) 10.1%(5)
as Trustee under other plans and accounts
225 Franklin Street, Boston, MA
</TABLE>
- --------------------------------------------------------------------------------
(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 possession of sole voting power, shared
voting power, sole dispositive power or shared dispositive power. The
information provided in this table is based solely upon the information
contained in the Form 13G filed by the named entity with the SEC.
(2) These shares have equal voting rights with the Common Stock.
(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 account 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 voting
instructions and any shares which have not been so allocated, in the same
proportions as shares in participants' accounts as to which voting
instructions are received. The power to dispose of shares is governed by
the terms of the Plan and elections made by participants.
(4) Within this total as to certain of the shares, State Street Bank and Trust
Company has sole voting power 4,007,526 shares, shared voting power
4,580,768 shares, sole dispositive power 4,395,304 shares and shared
dispositive power 4,587,398 shares.
(5) Percentage based upon assumption that all Series B Convertible Preferred
Stock were converted into 27,037,809 shares of Common Stock.
Shares of Common Stock and Series B Convertible Preferred Stock of the Company
owned beneficially by its directors and nominees for director, each of the
executive officers named in the Summary Compensation Table below and directors
and all officers as a group, as of April 1, 1998, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Amount Total
Name of Beneficially Stock
Beneficial Owner Owned Interest
- -------------------------------------------------------------------------------------
<S> <C> <C>
Paul A. Allaire ................................ 1,019,494 1,662,117
William F. Buehler ............................. 90,682 239,874
B.R. Inman ..................................... 5,938 13,013
Antonia Ax:son Johnson ......................... 2,334 7,009
Vernon E. Jordan, Jr. .......................... 14,442 20,832
Yotaro Kobayashi ............................... 10,125 13,475
Hilmar Kopper .................................. 9,275 12,625
Ralph S. Larsen ................................ 11,434 24,062
John D. Macomber ............................... 18,760 26,448
George J. Mitchell ............................. 3,259 7,415
N.J. Nicholas, Jr. ............................. 11,632 24,097
John E. Pepper ................................. 23,090 29,081
A. Barry Rand .................................. 169,314 348,418
Barry D. Romeril ............................... 108,167 296,866
Patricia F. Russo .............................. 630 1,617
Martha R. Seger ................................ 6,312 14,000
Thomas C. Theobald ............................. 6,538 12,762
G. Richard Thoman .............................. 206,857 1,064,329
Directors and All Officers as a group .......... 3,184,247 9,971,596
- -------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
The shares of Common Stock, and Series B Stock owned by each director and
officer named and by all directors and officers as a group represent less than
1% of the aggregate number of shares of Common Stock and Series B Stock
outstanding at April 1, 1998. The numbers shown in the Amount Beneficially Owned
column are the shares of Common Stock considered owned by the directors and
officers in accordance with SEC rules, including shares of Common Stock which
officers and directors had a right, within 60 days, to acquire upon the exercise
of options or rights, all of which shares were deemed outstanding for purposes
of computing the percentage of Common Stock and Series B Stock outstanding and
beneficially owned. The numbers shown in the Total Stock Interest column include
the amount shown in the Amount Beneficially Owned column plus options held by
officers not exercisable within 60 days, incentive stock units and restricted
shares, as well as the interests of officers and directors in the Xerox Stock
Fund under the Profit Sharing and Savings Plan and the Deferred Compensation
Plans.
Executive Compensation
Report of the Executive Compensation and Benefits
Committee of the Board of Directors
Executive Officer Compensation
The compensation paid to the Company's executive officers is determined by the
Executive Compensation and Benefits Committee (Committee) of the Board of
Directors. The Committee's members are each independent, non-employee directors
of the Company who establish the policies that govern the compensation paid to
Xerox executive officers, determine overall and individual compensation goals
and objectives, grant awards and certify achievement of performance under the
Company's various annual and long-term incentive plans and approve actual
compensation payments.
The compensation policy established by the Committee provides that target levels
of compensation as well as the benefits provided executive officers are intended
to be equal to or better than the compensation paid by other companies in the
marketplace in which Xerox operates and competes for equivalent skills and
competencies for positions of similar responsibilities and desired levels of
performance. The Company's executive compensation policies, plans and programs
are designed to provide competitive levels of compensation that align pay with
the Company's annual and long-term performance objectives and that recognize
corporate and individual achievement while supporting the Company objectives of
attracting, motivating and retaining high performing executives. In order to
determine appropriately competitive levels of compensation, the Committee
annually reviews, evaluates and compares Xerox executive officer compensation to
relevant external, competitive compensation data. At its meeting on December 8,
1997, the Committee reviewed the reported compensation data of firms which were
part of the Business Week Computers and Peripherals Industry Group (which are
included in the data shown on the performance graph on page 17 below), as well
as a broader group of organizations with which the Company is likely to compete
for executive expertise and which are of similar size and scope. The latter
group includes large capitalization, multinational companies in technology,
office equipment and other industries.
Base salaries are determined by the Committee, in its judgment, taking into
account the competitive data referenced above. In addition, a substantial
portion, generally two-thirds or more of targeted total compensation, of each
executive officer's total compensation is at risk and variable from year to year
because it is linked to specific performance measures of the business.
The three principal variable pay programs that were utilized in 1997 to align
executive officer pay with Company and individual performance as reported in
this Proxy Statement are briefly described below:
Executive Performance Incentive Plan (EPIP): This plan, approved by
shareholders at the Company's Annual Meeting on May 18, 1995, provides the
Committee with an incentive vehicle to compensate eligible executives for
significant contributions to the performance of the Company while preserving
the tax deductibility of payments made under the Plan even if an executive's
compensation exceeds $1,000,000 in any year as described in Section 162(m) of
the Internal Revenue Code of 1986, as amended. Awards under the Plan are made
from incentive payment pools created by applying pre-determined percentages
to appropriately relevant performance measures as described in the Plan.
These measures and percentages for awards made by the Committee in effect
during 1997 were 2% of the Company's Document Processing profit before tax
(PBT) for the 1997 one-year performance period, 11/2% of cumulative PBT for
the three-year performance period commencing in 1995, 3% of reduction in
Financial Services debt for the 1997 one-year performance period and 2.5% of
such reduction for the three-year performance period commencing in 1995. Ten
percent (10%) of the resulting incentive payment PBT pool is payable to the
Chief Executive Officer of the Company and five percent (5%) of the pool is
payable to every other participant in the Plan with the exception of Stuart
B. Ross, Executive Vice President, Financial Services. Three percent (3%) of
the 1997 Document Processing pool and two percent (2%) of the Financial
Service debt reduction pool is payable to Mr. Ross. The Plan provides the
Committee with discretion to reduce the amount otherwise payable under an
award to any participant to any amount, including zero, except in the case of
a change in control as defined. The amount determined by the above formula
cannot be increased. For the full year 1997, the CEO and eleven (11) other
executive officers participated in the Plan.
For 1997, the PBT pool amounted to $45,380,000 and the Committee exercised
its discretion by reducing total amounts payable to participating executive
officers from the pool from $30,870,000 to $6,193.477. For the 1995-1997
cumulative PBT performance period, the pool amounted to $94,730,000 and the
Committee exercised its discretion by reducing total amounts payable to
participating executive officers from the pool from $53,374,000 to
$16,082,409.
10
<PAGE>
Annual Performance Incentive Plan (APIP): Under the APIP, executive
officers of the Company may be entitled to receive performance-related cash
payments provided that annual, Committee-established performance objectives
are met. At its February 3, 1997 meeting, the Committee approved for each
officer not participating in EPIP, an annual incentive target and maximum
opportunity expressed as a percentage of their March 1, 1997 base salary. The
Committee also established overall Document Processing threshold, target and
maximum measures of performance and associated payment schedules. The
performance measures and weightings for 1997 were profit before tax (35%),
revenue growth (20%), cash generation (15%), customer satisfaction (10%),
customer loyalty (10%) and employee satisfaction (10%). Additional goals were
established subsequently for each officer that included business unit
specific and / or individual performance goals and objectives. The weights
associated with each business unit specific or individual performance goal
and objective used vary and range from 10 percent to 50 percent of the total.
For 1997, the performance against the established measures was mixed. PBT
and revenue growth performance were slightly below target performance
levels, while cash generation goals exceeded maximum performance levels.
Customer satisfaction and customer loyalty and employee motivation and
satisfaction exceeded target performance measures under the plan. Overall,
executive officers received payments that were better than those made for
1996 performance. The payments ranged from 95.8% to 182.3% of target bonus
opportunity.
Leveraged Executive Equity Plan (LEEP): Under the terms of the 1991
Long-Term Incentive Plan, the Committee implemented a three-year plan which
began in 1995 for key management executives, including most executive
officers, that focuses on the achievement of performance objectives of the
Document Processing business of the Company. When the objectives of the plan
are achieved, shareholder value is enhanced and the plan provides for an
opportunity to realize long-term financial rewards. LEEP requires that each
executive participant must directly or indirectly maintain an investment in
shares of common stock of the Company having a value as of March 1, 1995 of
either 100%, 200% or 300% of a participant's annual base salary (investment
shares). A 1995 award was made under LEEP to approximately 50 key executives
that provided for non-qualified stock options for shares of common stock and
restricted shares of common stock or incentive stock units, based upon the
ratio of five option shares and two restricted shares of common stock or
incentive stock units for each investment share. The options became
exercisable in three annual cumulative installments beginning in the year
following the award. The incentive stock rights are payable in shares of
common stock and the restricted shares became unrestricted in three annual
installments beginning in the year following the award, provided specific
Document Processing earnings per share (EPS) goals were achieved for each
preceding year. Thirty-four percent (34%) of the non-qualified stock options
granted under the 1995 cycle became exercisable on January 1, 1998.
For 1997, the EPS goal was achieved and thirty-four percent (34%) of the
restricted shares and restricted dividends thereon became unrestricted and
thirty-four percent (34%) of the incentive stock units vested.
Additionally, the 1995 LEEP cycle awards provided for each officer not
participating in EPIP a cash payment if cumulative EPS exceeded performance
targets established for the 1995-1997 LEEP cycle. Since actual cumulative EPS
significantly exceeded targets established for the 1995-1997 LEEP performance
cycle, the cash payments to participants ranged from 22.5%-42.5% of the fair
market value of twice the number of their investment shares.
Chief Executive Officer Compensation
The compensation paid to Paul A. Allaire, Chairman of the Board of Directors
and Chief Executive Officer for the performance year 1997 was established by
the Committee at its February 3, 1997 and February 2, 1998 meetings. The
Committee's actions are described below as they relate to each component of Mr.
Allaire's 1997 compensation as reported in the charts and tables that accompany
this report.
Base Salary: Mr. Allaire's base salary remained at $975,000, unchanged
from 1996.
1997 Bonus: The Committee authorized a payment under the EPIP program,
described above, in the amount of $2,000,000. The amount of bonus determined
utilizing the formula of the EPIP was reduced at the Committee's discretion
to align the payment with the same Company, organizational and individual
performance unit performance measures utilized by the Committee in
determining the payments to other executives of the Company paid under the
Company's APIP also described above. A portion of the bonus awarded was
approved by the Committee based on its subjective assessment of Mr. Allaire's
performance against organizational governance, productivity improvement and
Financial Services goals which the Committee had established for Mr. Allaire
early in 1997. Mr. Allaire's 1997 bonus was approximately 220% of the bonus
he received for 1996.
Long-Term Incentive: Under the provisions of the LEEP described above,
Mr. Allaire vested in the right to exercise thirty-four percent (34%) of
the non-qualified stock options granted in 1995. Additionally, thirty-four
percent (34%) of the restricted shares and dividends thereon awarded under
the LEEP with respect to the 1997 performance year became unrestricted on
March 1, 1998 resulting from previously established EPS goals being
achieved. In addition, Mr. Allaire's award under EPIP for the 1995-1997 PBT
performance period was reduced by the Committee as permitted under EPIP
from $9,472,000 to $5,389,186. The amount awarded is the same amount Mr.
Allaire would have received under the LEEP 1995-1997 cumulative EPS had he
been a participant in that award. As described above, the cumulative EPS
performance significantly exceeded targets for this period.
11
<PAGE>
Based on the Committee's evaluation of external competitive compensation
data, it concluded that Mr. Allaire's long-term compensation was at the low
end of the competitive range and in recognition of its desire to retain Mr.
Allaire in his employ as Chief Executive, during 1997 he was awarded 163,000
non-qualified stock options at the market price on the effective date of
grant as well as incentive stock rights for 40,000 incentive stock units
which will vest on July 1, 2000. The non-qualified stock options will expire
on December 31, 2004.
Detailed information concerning Mr. Allaire's compensation as well as that of
other highly compensated executives is displayed on the accompanying charts and
tables.
Ralph S. Larsen, Chairman
B. R. Inman
Antonia Ax:son Johnson
John D. Macomber
John E. Pepper
Patricia F. Russo
February 2, 1998
Compensation Committee Interlocks and Insider Participation
Paul A. Allaire, Chairman and Chief Executive Officer of the Company, serves on
the compensation committee of Lucent Technologies, Inc. Patricia F. Russo, a
director of the Company, is an Executive Vice President of Lucent and serves on
the Executive Compensation and Benefits Committee of the Company.
Summary Compensation Table
The Summary Compensation Table below provides certain compensation information
for the Chief Executive Officer and the four most highly compensated key
executive officers (Named Officers) serving at the end of the fiscal year ended
December 31, 1997 for services rendered in all capacities during the fiscal
years ended December 31, 1997, 1996 and 1995. The table includes the dollar
value of base salary, bonus earned, option awards (shown in number of shares)
and certain other compensation, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------------------------
Annual Bonus
---------------------------------------
Total Other Annual
Name and EPIP 91 Plan Annual Compensation
Principal Position Year Salary ($) (A) ($) (B) ($) Bonus ($) (C) ($) (D)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Allaire ............. 1997 975,000 2,000,000 4,479,449 6,479,449 133,250
Chief Executive Officer 1996 958,333 910,000 3,054,900 3,964,900 177,580
1995 858,333 1,200,000 2,108,499 3,308,499 184,606
G. Richard Thoman (I) ....... 1997 388,885 560,000 1,788,657 2,348,657 45,000
Chief Operating Officer
A. Barry Rand ............... 1997 469,333 350,000 1,419,686 1,769,686 73,033
Executive Vice President 1996 436,833 160,000 968,119 1,128,119 54,896
1995 413,333 329,851 668,168 998,019 111,154
Barry D. Romeril ............ 1997 452,688 334,062 1,419,686 1,753,748 62,158
Executive Vice President 1996 436,841 300,000 968,119 1,268,119 45,152
1995 413,341 336,912 668,168 1,005,080 44,600
William F. Buehler .......... 1997 426,833 350,216 1,331,098 1,681,314 56,000
Executive Vice President 1996 413,333 350,000 907,107 1,257,107 52,880
1995 350,833 295,077 625,359 920,436 44,500
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Long-Term
Compensation Awards
-------------------------------------------------------
Securities
LTIP Underlying
Restricted Payouts Options / All Other
Name and Stock (EPS Overach.) SARs Compensation
Principal Position ($) (E) ($) (F) (#) (G) ($) (H)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul A. Allaire ............. 3,381,252 5,389,186 441,929 213,477
Chief Executive Officer 0 0 0 243,857
0 0 358,965 244,678
G. Richard Thoman (I) ....... 6,962,500 399,552 900,526 42,567
Chief Operating Officer
A. Barry Rand ............... 0 1,707,893 90,594 73,984
Executive Vice President 659,300 0 0 88,309
0 0 113,760 101,315
Barry D. Romeril ............ 4,226,565 1,707,893 86,779 108,370
Executive Vice President 659,300 0 0 112,014
0 0 113,760 130,395
William F. Buehler .......... 1,690,626 1,603,402 81,816 97,840
Executive Vice President 0 0 0 92,956
0 0 106,800 100,466
- ----------------------------------------------------------------------------------
</TABLE>
(A) This column reflects annual cash bonuses earned during 1997 under
EPIP.
(B) This column reflects amounts earned under the Company's 1991
Long-Term Incentive Plan (1991 Plan). Under the 1991 Plan, awards of
Restricted Stock were made in 1995 to each of the Named Officers
which become non-forfeitable as to one-third of the total if the
Company's Document Processing earnings per share reach a specified
level in each of the years 1995, 1996 and 1997. The 1997 level was
reached and one-third of the shares, together with the restricted
dividends thereon, became non-forfeitable. Accordingly, the value of
one-third of the shares of the Restricted Stock, and the amount of
the restricted dividends thereon, is reported in the column above
for the year in which the earnings per share objective is reached.
The Company and the Executive Compensation and Benefits Committee
view these amounts as long-term incentive compensation.
12
<PAGE>
(C) Total Annual Bonus is the sum of the amounts under the EPIP and 91
Plan columns.
(D) Other Annual Compensation includes executive expense allowance and
dividend equivalents paid on outstanding incentive stock rights.
(E) This column reflects incentive stock unit rights awarded under the
1991 Plan or a predecessor plan where each unit represents one share
of stock to be issued upon vesting at the attainment of a specific
retention period. Each unit is entitled to the payment of dividend
equivalents at the same time and in the same amount declared on one
share of the Company's common stock. The number of units held by the
Named Officers and their value as of December 31, 1997 (based upon
the closing market price on that date of $73.41) was as follows:
P.A. Allaire--121,000 ($8,882,162), G. R. Thoman--100,000
($7,340,630), A.B. Rand--37,626 ($2,761,985), B.D. Romeril--69,326
($5,088,965), and W.F. Buehler--44,000 ($3,229,877). Restricted Stock
awards made under the 1991 Plan described in note (B) are reported as
bonuses and are not reflected in the Restricted Stock column above.
(F) This column reflects a long-term payout made with respect to the
performance years 1995, 1996 and 1997 under EPIP. The awards made by
the Committee in 1995 established a long-term bonus pool based upon
11/2% of the cumulative Document Processing profit before tax for
the three-year period. A percentage of the pool was awarded to Paul
A. Allaire (10%) and to each of the other (11) executive officers
(5%). As provided by EPIP, the Committee exercised its discretion to
reduce the amounts otherwise payable under the foregoing formula to
an amount which would otherwise have been payable based upon the
degree to which cumulative earnings per share during such three-year
period exceeded a pre-established specified target.
(G) The Company no longer issues stock appreciation rights (SARs) in
tandem with options. All of the options granted were awarded under
LEEP. As discussed under the Report of the Executive Compensation and
Benefits Committee above, LEEP is a three-year program.
(H) The total amounts shown in this column for the last fiscal year
consist of the Company's profit sharing contribution, whether under
the Profit Sharing and Savings Plan or its policy of paying directly
to the officer the amount which cannot be made under the Plan by
reason of the Employee Retirement Income Security Act of 1974, and
the estimated dollar value of the benefit to the officer from the
Company's portion of insurance premium payments under the Company's
Contributory Life Insurance Plan on an actuarial basis. The Company
will recover all of its premium payments at the end of the term of
the policy, generally at age 65. The amounts were: P.A. Allaire:
$188,500 profit sharing; $24,977 life insurance; G.R. Thoman: $0
profit sharing; $42,567 life insurance; A.B. Rand: $62,933 profit
sharing; $11,051 life insurance; B.D. Romeril: $75,267 profit
sharing; $33,103 life insurance; and W.F. Buehler: $77,683 profit
sharing; $20,157 life insurance.
(I) As part of awards made to Mr. Thoman upon commencement of his
employment, an award of 650,000 stock options and 100,000 incentive
stock units was made. For the circumstances under which this award
will be accelerated see "Certain Transactions" below.
13
<PAGE>
Option Grants
The following table sets forth information concerning awards of stock options
to the Named Officers under the Company's 1991 Plan during the fiscal year
ended December 31, 1997. The amounts shown for potential realizable values are
based upon arbitrarily assumed annualized rates of stock price appreciation of
five and ten percent over the full eight-year term of the options, pursuant to
SEC regulations. Based upon an eight-year option term, this would result in
stock price increases of 48% and 114%, respectively or $108.65 and $157.10 for
options with the $73.41 exercise price. The amounts shown as potential
realizable values for all shareholders represent the corresponding increases in
the market value of 326,241,797 shares outstanding held by all shareholders as
of December 31, 1997. Any gains to the Named Officers and the shareholders will
depend upon future performance of the common stock of the Company as well as
overall market conditions.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at Assured
Annual Rates of Stock Price
Individual Grants (1) (2) (3) Appreciation for Option Term
----------------------------------------------------------- -------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Allaire ............ 163,000(4) 7.04% $ 84.5313 12/31/04 $ 6,578,668 $ 15,757,055
278,929 $ 73.4063 12/31/05 $ 9,775,970 $ 23,415,148
G. Richard Thoman .......... 700,270(5) 14.34% $ 69.6250 12/31/04 $ 23,278,960 $ 55,757,158
200,256 $ 73.4063 12/31/05 $ 7,018,620 $ 16,810,815
A. Barry Rand .............. 90,594 1.44% $ 73.4063 12/31/05 $ 3,175,160 $ 7,605,060
Barry D. Romeril ........... 86,779 1.38% $ 73.4063 12/31/05 $ 3,041,451 $ 7,284,804
William F. Buehler ......... 81,816 1.30% $ 73.4063 12/31/05 $ 2,867,507 $ 6,868,177
- ------------------------------------------------------------------------------------------------------------------------------
All Shareholders ........... N/A N/A N/A N/A $11,434,776,332 $27,388,277,646
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options are exercisable 33% on January 1, 1999, 33% on January 1,
2000 and 34% on January 1, 2001.
(2) Exercise price is based upon fair market value on the effective date of
the award.
(3) Options may be accelerated as a result of a change in control as
described below.
(4) Options are exercisable 100% on July 1, 2000.
(5) Options for 650,000 shares are exercisable in 20% increments on January
1, 1998, January 1, 1999, January 1, 2000, January 1, 2001 and January 1,
2002. The remaining options on 50,270 shares granted under the LEEP Plan
for the 1997 performance year vested on January 1, 1998.
Option Exercises/Year-End Values
The following table sets forth for each of the Named Officers the number of
shares underlying options and SARs exercised during the fiscal year ended
December 31, 1997, the value realized upon exercise, the number of options/SARs
unexercised at year-end and the value of unexercised in-the-money options/SARs
at year-end.
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
Number of Shares
Number of Underlying Unexercised Value of Unexercised In-the-
Shares Options/SARs at Money Options/SARs at
Underlying FY-End (#) FY-End ($) (B)
Options/SARs Value ----------------------------------------------------------
Name Exercised (#) Realized ($) (A) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Allaire ............ 150,000 $4,382,520 568,671 665,978 $22,523,689 $8,361,067
G. Richard Thoman .......... 0 $ 0 0 900,526 $ 0 $2,647,931
A. Barry Rand .............. 12,000 $ 661,002 75,081 129,273 $ 2,766,269 $1,425,081
Barry D. Romeril ........... 60,000 $2,484,654 15,081 125,458 $ 555,641 $1,425,081
William F. Buehler ......... 30,680 $ 692,923 9,127 118,129 $ 245,574 $1,291,173
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The value realized is based upon the difference between the exercise
price and the average of the high and low prices on the date of
exercise.
(B) The value of unexercised options/SARs is based upon the difference
between the exercise price and the average of the high and low
prices on December 31, 1997 of $73.41. Option/SARs may be
accelerated as a result of a change in control as described below.
14
<PAGE>
Retirement Plans
Retirement benefits are provided to the executive officers of the Company
including the Named Officers under both a funded company-wide plan and unfunded
executive supplemental plans. The table below shows, under the plans, the
approximate annual retirement benefit which would accrue for the number of
years of participation at the respective salary rates. The earliest retirement
age for benefit commencement is age 55 for certain participants and for all of
the other participants would be at varying ages starting no earlier than at age
60. In the event of a change in control (as defined in the plans) there is no
age requirement for eligibility. The benefit accrues generally at the rate of
12/3% per year of participation, but for certain key executives the rate is
accelerated to 21/2% or 31/3%. No additional benefits are payable for
participation in excess of 30 years.
<TABLE>
Annual benefits for years of participation indicated
------------------------------------------------------
Average annual compensation for five highest years 15 years 20 years 25 years 30 years
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
700,000 ........................................ 171,000 228,000 285,000 342,000
800,000 ........................................ 196,000 261,000 327,000 392,000
900,000 ........................................ 221,000 295,000 368,000 442,000
1,000,000 ........................................ 246,000 328,000 410,000 492,000
1,100,000 ........................................ 271,000 361,000 452,000 542,000
1,200,000 ........................................ 296,000 395,000 493,000 592,000
1,300,000 ........................................ 321,000 428,000 535,000 642,000
1,400,000 ........................................ 346,000 461,000 577,000 692,000
1,500,000 ........................................ 371,000 495,000 618,000 742,000
1,600,000 ........................................ 396,000 528,000 660,000 792,000
1,700,000 ........................................ 421,000 561,000 702,000 842,000
1,800,000 ........................................ 446,000 595,000 743,000 892,000
1,900,000 ........................................ 471,000 628,000 785,000 942,000
2,000,000 ........................................ 496,000 661,000 827,000 992,000
2,100,000 ........................................ 521,000 695,000 868,000 1,042,000
2,200,000 ........................................ 546,000 728,000 993,000 1,092,000
2,300,000 ........................................ 571,000 761,000 952,000 1,142,000
2,400,000 ........................................ 596,000 795,000 993,000 1,192,000
2,500,000 ........................................ 621,000 828,000 1,035,000 1,242,000
2,600,000 ........................................ 646,000 861,000 1,077,000 1,292,000
2,700,000 ........................................ 671,000 895,000 1,118,000 1,342,000
2,800,000 ........................................ 696,000 928,000 1,160,000 1,392,000
2,900,000 ........................................ 721,000 961,000 1,202,000 1,442,000
3,000,000 ........................................ 746,000 995,000 1,243,000 1,492,000
3,100,000 ........................................ 771,000 1,028,000 1,285,000 1,542,000
3,200,000 ........................................ 796,000 1,061,000 1,327,000 1,592,000
3,300,000 ........................................ 821,000 1,095,000 1,368,000 1,642,000
3,400,000 ........................................ 846,000 1,128,000 1,410,000 1,692,000
3,500,000 ........................................ 871,000 1,161,000 1,452,000 1,742,000
3,600,000 ........................................ 896,000 1,195,000 1,493,000 1,792,000
3,700,000 ........................................ 921,000 1,228,000 1,535,000 1,842,000
</TABLE>
The maximum benefit is 50% of the five highest years' annual compensation
reduced by 50% of the primary social security benefit payable at age 65. The
benefits shown are payable on the basis of a straight life annuity and a 50%
survivor annuity for a surviving spouse. The plans provide a minimum benefit of
25% of defined compensation reduced by such social security benefit other than
for the key executives accruing benefits at the accelerated rate.
The following individuals have the indicated years of participation in the
plans:
-------------------------------------------
Years of
Name Participation
-------------------------------------------
Paul A. Allaire .............. 31
G. Richard Thoman ............ 1
A. Barry Rand ................ 29
Barry D. Romeril ............. 4
William F. Buehler ........... 6
-------------------------------------------
15
<PAGE>
Compensation under the plans includes the amounts shown in the salary and bonus
columns under the Summary Compensation Table other than payments under the 1991
Plan to the extent included in the bonus column. The current compensation
covered by the plans for the Named Officers is as follows:
--------------------------------------------------
Covered
Name Current Compensation
--------------------------------------------------
Paul A. Allaire ............... $3,007,000
G. Richard Thoman ............. $ 948,885
A. Barry Rand ................. $ 819,333
Barry D. Romeril .............. $ 786,730
William F. Buehler ............ $ 777,049
--------------------------------------------------
Certain Transactions
In connection with Mr. Thoman's joining the Company as President and Chief
Operating Officer, the Company and Mr. Thoman entered into a Letter Agreement in
June, 1997. Under the terms of this Letter Agreement, which was presented to and
approved by the Executive Compensation and Benefits Committee, Mr. Thoman's
initial annual compensation was fixed at $700,000, he was awarded non-qualified
stock options which are reflected in the "Option Grant In The Last Fiscal Year"
table above, Incentive Stock Rights which are reflected in the "Summary
Compensation Table" above, a minimum annual bonus reflected in the "Summary
Compensation Table" above and guaranteed annual payments of $3,750,000 for each
of 1998, 1999, and 2000, to replace the value of forfeited in-the-money vested
stock options from his former employer. In accordance with the Letter Agreement,
a pro-rated LEEP award was made to Mr. Thoman for the third and final year of
the 1995 LEEP cycle (see "Summary Compensation Table" above for details.)
Pursuant to his Letter Agreement, Mr. Thoman will become entitled to a minimum
$600,000 annual retirement benefit at age 55 increasing to 50% of his highest
five year average compensation at age 60. This benefit would be offset by the
benefits provided under the Company's other unfunded and funded retirement plans
and 50% of the primary social security benefit.
Under the terms of the Letter Agreement, the vesting/payment of the
non-qualified stock options, the incentive stock units, the guaranteed annual
bonuses and the minimum retirement benefit, all described above, will become
vested/payable upon the happening of any one of several events, including change
in control and termination of employment, including under certain circumstances
upon resignation, as set forth in the Agreement, a copy of which has been filed
with the SEC.
There are agreements between the Company and five of its present executive
officers, including Paul A. Allaire and Addision B. Rand, which provide
severance benefits in the event of termination of employment under certain
circumstances following a change in control of the Company (as defined). The
circumstances are termination by the Company, other than because of death or
disability, commencing prior to a potential change in control (as defined), or
for cause (as defined), or by the officers for good reason (as defined).
Following any such termination, in addition to compensation and benefits already
earned, the officer will be entitled to receive a lump sum severance payment
equal to three times the sum of (A) the greater of (1) the officer's annual rate
of base salary on the date notice of termination is given and (2) his/her annual
rate of base salary in effect immediately prior to the change in control and (B)
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 officer for the year in which the change in control occurs.
Cause for termination by the Company is the: (i) willful and continued failure
of the officer to substantially perform his/her duties, (ii) willful engagement
by the officer in materially injurious conduct to the Company, or (iii)
conviction of any crime which constitutes a felony. Good reason for termination
by the officer includes, among other things: (i) the assignment of duties
inconsistent with the individual's status as an officer or a substantial
alteration in responsibilities, (ii) a reduction in base salary and/or annual
bonus, (iii) the relocation of the officer's principal place of business, (iv)
the failure of the Company to maintain compensation plans in which the officer
participates or to continue providing certain other existing employment
benefits, or (v) disability commencing after a potential change in control. The
agreements also 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 employ of the Company for nine months following the occurrence of any such
potential change in control. 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 three years after a change
in control of the Company.
All non-qualified options under the 1991 Plan are accompanied by option
surrender rights. Upon the occurrence of an event constituting a change in
control, as defined in the plan, all such rights become payable in cash based
upon a change in control price as defined in the plan. The 1991 Plan also
provides that upon the occurrence of such an event, all incentive stock rights
and performance unit rights become payable in cash. In the case of rights
payable in shares, the amount of cash is based upon such change in control
price and in the case of rights payable in cash, the cash value of such rights.
Rights payable in cash but which have not been valued at the time of such an
event are payable at the maximum value as determined by the Executive
16
<PAGE>
Compensation and Benefits Committee at the time of the award. Upon accelerated
payment, such rights and any related non-qualified stock options will be
canceled.
From time to time when the Company hires senior experienced executives, special
short-term severance arrangements may be made. Typically, these arrangements
provide for severance pay equal to one-year's compensation in the event of
involuntary termination during the first year of employment.
The Company has established grantor trusts with a bank for the purpose of
paying amounts due under the deferred compensation plan and the agreements with
five executive officers described above, and the unfunded supplemental
retirement plans described above. The trusts are presently unfunded but the
Company would be required to fund the trusts upon the occurrence of certain
events.
The law firm of Akin, Gump, Strauss, Hauer & Feld, of which Vernon E. Jordan,
Jr. is a partner, was retained by and rendered services to the Company in 1997.
Seven-Year Performance Comparison
The graph below provides a comparison of Xerox cumulative total shareholder
return with the Standard & Poor's 500 Composite Stock Index and the Business
Week Computers and Peripherals Industry Group, excluding Xerox (Peer Group).
Comparison of Seven-Year Cumulative Total Return
Business Week Computers &
XEROX Corporation S&P 500 Peripherals
----------------- ------- -----------
dollars
12/31/90 100 100 100
12/31/91 202.95 130.34 96.8
12/31/92 244.52 140.26 82.74
12/31/93 286.45 154.33 91.77
12/31/94 326.87 156.43 115.15
12/31/95 463.76 214.99 164.54
12/31/96 546.77 264.22 228.38
12/31/97 781.34 352.48 308.22
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 closing stock prices. The returns of each
company have been weighted annually for their respective stock market
capitalizations in computing the S&P 500 and Peer Group indices.
17
<PAGE>
Directors and Officers Liability Insurance and Indemnity
In June 1996 the Company renewed its policies for directors and officers
liability insurance covering all directors and officers of the Company and its
subsidiaries. The policies are issued by Federal Insurance Company, National
Union Fire Insurance Company Of Pittsburgh P.A., Chubb Atlantic Ltd.,
Zurich-American Insurance Company, Gulf Insurance Company and A.C.E. Insurance
Company, Ltd., have a three year term extending from June 25, 1996 to June 25,
1999 and a total annual premium of $691,000. No claims have been paid under
these policies.
Section 16(a) Beneficial Ownership Reporting Compliance
There was a failure to file one Form 4, Beneficial Ownership Report, on a timely
basis with the SEC as required under Section 16(a) of the Securities Exchange
Act of 1934 on behalf of Mr. Paul A. Allaire, Chairman and Chief Executive
Officer, due to an inadvertent omission by an administrator in the Office of the
Corporate Secretary where the exercise of stock options was reported but not the
subsequent sale of the shares. The sale was reported immediately upon discovery
of the oversight.
Proposal 2 -- Election of Independent Auditors
The Board of Directors recommends that KPMG Peat Marwick LLP, independent
certified public accountants, be elected independent auditors of the Company for
1998. The recommendation is made on the advice of the Audit Committee, composed
of B.R. Inman, Antonia Ax:son Johnson, John D. Macomber, John E. Pepper, Martha
R. Seger and Thomas C. Theobald, all directors but not officers of the Company.
KPMG Peat Marwick LLP is a member of the SEC Practice Section of the American
Institute of Certified Public Accountants. Representatives of the firm are
expected to be at the meeting to respond to appropriate questions and to make a
statement, if they wish.
Proposal 3--Shareholder Approval of the 1998 Employee Stock Option Plan
At its meeting held on April 6, 1998 the Board of Directors approved the 1998
Employee Stock Option Plan (option plan). The Board has recommended that the
shareholders adopt the option plan at this meeting. It is intended that the
option plan be utilized for grants to a broad base of employees as compared to
the existing 1991 Long-Term Incentive Plan which is targeted at a smaller
employee group and provides for a variety of long-term incentive grants,
including stock options. The option plan is limited to the grant of stock
options. It is expected that the option plan will be utilized in tandem with
other broad-based employee plans and that grants will be made under the option
plan in lieu of benefits under other plans. The option plan provides that
options granted and the number of shares covered by options shall be based upon
one or more measures of Company performance selected by the administrator.
The purpose of the option plan is to increase the ownership interest in the
Company of the general employee population so as to align such interests with
those of the shareholders of the Company and to provide a further incentive to
serve as an employee of the Company. A summary description of the option plan
follows. This description is qualified in its entirety by reference to the full
text of the option plan which is attached to this proxy statement as Exhibit A.
All employees of the Company and any entity which it controls are eligible for
grants under the option plan.
The option plan provides for issuance of 25,000,000 shares of Common Stock of
the Company upon exercise of options.
The option plan will be administered by the individual who is the Vice President
of the Company then having responsibility for Human Resources other than as to
matters relating to officers of the Company who are subject to Section 16 under
the Securities Exchange Act of 1934, as amended. The option plan will be
administered as to such 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. The Vice President of Human
Resources or the Committee, as the case may be (administrator), has the
authority to select employees to receive grants and the number of shares to be
covered by grants.
The option exercise price under the option plan is 100% of the fair market
value per share of Common Stock on the effective date of grant, as defined in
the option plan. A replacement option may not have an exercise price less than
the option being replaced.
Options become cumulatively exercisable as to 33% of the shares subject to the
option commencing at the end of a waiting period, 33% on the first day of the
second year following the waiting period and 34% on the first day of the third
year following the waiting period. The waiting period for this purpose is the
January 1st next following the effective date of grant. Options remain
exercisable for a period of 8 years from the option grant date (exercise
period).
Upon exercise the holder of the option must pay the full purchase price under
the option in cash as well as the required withholding taxes in cash with
respect to such exercise.
The Option Plan prohibits "reload" options where, upon exercise, a new option
is automatically granted.
The Board of Directors may amend the option plan from time to time or terminate
the option 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
such action can adversely change the terms and conditions of an outstanding
option without the optionee's consent.
18
<PAGE>
Options granted under the option plan are not transferable other than by will or
the laws of descent and distribution except pursuant to a domestic relations
order or except as otherwise determined by the administrator or required by law.
During the life of the optionee, options under the option plan are exercisable
only by him or her.
Unless otherwise determined by the administrator, the option plan contains
provisions governing the exercisability of options following termination of
employment for any reason. In general, options continue to be exercisable for a
period extending from three months following termination or for the full term of
the option, depending upon the circumstances of termination.
The Company believes that under the present law, the following are the federal
income tax consequences generally arising with respect to option grants under
the option plan. The grant of an option will create no tax consequences for an
optionee or the Company. Upon exercising an option, the optionee must recognize
ordinary income equal to the difference between the exercise price and the fair
market value of the stock on the date of exercise. The Company will be entitled
to a deduction for the same amount. The treatment of an optionee on a
disposition of shares acquired through the exercise of an option depends on how
long the shares have been held. Any gain or loss on a later disposition of
shares acquired through the exercise of an option will constitute capital gain
or loss to the optionee equivalent to the difference between the share proceeds
and the aforementioned fair market value. The applicable holding period to
determine whether such gain or loss is long- or short-term is measured from the
date of the option exercise. There will be no tax consequences to the Company in
connection with a disposition of shares acquired under an option.
In the event of any change in the number of issued shares of Common Stock, such
as stock dividend, stock split, recapitalization, reorganization, exchange of
shares, liquidation, combination or other change in corporate structure
affecting the shares of Common Stock, the total number of shares reserved for
issuance under the option plan will be appropriately adjusted and the number of
shares covered by each outstanding option and the purchase price per share will
be appropriately adjusted. The option plan also provides for adjustments in
event of sale of assets, merger, consolidation or combination of the Company in
a transaction in which the Company does not survive and the transaction does
not result in conversion of outstanding Shares into or exchanged for different
securities, cash or other property, as described in the option plan.
Options granted under the option plan are accompanied by option surrender
rights. In the event of a change in control, as defined in the option plan,
outstanding options under the option plan are canceled and the option surrender
rights become payable in cash based upon the difference between the option price
and a change in control price as defined in the option plan.
No option may be granted under the option plan after May 21, 2003. However, any
option previously granted may extend beyond such date and continue to be
exercisable pursuant to its terms for its remaining exercise period.
Since awards under the option plan are at the discretion of the administrator,
the number of grants to any employee cannot now be determined.
On April 1, 1998 the average between the highest and lowest sale prices per
share of Common Stock on the New York Stock Exchange Composite Transaction Tape
was $107.44.
To be adopted, the option plan must be approved by the holders of a majority of
the votes cast at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE PLAN.
Other Matters
As of the date of this proxy statement, the Board of Directors does not intend
to present, and has not been informed that any other person intends to present,
any other matter for action at this meeting. If any other matters properly come
before the meeting, it is intended that the holders of the proxies will act in
accordance with their best judgment.
In addition to the solicitation of proxies by mail, certain employees of the
Company, without extra remuneration, may solicit proxies. The Company also will
request brokerage houses, nominees, custodians and fiduciaries to forward
soliciting material to the beneficial owners of stock held of record and will
reimburse such person for the cost of forwarding the material. The Company has
engaged D.F. King & Co., Inc. to handle the distribution of soliciting material
to, and the collection of proxies from, such entities and will pay D.F. King &
Co. a fee of $12,000 plus reimbursement of out-of-pocket expenses. The cost of
all proxy solicitation will be borne by the Company.
As a matter of policy, proxies, ballots and voting tabulations that identify
individual shareholders are kept confidential by the Company. Such documents are
available for examination only by the inspector of election and certain
employees of the Company and the Company's transfer agent who are associated
with processing proxy cards and tabulating the vote. The vote of any shareholder
is not disclosed except in a contested proxy solicitation or as may be necessary
to meet legal requirements.
Copies of the 1997 annual report of the Company have been distributed to
shareholders. Additional copies and additional information, including the annual
report (Form 10-K) filed with the SEC and the consolidated statistical data
contained in the EEO-1 annual report to the U.S. Equal Employment Opportunity
Commission are available without charge from Investor Relations, Xerox
Corporation, P.O. Box 1600, Stamford, Connecticut 06904. The annual report,
proxy statement and Form 10-K are also available on the Company's website at
www.xerox.com/investor.
19
<PAGE>
Shareholder Proposals for 1999 Annual Meeting
In order for shareholder proposals to be included in the proxy statement and
form of proxy for the 1999 Annual Meeting of Shareholders, such proposals must
be received by the Company at its offices at P.O. Box 1600, Stamford,
Connecticut 06904, Attention: Secretary-no later than December 12, 1998.
In addition, the Company's By-Laws provide that any shareholder wishing to make
a nomination for director, or wishing to introduce any business, at the 1999
Annual Meeting of Shareholders must give the Company advance notice as
described in the By-Laws. To be timely, the notice for the 1999 Annual Meeting
must be received at the Company offices mentioned above no earlier than
November 12, 1998 or later than December 12, 1998. Nominations for director
must be accompanied by written consent to being named in the proxy statement as
a nominee and to serving as director if elected.
By Order of the Board of Directors,
/s/Eunice M. Filter
- ---------------------
Eunice M. Filter
Secretary
April 10, 1998
20
<PAGE>
EXHIBIT A
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 ownership interest in the Company of eligible employees of the
Company so as to align such interests with those of the shareholders of the
Company and to provide a further incentive to serve as an employee of the
Company through the issuance of stock options.
ARTICLE II--Definitions
Unless the context clearly indicates otherwise, 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 grant of an Option under the
Plan which shall set forth details of each Option, including, without
limitation, number of shares, option exercise price, Exercise Period, Waiting
Period and exercise 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(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any company owned, directly or indirectly, by the shareholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of the Company's
then outstanding securities; or (B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board, including
for this purpose any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in this Paragraph) whose election or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the period
or whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof.
2.5 "CIC Price" means the higher of (a) the highest price paid for a Share in
the transaction or series of transactions pursuant to which a Change in Control
of the Company shall have occurred, or (b) 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 respect 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 Composite
Transactions for the last preceding date on which sales of Shares were reported.
2.10 "Option" means an option 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 meaning specified in Paragraph 6.4.
2.13 "Optionee" means each person to whom an Option has been granted.
A-1
<PAGE>
2.14 "Plan" means the Xerox Corporation 1998 Employee Stock Option Plan, as
amended and restated from time to time.
2.15 "Shares" means shares of the Common Stock, par value $1.00 per share, of
the Company.
ARTICLE III--Administration of the Plan
3.1 Administrator of Plan. The Plan shall be administered by the individual who
is the Vice President of the Company then having responsibility 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 ("Section 16 Officers"). The Plan shall be administered in respect 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 power and authority to (i) designate the
Employees to whom Options are to be granted, (ii) determine the number of
Shares to be covered by each Option, (iii) determine the terms and conditions
of Options granted under Plan, (iv) interpret and construe the Plan, (v) adopt
such rules and regulations as the Administrator shall deem necessary and
advisable to implement and administer the Plan and (vi) designate persons to
carry out the Administrator's responsibilities, subject to such limitations,
restrictions and conditions as the Administrator may prescribe, such
determinations to be made in accordance with the Administrator's best business
judgment as to the best interests of the Company and its shareholders and in
accordance with the purposes of the Plan. Options granted and the number 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 total number of Shares which may be issued upon exercise of Options under
the Plan shall be 25,000,000 subject to adjustment as provided in Article IX.
Any Shares issued under the Plan may consist of authorized 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 transferable 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 jurisdiction 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 so 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 following 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 share 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 next following the Option Grant
Date (the "Waiting Period") as follows:
33% of such Shares commencing at the end of the Waiting Period;
33% of such Shares commencing on the first day of the second year
following the Waiting Period; and
34% of such Shares commencing on the first day of the third year following
the Waiting Period.
Subject to Article VII, an Option may be exercised until the end of the Exercise
Period. An Option, or portion thereof, may be exercised in whole or in part only
with respect to whole Shares.
To the extent that an Option is not exercised when it becomes initially
exercisable, it shall not expire but shall be carried forward and shall be
exercisable until the expiration of the Exercise Period. Partial exercise will
be permitted from time to time within the percentage limitation described above
provided that no partial exercise 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 time
by written notice 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 check payable to
A-2
<PAGE>
the Company in payment of the full purchase price. After receipt of such notice,
the Company will advise the person exercising the option of the amount 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
exercise program, there shall be no requirement for the Employee to deliver a
check in payment of the purchase 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 option surrender rights ("OSRs") covering an equal number of shares as are
covered under the related Option. Upon the occurrence of an event constituting a
Change in Control, all OSRs shall be paid in cash as soon as may be practicable.
Upon such payment, such rights and any related Option shall be canceled. The
amount of cash payable in respect of an OSR shall be determined by multiplying
the number of unexercised shares under the Option to which the right relates by
the difference between the option price 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 Reload Options. Options shall not be granted which by the terms of the
grant provide for automatic award of additional Options upon exercise thereof.
ARTICLE VII--Termination of Service
Unless otherwise determined by the Administrator, termination of service,
disability, retirement or death of an Optionee shall have the following effects
on Options:
7.1 Termination 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 death, each Option held by such Optionee may thereafter be
exercised by such Optionee (or such Optionee's executor, administrator,
guardian, legal representative, beneficiary or similar person) solely to the
extent that they were exercisable on the date of such termination and shall
expire on the earlier of: (i) three months from the date of such termination or
(ii) expiration 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 accordance with the provisions of Article VI. If the Optionee dies following
termination 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, guardian, legal
representative, beneficiary or similar person and shall expire on the earlier
of: one year following the date of death or expiration of the Exercise Period.
If the Optionee ceases to be such an employee as a result of death after the
expiration of the Waiting Period for an Option award, such Option shall be
immediately vested 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
expiration of the Exercise Period. Options which are not exercisable on the date
the Optionee ceases to be such an employee in accordance 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 Option without
the Optionee's consent.
ARTICLE IX--Adjustment Provisions
9.1 If the Company shall at any time change the number of issued Shares without
new consideration to the Company (such as by stock dividend, stock split,
recapitalization, reorganization, exchange of shares, liquidation, combination
or other change in corporate structure affecting the Shares) or make a
distribution of cash or property which has a substantial impact on the value of
issued Shares, the number of Shares covered by each outstanding Option and the
purchase price per Share under each outstanding Option shall be adjusted so that
the aggregate consideration payable to the Company and the value of each such
Option shall not be changed.
9.2 Notwithstanding any other provision of the Plan, and without affecting the
number of Shares reserved or available hereunder, the Administrator shall
authorize the issuance, continuation or assumption of outstanding Options or
provide for other equitable adjustments after changes in the Shares resulting
from any merger, consolidation, sale of assets, acquisition
A-3
<PAGE>
of property or stock, recapitalization, reorganization or similar occurrence in
which the Company is the continuing or surviving corporation, upon such terms
and conditions as it may deem necessary to preserve Optionees' rights under the
Plan.
9.3 In the case of any sale of assets, merger, consolidation or combination of
the Company with or into another corporation other 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 different
securities, cash or other property, or any combination thereof (an
"Acquisition"), any Optionee who holds an outstanding Option shall have the
right (subject to the provisions of the Plan and any limitation 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 exercise of the Option or portion thereof, as the case may be,
immediately prior to the Acquisition. The term "Acquisition Consideration" shall
mean the kind and amount of shares of the surviving or new corporation, cash,
securities, evidence of indebtedness, other property or any combination thereof
receivable in respect of one Share 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, then in
lieu 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 adoption 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 meeting of shareholders, shall become effective as of the date of
adoption by shareholders.
ARTICLE XI--Miscellaneous Provisions
11.1 Governing Law. The validity, construction and effect 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
such Optionee and the executor, administrator or trustee of such estate, or any
receiver or trustee in bankruptcy or representative of the Optionee's creditors.
11.3 General Restriction. Each Option shall be subject to the requirement that,
if at any time the Administrator shall determine, in its sole discretion, that
the listing, registration or qualification of any Option under the Plan upon any
securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Options or the grant
or settlement thereof, such Option may not be exercised or settled in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Administrator.
11.4 Future Rights. No Employee shall have any rights by reason of the grant of
any Options under the Plan to continue as an employee of the Company or any
subsidiary 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 shareholder
with respect to shares covered by Options granted hereunder until the date of
issuance of a stock certificate therefor, and no adjustment will be made for
dividends or other rights for which the record date is prior 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
share based upon Fair Market Value at the time 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.
A-4
<PAGE>
2980-PS-98
<PAGE>
ELECTION TO OBTAIN XEROX CORPORATION
PROXY MATERIALS
ELECTRONICALLY INSTEAD OF BY MAIL
Xerox Corporation shareholders may elect to receive the Company's future annual
reports, proxy statements and to vote their shares through the Internet instead
of receiving copies through the mail. Xerox is offering this service to provide
added convenience to its shareholders and to reduce annual report printing and
mailing costs.
To take advantage of this option, shareholders must subscribe to one of the
various commercial services that offer access to the Internet World Wide Web.
Costs normally associated with electronic access, such as usage and telephone
charges, will be borne by the shareholder.
To elect this option, go to website www.equiserve.com/proxy. (You may also vote
your shares at this website.) Shareholders who elect this option will be
notified each year by e-mail how to access the proxy materials and how to vote
their shares on the Internet.
If you consent to receive the Company's future proxy materials electronically,
your consent will remain in effect unless it is withdrawn by calling, writing,
or e-mailing our Transfer Agent, Boston EquiServe, at: 1-800-828-6396; P.O. Box
8038, Boston, MA 02266-8038; www.equiserve.com. Also, if while this consent is
in effect you decide you would like to receive a hard copy of the proxy
materials, you may call, write or e-mail our Transfer Agent.
- --------------------------------------------------------------------------------
THE XEROX CORPORATION ANNUAL REPORT AND PROXY STATEMENT ARE AVAILABLE AT:
www.xerox.com/investor and www.equiserve.com/proxy
- --------------------------------------------------------------------------------
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL BACK YOUR PROXY CARD.
DETACH HERE IF MAILING.
PROXY
XEROX CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
10:00 A.M. THURSDAY, MAY 21, 1998
THE FAIRMONT HOTEL, 200 NORTH COLUMBUS DRIVE, CHICAGO, ILLINOIS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints PAUL A. ALLAIRE, ANTONIA AX:SON JOHNSON, N. J.
NICHOLAS, JR. and each of them (or, if more than one are present, a majority of
those present), as proxies for the undersigned, with full power of substitution,
to represent the undersigned and to vote the shares of Common Stock of the
Company which the undersigned is entitled to vote at the above annual meeting
and at all adjournments thereof, (a) in accordance with the following ballot,
and (b) in accordance with their best judgment in connection with such other
business as may come before the meeting.
Comments:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
-------------------
IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE SEE REVERSE
SIDE
-------------------
<PAGE>
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed, and returned your proxy card. To
vote by phone or Internet, read the accompanying proxy statement and ballot and
then follow these easy steps:
====================================================
TO VOTE BY PHONE Call toll free 1-888-807-7699 on a touch tone
telephone.
Enter your 13-digit Control Number located above
your name and address in the lower left corner of
this form.
Follow the simple recorded instructions.
====================================================
====================================================
TO VOTE BY INTERNET Go to website www.equiserve.com/proxy
Enter your 13-digit Control Number located above
your name and address in the lower left corner of
this form.
Follow the simple instructions on the screen.
You can also elect to receive future shareholder
materials electronically at this website.
====================================================
THE XEROX CORPORATION ANNUAL REPORT AND PROXY STATEMENT ARE AVAILABLE AT:
www.xerox.com/investor and www.equiserve.com/proxy
THANK YOU FOR VOTING!
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL BACK YOUR PROXY CARD.
DETACH HERE IF MAILING
[X] Please mark
votes as in
this example
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Unless marked otherwise, this proxy will be voted FOR the election of Directors, FOR election of Auditors, and FOR approval of the
1998 Employee Stock Option Plan. The Board of Directors recommends a vote "For" each of these proposals.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. ELECTION OF DIRECTORS NOMINATED BY THE 2. ELECTION OF INDEPENDENT FOR AGAINST ABSTAIN
BOARD (Pages 2 to 18) AUDITORS (Page 18) [ ] [ ] [ ]
Nominees: Paul A. Allaire, B.R. Inman,
Antonia Ax:son Johnson, Vernon E. Jordan, 3. APPROVAL OF THE 1998 FOR AGAINST ABSTAIN
Jr., Yotaro Kobayashi, Hilmar Kopper, EMPLOYEE STOCK OPTION [ ] [ ] [ ]
Ralph S. Larsen, George J. Mitchell, N.J. PLAN (Pages 18 to 19)
Nicholas, Jr., John E. Pepper, Patricia F.
Russo, Martha R. Seger, Thomas C. Theobald
and G. Richard Thoman.
[ ] FOR ALL [ ] WITHHELD
NOMINEES FROM ALL NOMINEES I plan to attend the Annual Meeting. (A ticket will be sent to you.) [ ]
Check here if you have noted comments on the reverse. [ ]
[ ] ---------------------------------------
For all nominees except as noted above.
- ------------------------------------------------------------------------------------------------------------------------------------
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW. [ ]
PLEASE SIGN AS IMPRINTED HEREON AND RETURN PROMPTLY.
Signature: ___________________ Date Signature: ____________________ Date
</TABLE>
XEROX CORPORATION 1998 PROXY BALLOT--SIDE 2
<PAGE>
AS A PARTICIPANT IN THE EMPLOYEE STOCK OWNERSHIP PLAN YOU HAVE THE RIGHT TO
INSTRUCT THE TRUSTEE ON VOTING THE SHARES ALLOCATED TO YOUR ACCOUNT!
The enclosed proxy statement provides the background on the proposals being
considered at this year's Annual Meeting to be held May 21, 1998. Read it
carefully and decide how you want to instruct the Trustee to vote your shares.
As an ESOP participant you may direct the Trustee how to vote the shares
allocated to your ESOP account. Based upon this direction the Trustee will vote
a proportion of the shares held in Trust which have not been allocated as well
as shares for which no instructions have been received. You may mark the boxes
on the reverse side of the card, date and sign it and return it in the enclosed
postage paid envelope, or you may instruct the Trustee on how to vote your
shares by telephone or Internet. (See the instructions for telephone and
Internet voting on the reverse side of this card.) All votes are confidential.
Xerox has a confidential voting policy. Voting tabulations that identify
individual shareholders--including ESOP participants--are kept confidential. See
the section entitled Other Matters in the proxy statement for additional
information on the confidential voting policy.
Sometimes shareholders write comments on their cards. If you choose to write a
comment on your card and if it would be appropriate to forward it to a Xerox
executive, the Trustee will transcribe your comment. No one at Xerox will see
your voting instructions.
Instruct the Trustee on voting your shares now!
Instruct the Trustee on voting your shares by telephone, Internet, or mail as
soon as possible to be sure your instructions are received prior to the Annual
Meeting in time to be counted.
- --------------------------------------------------------------------------------
THE XEROX CORPORATION ANNUAL REPORT AND PROXY STATEMENT ARE AVAILABLE AT:
www.xerox.com/investor and www.equiserve.com/proxy
- --------------------------------------------------------------------------------
IF YOU USE THE PHONE OR INTERNET, PLEASE DO NOT MAIL BACK THIS CARD.
DETACH HERE IF MAILING.
VOTING INSTRUCTIONS
XEROX CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
10:00 A.M. THURSDAY, MAY 21, 1998
THE FAIRMONT HOTEL, 200 NORTH COLUMBUS DRIVE, CHICAGO, ILLINOIS
To State Street Bank & Trust Company, Trustee:
As a participant in the Xerox Corporation Employee Stock Ownership Plan, I
hereby instruct the Trustee to vote the shares of Stock allocated to my Stock
Account and a proportion of the shares held in the Trust which have not yet been
allocated as well as shares for which no instructions have been received (a) in
accordance with the following direction and (b) to grant a proxy to the proxies
nominated by the Board of Directors of the Company giving them discretion in
connection with such other business as may come before the meeting.
Comments:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
-------------------
IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE SEE REVERSE
SIDE
-------------------
<PAGE>
NOW YOU CAN INSTRUCT THE TRUSTEE ON VOTING YOUR SHARES BY
TELEPHONE OR INTERNET!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Your telephone or Internet instruction authorizes the Trustee to vote your
shares in the same manner as if you marked, signed, and returned your Voting
Instruction card. To instruct the Trustee by phone or Internet, read the
accompanying proxy statement and ballot and then follow these easy steps:
====================================================
BY PHONE Call toll free 1-888-807-7699 on a touch tone
telephone.
Enter your 13-digit Control Number located above
your name and address in the lower left corner of
this form.
Follow the simple recorded instructions.
====================================================
====================================================
BY INTERNET Go to website www.equiserve.com/proxy
Enter your 13-digit Control Number located above
your name and address in the lower left corner of
this form.
Follow the simple instructions on the screen.
====================================================
THE XEROX CORPORATION ANNUAL REPORT AND PROXY STATEMENT ARE AVAILABLE AT:
www.xerox.com/investor and www.equiserve.com/proxy
THANK YOU FOR VOTING!
IF YOU USE THE PHONE OR INTERNET, PLEASE DO NOT MAIL BACK YOUR PROXY CARD.
DETACH HERE IF MAILING
[X] Please mark
votes as in
this example
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Unless marked otherwise, this proxy will be voted FOR the election of Directors, FOR election of Auditors, and FOR approval of the
1998 Employee Stock Option Plan. The Board of Directors recommends a vote "For" each of these proposals.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. ELECTION OF DIRECTORS NOMINATED BY THE 2. ELECTION OF INDEPENDENT FOR AGAINST ABSTAIN
BOARD (Pages 2 to 18) AUDITORS (Page 18) [ ] [ ] [ ]
Nominees: Paul A. Allaire, B.R. Inman,
Antonia Ax:son Johnson, Vernon E. Jordan, 3. APPROVAL OF THE 1998 FOR AGAINST ABSTAIN
Jr., Yotaro Kobayashi, Hilmar Kopper, EMPLOYEE STOCK OPTION [ ] [ ] [ ]
Ralph S. Larsen, George J. Mitchell, N.J. PLAN (Pages 18 to 19)
Nicholas, Jr., John E. Pepper, Patricia F.
Russo, Martha R. Seger, Thomas C. Theobald
and G. Richard Thoman.
-------------------------------------------------------------------------------
[ ] FOR ALL [ ] WITHHELD
NOMINEES FROM ALL NOMINEES
Check here if you have noted comments on the reverse. [ ]
[ ] ---------------------------------------
For all nominees except as noted above.
- ------------------------------------------------------------------------------------------------------------------------------------
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
PLEASE SIGN AS IMPRINTED HEREON AND RETURN PROMPTLY.
Signature: ___________________ Date Signature: ____________________ Date
</TABLE>
