<PAGE> 1
As Filed Pursuant to Rule 424(b)(2)
PROSPECTUS SUPPLEMENT Registration Nos: 333-73173;
(TO PROSPECTUS DATED MARCH 11, 1999) 333-73173-01
XEROX CAPITAL (EUROPE) PLC
IRREVOCABLY AND UNCONDITIONALLY GUARANTEED BY XEROX CORPORATION
$500,000,000 5.75% NOTES DUE MAY 15, 2002
$500,000,000 5.875% NOTES DUE MAY 15, 2004
Xerox Capital (Europe) plc ("XCE" or "we") is offering the 5.75% Notes due May
15, 2002 (the "Notes due 2002") and the 5.875% Notes due May 15, 2004 (the
"Notes due 2004" and, collectively with the Notes due 2002, the "notes") for
sale in the United States, Europe and Asia. The notes will be irrevocably and
unconditionally guaranteed (the "Xerox guaranties") by Xerox Corporation
("Xerox") as described under "Xerox Guaranty and Xerox Overseas Subscription
Agreement".
The Notes due 2002 bear interest at the rate of 5.75% each year and the Notes
due 2004 bear interest at the rate of 5.875% each year. We will pay interest on
the notes semiannually in arrears on May 15 and November 15 of each year,
beginning November 15, 1999. We may not redeem the notes before their maturity,
unless we are required to pay additional amounts as described under "Description
of Notes -- Redemption for Tax Reasons".
The notes are unsecured and rank equally with all of our other unsecured senior
indebtedness. The guaranties are unsecured and rank equally with all of Xerox'
other unsecured senior indebtedness. We will issue the notes only in
denominations of $1,000 and multiples of $1,000.
We have applied to list the notes on the Luxembourg Stock Exchange.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PUBLIC OFFERING UNDERWRITING PROCEEDS, BEFORE
PRICE(1) DISCOUNT EXPENSES, TO XCE(1)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note due 2002................ 99.811% 0.25% 99.561%
Total............................ $499,055,000 $1,250,000 $497,805,000
- -------------------------------------------------------------------------------------------------------------
Per Note due 2004................ 99.504% 0.35% 99.154%
Total............................ $497,520,000 $1,750,000 $495,770,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest from May 13, 1999, if settlement occurs after that
date.
----------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
----------------------------------------------------------------------------
The notes will be ready for delivery in book-entry form only through The
Depository Trust Company, Cedelbank and Euroclear on or about May 13, 1999.
JOINT BOOK-RUNNING MANAGERS
CHASE SECURITIES INC. MERRILL LYNCH & CO.
----------------------------------------------------------------------------
ABN AMRO
BLAYLOCK & PARTNERS, L.P.
DEUTSCHE BANK SECURITIES
J.P. MORGAN & CO.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
The date of this prospectus supplement is May 6, 1999.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUPPLEMENT
Xerox Capital (Europe) plc.................................. S-3
Xerox Corporation........................................... S-3
Selected Financial Data of Xerox Capital (Europe) plc....... S-3
Selected Financial Data of Xerox............................ S-3
Directors of Xerox.......................................... S-7
Use of Proceeds............................................. S-8
Description of Notes........................................ S-8
United States Federal Taxation.............................. S-18
Certain United Kingdom Income Tax Considerations............ S-21
Underwriting................................................ S-25
Legal Opinions.............................................. S-27
General Information......................................... S-27
PROSPECTUS
About this Prospectus....................................... 2
Where You Can Find More Information......................... 2
Xerox Corporation........................................... 3
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends............... 4
Xerox Capital (Europe) plc.................................. 5
Use of Proceeds............................................. 6
The Securities We May Offer................................. 6
Description of the Debt Securities and Guaranties........... 6
Description of the Preferred Stock.......................... 17
Description of Xerox Common Stock........................... 20
Plan of Distribution........................................ 22
Legal Opinions.............................................. 23
Experts..................................................... 23
</TABLE>
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus,
including the information incorporated by reference. We, Xerox and the
underwriters have not authorized anyone to provide you with different
information. We, Xerox and the underwriters are not offering the notes in any
state or any other jurisdiction where the offer is not permitted. You should not
assume that the information in this prospectus supplement and the accompanying
prospectus is accurate at any date other than the date indicated on the cover
page of the documents.
This prospectus supplement and the accompanying prospectus include
particulars given in compliance with the rules governing the listing of
securities on the Luxembourg Stock Exchange for the purpose of giving
information with regard to us and Xerox. Each of XCE and Xerox accepts full
responsibility for the accuracy of the information relating to it contained in
this prospectus supplement and the accompanying prospectus and confirms, having
made all
S-2
<PAGE> 3
reasonable inquiries, that to the best of its knowledge and belief there are no
other facts the omission of which would make any statement herein or in the
prospectus relating to it misleading in any material respect.
References herein to "U.S.$", "$" and "dollars" are to the currency of the
United States.
We cannot guarantee that listing will be obtained on the Luxembourg Stock
Exchange, and settlement of the notes is not conditioned on obtaining this
listing. Copies of this prospectus supplement and the accompanying prospectus,
and the documents we have incorporated by reference, will be available free of
charge at the office of Kredietbank S.A. Luxembourgeoise, 43, Boulevard Royal,
L-2955 Luxembourg.
XEROX CAPITAL (EUROPE) PLC
XCE was incorporated on June 20, 1995 under the laws of England and Wales
in the name of Timedfuture Plc with registered number 3070508. XCE's entitlement
to do business and borrow was certified on November 27, 1995. Its name was
changed on November 28, 1995 to Rank Xerox Capital (Europe) plc and on October
31, 1997 to Xerox Capital (Europe) public limited company. Its principal
executive offices are located at Parkway, Marlow, Buckinghamshire, SL7 1YL,
England. XCE is an indirect wholly-owned subsidiary of Xerox. See "Xerox Capital
(Europe) plc" in the accompanying prospectus.
XEROX CORPORATION
Xerox was incorporated on April 18, 1906 under the laws of the State of New
York, U.S.A. Its principal executive offices are located at 800 Long Ridge Road,
Stamford, Connecticut 06904-1600, U.S.A. See "Xerox Corporation" in the
accompanying prospectus.
S-3
<PAGE> 4
SELECTED FINANCIAL DATA OF XEROX CAPITAL (EUROPE) PLC
CAPITALIZATION
The following table sets forth the capitalization of XCE as of December 31,
1998 which has been extracted from the unaudited 1998 financial statements of
XCE. The unaudited 1998 financial statements of XCE are in the process of being
audited.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
---------------
(IN THOUSANDS)
<S> <C>
Short-term debt and current portion of long-term debt....... L1,687,209
Long-term debt.............................................. 234,761
Shareholder's equity........................................ 11,587
----------
Total capitalization.............................. L1,933,557
==========
</TABLE>
There has been no material change in the capitalization of XCE since
December 31, 1998.
TWO YEAR OPERATING RESULTS
The following summary of operating results has been extracted from the
unaudited financial statements of XCE for the year ended December 31, 1998 and
from the audited financial statements of XCE for the year ended December 31,
1997. These financial statements were prepared in accordance with United Kingdom
generally accepted accounting principles. The unaudited 1998 financial
statements of XCE are in the process of being audited.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Income Statement Data
Net Interest Income......................................... L3,440 L1,437
Income before income taxes.................................. 1,068 710
Net income.................................................. 721 487
</TABLE>
SELECTED FINANCIAL DATA OF XEROX
CAPITALIZATION
The following table sets forth the consolidated capitalization of Xerox as
of December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
(IN MILLIONS)
<S> <C>
Short-term debt and current portion of long-term debt....... $ 4,104
Long-term debt.............................................. 11,003
Deferred ESOP benefits...................................... (370)
Xerox-obligated, mandatorily redeemable preferred securities
of subsidiary trust holding solely subordinated debentures
of Xerox.................................................. 638
Minorities' interests in equity of subsidiaries............. 124
Preferred stock............................................. 687
Common shareholders' equity................................. 4,857
-------
Total capitalization.............................. $21,043
=======
</TABLE>
There has been no material change in the consolidated capitalization of
Xerox since December 31, 1998. Increases in capitalization due to increased
borrowings have been largely offset by decreases in capitalization due to the
impact of the Brazilian currency devaluation on common shareholders' equity.
S-4
<PAGE> 5
FIVE YEAR OPERATING RESULTS
The following summary of consolidated operating results, in millions of
dollars (other than weighted average common shares and potential common shares,
diluted earnings per share and cash dividends declared per common share), has
been extracted from the audited consolidated financial statements of Xerox for
the years ended December 31, 1994 through 1998 and from the unaudited
consolidated financial statements of Xerox for the three months ended March 31,
1998 and March 31, 1999. These financial statements have been prepared in
accordance with United States generally accepted accounting principles. The
summary is qualified in its entirety by, and should be read in conjunction with,
the consolidated financial statements of Xerox, including the notes thereto, and
other detailed financial information included in documents incorporated by
reference in the accompanying prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1999 1998 1998* 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues........................... $ 4,300 $ 4,304 $19,449 $18,144 $17,378 $16,588 $15,084
Income before Income Taxes, Equity
Income and Minorities'
Interests........................ 494 445 763 2,141 1,944 1,849 1,514
Income from continuing operations.. 343 301 585 1,452 1,206 1,174 794
Discontinued operations............ -- (190) (190) -- -- (1,646) --
------- ------- ------- ------- ------- ------- -------
Net income (loss).................. $ 343 $ 111 $ 395 $ 1,452 $ 1,206 $ (472) $ 794
Weighted average common shares and
potential common shares
(thousands)...................... 734,942 725,064 674,054 721,273 726,279 725,992 714,461
Diluted earnings (loss) per share
Continuing operations............ 0.48 0.42 0.80 2.02 1.66 1.61 1.07
Discontinued operations.......... -- (0.26) (0.28) -- -- (2.27) --
------- ------- ------- ------- ------- ------- -------
Diluted earnings (loss) per
share.......................... $ 0.48 $ 0.16 $ 0.52 $ 2.02 $ 1.66 $ (0.66) $ 1.07
Cash dividends declared per common
share............................ $ 0.20 $ 0.18 $ 0.72 $ 0.64 $ 0.58 $ 0.50 $ 0.50
</TABLE>
- ---------------
* The results in 1998 include the effect of a $1,644 million charge recorded in
connection with the 1998 restructuring plan ($1,107 after taxes and including
our $18 share of a restructuring charge recorded by Fuji Xerox Co., Ltd.).
S-5
<PAGE> 6
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows the ratio of earnings to fixed charges of Xerox
for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ---------------------------------
1999 1998 1998* 1997 1996 1995 1994
----- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)(2)........... 2.88 2.99 1.80 3.64 3.71 3.54 3.23
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges has been computed based on Xerox'
continuing operations by dividing total earnings available for fixed
charges, excluding capitalized interest and preferred stock dividends of
subsidiaries, by total fixed charges. Fixed charges consist of interest,
including capitalized interest and preferred stock dividends of
subsidiaries, and one-third of rent expense as representative of the
interest portion of rentals. Debt has been assigned to discontinued
operations based on historical levels assigned to the businesses when they
were continuing operations, adjusted for subsequent paydowns. Discontinued
operations consist of Xerox' Insurance, Other Financial Services, and Third
Party Financing and Real Estate businesses.
(2) Xerox' ratio of earnings to fixed charges includes the effect of Xerox'
finance subsidiaries, which primarily finance Xerox equipment. Financing
businesses are more highly leveraged and, therefore, tend to operate at
lower earnings to fixed charges ratio levels than do non-financial
businesses.
* Excluding the effects of the charges recorded in connection with the 1998
restructuring plan, the ratio of earnings to fixed charges would be 3.55.
S-6
<PAGE> 7
DIRECTORS OF XEROX
The directors of Xerox and their principal occupations are set forth in the
following table.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
Paul A. Allaire........................ Chairman of the Board and Chairman of the Executive
Committee, Xerox
William F. Buehler..................... Vice Chairman and President, Industry Solutions
Operations, Xerox
B.R. Inman............................. Investor
Antonia Ax:son Johnson................. Chairman, Axel Johnson Group
Vernon E. Jordan, Jr. ................. Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
Yotaro Kobayashi....................... Chairman of the Board, Fuji Xerox Co., Ltd.
Hilmar Kopper.......................... Chairman of the Supervisory Board, Deutsche Bank AG
Ralph S. Larsen........................ Chairman and Chief Executive Officer, Johnson & Johnson
George J. Mitchell..................... Special Counsel, Verner, Liipfert, Bernhard, McPherson &
Hand, Chartered
N.J. Nicholas, Jr. .................... Investor
John E. Pepper......................... Chairman of the Board, The Procter & Gamble Company
Barry D. Romeril....................... Vice Chairman and Chief Financial Officer, Xerox
Patricia F. Russo...................... Executive Vice President, Strategy and Corporate
Operations, Lucent Technologies, Inc.
Martha R. Seger........................ Financial economist and Former Governor, Federal Reserve
System; currently Distinguished Visiting Professor of
Finance, Northern Arizona University
Thomas C. Theobald..................... Managing Director, William Blair Venture Partners, LLC
G. Richard Thoman...................... President and Chief Executive Officer, Xerox
</TABLE>
The business address of the foregoing directors is Xerox Corporation, 800
Long Ridge Road, P.O. Box 1600, Stamford, Connecticut 06904-1600 U.S.A.
S-7
<PAGE> 8
USE OF PROCEEDS
Our net proceeds from the sale of the notes after deducting expenses
(estimated to be $704,250) and underwriting discounts are estimated to be
$992,870,750 and are expected to be used for general corporate purposes.
DESCRIPTION OF NOTES
GENERAL
The following description of the terms of the notes supplements, and to the
extent it is inconsistent replaces, the description of the general terms and
provisions of debt securities set forth in the accompanying prospectus. The
notes and the related guaranties are part of the debt securities and guaranties
registered by XCE and Xerox with the United States Securities and Exchange
Commission (the "SEC") in March 1999 to be issued on terms to be determined at
the time of sale. The notes are to be issued as separate series of senior debt
securities under the Indenture, which is more fully described in the
accompanying prospectus.
The Notes due 2002 will mature at par on May 15, 2002 and the Notes due
2004 will mature at par on May 15, 2004. The Notes due 2002 bear interest at the
rate of 5.75% per annum, and the Notes due 2004 bear interest at the rate of
5.875% per annum. The interest will be payable semiannually in arrears on May 15
and November 15 of each year, commencing November 15, 1999, and at maturity to
the Book-Entry Depositary or, if and to the extent that the notes are then in
registered form, to the persons in whose names the notes are registered on the
preceding May 1 and November 1, respectively.
If any interest payment date or maturity date falls on a day that is not a
Business Day the related payment of principal or interest will be made on the
next succeeding Business Day as if made on the date such payment was due, and no
interest will accrue on the amount so payable for the period from and after such
interest payment date or maturity date, as the case may be. "Business Day" with
respect to any place of payment means each Monday, Tuesday, Wednesday, Thursday
and Friday which is neither a legal holiday nor a day on which banking
institutions in The City of New York and such place of payment are authorized or
obligated by law, regulation or executive order to close. The amount of interest
payable for the notes for any period will be computed on the basis of a 360-day
year of twelve 30-day months.
The notes are not subject to redemption by XCE before maturity unless
certain events occur involving United States or United Kingdom taxation or under
certain circumstances where we are required to exchange the Global Notes for
Definitive Registered Notes. See "Description of Notes -- Redemption for Tax
Reasons".
The notes will be issued in denominations of $1,000 and multiples of
$1,000.
Any notes issued in definitive form will be issued only in fully registered
form, without coupons, in denominations of $1,000 and in integral multiples of
$1,000, in the amount of each holder's registered holdings. Any notes so issued
will be registered in such names, and in such denominations, as the Depositary
shall request. Such notes may be presented for registration of transfer or
exchange at the office of the Trustee in The City of New York and principal
thereof and interest thereon will be payable at such office of the Trustee,
provided that interest thereon may be paid by check mailed to the registered
holders of the definitive notes. In the event definitive notes are issued, the
holders thereof will be able to receive payments thereon and effect transfers
thereof at the offices of Kredietbank S.A. Luxembourg or its successor as paying
agent in Luxembourg with respect to the notes.
S-8
<PAGE> 9
XCE has appointed Kredietbank S.A. Luxembourgeoise as a paying agent and
transfer agent in Luxembourg with respect to any notes in definitive form, and,
as long as the notes are listed on the Luxembourg Stock Exchange, XCE will
maintain a paying and transfer agent in Luxembourg and any change in the
Luxembourg paying agent and transfer agent will be published in Luxembourg. See
"Description of Notes -- Notices".
XEROX GUARANTY AND XEROX OVERSEAS SUBSCRIPTION AGREEMENT
Xerox will irrevocably and unconditionally guarantee to each holder of the
notes the due and punctual payment of the principal of, and any interest on, the
notes when and as the same becomes due and payable, whether at maturity or
otherwise. Xerox has:
- agreed that its obligations under the Xerox guaranties, upon the
occurrence and continuance of an Event of Default with respect to the
notes, will be as if Xerox were principal obligor and not merely surety,
and will be enforceable irrespective of any invalidity, irregularity or
unenforceability of the notes or the Indenture.
- waived its right to require the Trustee or the holders of the notes to
pursue or exhaust their legal or equitable remedies against XCE prior to
exercising their rights under the Xerox guaranties.
In the event of a default by XCE in the performance of its obligations to
pay the principal of, and interest on, any notes, any holder of these notes
shall be entitled to serve upon XCE a demand and upon receipt XCE shall, if and
to the extent that it shall have rights to call for the subscription of further
shares under the Novated and Restated Subscription Agreement dated October 31,
1997, between Xerox Overseas Holdings Limited ("Xerox Overseas") and XCE (the
"Subscription Agreement"), serve upon Xerox Overseas a written demand for the
subscription of additional shares in the share capital of XCE pursuant to and
subject to the provisions of the Subscription Agreement. See "Xerox Capital
(Europe) plc -- Subscription Agreement" in the accompanying prospectus.
BOOK-ENTRY; DELIVERY AND FORM
General
The notes will initially be represented by one or more global securities in
bearer form without interest coupons (the "Global Notes"). The Global Notes will
be deposited with the Book-Entry Depositary pursuant to the terms of one or more
Note Deposit Agreements, each to be dated as of May 13, 1999 (collectively, the
"Deposit Agreement"), between XCE, for the limited purposes set forth therein,
and The Chase Manhattan Bank, as book-entry depositary (the "Book-Entry
Depositary").
The Book-Entry Depositary will issue a certificateless interest for each
Global Note, representing a 100% interest in the respective underlying Global
Note, to the Depository Trust Company ("DTC") by recording such interest in the
Book-Entry Depositary's books and records in the name of Cede & Co., as nominee
of DTC. Beneficial interests in the Global Notes will be represented through
book-entry accounts of financial institutions acting on behalf of beneficial
owners as direct and indirect participants in DTC.
Investors may elect to hold interests in the Global Notes through either
DTC (in the United States) or Cedelbank or Morgan Guaranty Trust Company of New
York, Brussels Office, as operator of the Euroclear System ("Euroclear") (in
Europe), either directly if they are participants in such systems or indirectly
through organizations that are participants in such systems. Cedelbank and
Euroclear will hold interests on behalf of their participants through customers'
securities accounts in Cedelbank's and Euroclear's names on the books of their
U.S. depositaries, which in turn will hold such interests in customers'
securities accounts in the U.S. depositaries' names on the books of DTC.
Citibank, N.A. will act as the U.S. depositary for
S-9
<PAGE> 10
Cedelbank, and The Chase Manhattan Bank will act as the U.S. depositary for
Euroclear. Such beneficial interests in the Global Notes are referred to herein
as "Book-Entry Interests". All Book-Entry Interests, including those held
through Euroclear or Cedelbank, will be subject to the procedures and
requirements of DTC. Those interests, if held through Euroclear or Cedelbank,
will also be subject to the procedures and requirements of that system.
Description of Book-Entry System
Upon receipt of the Global Notes, the Book-Entry Depositary will issue a
certificateless interest for each such Global Note, each representing a 100%
interest in the respective underlying Global Note, to DTC by recording such
interest in the Book-Entry Depositary's books and records in the name of Cede &
Co., as nominee of DTC. Ownership of Book-Entry Interests will be limited to
persons who have accounts with DTC ("participants"), including Euroclear and
Cedelbank, or persons who have accounts through participants ("indirect
participants"). Upon such issuance of interests in such Global Notes to DTC, DTC
will credit, on its internal book-entry registration and transfer system, its
participants' accounts with the respective interests owned by such participants.
Such accounts initially will be designated by or on behalf of the underwriters.
Ownership of Book-Entry Interests will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of indirect participants), including
Euroclear and Cedelbank.
The laws of some countries and some states in the United States may require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge the Book-Entry Interests in the Global Notes.
So long as the Book-Entry Depositary, or its nominee, is the holder of the
Global Notes, the Book-Entry Depositary or such nominee, as the case may be,
will be considered the sole holder of such Global Notes for all purposes under
the Indenture and the notes. Except as set forth below, participants or indirect
participants will not be entitled to have notes or Book-Entry Interests
registered in their names, will not receive or be entitled to receive physical
delivery of notes or Book-Entry Interests in definitive bearer or registered
form and will not be considered the owners or holders thereof under the
Indenture. Accordingly, each person owning a Book-Entry Interest must rely on
the procedures of the Book-Entry Depositary and DTC and, if such person is an
indirect participant in DTC, on the procedures of the participant in DTC through
which such person owns its interest to exercise any rights and remedies of a
holder under the Indenture. If any definitive notes are issued to participants
or indirect participants, they will be issued only in registered form, as
described below. Unless and until Book-Entry Interests are exchanged for
definitive notes in registered form, the certificateless interest held by DTC
may not be transferred except as a whole between DTC and a nominee of DTC or
between nominees of DTC by DTC or any such nominee to a successor of DTC or a
successor of such nominee.
Definitive Registered Notes
Under the terms of the Deposit Agreement and the Indenture, owners of
Book-Entry Interests in the Global Notes will receive definitive notes in
registered form ("Definitive Registered Notes") (i) if DTC notifies us or the
Book-Entry Depositary in writing that it (or its nominee) is unwilling or unable
to continue to act as depositary and we do not appoint a successor depositary
within 90 days; (ii) at any time if we determine that the Global Notes (in whole
but not in part) should be exchanged for Definitive Registered Notes, provided
that (x) such exchange is required by (A) any applicable law or (B) any event
beyond our control or (y) payments of interest on any Global Note, Depositary
Interest or Book-Entry Interest are, or would become, subject to any deduction
or withholding for taxes; or (iii) if the Book-Entry
S-10
<PAGE> 11
Depositary is at any time unwilling or unable to continue as Book-Entry
Depositary and we do not appoint a successor Book-Entry Depositary within 90
days.
In addition to the foregoing, during the continuance of an Event of
Default, holders of Book-Entry Interests will be entitled to request and receive
Definitive Registered Notes. Such Definitive Registered Notes will be issued to
and registered in the name of, or as directed by, such person only upon the
request in writing by the Book-Entry Depositary (based upon the instructions of
DTC).
In no event will definitive securities in bearer form be issued. Any
Definitive Registered Notes will be issued in fully registered form in
denominations of $1,000 principal amount and integral multiples thereof. Any
Definitive Registered Notes will be registered in such name or names as DTC
shall instruct the Trustee, through the Book-Entry Depositary. It is expected
that the instructions of DTC will be based upon directions received by DTC from
its participants reflecting the beneficial ownership of Book-Entry Interests. To
the extent permitted by law, XCE, Xerox, the Trustee and any paying agent shall
be entitled to treat the person in whose name any Definitive Registered Note is
registered as the absolute owner thereof. While any Global Note is outstanding,
holders of Definitive Registered Notes may exchange their Definitive Registered
Notes for a corresponding Book-Entry Interest in such Global Note by
surrendering their Definitive Registered Notes to the Book-Entry Depositary and
providing the certificates and opinions required by the Indenture. The
Book-Entry Depositary will make the appropriate adjustments to the Global Note
underlying such Book-Entry Interest to reflect any issue or surrender of
Definitive Registered Notes. The Indenture contains provisions relating to the
maintenance by a registrar of registers reflecting ownership of Definitive
Registered Notes, if any, and other provisions customary for a registered debt
security. Payment of principal and interest on each Definitive Registered Note
will be made to the holder appearing on the applicable register at the close of
business on the record date at his address shown on the applicable register on
the record date.
UNITED STATES HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT UNITED KINGDOM
LAW, UPON THE ISSUANCE TO A HOLDER OF DEFINITIVE REGISTERED NOTES, SUCH HOLDER
WILL BECOME SUBJECT TO UNITED KINGDOM INCOME TAX (CURRENTLY 20%) TO BE WITHHELD
ON ANY PAYMENTS OF INTEREST ON THE DEFINITIVE REGISTERED NOTES AS SET FORTH
UNDER "CERTAIN UNITED KINGDOM INCOME TAX CONSIDERATIONS".
However, United States holders of Definitive Registered Notes may be
entitled to receive a refund of withheld amounts from the United Kingdom Inland
Revenue in certain circumstances. See "Certain United Kingdom Income Tax
Considerations".
Information Concerning DTC, Euroclear and Cedelbank
DTC has informed XCE that: DTC is a limited purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities of its participants and to
facilitate the clearance and settlement of transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers (including
underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
the DTC book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a
S-11
<PAGE> 12
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
DTC has advised us that management of DTC is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems". DTC has informed direct and indirect
participants and other members of the financial community (the "Industry") that
it has developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and interest
payments) to securityholders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's direct and indirect participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
Cedelbank has advised us that it is incorporated under the laws of
Luxembourg as a professional depositary. Cedelbank holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Cedelbank provides
to Cedel Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic markets
in several countries. As a professional depositary, Cedelbank is subject to
regulation by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters. Indirect
access to Cedelbank is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Cedel Participant either directly or indirectly.
Euroclear has advised us that it was created in 1968 to hold securities for
participants of Euroclear ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Euroclear offers various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgium cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy
S-12
<PAGE> 13
for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the underwriters.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Payments on the Global Notes
Payments of any amounts owing in respect of the Global Notes will be made
through one or more paying agents appointed under the Indenture (which initially
will include the Trustee and Kredietbank S.A. Luxembourgeoise, as paying agent
for the notes) to the Book-Entry Depositary as the holder of the Global Notes.
Payment by XCE (or Xerox, as the case may be) in respect of the Global Notes to
the Book-Entry Depositary or its nominee will constitute valid discharge of the
relevant payment obligation in respect of the notes represented by such Global
Notes for all purposes. All amounts payable under the notes will be payable in
dollars. Upon receipt of any such amounts in respect of the Global Notes, the
Book-Entry Depositary will pay, or cause to be paid, such amounts to DTC.
We expect that DTC or its nominee upon receipt of any payment made in
respect of the Global Notes will credit its participants' accounts with such
payments in amounts proportionate to their respective interests in the principal
amount of such Global Note as shown on the records of DTC or its nominee. We
also expect that payments by participants to owners of Book-Entry Interests held
through such participants will be governed by standing customer instructions and
customary practices and will be the responsibility of such participants.
Distributions in respect of Book-Entry Interests held beneficially through
Cedelbank will be credited to cash accounts of its customers in accordance with
its rules and procedures, to the extent received by the U.S. depositary for
Cedelbank.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Distributions in respect of Book-Entry Interests held beneficially through
Euroclear will be credited to the cash accounts of its participants in
accordance with the Terms and Conditions, to the extent received by the U.S.
depositary for Euroclear. None of XCE, Xerox, the Book-Entry Depositary and any
paying agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of Book-Entry Interests or
beneficial ownership interests.
Redemption of Global Notes
In the event the Global Notes are redeemed, the Book-Entry Depositary,
through DTC, will redeem from the amount received by it in respect of the
redemption of such Global Notes an equal amount of the Book-Entry Interests in
such Global Notes. The redemption price payable in
S-13
<PAGE> 14
connection with the redemption of such Book-Entry Interests will be equal to the
amount received by the Book-Entry Depositary in connection with the redemption
of such Global Notes.
Transfers
Initial settlement for the notes will be made in immediately available
funds.
The Book-Entry Depositary has agreed, pursuant to the Deposit Agreement,
that the Global Notes will not be transferred except to the successor to the
Book-Entry Depositary. All transfers of Book-Entry Interests between
participants in DTC will be effected by DTC pursuant to customary procedures
established by DTC and its participants. Transfers between participants in
Euroclear and Cedelbank will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC on the one hand and directly or indirectly through Cedelbank
customers or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its U.S. depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its rules
and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its U.S. depositary to take
action to effect final settlement on its behalf by recording the transfer of the
Book-Entry Interests in accordance with the customary procedures of DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedelbank customers and Euroclear
participants may not deliver instructions directly to their U.S. depositaries.
Because of time-zone differences, credits of the Book-Entry Interests
received in Cedelbank or Euroclear as a result of a transaction with a DTC
participant will be made during subsequent securities settlement processing and
dated the business day following DTC settlement date. Such credits or any
transactions in the Book-Entry Interests settled during such processing will be
reported to the relevant Cedelbank customers or Euroclear participants on such
business day. Cash received in Cedelbank or Euroclear as a result of sales of
the Book-Entry Interests by or through a Cedelbank customer or a Euroclear
participant to a DTC participant will be received with value on the DTC
settlement date but will be available in the relevant Cedelbank or Euroclear
cash account only as of the business day following settlement in DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures to facilitate transfers of the Book-Entry Interests among
participants of DTC, Cedelbank and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Reports
The Book-Entry Depositary will immediately send to DTC, Euroclear and
Cedelbank a copy of any notices, reports and other communications received
relating to XCE (or Xerox, as the case may be), the notes or the Book-Entry
Interests.
Notices
So long as the notes are listed on the Luxembourg Stock Exchange, all
notices to holders of the notes, including any notices with respect to the
redemption of the notes, will be given by publication in a daily newspaper in
Luxembourg, which is expected to be the Luxemburger Wort. So long as the notes
are listed on the Luxembourg Stock Exchange, any change in the
S-14
<PAGE> 15
Luxembourg paying agent and transfer agent will be published in Luxembourg in
the manner set forth above.
Action by Book-Entry Depositary
Upon the occurrence and continuance of an Event of Default with respect to
the notes, or in connection with any other right of the holder of a Global Note
under the Indenture, if requested in writing by DTC, the Book-Entry Depositary
will take any such action as shall be requested in such notice; provided that
the Book-Entry Depositary has been offered reasonable security or indemnity
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request by the owners of Book-Entry Interests.
Resignation of Book-Entry Depositary
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
by giving written notice to XCE, Xerox and DTC, such resignation to become
effective upon the appointment of a successor Book-Entry Depositary, in which
case the Global Notes shall be delivered to that successor. If no such successor
has been so appointed by us within 90 days, the Book-Entry Depositary may
request XCE to issue Definitive Registered Notes as described above.
Expenses of Book-Entry Depositary
We have agreed to indemnify the Book-Entry Depositary against certain
liabilities incurred by it and pay the charges of the Book-Entry Depositary as
agreed between us and the Book-Entry Depositary.
Amendment and Termination of the Deposit Agreement
The Deposit Agreement may be amended by XCE, Xerox and the Book-Entry
Depositary without notice to or consent of DTC, Euroclear, Cedelbank or any
owner of a Book-Entry Interest: (a) to cure any ambiguity, defect or
inconsistency, provided that such amendment or supplement does not adversely
affect the rights of DTC or any holder of Book-Entry Interests; (b) to evidence
the succession of another person to XCE or Xerox (when a similar amendment with
respect to the Indenture is being executed) and the assumption by any such
successor of the covenants of XCE or Xerox therein; (c) to evidence or provide
for a successor Book-Entry Depositary; (d) to make any amendment, change or
supplement that does not adversely affect DTC or any owner of Book-Entry
Interests; (e) to add to the covenants of XCE, Xerox or the Book-Entry
Depositary; or (f) to comply with the United States federal and United Kingdom
securities laws. Except as provided in the Deposit Agreement, no amendment that
adversely affects DTC may be made to the Deposit Agreement without the consent
of DTC and no amendment that adversely affects the holders of Book-Entry
Interests may be made without the consent of a majority of the aggregate
principal amount of Book-Entry Interests outstanding. Upon the issuance of
Definitive Registered Notes in exchange for Book-Entry Interests constituting
the entire principal amount of notes, the Deposit Agreement will terminate. The
Deposit Agreement may be terminated upon the resignation of the Book-Entry
Depositary if no successor has been appointed within 90 days as set forth above.
Purchases
The Indenture does not prevent XCE or Xerox from purchasing notes trading
on the Luxembourg Stock Exchange. In the event of such a purchase of notes by
XCE or Xerox, notes so purchased shall be disregarded for certain voting
purposes consistent with the terms of the Indenture.
S-15
<PAGE> 16
FURTHER ISSUES
We may from time to time, without notice to or the consent of the
Book-Entry Depositary or, if and to the extent that the notes are then in
registered form, the registered holders of the notes, create and issue further
notes ranking pari passu with the notes in all respects (or in all respects
except for the payment of interest accruing prior to the issue date of the notes
or except for the first payment of interest following the issue date of the
notes) and so that such further notes may be consolidated and form a single
series with the notes and have the same terms as to status, redemption or
otherwise as the notes. Any such further notes will be irrevocably and
unconditionally guaranteed by Xerox.
PAYMENT OF ADDITIONAL AMOUNTS
All payments made in respect of the notes, including payments of principal
and interest, shall be made without withholding or deduction for, or on account
of, any present or future taxes, duties, levies, assessment or governmental
charges of whatever nature imposed or levied by or on behalf of the United
Kingdom or the United States or any political subdivision or taxing authority
thereof or therein (any of the aforementioned being a "Taxing Jurisdiction"),
unless such taxes are required to be withheld by the law of the Taxing
Jurisdiction. In the event that we are (or, if applicable, Xerox is) required by
law to deduct or withhold any such taxes from your payments, we (or, if
applicable, Xerox) will, subject to the exceptions and limitations set forth
below, pay as additional interest on the notes, such additional amounts as are
necessary in order that the net payment by us, Xerox or a paying agent of the
principal of and interest on the notes to each holder, after deduction for any
present or future tax, assessment or other governmental charge of the relevant
Taxing Jurisdiction imposed by withholding with respect to the payment, will not
be less than the amount provided in the notes to be then due and payable;
provided, however, that the foregoing obligation to pay additional amounts shall
not apply:
(1) to any tax, assessment or other governmental charge that is
imposed or withheld solely by reason of the holder, or a fiduciary,
settlor, beneficiary, member or shareholder of the holder if the holder is
an estate, trust, partnership or corporation, or a person holding a power
over an estate or trust administered by a fiduciary holder, being
considered as:
(a) being or having been present or engaged in a trade or business
in the relevant Taxing Jurisdiction or having had a permanent
establishment in the relevant Taxing Jurisdiction;
(b) having a current or former relationship with the relevant
Taxing Jurisdiction (other than the mere receipt of payments in respect
of the notes or the ownership or holding of the notes), including a
relationship as a citizen or resident thereof;
(c) being or having been a foreign or domestic personal holding
company, a passive foreign investment company (including a qualified
electing fund) or a controlled foreign corporation with respect to the
United States or a corporation that has accumulated earnings to avoid
United States federal income tax; or
(d) having or having been a "10-percent shareholder" of Xerox as
defined in Section 871(h)(3) of the United States Internal Revenue Code
of 1986, as amended (the "Code"), or any successor provision;
(2) to any holder that is not the sole beneficial owner of the note,
or a portion thereof, or that is a fiduciary or partnership, but only to
the extent that a beneficiary or settlor with respect to the fiduciary or a
beneficial owner or member of the partnership would not have been entitled
to the payment of additional amounts had the beneficiary, settlor,
beneficial owner or member received directly its beneficial or distributive
share of the payment;
S-16
<PAGE> 17
(3) to any tax, assessment or other governmental charge that is
imposed or withheld solely by reason of the failure of the holder or any
other person to comply with certification, identification or information
reporting requirements encompassing the nationality, residence, identity or
connection with the relevant Taxing Jurisdiction of the holder or
beneficial owner of such note, if compliance is required by statute, treaty
or regulation of the relevant Taxing Jurisdiction as a precondition to
exemption from such tax, assessment or other governmental charge;
(4) to any tax, assessment or other governmental charge that is
payable otherwise than by XCE, Xerox or a paying agent from the payment;
(5) to any tax, assessment or other governmental charge that is
imposed or withheld solely by reason of a change in law, regulation, or
administrative or judicial interpretation that becomes effective more than
15 days after the payment becomes due or is duly provided for, whichever
occurs later;
(6) to any estate, inheritance, gift, sales, excise, transfer, wealth
or personal property tax or similar tax, assessment or other governmental
charge;
(7) to any tax, assessment or other governmental charge required to be
withheld by any paying agent from any payment of principal of or interest
on any note, if such payment can be made without such withholding by any
other paying agent; or
(8) in the case of any combination of the items listed above.
To the extent we are (or, if applicable, Xerox is) required to withhold or
deduct, we (or, if applicable, Xerox) will (i) make such withholding or
deduction, (ii) remit the full amount withheld or deducted to the relevant
authority in accordance with applicable law and (iii) furnish holders within 30
days after the date of the payment of any such taxes with certified copies of
tax receipts or certificates of deduction of tax evidencing our payment of such
taxes.
We (or, if applicable, Xerox) will pay any present or future stamp, court
or documentary or any other excise or property taxes, charges or similar levies
that arise in any jurisdiction from the execution, delivery, enforcement or
registration of the notes or the guaranties or any other document or instrument
in relation thereto. Further, we (or, if applicable, Xerox) will indemnify and
hold harmless each holder and upon written request will promptly reimburse the
holder for the amount of (i) any taxes described above (including penalties,
interest and expenses arising therefrom or with respect thereto) imposed or
levied and paid by the holder as a result of payments made hereunder and (ii)
any taxes imposed with respect to any reimbursement under (i), but excluding any
taxes based on the holder's net income.
The notes are subject in all cases to any tax, fiscal or other law or
regulation or administrative or judicial interpretation applicable thereto.
Except as specifically provided under this heading "Payment of Additional
Amounts", we (or, if applicable, Xerox) shall not be required to make any
payment with respect to any tax, assessment or other governmental charge imposed
by any government or a political subdivision or taxing authority thereof or
therein.
REDEMPTION FOR TAX REASONS
If (i) as a result of any change in, or amendment to, the laws (or any
regulations or rulings promulgated thereunder) of a Taxing Jurisdiction, or any
change in, or amendments to, an official position regarding the application or
interpretation of such laws, regulations or rulings which change or amendment is
announced or becomes effective on or after the date of this prospectus
supplement, we become (or, if applicable, Xerox becomes) or, based upon a
written opinion of independent counsel selected by us, we (or, if applicable,
Xerox) will become obligated to pay additional amounts as described herein under
the heading "Description of Notes -- Payment of Additional Amounts" with respect
to the notes offered hereby, or (ii) we become (or, if applicable, Xerox
becomes) or, based upon a written opinion of independent counsel selected by us,
we (or, if applicable, Xerox) will become obligated to pay additional amounts
with respect to
S-17
<PAGE> 18
the notes because we are required to exchange the Global Notes for Definitive
Registered Notes due to any of the following reasons:
- DTC has notified us or the Book-Entry Depositary in writing that it (or
its nominee) is unwilling or unable to continue to act as depositary and
we have not appointed a successor depositary within 90 days;
- we have determined that the Global Notes should be exchanged for
Definitive Registered Notes because such exchange is required by law or
an event beyond our control, and this determination is confirmed by a
written opinion of independent counsel selected by us; or
- the Book-Entry Depositary has advised us that it is unwilling or unable
to continue as Book-Entry Depositary and we have not appointed a
successor Book-Entry Depositary within 90 days;
then we may at our option (or, if applicable, Xerox may at its option) redeem,
as a whole, but not in part, the notes on not less than 30 nor more than 60
days' prior notice, at a redemption price equal to 100% of their principal
amount, together with interest accrued but unpaid thereon to the date fixed for
redemption. We will not be able to redeem the notes under the circumstances
described above in clause (ii) unless the payment of additional amounts cannot
be avoided by the use of any reasonable measures available to XCE or Xerox. In
addition, no redemption may be made pursuant to clause (i) and clause (ii) above
unless we deliver (or, if applicable, Xerox delivers) to the Trustee a
certificate, signed by a duly authorized officer, stating that we are (or, if
applicable, Xerox is) entitled to effect such redemption and setting forth a
statement of the facts showing that the conditions precedent to our right (or,
if applicable, Xerox' right) to so redeem have occurred.
UNITED STATES FEDERAL TAXATION
The following summary describes the material United States federal income
and certain estate tax consequences of the ownership and disposition of the
notes. This summary provides general information only and is directed solely to
original holders purchasing notes at the "issue price", that is, the first price
at which a substantial amount of the notes are sold to the public (excluding
sales to bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers). This summary is
based on the Code, existing administrative pronouncements and judicial
decisions, and existing and proposed Treasury Regulations currently in effect,
and interpretations of the foregoing, changes to any of which subsequent to the
date of this prospectus supplement may affect the tax consequences described
herein, possibly with retroactive effect. This summary discusses only notes held
as capital assets within the meaning of Section 1221 of the Code. This summary
does not discuss all of the tax consequences that may be relevant to a holder in
light of its particular circumstances or to holders subject to special rules,
such as certain financial institutions, insurance companies, dealers in
securities, persons holding notes in connection with a hedging transaction,
"straddle", conversion transaction or other integrated transaction or persons
who have ceased to be United States citizens or to be taxed as resident aliens.
Persons considering the purchase of notes should consult their tax advisors with
regard to the application of the United States federal income and estate tax
laws to their particular situations as well as any tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction.
As used under this heading, the term "United States" means the United
States of America (including the states and the District of Columbia) and its
territories, its possessions and other areas subject to its jurisdiction.
"United States person" means (i) any individual who is a citizen or resident of
the United States, (ii) a corporation or other entity taxable as a corporation
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia, (iii) any estate the income of which is
subject to United States federal income taxation
S-18
<PAGE> 19
regardless of its source, or (iv) any trust if a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in the Treasury Regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be treated as United States persons will also be United States
persons. "Non-United States person" means any person who is not a United States
person.
TAX CONSEQUENCES TO UNITED STATES PERSONS
Payments of Interest
Interest on a note will generally be taxable to a United States person as
ordinary interest income at the time it is accrued or is received in accordance
with the United States person's method of accounting for tax purposes.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of a note, a United States person
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and the United States person's
adjusted tax basis in the note. For these purposes, the amount realized does not
include any amount attributable to accrued interest on the note. Amounts
attributable to accrued interest are treated as interest as described under
"Payments of Interest" above. A United States person's adjusted tax basis in a
note generally will equal the cost of the note to the United States person.
In general, gain or loss realized on the sale, exchange or redemption of a
note will be capital gain or loss. Such gain or loss will be long-term capital
gain or loss if, at the time of the sale, exchange or retirement, the note has
been held for more than one year. Under current law, the excess of net long-term
capital gains over net short-term capital losses is taxed at a lower rate than
ordinary income for certain non-corporate taxpayers. The distinction between
capital gain or loss is also relevant for purposes of, among other things,
limitations on the deductibility of capital losses.
Backup Withholding and Information Reporting
Backup withholding and information reporting requirements may apply to
certain payments of principal, premium and interest on a note, and to payments
of proceeds of the sale or redemption of a note, to certain non-corporate United
States persons. XCE (or Xerox, if applicable), its agent, a broker, or any
paying agent, as the case may be, will be required to withhold from any payment
a tax equal to 31% of such payment if the United States person fails to furnish
or certify its correct taxpayer identification number (social security number or
employer identification number) to the payor in the manner required, fails to
certify that such United States person is not subject to backup withholding, or
otherwise fails to comply with the applicable requirements of the backup
withholding rules. Any amounts withheld under the backup withholding rules from
a payment to a United States person may be credited against such United States
person's United States federal income tax and may entitle such United States
person to a refund, provided that the required information is furnished to the
United States Internal Revenue Service.
TAX CONSEQUENCES TO NON-UNITED STATES PERSONS
United States Withholding Tax
Notes issued by XCE will be considered debt of XCE. Subject to the
discussion below under "Backup Withholding and Information Reporting", no United
States withholding tax should apply to payments of interest or principal on such
notes by XCE.
S-19
<PAGE> 20
Payments of Interest
A non-United States person is currently exempt from United States federal
income taxes with respect to interest on the notes unless the non-United States
person is (i) an insurance company carrying on a United States insurance
business to which the interest is attributable, within the meaning of the Code,
or (ii) an individual or corporation that has an office or other fixed place of
business in the United States to which such interest is attributable, and either
the interest is derived in the active conduct of a banking, financing or similar
business within the United States or is received by a corporation the principal
business of which is trading in stock or securities for its own account.
Sale, Exchange or Retirement of the Notes
A non-United States person will not be subject to United States federal
income tax on any gain on a sale or other disposition of a note unless (i) the
holder is an individual who is present in the United States for 183 days or more
during the taxable year and certain other conditions exist or (ii) the gain is
effectively connected with the conduct of a trade or business within the United
States.
United States Estate Tax
Notes held by an individual who is neither a citizen nor a resident of the
United States for United States federal income tax purposes at the time of such
individual's death generally will not be subject to United States federal estate
tax.
Backup Withholding and Information Reporting
Payments of interest and principal to a non-United States person within the
United States will generally be exempt form backup withholding (imposed at the
rate of 31%), provided that such non-United States person complies with
appropriate certification and identification procedures and that XCE (or Xerox,
if applicable) or the paying agent, as the case may be, does not have actual
knowledge that the payee is a United States person.
Under current Treasury Regulations, payments of the proceeds from the sale,
exchange or other disposition of a note made to or through a foreign office of a
broker (including a custodian, nominee or other agent acting on behalf of the
beneficial owner of a note) generally will not be subject to information
reporting or backup withholding. However, if such broker is a United States
person, a controlled foreign corporation for United States federal tax purposes,
a non-United States person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, or in the case of payments made after December 31, 2000 and, in certain
circumstances, payments made after December 31, 1998, a foreign partnership with
certain connections with the United States, then information reporting will be
required unless the broker has in its records documentary evidence that the
beneficial owner is not a United States person and certain other conditions are
met or the beneficial owner otherwise establishes an exemption. Backup
withholding may apply to any payment that such broker is required to report if
such broker has actual knowledge that the payee is a United States person.
Payments to or through the United States office of a broker are subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies, under penalties of perjury, that it is a non-United States
person and that it satisfies certain other conditions or otherwise establishes
an exemption from information reporting and backup withholding.
Recently finalized Treasury Regulations would modify the application of the
information reporting requirements and backup withholding tax to holders who are
non-United States persons for payments made after December 31, 2000. Among other
things, these regulations may require such holders to furnish new certifications
of their non-United States status.
S-20
<PAGE> 21
Non-United States persons holding notes should consult their tax advisors
regarding the application of information reporting and backup withholding on
their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such exemption, if available. Backup withholding is not
a separate tax, but is allowed as a refund or credit against the holder's United
States federal income tax, provided the necessary information is furnished to
the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
CERTAIN UNITED KINGDOM INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material United Kingdom tax
consequences of the acquisition, ownership and disposition of the notes. The
discussion is based upon current United Kingdom tax law and United Kingdom
Inland Revenue practice. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the conclusions
set forth below, possibly on a retroactive basis, which could adversely affect a
holder of the notes. Except as otherwise described herein, this discussion
applies only to a holder who is a United States person (as defined above, see
"United States Federal Taxation") who purchases notes pursuant to this offering
at the "public offering prices." In particular, unless otherwise specified, this
discussion does not address the United Kingdom tax consequences to a holder who
is resident or ordinarily resident in the United Kingdom for United Kingdom tax
purposes or who carries on business in the United Kingdom through a branch,
agency or fixed place of business. This discussion does not purport to deal with
all aspects of United Kingdom taxation that might be relevant to a particular
United States person in the light of his personal investment circumstances or
status, nor does it discuss the United Kingdom tax consequences to certain types
of insurance companies, dealers in securities or foreign currency, tax-exempt
organizations, foreign corporations resident outside the United States, or
persons that hold notes that are a hedge against, or that are hedged against,
currency risk or that are part of a straddle or conversion transaction.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. YOU ARE STRONGLY
URGED TO CONSULT WITH YOUR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF YOUR
PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING THE TAX
CONSEQUENCES UNDER TAX LAWS OF JURISDICTIONS OTHER THAN THE UNITED KINGDOM, OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES.
UNITED KINGDOM WITHHOLDING TAX
Listed Bearer Notes
For United Kingdom tax purposes, the notes will be considered to be in
bearer form. So long as the notes continue to be in bearer form and are listed
on a "recognized stock exchange" (the Luxembourg Stock Exchange has been
designated as a "recognized stock exchange" for this purpose), payments of
interest may be made without withholding or deduction for or on account of
United Kingdom income tax where:
(1) the payment of interest is made by or through a paying agent
outside the United Kingdom; or
S-21
<PAGE> 22
(2) the payment of interest is made by or through a paying agent who
is in the United Kingdom but:
(a) a person who is not resident in the United Kingdom beneficially
owns the notes and is beneficially entitled to the interest; or
(b) the notes are held in a "recognized clearing system" (DTC,
Euroclear and Cedelbank have each been designated as a "recognized
clearing system" for this purpose),
and the person by or through whom the payment is made receives a declaration in
the prescribed form that the conditions in (1) or (2) are satisfied (unless the
Board of Inland Revenue has issued a notice to the relevant payer stating that
they consider that condition (1) or (2) or both are not satisfied).
It is intended that the notes will be listed on the Luxembourg Stock
Exchange prior to the first payment of interest. We cannot make any such
guarantee, however.
In all other cases, interest will be paid under deduction of income tax at
the lower rate (currently 20%), subject to any direction to the contrary from
the Inland Revenue in respect of such relief as may be available pursuant to the
provisions of an applicable double taxation treaty (and see "-- Taxation of
Definitive Registered Notes" below).
Where the notes are in bearer form and are listed on a recognized stock
exchange, if a person in the United Kingdom who, in the course of a trade or
profession, among other things, acts as a collecting agent, i.e., either:
(1) acts as a custodian of the notes and receives interest or has such
interest paid at its direction or with its consent to another person; or
(2) by means of coupons collects or secures payment of or receives
interest on the notes for another person or otherwise acts for another
person in arranging to collect or secure payment of such interest (other
than merely by clearing or arranging to clear a check),
the collecting agent will be required to withhold United Kingdom income tax from
such interest at the lower rate of income tax (currently 20%) unless:
(a) the notes are held in a recognized clearing system (as described above)
and the collecting agent pays or accounts for the interest directly or
indirectly to the recognized clearing system; or
(b) the notes are held in a recognized clearing system (as described above)
for which the collecting agent is a depositary; or
(c) the person beneficially entitled to the interest payments under the
notes and who owns the related notes is not resident in the United Kingdom or is
specified by regulations.
For the above exceptions to apply, a declaration in the specified form has
to be provided to the collecting agent. Notwithstanding, the collecting agent
will be required to withhold if the United Kingdom Inland Revenue issues a
direction to that effect, having reason to believe that no exception applies or
that the depositary or collecting agent has failed to comply with certain
requirements. There are also exemptions for particular categories of holders of
notes (e.g., certain types of pension funds, charities and non-United Kingdom
resident trusts). Regulations may be issued that impose conditions that have to
be satisfied in order for a particular exemption to be available.
S-22
<PAGE> 23
Taxation of Definitive Registered Notes
In the event that Definitive Registered Notes are issued, interest paid by
XCE (or Xerox, as the case may be) will be subject to United Kingdom withholding
tax at the lower rate of income tax (currently 20%) unless prior authorization
has been received to pay the interest gross or subject to a reduced rate of
withholding tax under the terms of an applicable double tax agreement.
Interest paid by XCE (or Xerox, as the case may be) to a resident of the
United States is generally exempt from tax in the United Kingdom under the terms
of the double tax agreement of December 31, 1975 between the United Kingdom and
the United States (the "DTA").
For the purposes of the DTA, a "resident of the United States" means (i)
any person, other than a corporation, resident in the United States for the
purposes of United States tax; but in the case of a partnership, estate or
trust, only to the extent that the income derived by such partnership, estate,
or trust is subject to United States tax as the income of a resident, either in
its hands or in the hands of its partners or beneficiaries; or (ii) a United
States corporation.
Where an individual is a resident in both the United Kingdom and the United
States, the DTA contains provisions for determining where the individual is
resident for the purposes of the DTA. Accordingly, an individual cannot be
resident in more than one jurisdiction for the purposes of the DTA.
The aforementioned exemption from United Kingdom tax does not apply if the
person deriving the interest, being a resident of the United States, carries on
business in the United Kingdom through a permanent establishment situated in the
United Kingdom or performs in the United Kingdom independent personal services
from a fixed base situated in the United Kingdom and the notes are effectively
connected with such permanent establishment or fixed base in the United Kingdom.
In such case, the interest may be subject to United Kingdom income tax or United
Kingdom corporation tax as the case may be.
Certain corporations that are resident for tax purposes in both the United
Kingdom and the United States are excluded from most benefits and exemptions
conferred by the DTA and accordingly the aforementioned exemption from United
Kingdom tax on interest may not be available to such corporations.
The exemption may also not apply to certain interest where the recipient of
the interest is exempt from tax on such income in the United States and such
recipient sells or makes a contract to sell the notes from which such interest
is derived within three months of the date such recipient acquired such notes.
A resident of the United States (as defined for purposes of the DTA) will
not be entitled to receive payments of interest on a gross basis, and interest
paid by XCE (or Xerox, as the case may be) to such resident of the United States
will be subject to United Kingdom withholding tax of 20% of the interest paid,
unless prior authorization is obtained from the Financial Intermedi-
aries and Claims Office ("FICO") of the United Kingdom Inland Revenue.
Such authorization may be given by FICO on a claim by the recipient of the
interest. Such a claim must be made on a prescribed form in duplicate. The claim
must be certified by the United States Internal Revenue Service which will then
transmit the claim to the United Kingdom Inland Revenue for authorization. If
the claim is accepted by the United Kingdom Inland Revenue, the payor may be
notified of its authorization to pay interest without deductions for United
Kingdom withholding tax.
Absent such prior authorization, a United States resident recipient may
claim a refund of United Kingdom income tax so withheld (if any). The claim for
refund must be made on a prescribed form and certified by the United States
Internal Revenue Service before it is submitted
S-23
<PAGE> 24
to the United Kingdom Inland Revenue. If the claim is accepted, the refund of
the tax withheld will be made directly to the recipient of the interest or to a
nominated agent.
Claims for repayment must be made within six years of the end of the United
Kingdom year of assessment (generally April 5 in each year) to which the payment
of interest relates and must be accompanied by the original statement provided
by the payor when the interest payment was made showing the amount of income tax
withheld.
Because a claim is not considered until the United Kingdom Inland Revenue
receives the appropriate form from the United States Internal Revenue Service;
forms should be sent to the United States Internal Revenue Service, in the case
of an advance claim, well before the relevant interest payment date or, in the
case of a claim for repayment of tax withheld, well before the end of the
appropriate limitation period.
SALE OR DISPOSITION (INCLUDING REDEMPTION)
For United Kingdom tax purposes, a sale, exchange or other disposition of a
note generally will not give rise to a United Kingdom tax charge unless such
sale, exchange or other disposition is made by a holder resident or ordinarily
resident for United Kingdom tax purposes in the United Kingdom or who carries on
a trade, profession or vocation in the United Kingdom through a branch or agency
to which the note is attributable.
UNITED KINGDOM STAMP DUTY AND STAMP DUTY RESERVE TAX
Generally, no United Kingdom stamp duty or stamp duty reserve tax is
payable on the issue, transfer or redemption of a note.
S-24
<PAGE> 25
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated as of May 6, 1999 (the "Underwriting Agreement"), the
underwriters named below, acting through their representatives, Chase Securities
Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Representatives"), have severally agreed to purchase and we have agreed to sell
to them, severally, the respective principal amounts of notes set forth below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTS OF NOTES
UNDERWRITERS 2002
------------ ----------------
<S> <C>
Chase Securities Inc. ...................................... $ 212,500,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 212,500,000
ABN Amro Incorporated....................................... 12,500,000
Blaylock & Partners, L.P. .................................. 12,500,000
Deutsche Bank Securities Inc. .............................. 12,500,000
J.P. Morgan Securities Inc. ................................ 12,500,000
Lehman Brothers Inc. ....................................... 12,500,000
Morgan Stanley & Co. International Limited.................. 12,500,000
--------------
Total............................................. $ 500,000,000
==============
PRINCIPAL
AMOUNTS OF NOTES
UNDERWRITERS 2004
- ------------------------------------------------------------ --------------
Chase Securities Inc. ...................................... $ 212,500,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 212,500,000
ABN Amro Incorporated....................................... 12,500,000
Blaylock & Partners, L.P. .................................. 12,500,000
Deutsche Bank Securities Inc. .............................. 12,500,000
J.P. Morgan Securities Inc. ................................ 12,500,000
Lehman Brothers Inc. ....................................... 12,500,000
Morgan Stanley & Co. International Limited.................. 12,500,000
--------------
Total............................................. $ 500,000,000
==============
</TABLE>
The Underwriting Agreement provides that the obligations of the
underwriters are subject to certain conditions precedent.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
We have been advised by the Representatives that the underwriters propose
to offer the notes to the public initially at the offering price set forth on
the cover page of this prospectus supplement and to offer some of the notes of
each series to certain dealers at the public offering price less a concession
not in excess of:
- 0.175% of the principal amount in the case of the Notes due 2002 and
- 0.25% of the principal amount in the case of the Notes due 2004.
The underwriters may allow, and such dealers may reallow, a concession to
certain other dealers not in excess of 0.125% of the principal amount in the
case of both series of notes. After the initial public offering, the
underwriters may change the public offering prices, concessions and discounts.
S-25
<PAGE> 26
The notes are offered for sale in those jurisdictions in the United States,
Europe and Asia where it is legal to make such offers. Only offers and sales of
the notes in the United States, as part of the initial distribution thereof or
in connection with resales thereof under circumstances where this prospectus
supplement and the accompanying prospectus must be delivered, are made pursuant
to the registration statement of which the prospectus, as supplemented by this
prospectus supplement, is a part.
Each underwriter has represented and agreed that it will comply with all
applicable laws and regulations in force in any jurisdiction in which it
purchases, offers, sells or delivers the notes or possesses or distributes this
prospectus supplement or the accompanying prospectus and will obtain any
consent, approval or permission required by it for the purchase, offer or sale
by it of the notes under the laws and regulations in force in any jurisdiction
to which it is subject or in which it makes such purchases, offers or sales and
neither we, Xerox nor any other underwriter shall have responsibility therefor.
Each underwriter, severally and not jointly, has represented and agreed
that:
(1) it has not offered or sold and will not offer or sell any notes to
persons in the United Kingdom prior to the expiry of the period of six
months from the issue date of the notes except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in
an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995;
(2) it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with the issue
of the notes to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996, as amended, or is a person to whom such document may otherwise
lawfully be issued or passed on; and
(3) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to any notes in, from or otherwise involving the United Kingdom.
Although application will be made to list the notes on the Luxembourg Stock
Exchange, the notes are a new issue of securities with no established trading
market. No assurance can be given as to the liquidity of, or the trading markets
for, the notes. Nor can we guarantee that listing will be obtained on the
Luxembourg Stock Exchange; settlement of the notes is not conditioned on
obtaining this listing. We have been advised by the underwriters that they
intend to make a market in the notes, but they are not obligated to do so and
may discontinue such market-making at any time without notice.
Purchasers of the notes may be required to pay stamp taxes and other
charges in accordance with the laws and practices of the country of purchase in
addition to the issue price set forth on the cover page hereof.
In connection with the sale of the notes, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
notes. Specifically, the underwriters may overallot the offering, creating a
short position. In addition, the underwriters may bid for, and purchase, the
notes in the open market to cover short positions or to stabilize the price of
the notes, and in connection therewith the Representatives may impose a penalty
bid on certain underwriters. This means that if the Representatives purchase
notes in the open market to reduce any short position or to stabilize the price
of the notes, they may reclaim the amount of the selling concession from the
underwriter or underwriters who sold those notes as part of the offering. Any of
these activities may stabilize or maintain the market price of the notes above
S-26
<PAGE> 27
independent market levels. The underwriters will not be required to engage in
these activities, and may end any of these activities at any time.
In the ordinary course of their respective businesses, Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and affiliates, Lehman
Brothers Inc. and affiliates and Morgan Stanley & Co. Incorporated and
affiliates have engaged, and may in the future engage, in investment banking
transactions with XCE and Xerox and their affiliates. In the ordinary course of
their business, ABN Amro Incorporated and affiliates have engaged, and may in
the future engage, in commercial banking transactions with XCE and Xerox and
their affiliates. In the ordinary course of their respective businesses, Chase
Securities Inc. and affiliates, Deutsche Bank Securities Inc. and affiliates,
and J. P. Morgan Securities Inc. and affiliates have engaged, and may in the
future engage, in investment banking and commercial banking transactions with
XCE and Xerox and their affiliates.
It is expected that delivery of the notes will be made against payment
therefor on or about the date specified in the last paragraph of the cover page
of this prospectus supplement, which will be the fifth business day following
the date of pricing of the notes. Under Rule 15c6-1 of the Exchange Act, trades
in the secondary market generally are required to settle in three business days,
unless the parties to any such trade expressly agree otherwise. Accordingly,
purchasers who wish to trade notes on the date of pricing or the next two
succeeding business days will be required, by virtue of the fact that the notes
initially settle in T+5, to specify an alternate settlement cycle at the time of
any such trade to prevent a failed settlement. Purchasers of notes who wish to
trade notes on the date of pricing or the next two succeeding business days
should consult their own advisor.
Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated have agreed to reimburse us for certain of our expenses in
connection with the offering of the notes.
LEGAL OPINIONS
The due authorization, execution and delivery of the notes offered hereby
will be passed upon for XCE by Carole Shephard, Esq., the Company Secretary of
Xerox Overseas, of which XCE is a direct wholly-owned subsidiary, and a
Barrister in England. Certain other legal matters relating to the offering
contemplated herein will be passed upon for XCE by Lovell White Durrant. The
validity of the guaranties of Xerox relating to the notes and certain other
legal matters relating to the offering contemplated herein will be passed upon
for Xerox and XCE by Martin S. Wagner, Esq., Associate General Counsel,
Corporate, Finance and Ventures of Xerox. Certain legal matters in connection
with the offering will be passed upon for the underwriters by Cravath, Swaine &
Moore, New York, New York.
GENERAL INFORMATION
Application has been made to list the notes on the Luxembourg Stock
Exchange. In connection with the listing application, our Memorandum and
Articles of Association and Xerox' Restated Certificate of Incorporation and
By-Laws, each as amended to date, and a legal notice relating to the issuance of
the notes have been deposited prior to listing with the Greffier en Chef du
Tribunal d'Arrondissement de et a Luxembourg, where copies thereof may be
obtained upon request. Copies of the above documents together with this
prospectus supplement, the accompanying prospectus, the Indenture and Xerox'
Annual Report on Form 10-K for the year ended December 31, 1998, as well as all
future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, so long as any of the notes are outstanding, will be made
available for inspection at the main office of Kredietbank S.A. Luxembourgeoise.
Kredietbank S.A. Luxembourgeoise will act as a contact between the Luxembourg
Stock Exchange and us or the holders of the notes for as long as the notes are
listed on the
S-27
<PAGE> 28
Luxembourg Stock Exchange. In addition, copies of Xerox' Annual Reports,
Quarterly Reports and Current Reports may be obtained free of charge at such
office.
Except as may be disclosed herein, there has been no material adverse
change in the financial position of Xerox or its subsidiaries, taken as a whole,
since December 31, 1998.
On March 10, 1994, a lawsuit was filed against Xerox in the United States
District Court for the District of Kansas by two independent service
organizations ("ISOs") in Kansas City and St. Louis and their parent company.
Subsequently, a single corporate entity, CSU, L.L.C. ("CSU") was substituted for
the three affiliated companies. CSU claimed damages predominately resulting from
Xerox' alleged refusal to sell parts for high volume copiers and printers to CSU
prior to 1994. Xerox' policies and practices with respect to the sale of parts
to ISOs were at issue in an antitrust class action in Texas, which was settled
by Xerox during 1994. Claims for individual lost profits of ISOs who were not
named parties, such as CSU, were not included in that class action. Xerox
asserted counterclaims against CSU alleging patent and copyright infringement
relating to the copying of diagnostic software and service manuals. On April 8,
1997, the District Court granted partial summary judgment in favor of Xerox on
CSU's antitrust claims, ruling that Xerox' unilateral refusal to sell or license
its patented parts cannot give rise to antitrust liability. On January 8, 1999,
the Court dismissed with prejudice all of CSU's antitrust claims. CSU has
preserved for appeal only its claims that Xerox unlawfully refused to sell
critical parts (including patented parts), to sell manuals and to license
patented and copyrighted software and its claim that Xerox' refusal to sell
non-critical parts was unlawful because it was in conjunction with an allegedly
unlawful refusal to sell critical parts. The District Court also granted summary
judgment in favor of Xerox on its patent infringement claim, leaving open with
respect to patent infringement only the issues of willfulness and the amount of
damages, and granted partial summary judgment in favor of Xerox with respect to
some of its claims of copyright infringement. A judgment in the amount of
$1,039,282 was entered in favor of Xerox and against CSU on the copyright
infringement counterclaim. CSU has filed a notice of appeal to the United States
Court of Appeals for the Federal Circuit.
On April 11, 1996, an action was commenced against Xerox by Accuscan Corp.
("Accuscan"), in the United States District Court for the Southern District of
New York, against Xerox seeking unspecified damages for infringement of a patent
of Accuscan which expired in 1993. The suit, as amended, was directed to
facsimile and certain other products containing scanning functions and sought
damages for sales between 1990 and 1993. On April 1, 1998, the jury entered a
verdict in favor of Accuscan for $40 million. However, on September 14, 1998,
the Court granted Xerox' motion for a new trial on damages. Xerox is also
seeking to appeal the issue of liability and believes that the liability verdict
should be set aside.
On December 18, 1998, three former employees of Crum & Forster Holdings,
Inc. (a former subsidiary of Xerox) ("C&F") filed a lawsuit in the United States
District Court for the District of New Jersey claiming wrongful termination of
their participation in the Xerox Corporation Employee Stock Ownership Plan
("ESOP"). Xerox, the ESOP, C&F and the company that acquired C&F are named
defendants. Plaintiffs purport to bring this action on behalf of themselves and
a class of approximately 10,000 persons who were employed by C&F (or one of its
insurance subsidiaries which also participated in the ESOP) from July 1, 1989
through December 31, 1993. Plaintiffs assert violations of the Employee
Retirement Income Security Act, breach of contract, conversion, unjust
enrichment and fraudulent misrepresentation. They are seeking approximately $250
million in damages.
The foregoing action is related to an action previously filed in the United
States District Court for the Western District of Texas. The Texas plaintiffs
did not specify their damages, but they sought certification of a similar class
of former ESOP participants. Plaintiffs' amended motion for class certification
was denied by the Court on March 26, 1999. The plaintiffs have asked the Court
to reconsider its decision. Xerox' motion to dismiss the Texas action is still
pending. Xerox
S-28
<PAGE> 29
denies any wrongdoing and Xerox intends to vigorously defend both the Texas and
New Jersey actions.
Save as disclosed above, none of XCE and Xerox nor any of Xerox'
subsidiaries are involved in any legal or arbitration proceeding (including any
that are pending or threatened) which may have or have had during the 12 months
prior to the date hereof a significant effect on the financial position of XCE
or Xerox and its subsidiaries, taken as a whole.
The Notes due 2002 have been assigned Euroclear and CedelBank Common Code
No. 9764836, International Security Identification Number (ISIN) US98411MAB46
and CUSIP No. 98411MAB4.
The Notes due 2004 have been assigned Euroclear and CedelBank Common Code
No. 9764887, International Security Identification Number (ISIN) US98411MAA62
and CUSIP No. 98411MAA6.
S-29
<PAGE> 30
<TABLE>
<S> <C>
XEROX CORPORATION XEROX CAPITAL (EUROPE) PLC
PRINCIPAL EXECUTIVE OFFICE PRINCIPAL EXECUTIVE OFFICE
800 Long Ridge Road Parkway, Marlow
P.O. Box 1600 Buckinghamshire SL7 1YL
Stamford, Connecticut 06904-1600 United Kingdom
United States
</TABLE>
<TABLE>
<S> <C>
TRUSTEE BOOK-ENTRY DEPOSITARY
Citibank, N.A. The Chase Manhattan Bank
111 Wall Street Capital Markets Fiduciary Services
New York, New York 10043 450 West 33rd Street, 10th Floor
United States New York, New York 10001
United States
</TABLE>
LUXEMBOURG PAYING AND TRANSFER AGENT
Kredietbank S.A. Luxembourg
Kredietbank S.A. Luxembourgeoise
43, Boulevard Royal
L-2955 Luxembourg
LEGAL ADVISORS
<TABLE>
<S> <C> <C>
To the Underwriters To XCE and Xerox To XCE and Xerox
As to United States Law: As to United States Law: As to United States Tax Law:
</TABLE>
<TABLE>
<S> <C> <C>
CRAVATH, SWAINE & MOORE MARTIN S. WAGNER IVINS, PHILLIPS & BARKER,
825 Eighth Avenue Associate General Counsel CHARTERED
New York, New York 10019 Corporate, Finance Ventures 1700 Pennsylvania Avenue, N.W.
United States Xerox Corporation Washington, D.C. 20006
800 Long Ridge Road United States
P.O. Box 1600
Stamford, Connecticut
06094-1600
United States
</TABLE>
To XCE
As to English Law:
LOVELL WHITE DURRANT
65 Holborn Viaduct
London EC1A 2DY
United Kingdom
LUXEMBOURG LISTING AGENT
Kredietbank S.A. Luxembourg
Kredietbank S.A. Luxembourgeoise
43, Boulevard Royal
L-2955 Luxembourg
AUDITORS
To Xerox
KPMG LLP
3001 Summer Street
Stamford, Connecticut 06905
United States
<PAGE> 31
[XEROX LOGO]
