SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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Xerox Corporation
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(SC14A-07/98)
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[Letterhead of Xerox Corporation]
Xerox Corporation
800 Long Ridge Road
P.O. Box 1600
Stamford, Connecticut 06904
April 12, 1999
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of Xerox
Corporation to be held Thursday, May 20, 1999 at 10:00 a.m. at The Ritz-Carlton
San Francisco, 600 Stockton at California Street, San Francisco, California.
Your Board of Directors and Management look forward to greeting personally
those shareholders able to attend.
At the Annual Meeting, in addition to the election of 14 directors and the
election of KPMG LLP as independent auditors for 1999, you are being asked to
consider and approve amendments to the 1991 Long-Term Incentive Plan,
amendments to the 1996 Non-Employee Director Stock Option Plan, and amendments
to the Certificate of Incorporation regarding Preferred Stock voting rights.
The Board of Directors unanimously recommends that you vote in favor of each of
these proposals.
It is important that your shares be represented and voted at the Annual
Meeting, regardless of whether or not you plan to attend in person. You are
therefore urged to vote your shares. You may vote your shares via the toll free
telephone number, or via the Internet (see instructions on the enclosed proxy
card) or you may sign, date and mail the accompanying proxy card and return it
promptly in the postage paid envelope provided.
For the Board of Directors,
/s/ Paul A. Allaire
Paul A. Allaire
Chairman
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Notice of Annual Shareholders' Meeting
The Annual Meeting of Shareholders of Xerox Corporation will be held at The
Ritz-Carlton San Francisco, 600 Stockton at California Street, San Francisco,
California on Thursday, May 20, 1999, at 10:00 a.m. The purposes of the meeting
will be to elect directors, to elect independent auditors for 1999, to approve
amendments to the 1991 Long-Term Incentive Plan, to approve amendments to the
1996 Non-Employee Director Stock Option Plan, and to approve amendments to the
Certificate of Incorporation regarding Preferred Stock voting rights, and to
conduct any other business as may properly come before the meeting.
The Board of Directors has determined that holders of Common Stock and Series B
Convertible Preferred Stock of the Company at the close of business on March
31, 1999 will be entitled to notice of and to vote at the Annual Meeting.
We urge you to submit your proxy.
By order of the Board of Directors,
/s/Eunice M. Filter
Eunice M. Filter
Secretary
April 12, 1999
Whether you plan to attend the meeting or not, please submit your proxy as soon
as possible. You may vote your shares via the toll free telephone number, or via
the Internet (see instructions on the enclosed proxy card), or you may fill in,
sign, date and mail the accompanying proxy. If you chose to mail your proxy, an
envelope, which requires no postage if mailed in the United States, is included
for your convenience.
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Proxy Statement
The Board of Directors of Xerox Corporation (Company or Xerox) is requesting
your proxy for the Annual Meeting of Shareholders on May 20, 1999, and any
adjournments thereof. Your proxy may be duly submitted either by executing and
returning the proxy card in the form enclosed or by use of the telephone or the
Internet. By such submission, you authorize the three directors whose names are
listed on the front of the proxy card accompanying this Proxy Statement to
represent you and vote your shares in connection with the purposes set forth in
the Notice of Annual Meeting. The holders of a majority of the shares entitled
to vote at the meeting must be present in person or represented by proxy in
order to constitute a quorum for all matters to come before the meeting.
If you attend the meeting, you may of course vote by ballot. But if you are not
present, your shares can be voted only when represented by a properly submitted
proxy. In this case you have several choices.
o You may vote on each proposal, in which case your shares will be voted in
accordance with your choices.
o You may indicate a preference to abstain on any proposal, in which case no
vote will be recorded.
o You may submit a proxy, without indicating your voting preferences, in which
case the proxies will vote your shares as follows: for election of the
directors nominated by the Board of Directors; and for election of KPMG LLP
as the Company's independent auditors for 1999, for approval of amendments
to the 1991 Long-Term Incentive Plan, for approval of amendments to the 1996
Non-Employee Director Stock Option Plan, and for approval of amendments to
the Certificate of Incorporation regarding Preferred Stock voting rights.
You may revoke or change your proxy at any time before it is exercised, either
in writing to the Corporate Secretary, or through Internet or telephone voting.
Under the law of New York, the Company's state of incorporation, only votes
cast "for" the election of directors or those cast "for" or "against" any other
proposal will be counted in determining whether a nominee for director has been
elected or whether any of the other proposals at this meeting have been
approved. Abstentions, broker non-votes and votes withheld are not treated as
votes cast at the meeting.
On March 31, 1999 the Company had outstanding xxx,xxx,xxx shares of Common
Stock and x,xxx,xxx shares of Series B Convertible Preferred Stock, each of
which is entitled to one vote on each proposal at the meeting. The Board of
Directors has set the close of business on March 31, 1999 as the record date
for determining the shareholders entitled to notice of and to vote at the
meeting.
Proposal 1--Election of Directors
Shareholders annually elect directors to serve for one year and until their
successors have been elected and shall have qualified. The 14 persons whose
biographies appear on pages 4 through X have been proposed by the Board of
Directors based on a recommendation by the Nominating Committee of the Board of
Directors. The Nominating Committee consists of Vernon E. Jordan, Jr., Hilmar
Kopper, Ralph S. Larsen, George J. Mitchell, N. J. Nicholas, Jr. and Patricia
F. Russo, none of whom is an officer or employee of the Company.
Eleven of the 14 nominees are neither employees nor former employees of Xerox,
its subsidiaries or associated companies. These Board members bring to the
Company valuable experience from a variety of fields.
If for any reason, which the Board of Directors does not expect, a nominee is
unable to serve, the proxies may use their discretion to vote for a substitute
proposed by the Board of Directors.
The vote required for election as a director of the Company is a plurality of
the votes cast at the meeting.
Committee Functions, Membership and Meetings
The Company's Board of Directors has several standing committees: the Audit,
Nominating, Executive Compensation and Benefits, Finance and Executive
Committees.
Audit Committee: The Audit Committee is responsible for recommending to the
Board of Directors the engagement of independent auditors for the Company and
reviewing with the independent auditors the plan and results of the auditing
engagement. The committee reviews summaries of the year-end financial data and
significant changes in accounting policies and financial reporting practices
with management, the Company's Director, Corporate Audit and independent
auditors. In addition, the committee reviews the recommendations contained in
the independent auditors' audit management letter and management's response to
that letter. The Audit Committee also reviews the plan for and results of the
Company's internal audits. It is authorized to receive reports on such matters
from the internal and external auditors and the Company's General Counsel as
may be required by law. With the assistance of management it can review and
investigate any such matter to the extent deemed appropriate.
The members of the Audit Committee are all non-employee directors: B. R. Inman,
Antonia Ax:son Johnson, John E. Pepper, Martha R. Seger and Thomas C. Theobald.
Mr. Theobald is the Chairman. Three meetings of the Audit Committee were held
during 1998.
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Nominating Committee: The Nominating Committee recommends to the Board of
Directors nominees for election as directors of the Company. The committee
considers the performance of incumbent directors in determining whether to
recommend that they be nominated to stand for reelection.
The members of the Nominating Committee are Vernon E. Jordan, Jr., Hilmar
Kopper, Ralph S. Larsen, George J. Mitchell, N. J. Nicholas, Jr. and Patricia
F. Russo. Mr. Jordan is the Chairman of the Nominating Committee. The committee
held one meeting in 1998.
Shareholders who wish to recommend individuals for consideration by the
Nominating Committee may do so by submitting a written recommendation to the
Secretary of the Company, P.O. Box 1600, Stamford, Connecticut 06904.
Submissions must include sufficient biographical information concerning the
recommended individual, including age, employment and board memberships (if
any), for the committee to consider, as well as a written consent by the
nominee to stand for election if nominated by the Board of Directors and to
serve if elected by the shareholders. Recommendations received by December 31,
1999 will be considered for nomination at the 2000 Annual Meeting of
Shareholders. Recommendations received after December 31, 1999 will be
considered for nomination at the 2001 Annual Meeting of Shareholders.
Executive Compensation and Benefits Committee: The Executive Compensation and
Benefits Committee is responsible for recommending to the Board of Directors
the remuneration arrangements for senior management of the Company, including
the adoption of compensation plans in which senior management is eligible to
participate and the granting of benefits under any such plans. The committee
also consults with the Chief Executive Officer and advises the Board with
respect to senior management succession planning.
B. R. Inman, Antonia Ax:son Johnson, Ralph S. Larsen, John E. Pepper and
Patricia F. Russo are the members of the Executive Compensation and Benefits
Committee, and are all non-employee directors of the Company. Mr. Larsen is the
Chairman. Six meetings of the committee were held in 1998.
Finance Committee: The Finance Committee oversees the investment management of
the Company's employee profit sharing and retirement plans. In addition, the
Finance Committee is responsible for reviewing the Company's asset mix, capital
structure and strategies, financing strategies, insurance coverage and dividend
policy.
The members of the Finance Committee, all of whom are non-employee directors,
are Vernon E. Jordan, Jr., Hilmar Kopper, George J. Mitchell, N. J. Nicholas,
Jr., Martha R. Seger and Thomas C. Theobald. Mr. Nicholas is the Chairman of
the Finance Committee. The Finance Committee held three meetings in 1998.
Executive Committee: The Executive Committee has all the authority of the Board
of Directors, except with respect to certain matters that by statute may not be
delegated by the Board of Directors. The committee acts only in the intervals
between meetings of the full Board of Directors. It acts usually in those cases
where it is not feasible to convene a special meeting or where the agenda is
the technical completion of undertakings already approved in principle by the
Board. The members of the Executive Committee are Paul A. Allaire, N. J.
Nicholas, Jr., and Thomas C. Theobald. Mr. Allaire is the Chairman. The
Executive Committee held one meeting in 1998.
Attendance and Remuneration of Directors
Eight meetings of the Board of Directors and 14 meetings of the Board
committees were held in 1998. All incumbent directors other than Hilmar Kopper
attended at least 75 percent of the total number of meetings of the Board of
Directors and Board committees on which they served. The Company believes that
attendance at meetings is only one means by which directors may contribute to
the effective management of the Company and that the contributions of all
directors have been substantial and are highly valued.
Directors who are not employees of the Company receive $65,000 per year for
service as a director, an annual award of 2,500 stock options, and
reimbursement for out-of-pocket expenses incurred in connection with attendance
at meetings and other services as a director. Directors who are employees of
subsidiary companies are not eligible to receive stock option awards and
Directors who are employees of the Company do not receive any compensation for
service as a director. At this meeting shareholders are being asked to approve
an increase in the annual stock option award to 5,000 shares to reflect the
recent two-for-one stock split.
Pursuant to the Restricted Stock Plan For Directors, $25,000 of the annual
director's fee of $65,000 is paid in the form of restricted shares of Common
Stock of the Company. The shares may not be sold or transferred except upon
death, retirement, disability, change in control or termination of service as a
director with the consent of a majority of the Board of Directors. If the
individual's service as a director is terminated for any other reason, the
shares are forfeited. The holders of restricted shares are entitled to all
distribution and voting rights of the Common Stock. The directors have the
option to receive part or all of their total cash fees for service on the Board
and committees of the Board in the form of shares of Common Stock, which may be
restricted or unrestricted at the election of the individual. The number of
shares issued is based on the market value at the time the fee is payable. The
shares held by directors under this Plan are included in the Xerox securities
owned shown in the biographies of the directors beginning on page 4.
Terms Used in Biographies
To help you consider the nominees, we use a biographical format that provides a
ready reference on their backgrounds. Certain terms used in the biographies may
be unfamiliar to you, so we are defining them here.
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Xerox securities owned means the Company's Common Stock, including restricted
shares of Common Stock issued under the Restricted Stock Plan For Directors,
and Series B Convertible Preferred Stock. Series B shares are owned through the
individual's account in the Xerox Employee Stock Ownership Plan. None of the
nominees owns any of the Company's other securities. Options/Rights is the
number of the Company's shares of Common Stock subject to stock options and
incentive stock rights held by a nominee.
Immediate family means the spouse, the minor children and any relatives sharing
the same home as the nominee.
Unless otherwise noted, all Xerox securities held are owned beneficially by the
nominee. This means he or she has or shares voting power and/or investment
power with respect to the securities, even though another name--that of a
broker, for example--appears in the Company's records. All ownership figures
are as of March 31, 1999.
For information on compensation for officers, see the compensation section
starting on page 11.
[GRAPHIC OMITTED]
Paul A. Allaire
Age: 60 Director since: 1986
Xerox securities owned: 541,524 common shares; 576 Series B
Convertible Preferred shares
Options/Rights: 2,547,768 common shares
Occupation: Chairman of the Board and Chief Executive Officer
and Chairman of the Executive Committee, Xerox Corporation
Education: BS, Worcester Polytechnic Institute; MS,
Carnegie-Mellon University
Other Directorships: Fuji Xerox Co., Ltd.; J. P. Morgan;
Lucent Technologies Inc.; Priceline.com; Sara Lee
Corporation; and SmithKline Beecham plc
Other Background: Joined Xerox in 1966. Member, Board of Trustees,
Carnegie-Mellon University and Member, Business Advisory Council of the
Graduate School of Industrial Administration, Carnegie-Mellon University.
Member, Board of Trustees, Worcester Polytechnic Institute. Member, The
Business Roundtable and The Business Council. Member of the Board of Directors
of the Council on Foreign Relations, the Ford Foundation, Catalyst and the
Council on Competitiveness.
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[GRAPHIC OMITTED]
B. R. Inman
Age: 68 Director since: 1987
Xerox securities owned: 8,954 common shares and an indirect
interest in approximately 7,528 common shares through the
Deferred Compensation Plan
Options/Rights: 15,000
Occupation: Investor
Education: BA, University of Texas
Other Directorships: Fluor Corporation; Science Applications
International Corporation; SBC Communications, Inc.; and
Temple-Inland Inc.
Other Background: Entered Naval Reserve in 1951, graduated from National War
College in 1972, promoted to Rear Admiral in 1974, to Vice Admiral in 1976 and
to Admiral in 1981. Retired with permanent rank of Admiral in 1982. Between
1974 and 1982 served as Director of Naval Intelligence, Vice Director of the
Defense Intelligence Agency, Director of the National Security Agency and
Deputy Director of Central Intelligence. Between 1983 and 1986 served as
Chairman and Chief Executive Officer of Microelectronics and Computer
Technology Corporation. Served as Chairman, President and Chief Executive
Officer, Westmark Systems, Inc., 1987 to 1989 and Chairman, Federal Reserve
Bank of Dallas, 1987 to 1990. Director, Public Agenda Foundation. Member,
National Academy of Public Administration. Trustee, the American Assembly, the
Center for Excellence in Education and the California Institute of Technology.
Adjunct Professor at the LBJ School of Public Affairs and at the Graduate
School of Business of the University of Texas at Austin. Member of the Audit
and Executive Compensation and Benefits Committees of Xerox.
[GRAPHIC OMITTED]
Antonia Ax:son Johnson
Age: 55 Director since: 1996
Xerox securities owned: 1,746 common shares and an indirect
interest in approximately 3,275 common shares through the
Deferred Compensation Plan
Options/Rights: 15,000
Occupation: Chairman, Axel Johnson Group
Education: BA, MA, University of Stockholm
Other Directorships: Axel Johnson AB, Axel Johnson Inc.,
Axel Johnson International, Hemkop AB, Nordstjernan AB
Other Background: In 1971 joined the Axel Johnson Group; became primary
stockholder in 1975 and Owner and Chairman in 1982. Board Member, the Royal
Swedish Academy of Engineering Sciences, The Stockholm Environment Institute,
Chairman of the Axel and Margaret Ax:son Johnson Foundation, and the City
Mission of Stockholm. Member of the Audit and Executive Compensation and
Benefits Committees of Xerox.
[GRAPHIC OMITTED]
Vernon E. Jordan, Jr.
Age: 63 Director since: 1974
Xerox securities owned: 26,308 common shares and an indirect
interest in approximately 6,144 common shares through the
Deferred Compensation Plan
Options/Rights: 15,000
Occupation: Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
Education: BA, DePauw University; JD, Howard University Law
School
Other Directorships: American Express Company; Bankers Trust
Company; Bankers Trust New York Corporation; Callaway Golf
Company; Chancellor Media Corporation; Dow Jones & Co.,
Inc.; J.C. Penney Company, Inc.; Revlon Group; Ryder System,
Inc.; Sara Lee Corporation; and Union Carbide Corporation
Other Background: Became a partner in the law firm of Akin, Gump, Strauss,
Hauer & Feld in 1982, following ten years as President of the National Urban
League, Inc. Member of the Bar of Arkansas, Georgia and the District of
Columbia as well as the U.S. Supreme Court Bar. Director of the Ford
Foundation, Howard University and the LBJ Foundation. Member of the Council on
Foreign Relations and The American Law Institute. Former Member of the National
Advisory Commission on Selective Service, the American Revolution Bicentennial
Commission, the Presidential Clemency Board, the Advisory Council on Social
Security, the Secretary of State's Advisory Committee on South Africa and the
President's Advisory Committee of the Points of Light Foundation. Chairman of
the Nominating Committee and member of the Finance Committee of Xerox.
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[GRAPHIC OMITTED]
Yotaro Kobayashi
Age: 65 Director since: 1987
Xerox securities owned: 17,930 common shares
Options/Rights: 6,700
Occupation: Chairman and Co-Chief Executive Officer, Fuji
Xerox Co., Ltd.
Education: BA, Keio University; MBA, Wharton Graduate
School, University of Pennsylvania
Other Directorships: ABB Asea Brown Boveri Ltd., Fuji Xerox
Co., Ltd.; Callaway Golf Company; and Japan Research Center
Co., Ltd.
Other Background: Joined Fuji Photo Film Co., Ltd. in 1958, was assigned to
Fuji Xerox Co., Ltd. in 1963, named President and Chief Executive Officer in
1978 and Chairman and Chief Executive Officer in 1992. Vice-Chairman, Japan
Association of Corporate Executives. Member of the Trilateral Commission;
University Council of the Ministry of Education, Science, Sports and Culture;
Economic Council of the Economic Planning Agency; the International Council of
JP Morgan; the International Advisory Board of Northern Telecom Limited; the
International Advisory Board of the Council on Foreign Relations; the Board of
Trustees, University of Pennsylvania; the Advisory Council of the Graduate
School of Business, Stanford University and the Advisory Council of the
Institute for International Studies, Stanford University. Vice-Chairman, Board
of Trustees, International University of Japan and member of the Board of
Trustees, Keio University.
[GRAPHIC OMITTED]
Hilmar Kopper
Age: 64 Director since: 1991
Xerox securities owned: 15,940 common shares
Options/Rights: 10,050
Occupation: Chairman of the Supervisory Board, Deutsche Bank
AG
Education: High school diploma
Other Directorships: Akzo Nobel NV; Bayer AG;
DaimlerChrysler AG; Mannesmann AG; Solvay; Unilever NV
Other Background: Apprenticeship with Rheinisch-Westfalischen Bank AG in
Cologne, 1954. Management trainee at J. Henry Schroder Banking Corporation, New
York. Foreign Department, Deutsche Bank's Central Office in Dusseldorf and
Manager, Leverkusen branch, 1969. Appointed to the Board of Managing Directors
of Deutsche Bank subsidiary European Asian Bank AG in Hamburg, 1972. Executive
Vice President, Deutsche Bank AG, 1975; and Member of the Board of Managing
Directors, Deutsche Bank AG, 1977. Succeeded Alfred Herrhausen as Spokesman of
the Board of Managing Directors, December 1989 to May 1997. Member of the
Finance and Nominating Committees of Xerox.
[GRAPHIC OMITTED]
Ralph S. Larsen
Age: 60 Director since: 1990
Xerox securities owned: 20,207 common shares and an indirect
interest in approximately 19,348 common shares through the
Deferred Compensation Plan
Options/Rights: 15,000
Occupation: Chairman and Chief Executive Officer, Johnson &
Johnson
Education: BBA, Hofstra University
Other Directorships: Johnson & Johnson; AT&T
Other Background: Joined Johnson & Johnson in 1962, was named Vice President of
Marketing, McNeil Consumer Products Company in 1980. President of Becton
Dickinson's Consumer Products Division, 1981 to 1983. Returned to Johnson &
Johnson as President of its Chicopee subsidiary in 1983. Named a company Group
Chairman in 1986, and Chairman of the Board and Chief Executive Officer in
1989. Chairman of The Business Council and member of the Policy Committee of
The Business Roundtable. Served two years in the U.S. Navy. Chairman of the
Executive Compensation and Benefits Committee and member of the Nominating
Committee of Xerox.
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[GRAPHIC OMITTED]
George J. Mitchell
Age: 65 Director since: 1996
Xerox securities owned: 3,596 common shares and an indirect
interest in approximately 2,226 common shares through the
Deferred Compensation Plan
Options/Rights: 15,000
Occupation: Special Counsel, Verner, Liipfert, Bernhard,
McPherson and Hand, Chartered
Education: BA, Bowdoin College; LLB, Georgetown University
Law Center
Other Directorships: Federal Express Corporation; Starwood
Lodging Trust; UNUM Corporation; The Walt Disney Company
Other Background: Trial lawyer with the U.S. Department of Justice Antitrust
Division, 1960 to 1962. Served as Executive Assistant to U.S. Senator Edmund S.
Muskie from 1962 to 1965. Private law practice from 1965 to 1977. Served as
U.S. Attorney for Maine, 1977 to 1979; appointed U.S. District Court Judge in
1979; resigned in 1980 to accept appointment to the U.S. Senate. Elected U.S.
Senator from the State of Maine in 1982, serving as Majority Leader of the
Senate from 1989 to 1995 when he retired from the Senate and joined the law
firm of Verner, Liipfert, Bernhard, McPherson and Hand. Member, Board of
Directors, Council on Foreign Relations; Chairman, Ethics Committee, U.S.
Olympic Committee; Chairman, National Health Care Commission; Chairman,
International Crisis Group; and Chairman, The Peace Negotiations in Northern
Ireland. Member of the Finance and Nominating Committees of Xerox.
[GRAPHIC OMITTED]
N. J. Nicholas, Jr.
Age: 59 Director since: 1987
Xerox securities owned: 19,742 common shares and an indirect
interest in approximately 19,018 common shares through the
Deferred Compensation Plan; immediate family owns 100 shares
Options/Rights: 15,000
Occupation: Investor
Education: BA, Princeton University; MBA, Harvard University
Graduate School of Business Administration
Other Directorships: Bankers Trust New York Corporation;
Boston Scientific Corporation
Other Background: President and Co-Chief Executive Officer, Time-Warner Inc.,
1990 to 1992. Former member of the President's Advisory Committee on Trade
Policy and Negotiations and the President's Commission on Environmental
Quality. Chairman of the Advisory Board of Columbia University Graduate School
of Journalism. Chairman of the Finance Committee and member of the Nominating
and Executive Committees of Xerox.
[GRAPHIC OMITTED]
John E. Pepper
Age: 60 Director since: 1990
Xerox securities owned: 40,264 common shares and an indirect
interest in approximately 5,338 common shares through the
Deferred Compensation Plan; immediate family owns 6,000
shares
Options/Rights: 15,000
Occupation: Chairman of the Board, The Procter & Gamble
Company
Education: BA, Yale University
Other Directorships: Motorola, Inc.; The Procter & Gamble
Company
Other Background: Joined Procter & Gamble in 1963. Named Executive Vice
President and elected to the Board of Directors in 1984, named President in
1986, Chairman and Chief Executive in 1995, and Chairman in 1999. Co-Chair,
Cincinnati Youth Collaborative. Chairman, Ohio Business Roundtable. Member,
Cincinnati Business Committee, Grocery Manufacturers of America, The Business
Council and The Business Roundtable. Fellow, Yale Corporation. Trustee, Christ
Church Endowment Fund, Center for Strategic and International Studies. Served
three years in the U.S. Navy. Member of the Audit and Executive Compensation
and Benefits Committees of Xerox.
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[GRAPHIC OMITTED]
Patricia F. Russo
Age: 46 Director since: 1997
Xerox securities owned: 666 common shares and an indirect
interest in approximately 84 shares through the Deferred
Compensation Plan
Options/Rights/Restricted Shares: 7,946
Occupation: Executive Vice President, Strategy and Corporate
Operations, Lucent Technologies Inc.
Education: BA, Georgetown University
Other Directorships: New Jersey
Manufacturers Insurance Company; Schering-Plough Corporation
Other Background: Joined International Business Machines Corporation in 1973
and held various sales and marketing management positions. Joined AT&T in 1981
and held executive positions in strategic planning, marketing, human resources,
and operations. Named President, Business Communications Systems of Lucent
Technologies Inc. in 1992; named Executive Vice President and Chief Staff
Officer, 1997. Member of the Board of Directors of the New Jersey Business and
Industry Association; the Board of Regents, Georgetown University, the
Committee of 200. Member of the Executive Compensation and Benefits Committee
and the Nominating Committee of Xerox.
[GRAPHIC OMITTED]
Martha R. Seger
Age: 67 Director since: 1991
Xerox securities owned: 9,972 common shares and an indirect
interest in approximately 8,897 common shares through the
Deferred Compensation Plan
Options/Rights: 15,000
Occupation: Financial economist and Former Governor, Federal
Reserve System; currently Distinguished Visiting Professor
of Finance, Northern Arizona University
Education: BBA, MBA, PhD, University of Michigan
Other Directorships: Fluor Corporation; Michigan Mutual and
the Amerisure Companies; The Kroger Co.; Tucson Electric
Power Co. and its holding company, Unisouce Energy
Other Background: Financial Economist, Federal Reserve Board, 1964 to 1967.
Chief Economist, Detroit Bank & Trust, 1967 to 1974, elected Vice President in
1971. Vice President, Economics and Investments, Bank of the Commonwealth
(Detroit), 1974 to 1976. Adjunct Associate Professor, University of Michigan,
1976 to 1979. Associate Professor of Economics and Finance, Oakland University,
1980. Commissioner of Financial Institutions, State of Michigan, 1981 to 1982.
Professor of Finance, Central Michigan University, 1983 to 1984. Governor,
Federal Reserve System, 1984 to 1991. Member of the Audit and Finance
Committees of Xerox.
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[GRAPHIC OMITTED]
Thomas C. Theobald
Age: 61 Director since: 1983
Xerox securities owned: 10,154 common shares and an indirect
interest in approximately 9,194 common shares through the
Deferred Compensation Plan
Options/Rights: 15,000
Occupation: Managing Director, William Blair Capital
Partners, LLC
Education: AB, College of the Holy Cross; MBA, Harvard
University Graduate School of Business Administration
Other Directorships: Anixter International;
FlexiInternational Software; LaSalle U.S. Realty Income and
Growth Fund; LaSalle Partners; The MONY Group; RxRemedy;
Stein Roe Funds
Other Background: Began career with Citibank in 1960, appointed Vice Chairman
and elected a Director of Citicorp in 1982. Chairman, Continental Bank
Corporation, 1987 to 1995. Director of The MacArthur Foundation and the Chicago
Council on Foreign Relations. Trustee, Northwestern University. Member of the
Committee on Architecture of the Art Institute of Chicago. Chairman of the
Audit Committee and member of the Finance and Executive Committees of Xerox.
[GRAPHIC OMITTED]
G. Richard Thoman
Age: 54 Director since: 1997
Xerox securities owned: 79,516 common shares; 28 Series B
Convertible Preferred shares
Options/Rights/Restricted Shares: 2,103,308 common shares
Occupation: President and Chief Operating Officer, Xerox
Corporation
Education: BA, McGill University; MA, PhD, Fletcher School
of Law and Diplomacy, Tufts University (co-administered by
Harvard University); MA, Graduate Institute of
International Studies
Other Directorships: Bankers Trust New York Corporation;
DaimlerChrysler AG; Fuji Xerox Co., Ltd.; Union Bancaire
Privee
Other Background: Joined Xerox in 1997 as President and Chief Operating
Officer. Prior to this he was with International Business Machines Corporation
as Senior Vice President and Chief Financial Officer, 1995 to 1997, and Senior
Vice President and Group Executive, IBM Personal Systems (PC) Group, 1994 to
1995. From 1992 to 1994 he was President and Chief Executive Officer, Nabisco
International. He was with the American Express Company from 1979 to 1992,
joining as Executive Vice President and Chief Financial Officer, Travel Related
Services. He was named President, Travel Related Services International in
1985, and Chairman and Co-Chief Executive Officer, Travel Related Services in
1989. He was with McKinsey and Company as a Senior Associate from 1972 to 1979;
and with Exxon Corporation as a Senior Financial Analyst from 1970 to 1972. A
member of the Council on Foreign Relations and the Americas Society. Awarded
the Legion of Honor by the government of France. Member of the Executive
Committee.
Ownership of Company Securities
The Company knows of no person who, or group which, owns beneficially more than
5% of any class of its equity securities as of December 31, 1998, except as set
forth below(1).
<TABLE>
<CAPTION>
Amount
Beneficially Percent
Title of Class Name and Address of Beneficial Owner Owned of Class
- -------------------------------- ------------------------------------------ ----------- ---------------
<S> <C> <C> <C>
Series B Convertible Preferred State Street Bank and Trust Company, 8,784,513 100%
Stock(2) as Trustee,
225 Franklin Street, Boston, MA(3)
Common Stock State Street Bank and Trust Company, 19,763,122(4) 10.2%(5)
as Trustee under other plans and accounts
225 Franklin Street, Boston, MA
Common Stock FMR Corp. 38,933,550(6) 5.934%
82 Devonshire Street
Boston, MA
</TABLE>
9
<PAGE>
(1) The words "group" and "beneficial" are as defined in regulations issued
by the Securities and Exchange Commission (SEC). Beneficial ownership
under such definition means possession of sole voting power, shared
voting power, sole dispositive power or shared dispositive power. The
information provided in this table is based solely upon the information
contained in the Form 13G filed by the named entity with the SEC.
(2) These shares have equal voting rights with the Common Stock.
(3) Held as Trustee under the Xerox Employee Stock Ownership Plan. Each
participant may direct the Trustee as to the manner in which shares
allocated to his or her account shall be voted. The Trust Agreement
provides that the Trustee shall vote any shares allocated to
participants' accounts as to which it has not received voting
instructions and any shares which have not been so allocated, in the same
proportions as shares in participants' accounts as to which voting
instructions are received. The power to dispose of shares is governed by
the terms of the Plan and elections made by participants.
(4) Within this total as to certain of the shares, State Street Bank and
Trust Company has sole voting power for 8,127,458 shares, shared voting
power for 10,923,792 shares, sole dispositive power for 8,977,028 shares
and shared dispositive power for 10,786,094 shares.
(5) Percentage based upon assumption that all Series B Convertible Preferred
Stock were converted into 52,707,078 shares of Common Stock.
(6) Within this total as to certain shares, FMR Corp. has sole voting power
for 1,755,844 shares and sold dispositive power for 38,933,550 shares.
Shares of Common Stock and Series B Convertible Preferred Stock of the Company
owned beneficially by its directors and nominees for director, each of the
executive officers named in the Summary Compensation Table below and directors
and all officers as a group, as of March 31, 1999, were as follows:
- -------------------------------------------------------------------------------
Amount Total
Name of Beneficially Stock
Beneficial Owner Owned Interest
- -------------------------------------------------------------------------------
Paul A. Allaire .......................... x,xxx,xxx, x,xxx,xxx,
William F. Buehler ....................... xx,xxx xxx,xxx
B. R. Inman .............................. x,xxx xx,xxx
Antonia Ax:son Johnson ................... x,xxx x,xxx
Vernon E. Jordan, Jr. .................... xx,xxx xx,xxx
Yotaro Kobayashi ......................... xx,xxx xx,xxx
Hilmar Kopper ............................ x,xxx xx,xxx
Ralph S. Larsen .......................... xx,xxx xx,xxx
George J. Mitchell ....................... x,xxx x,xxx
N. J. Nicholas, Jr. ...................... xx,xxx xx,xxx
John E. Pepper ........................... xx,xxx xx,xxx
A. Barry Rand ............................ xxx,xxx xxx,xxx
Barry D. Romeril ......................... xxx,xxx xxx,xxx
Patricia F. Russo ........................ xxx x,xxx
Martha R. Seger .......................... x,xxx xx,xxx
Thomas C. Theobald ....................... x,xxx xx,xxx
G. Richard Thoman ........................ xxx,xxx x,xxx,xxx
Directors and All Officers as a group .... x,xxx,xxx, x,xxx,xxx,
- -------------------------------------------------------------------------------
The shares of Common Stock, and Series B Stock owned by each director and
officer named and by all directors and officers as a group represent less than
1% of the aggregate number of shares of Common Stock and Series B Stock
outstanding at March 31, 1999. The numbers shown in the Amount Beneficially
Owned column are the shares of Common Stock considered owned by the directors
and officers in accordance with SEC rules, including shares of Common Stock
which officers and directors had a right, within 60 days, to acquire upon the
exercise of options or rights, all of which shares were deemed outstanding for
purposes of computing the percentage of Common Stock and Series B Stock
outstanding and beneficially owned. The numbers shown in the Total Stock
Interest column include the amount shown in the Amount Beneficially Owned
column plus options held by officers not exercisable within 60 days, incentive
stock units and restricted shares, as well as the interests of officers and
directors in the Xerox Stock Fund under the Profit Sharing and Savings Plan and
the Deferred Compensation Plans.
10
<PAGE>
Executive Compensation
Report of the Executive Compensation and Benefits
Committee of the Board of Directors
Executive Officer Compensation
The compensation paid to the Company's executive officers is determined by the
Executive Compensation and Benefits Committee (Committee) of the Board of
Directors. The Committee's members are each independent, non-employee directors
of the Company who establish the policies that govern the compensation paid to
Xerox executive officers, determine overall and individual compensation goals
and objectives, grant awards and certify achievement of performance under the
Company's various annual and long-term incentive plans and approve actual
compensation payments.
The compensation policy established by the Committee provides that target
levels of compensation as well as the benefits provided executive officers are
intended to be equal to or better than the compensation paid by other companies
in the marketplace in which Xerox operates and competes for equivalent skills
and competencies for positions of similar responsibilities and desired levels
of performance. The Company's executive compensation policies, plans and
programs are designed to provide competitive levels of compensation that align
pay with the Company's annual and long-term performance objectives and that
recognize corporate and individual achievement while supporting the Company
objectives of attracting, motivating and retaining high performing executives.
In order to determine appropriately competitive levels of compensation, the
Committee annually reviews, evaluates and compares Xerox executive officer
compensation to relevant external, competitive compensation data. At its
meeting on December 7, 1998, the Committee reviewed the reported compensation
data of firms which were part of the Business Week Computers and Peripherals
Industry Group (which are included in the data shown on the performance graph
on page 17 below), as well as a broader group of organizations with which the
Company is likely to compete for executive expertise and which are of similar
size and scope. The latter group includes large capitalization, multinational
companies in technology, office equipment and other industries
Base salaries are determined by the Committee, in its judgment, taking into
account the competitive data referenced above. In addition, a substantial
portion, generally two-thirds or more of targeted total compensation, of each
executive officer's total compensation is at risk and variable from year to
year because it is linked to specific performance measures of the business.
The three principal variable pay programs that were utilized in 1998 to align
executive officer pay with Company and individual performance as reported in
this Proxy Statement are briefly described below:
Executive Performance Incentive Plan (EPIP): This plan, approved by
Shareholders at the Company's Annual Meeting on May 18, 1995, provides the
Committee with an incentive vehicle to compensate eligible executives for
significant contributions to the performance of the Company while
preserving the tax deductibility of payments made under the Plan even if an
executive's compensation exceeds $1,000,000 in any year as described in
Section 162(m) of the Internal Revenue Code of 1986, as amended. Awards
under the Plan are made from incentive payment pools created by applying
pre-determined percentages to appropriately relevant performance measures
as described in the Plan. These measures and percentages for awards made by
the Committee in effect during 1998 were 2% of the Company's Document
Processing profit before tax (PBT) for the 1998 one-year performance
period, and 1 1/2% of cumulative PBT for the three-year performance period
commencing in 1998. Ten percent (10%) of the resulting incentive payment
PBT pool is payable to the Chief Executive Officer and the President of the
Company, respectively, and five percent (5%) of the pool is payable to
every other participant in the Plan. The Plan provides the Committee with
discretion to reduce the amount otherwise payable under an award to any
participant to any amount, including zero, except in the case of a change
in control as defined. The amount determined by the above formula cannot be
increased. For the full year 1998, the Chief Executive Officer, President,
and ten (10) other executive officers participated in the Plan.
For 1998, the PBT pool amounted to $49,980,000 and the Committee exercised
its discretion by reducing total amounts payable to participating executive
officers from the pool from $35,000,000 to $6,702,800.
Annual Performance Incentive Plan (APIP): Under the APIP, executive
officers of the Company may be entitled to receive performance-related cash
payments provided that annual, Committee-established performance objectives
are met. At its meetings held October 13, 1997 and December 8, 1997, the
Committee approved for each officer not participating in EPIP, an annual
incentive target and maximum opportunity expressed as a percentage of their
1998 base salary. At its meeting held on February 2, 1998 the Committee
also established overall Document Processing threshold, target and maximum
measures of performance and associated payment schedules. The performance
measures and weightings for 1998 were earnings per share (35%), revenue
growth (25%), cash generation (10%), customer satisfaction (10%) and
customer loyalty (10%) and employee satisfaction (10%). Additional goals
were established subsequently for each officer that included business unit
specific and / or individual performance goals and objectives. The weights
associated with each business unit specific or individual performance goal
and objective used vary and range from 20 percent to 50 percent of the
total.
For 1998, the performance against established measures was mixed. EPS
exceeded maximum performance levels, revenue growth performance was
slightly below target performance levels, while cash generation goals did
not meet threshold levels. Customer satisfaction and customer loyalty and
employee motivation and satisfaction were slightly below target performance
11
<PAGE>
measures under the plan. Overall, executive officers received payments that
were larger than those made for 1997 performance. This reflected an
increase in bonus target. The payments ranged from 91.0% to 159.2% of
target bonus opportunity.
Leveraged Executive Equity Plan (LEEP): Under the terms of the 1991
Long-Term Incentive Plan, the Committee has implemented a three-year plan
beginning in 1998 for key management executives, including most executive
officers, that focuses on the achievement of performance objectives of the
Document Processing business of the Company. When the objectives of the
plan are achieved, shareholder value is enhanced and the plan provides for
an opportunity to realize long-term financial rewards. LEEP requires that
each executive participant must directly or indirectly maintain an
investment in shares of common stock of the Company having a value as of
December 31, 1997 of either 100%, 200%, 300% or 400% of a participant's
annual base salary (investment shares). A 1998 award was made under LEEP to
approximately 40 key executives that provided for non-qualified stock
options for shares of common stock and incentive stock units, based upon
the ratio of ten option shares and two incentive stock units for each
investment share. The options become exercisable in three annual cumulative
installments beginning in the year following the award. The incentive stock
rights are payable in shares of common stock and vest in three annual
installments beginning in the year following the award, provided specific
Document Processing earnings per share (EPS) goals were achieved for each
preceding year. Thirty-three percent (33%) of the non-qualified stock
options granted under the 1998 cycle became exercisable on January 1, 1999.
In addition, seven key executives received one-year LEEP awards with
respect to 1998 EPS performance alone and stock options vesting January 1,
1999.
For 1998, the EPS goal was achieved and thirty-three percent (33%) of the
incentive stock units vested.
Chief Executive Officer Compensation
The compensation paid to Paul A. Allaire, Chairman of the Board of Directors
and Chief Executive Officer for the performance year 1998 was established by
the Committee at its February 2, 1998 and February 1, 1999 meetings. The
Committee's actions are described below as they relate to each component of Mr.
Allaire's 1998 compensation as reported in the charts and tables that accompany
this report.
Base Salary: Mr. Allaire's base salary remained at $975,000, unchanged
from 1997.
1998 Bonus: The Committee authorized a payment under the EPIP program,
described above, in the amount of $1,600,000. The amount of bonus
determined utilizing the formula of the EPIP was reduced at the Committee's
discretion to align the payment with the same Company, organizational and
individual performance unit performance measures utilized by the Committee
in determining the payments to other executives of the Company paid under
the Company's APIP also described above. A portion of the bonus awarded was
approved by the Committee based on its subjective assessment of Mr.
Allaire's performance against organizational governance, productivity
improvement and Financial Services goals, which the Committee had
established for Mr. Allaire early in 1998. Mr. Allaire's 1998 bonus was
approximately 80% of the bonus he received for 1997.
Long-Term Incentive: Under the provisions of the LEEP described above,
Mr. Allaire vested in the right to exercise thirty-three percent (33%) of
the non-qualified stock options granted in 1998. Additionally, thirty-three
percent (33%) of the incentive stock units awarded under the LEEP with
respect to the 1998 performance year became vested on
March 1, 1999 resulting from previously established EPS goals.
Detailed information concerning Mr. Allaire's compensation as well as that of
other highly compensated executives is displayed on the accompanying charts and
tables.
Ralph S. Larsen, Chairman
B. R. Inman
Antonia Ax:son Johnson
John E. Pepper
Patricia F. Russo
February 1, 1999
Compensation Committee Interlocks and Insider Participation
Paul A. Allaire, Chairman and Chief Executive Officer of the Company, serves on
the compensation committee of Lucent Technologies, Inc. Patricia F. Russo, a
director of the Company, is an Executive Vice President of Lucent and serves on
the Executive Compensation and Benefits Committee of the Company.
Summary Compensation Table
The Summary Compensation Table below provides certain compensation information
for the Chief Executive Officer and the four most highly compensated key
executive officers (Named Officers) serving at the end of the fiscal year ended
December 31, 1998 for services rendered in all capacities during the fiscal
years ended December 31, 1998, 1997 and 1996. The table includes the dollar
value of base salary, bonus earned, option awards (shown in number of shares)
and certain other compensation, whether paid or deferred. All option awards and
share information appearing in this report have been adjusted to reflect the
two-for-one stock split announced on January 26, 1999.
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------------------
Annual Bonus
-----------------------------------------------
Total
Annual
Bonus
Name and EPIP 91 Plan ($) (C)
Principal Position Year Salary($) ($)(A) ($)(B) (= A+B)
- ---------------------------- ---- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Paul A. Allaire ............ 1998 975,000 1,600,000 2,924,133 4,524,133
Chief Executive Officer 1997 975,000 2,000,000 4,479,449 6,479,449
1996 958,333 910,000 3,054,900 3,964,900
G. Richard Thoman .......... 1998 700,000 930,000 2,099,341 3,029,341
Chief Operating Officer 1997 388,885 560,000 1,788,657 2,348,657
A. Barry Rand .............. 1998 475,000 353,000 949,657 1,302,657
Executive Vice President 1997 469,333 350,000 1,419,686 1,769,686
1996 436,833 160,000 968,119 1,128,119
Barry D. Romeril ........... 1998 513,333 488,000 909,740 1,397,740
Executive Vice President 1997 452,688 334,062 1,419,686 1,753,748
1996 436,841 300,000 968,119 1,268,119
William F. Buehler ......... 1998 464,833 450,000 857,704 1,307,704
Executive Vice President 1997 426,833 350,216 1,331,098 1,681,314
1996 413,333 350,000 907,107 1,257,107
<CAPTION>
Long-Term
Compensation Awards
-------------------------------------------------------------------------------------------
Securities
LTIP Underlying
Other Annual Restricted Payout Options / All Other
Name and Compensation Stock (EPS Overach.) SARs Compensation
Principal Position ($)(D) ($)(E) ($)(F) (#)(G) ($)(H)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Paul A. Allaire ............ 177,310 0 0 239,082 318,455
Chief Executive Officer 133,250 3,381,252 5,389,186 883,858 213,477
177,580 0 0 0 243,857
G. Richard Thoman .......... 374,636 1,793,683 0 335,128 3,960,560
Chief Operating Officer 45,000 6,962,500 399,552 1,801,052 42,567
A. Barry Rand .............. 152,785 2,085,938 0 77,652 92,448
Executive Vice President 73,033 0 1,707,893 181,188 73,984
54,896 659,300 0 0 88,309
Barry D. Romeril ........... 138,049 1,145,903 0 178,822 114,853
Executive Vice President 62,158 4,226,565 1,707,893 173,558 108,370
45,152 659,300 0 0 112,014
William F. Buehler ......... 91,953 1,145,903 0 174,568 98,868
Executive Vice President 56,000 1,690,626 1,603,402 163,632 97,840
52,880 0 0 0 92,956
</TABLE>
(A) This column reflects annual cash bonuses earned during 1998 under EPIP.
(B) This column reflects amounts earned under the Company's 1991
Long-Term Incentive Plan (1991 Plan). Under the 1991 Plan, awards of
incentive stock units were made in 1998 to each of the Named
Officers which become payable as to one-third of the total if the
Company's Document Processing earnings per share reach a specified
level in 1998, 1999 and 2000. The 1998 level was reached and
one-third of the units, became payable. Accordingly, the value of
one-third of the incentive stock units, is reported in the column
above for the year in which the earnings per share objective is
reached. The Company and the Executive Compensation and Benefits
Committee view these amounts as long-term incentive compensation.
(C) Total Annual Bonus is the sum of the amounts under the EPIP and 1991 Plan.
(D) Other Annual Compensation includes executive expense allowance,
dividend equivalents paid on outstanding incentive stock rights,
perquisite compensation and above market interest on deferred
compensation. Also included in Other Annual Compensation is $50,337
of perquisite compensation for G. Richard Thoman, $34,881 of which
relates to personal use of corporate aircraft.
(E) This column reflects incentive stock unit rights awarded under the
1991 Plan or a predecessor plan where each unit represents one share
of stock to be issued upon vesting at the attainment of a specific
retention period. Each unit is entitled to the payment of dividend
equivalents at the same time and in the same amount declared on one
share of the Company's common stock. The number of units held by the
Named Officers and their value as of December 31, 1998 (based upon
the closing market price on that date of $59.000 was as follows:
P.A. Allaire--80,000 ($4,720,000), G. R. Thoman-- 200,000
($11,800,000), A.B. Rand--125,252 ($7,389,868), B.D.
Romeril--163,852 ($9,667,268), and W.F. Buehler-- 88,000
($5,192,000).
(F) This column reflects a long-term payout made with respect to the
performance years 1995, 1996 and 1997 under EPIP. The awards made by
the Committee in 1995 established a long-term bonus pool based upon
1 1/2% of the cumulative Document Processing profit before tax for
the three-year period. A percentage of the pool was awarded to Paul
A. Allaire (10%) and to each of the other (11) executive officers
(5%). As provided by EPIP, the Committee exercised its discretion to
reduce the amounts otherwise payable under the foregoing formula to
an amount, which would otherwise have been payable based upon the
degree to which cumulative earnings per share during such three-year
period exceeded a pre-established specified target.
(G) The Company no longer issues stock appreciation rights (SARs) in
tandem with options. All of the options granted were awarded under
LEEP. As discussed under the Report of the Executive Compensation
and Benefits Committee above, LEEP is a three-year program.
(H) The total amounts shown in this column for the last fiscal year
consist of the Company's profit sharing contribution, whether under
the Profit Sharing and Savings Plan or its policy of paying directly
to the officer the amount which cannot be made under the Plan by
reason of the Employee Retirement Income Security Act of 1974, and
the estimated dollar value of the benefit to the officer from the
Company's portion of insurance premium payments under the Company's
Contributory Life Insurance Plan on an actuarial basis. The Company
will recover all of its premium payments at the end of the term of
the policy, generally at age 65. The amounts were: P.A. Allaire:
$297,500 profit sharing; $20,955 life insurance; G.R. Thoman:
$126,000 profit sharing; $84,560 life insurance; A.B. Rand: $82,500
profit sharing; $9,948 life insurance; B.D. Romeril: $84,740 profit
sharing; $30,114 life insurance; and W.F. Buehler: $81,505 profit
sharing; $17,363 life insurance. A portion of the profit sharing
amount was delivered in the form of stock options. In addition, the
amount shown for G. R. Thoman includes a payment of $3.75 million,
which was agreed to be paid in 1998, 1999 and 2000 under the Letter
Agreement entered into with Company in June, 1997 in connection with
his joining the Company. The payments are intended to replace the
value of forfeited in-the-money vested stock options from his former
employer.
13
<PAGE>
Option Grants
The following table sets forth information concerning awards of stock options
to the Named Officers under the Company's 1991 Plan and the 1998 Employee Stock
Option Plan (1998 Plan) during the fiscal year ended December 31, 1998. The
amounts shown for potential realizable values are based upon arbitrarily
assumed annualized rates of stock price appreciation of five and ten percent
over the full ten-year term of the options, pursuant to SEC regulations. Based
upon a ten-year option term, this would result in stock price increases of 63%
and 159% respectively or $76.354 and $121.582 for the options with the $46.875
exercise price. The amounts shown as potential realizable values for all
shareholders represent the corresponding increases in the market value of
656,786,576 shares outstanding held by all shareholders as of December 31,
1998. Any gains to the Named Officers and the shareholders will depend upon
future performance of the common stock of the Company as well as overall market
conditions.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation
Individual Grants (1) (2) (3) for Option Term
-------------------------------------------------------- -------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---------------------------- ------------- ----------------- ------------ ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Allaire ............ 239,082 2.46% $ 46.875 12/31/08 $ 7,048,002 $ 17,861,022
G. Richard Thoman .......... 171,648 3.46% $ 46.875 12/31/08 $ 5,060,086 $ 12,823,252
163,480 $ 54.8594 12/31/08 $ 5,640,188 $ 14,293,343
A. Barry Rand .............. 77,652 0.80% $ 46.875 12/31/08 $ 2,289,137 $ 5,801,123
Barry D. Romeril ........... 74,382 1.84% $ 46.875 12/31/08 $ 2,192,739 $ 5,556,832
104,440 $ 54.8594 12/31/08 $ 3,603,262 $ 9,131,373
William F. Buehler ......... 70,128 1.80% $ 46.875 12/31/08 $ 2,067,334 $ 5,239,030
104,440 $ 54.8594 12/31/08 $ 3,603,262 $ 9,131,373
------- --------- -------- --------------- ---------------
All Shareholders ........... N/A N/A N/A N/A $24,550,632,544 $62,216,123,086
</TABLE>
(1) All options are exercisable 33% on January 1, 1999, 33% on January 1,
2000 and 34% on January 1, 2001.
(2) Exercise price is based upon fair market value on the effective date of
the award.
(3) Options may be accelerated as a result of a change in control as
described below.
Option Exercises/Year-End Values
The following table sets forth for each of the Named Officers the number of
shares underlying options and SARs exercised during the fiscal year ended
December 31, 1998, the value realized upon exercise, the number of options/SARs
unexercised at year-end and the value of unexercised in-the-money options/SARs
at year-end.
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
Number of Shares
Number of Underlying Unexercised Value of Unexercised In-the-
Shares Options/SARs at Money Options/SARs at
Underlying FY-End (#) FY-End ($) (B)
Options/SARs Value ----------------------------- ----------------------------
Name Exercised (#) Realized ($) (A) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- -------------- ----------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Allaire ............ 200,000 $8,275,950 1,385,440 1,122,940 $57,676,613 $21,284,030
G. Richard Thoman .......... 0 $ 0 360,540 1,775,640 $ 8,878,298 $37,620,136
A. Barry Rand .............. 120,000 $3,927,936 107,520 258,840 $ 4,425,120 $ 5,094,695
Barry D. Romeril ........... 107,520 $4,021,565 0 352,380 $ 0 $ 5,358,289
William F. Buehler ......... 90,880 $3,361,514 0 338,200 $ 0 $ 5,079,187
</TABLE>
(A) The value realized is based upon the difference between the exercise
price and the average of the high and low prices on the date of
exercise.
(B) The value of unexercised options/SARs is based upon the difference
between the exercise price and the average of the high and low
prices on December 31, 1998 of $59.4375. Option/SARs may be
accelerated as a result of a change in control as described below.
14
<PAGE>
Retirement Plans
Retirement benefits are provided to the executive officers of the Company
including the Named Officers under both a funded company-wide plan and unfunded
executive supplemental plans. The table below shows, under the plans, the
approximate annual retirement benefit which would accrue for the number of
years of participation at the respective salary rates. The earliest retirement
age for benefit commencement is age 55 for certain participants and for all of
the other participants would be at varying ages starting no earlier than at age
60. In the event of a change in control (as defined in the plans) there is no
age requirement for eligibility. The benefit accrues generally at the rate of
12/3% per year of participation, but for certain key executives the rate is
accelerated to 2 1/2% or 3 1/3%. No additional benefits are payable for
participation in excess of 30 years.
<TABLE>
<CAPTION>
Annual benefits for years of participation indicated
------------------------------------------------------
Average annual compensation for five highest years 15 years 20 years 25 years 30 years
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
700,000 ......................................... 171,000 228,000 285,000 342,000
800,000 ......................................... 196,000 261,000 327,000 392,000
900,000 ......................................... 221,000 295,000 368,000 442,000
1,000,000 ........................................ 246,000 328,000 410,000 492,000
1,100,000 ........................................ 271,000 361,000 452,000 542,000
1,200,000 ........................................ 296,000 395,000 493,000 592,000
1,300,000 ........................................ 321,000 428,000 535,000 642,000
1,400,000 ........................................ 346,000 461,000 577,000 692,000
1,500,000 ........................................ 371,000 495,000 618,000 742,000
1,600,000 ........................................ 396,000 528,000 660,000 792,000
1,700,000 ........................................ 421,000 561,000 702,000 842,000
1,800,000 ........................................ 446,000 595,000 743,000 892,000
1,900,000 ........................................ 471,000 628,000 785,000 942,000
2,000,000 ........................................ 496,000 661,000 827,000 992,000
2,100,000 ........................................ 521,000 695,000 868,000 1,042,000
2,200,000 ........................................ 546,000 728,000 910,000 1,092,000
2,300,000 ........................................ 571,000 761,000 952,000 1,142,000
2,400,000 ........................................ 596,000 795,000 993,000 1,192,000
2,500,000 ........................................ 621,000 828,000 1,035,000 1,242,000
2,600,000 ........................................ 646,000 861,000 1,077,000 1,292,000
2,700,000 ........................................ 671,000 895,000 1,118,000 1,342,000
2,800,000 ........................................ 696,000 928,000 1,160,000 1,392,000
2,900,000 ........................................ 721,000 961,000 1,202,000 1,442,000
3,000,000 ........................................ 746,000 995,000 1,243,000 1,492,000
3,100,000 ........................................ 771,000 1,028,000 1,285,000 1,542,000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The maximum benefit is 50% of the five highest years' annual compensation
reduced by 50% of the primary social security benefit payable at age 65. The
benefits shown are payable on the basis of a straight life annuity and a 50%
survivor annuity for a surviving spouse. The plans provide a minimum benefit of
25% of defined compensation reduced by such social security benefit other than
for the key executives accruing benefits at the accelerated rate.
The following individuals have the indicated years of participation in the
plans:
Years of
Name Participation
- -------------------------------------------
Paul A. Allaire ................... 32
G. Richard Thoman ................. 2
A. Barry Rand ..................... 30
Barry D. Romeril .................. 5
William F. Buehler ................ 7
- --------------------------------------------
15
<PAGE>
Compensation under the plans includes the amounts shown in the salary and bonus
columns under the Summary Compensation Table other than payments under the 1991
Plan to the extent included in the bonus column. The current compensation
covered by the plans for the Named Officers is as follows:
Covered
Name Current Compensation
- ---------------------------------------------------------------
Paul A. Allaire ....................... $ 2,575,000
G. Richard Thoman ..................... $ 1,630,000
A. Barry Rand ......................... $ 828,000
Barry D. Romeril ...................... $ 1,001,333
William F. Buehler .................... $ 914,833
- --------------------------------------------------------------
Certain Transactions
In connection with his retirement, and in appreciation for his dedication
during his 30 years of service with the Company, A. B. Rand, formerly Executive
Vice President of the Company, received a payment which is reflected in the
column "All Other Compensation" in the Summary Compensation Table. In addition,
Mr. Rand is receiving salary continuance payments totaling $876,912. Upon his
retirement, Mr. Rand will receive retirement benefits under the Company's
existing retirement plans (see "Retirement Plans").
In connection with Michael Miron, Executive Vice President of the Company,
joining the Company, the Company agreed to pay Mr. Miron a signing bonus of
$250,000 and to recommend to the Executive Compensation and Benefits Committee
that Mr. Miron be awarded 235,000 stock options and 14,000 incentive stock
rights to compensate him for the forfeiture of unvested stock options and any
other compensation from his then current employer. The Company also agreed to
his participation in the short-term severance arrangement described below.
There are agreements between the Company and four of its present executive
officers, including Paul A. Allaire, which provide severance benefits in the
event of termination of employment under certain circumstances following a
change in control of the Company (as defined). The circumstances are
termination by the Company, other than because of death or disability,
commencing prior to a potential change in control (as defined), or for cause
(as defined), or by the officers for good reason (as defined). Following any
such termination, in addition to compensation and benefits already earned, the
officer will be entitled to receive a lump sum severance payment equal to three
times the sum of (A) the greater of (1) the officer's annual rate of base
salary on the date notice of termination is given and (2) his/her annual rate
of base salary in effect immediately prior to the change in control and (B) the
greater of (1) the annual target bonus applicable to such officer for the year
in which such notice is given and (2) the annual target bonus applicable to
such officer for the year in which the change in control occurs.
Cause for termination by the Company is the: (i) willful and continued failure
of the officer to substantially perform his/her duties, (ii) willful engagement
by the officer in materially injurious conduct to the Company, or (iii)
conviction of any crime which constitutes a felony. Good reason for termination
by the officer includes, among other things: (i) the assignment of duties
inconsistent with the individual's status as an officer or a substantial
alteration in responsibilities, (ii) a reduction in base salary and/or annual
bonus, (iii) the relocation of the officer's principal place of business, (iv)
the failure of the Company to maintain compensation plans in which the officer
participates or to continue providing certain other existing employment
benefits, or (v) disability commencing after a potential change in control. The
agreements also provide that in the event of a potential change in control (as
defined) each officer, subject to the terms of the agreements, will remain in
the employ of the Company for nine months following the occurrence of any such
potential change in control. The agreements are automatically renewed annually
unless the Company gives notice that it does not wish to extend them. In
addition, the agreements will continue in effect for three years after a change
in control of the Company.
All non-qualified options under the 1991 and the 1998 Plans are accompanied by
option surrender rights. Upon the occurrence of an event constituting a change
in control, as defined in the plans, all such rights become payable in cash
based upon a change in control price as defined in the plans. The 1991 Plan
also provides that upon the occurrence of such an event, all incentive stock
rights and performance unit rights become payable in cash. In the case of
rights payable in shares, the amount of cash is based upon such change in
control price and in the case of rights payable in cash, the cash value of such
rights. Rights payable in cash but which have not been valued at the time of
such an event are payable at the maximum value as determined by the Executive
Compensation and Benefits Committee at the time of the award. Upon accelerated
payment, such rights and any related non-qualified stock options will be
canceled.
16
<PAGE>
From time to time when the Company hires senior experienced executives, special
short-term severance arrangements may be made. Typically, these arrangements
provide for severance pay equal to 24 months of compensation in the event of
involuntary termination during the first 24 months of employment.
The Company has established grantor trusts with a bank for the purpose of
paying amounts due under the deferred compensation plan and the agreements with
four executive officers described above, and the unfunded supplemental
retirement plans described above. The trusts are presently unfunded but the
Company would be required to fund the trusts upon the occurrence of certain
events.
The law firm of Akin, Gump, Strauss, Hauer & Feld, of which Vernon E. Jordan,
Jr. is a partner, was retained by and rendered services to the Company in 1998.
Eight-Year Performance Comparison
The graph below provides a comparison of Xerox cumulative total shareholder
return with the Standard & Poor's 500 Composite Stock Index and the Business
Week Computers and Peripherals Industry Group, excluding Xerox (Peer Group).
Comparison of Eight-Year Cumulative Total Return
Xerox S&P Business Week
Corporation 500 Computers & Peripherals
1990 100 100 100
125.75 107.59 99.2
151.5 115.17 98.4
177.25 122.76 97.6
1991 202.95 130.34 96.8
213.35 132.82 93.28
223.75 135.3 89.76
234.15 137.78 86.24
1992 244.52 140.26 82.74
255 143.78 85
265.48 147.29 87.26
275.96 150.8 89.52
1993 286.45 154.33 91.77
296.56 154.86 97.62
306.67 155.44 103.47
316.78 156.02 109.32
1994 326.87 156.43 117.56
361.09 171.07 127.5
395.31 185.71 139.85
429.53 200.35 152.2
1995 463.76 214.99 160.91
484.51 227.3 174.92
505.26 239.61 180.42
526.01 251.92 201.33
1996 546.77 264.22 226.47
642.24 287.5 237.7
827.65 318.65 271.04
835.47 331.07 312.45
1997 781.34 352.48 304.33
1130.15 402.25 334.03
1082.88 415.53 381.61
906.43 404.61 414.8
1998 1266.24 453.86 553.84
This graph assumes the investment of $100 on December 31, 1990 in Xerox Common
Stock, the S&P 500 Index and the Peer Group Common Stock, and reinvestment of
quarterly dividends at the monthly closing stock prices. The returns of each
company have been weighted annually for their respective stock market
capitalizations in computing the S&P 500 and Peer Group indices.
17
<PAGE>
Directors and Officers Liability Insurance and Indemnity
In January 1999 the Company extended its policies for directors and officers
liability insurance covering all directors and officers of the Company and its
subsidiaries. The policies are issued by Federal Insurance Company, National
Union Fire Insurance Company Of Pittsburgh P.A., Reliance Insurance Company,
Chubb Atlantic Ltd., Gulf Insurance Company and A.C.E Insurance Company, Ltd.,
have a three year term from June 25, 1999 to June 25, 2002, and a total annual
premium of $516,617. No claims have been paid under these policies.
Section 16(a) Beneficial Ownership Reporting Compliance
There was a failure to file one Form 4, Beneficial Ownership Report, on a
timely basis with the SEC as required under Section 16(a) of the Securities
Exchange Act of 1934 on behalf of Mr. John E. Pepper, Chairman, Procter &
Gamble Company, who purchased shares of the Company's common stock. The
purchase was reported in the next reporting period.
Proposal 2--Election of Independent Auditors
The Board of Directors recommends that KPMG LLP, independent certified public
accountants, be elected independent auditors of the Company for 1999. The
recommendation is made on the advice of the Audit Committee, composed of B.R.
Inman, Antonia Ax:son Johnson, John E. Pepper, Martha R. Seger and Thomas C.
Theobald, all directors but not officers of the Company. KPMG LLP is a member
of the SEC Practice Section of the American Institute of Certified Public
Accountants. Representatives of the firm are expected to be at the meeting to
respond to appropriate questions and to make a statement, if they wish.
Proposal 3--Shareholder Approval of Amendments to the 1991 Long-Term Incentive
Plan
BACKGROUND
At its meeting held April 6, 1999, the Board of Directors approved amendments
to the Company's 1991 Long-Term Incentive Plan as previously amended (1991
Plan) to (1) extend its termination date from May 16, 2001 to May 20, 2004 and
(2) increase the number of shares authorized for issuance. At present the 1991
Plan authorizes annually an additional number of shares of Common Stock, par
value $1.00 per share, of the Company (Common Stock) for issuance under the
1991 Plan equal in an amount of up to one percent (1%) of the adjusted average
common shares of the Company outstanding used to calculate fully diluted
earnings (currently called diluted earnings) per share as reported in the
annual report to shareholders for the preceding year. It is proposed that this
amount of increase per year be raised to two percentage points (2%) in order to
provide management with greater flexibility in creating compensation levels
that are competitive with those of other companies which are vying for the same
executive talent. Stock based awards have become increasingly important when
the Company seeks to hire the kind of talented executives needed to drive the
Company's business objectives. The Company competes for executive talent with a
number of high technology companies, some of whom are included in the
performance graph on page 17. These companies have traditionally utilized
aggressive amounts of stock based awards to compensate, motivate and retain
executive talent.
For the year 1999 under the existing provisions of the 1991 Plan a total of
6,740,540 additional shares has become available for awards. As proposed to be
amended, this number would increase by 6,740,540 additional shares, for a total
of 13,481,080 becoming available during 1999.
Accordingly, the Board of Directors recommends that the shareholders approve
the proposed amendments to the 1991 Plan.
SUMMARY OF 1991 PLAN
A summary description of the 1991 Plan as proposed to be amended follows. This
description is qualified in its entirety by reference to the specific
provisions of the 1991 Plan which has been filed with the Securities and
Exchange Commission as proposed to be amended herein.
General
In addition to the increase in shares which become available each year, the
1991 Plan also reserves for issuance any shares which (1) had been reserved for
issuance under a prior plan, (2) are exchanged by a participant as payment to
the Company in connection with any award under the 1991 Plan and the prior plan
and (3) were available in any prior year under the 1991 Plan but not actually
issued in such years. As of March 31, 1999 a total of 5,078,878 shares were
currently available for awards under the 1991 Plan (without giving effect to
the proposed amendment).
Awards made under the 1991 Plan which are settled in cash or any form other
than the issuance of shares are not counted in determining the shares available
for issuance under the 1991 Plan. Likewise, the payment of dividends or
dividend equivalents in shares in conjunction with any awards under the 1991
Plan are not counted against the shares available for issuance. Within the
aggregate share issuance limitation set forth above, and after giving effect to
the two-for-one stock split distributed on February 23, 1999, no more than (a)
30 million shares will be available for issuance of incentive stock options
("ISOs") and (b) 24,314,612 will be available for "stock awards" (see Types of
Awards for a description) granted under the 1991 Plan. What
18
<PAGE>
is more, no more than 10 million shares can be made subject to any form of
stock-based awards under the 1991 Plan to any single individual during the life
of the 1991 Plan.
In the event of changes, such as a stock split or stock dividends, in the
outstanding Common Stock of the Company or other changes affecting such shares,
the 1991 Plan provides for appropriate adjustments in the number of shares
available for issuance and covered by outstanding awards and/or in the price
per share for outstanding awards.
The 1991 Plan is administered by the Executive Compensation and Benefits
Committee as the administering committee with the authority to make all
decisions and determinations in administering the 1991 Plan. The Compensation
Committee is authorized to create a subcommittee to administer the 1991 Plan to
the extent provided by the Executive Compensation and Benefits Committee (the
Committee and such subcommittee are together referred to as the Committee). The
Compensation Committee, or such subcommittee, must be comprised of not less
than three non-employee members of the Board of Directors qualified to serve
under the criteria set forth in Rule 16b-3 of the Securities Exchange Act of
1934 ("1934 Act") and Section 162(m) of the Internal Revenue Code of 1986 (the
Code). Except for the power to amend, the Compensation Committee may delegate
to one or more officers of the Company certain or all of its powers under the
1991 Plan other than determinations regarding awards made to eligible employees
who are subject to Section 16 of the 1934 Act or who are Covered Employees.
The Compensation Committee may amend the 1991 Plan as it deems necessary,
provided that no amendment will be made without the approval of shareholders if
such amendment would increase the number of shares available for issuance under
the plan (other than adjustments for changes in shares) or otherwise cause the
plan to not comply with any legal requirement.
Eligibility
Any employee of the Company or of any entity which is controlled by the Company
or in which the Company has a significant equity interest will be eligible to
receive an award under the 1991 Plan.
Types of Awards
The 1991 Plan provides flexibility in structuring long-term incentive
agreements for various groups and levels of executives and other participants.
With the exception of cash awards, all awards under the 1991 Plan are
denominated in shares, or consist of actual shares, of Common Stock of the
Company. Thus, the most significant components of the 1991 Plan rewards
participants directly as shareholder value increases.
Stock Options--Stock options constitute rights entitling their holders to
purchase shares of the Company's Common Stock during a specified period at a
purchase price that is not less than 100% of fair market value on the effective
date of grant, or, in the case of a stock option granted as a replacement for
another award, such price may be identical to (but not lower than) the fair
market value on the effective date of grant of such replaced award. Any stock
option granted in the form of an ISO will be intended to comply with the
requirements of Section 422 of the Code. Shares purchased upon exercise of
stock options must be paid for in full at the time of exercise in cash or such
other method as the Committee may permit from time to time. The 1991 Plan
prohibits issuance of "reload" options where upon exercise of an outstanding
option new options are automatically granted.
Stock Appreciation Rights--Stock appreciation rights (SARs) entitle their
recipients to receive payments in cash, shares or a combination as determined
by the Committee. Any such payments will represent the appreciation in the
market value of a specified number of shares from the date of grant until the
date of exercise. Such appreciation will be measured by the excess of the fair
market value on the exercise date over the fair market value of the Company's
Common Stock on the effective date of grant of SARs or the grant of an award
which the SAR replaced.
Stock Awards--Stock awards may constitute actual shares of Common Stock or may
be denominated in stock units which entitle the recipients to receive future
payments in either shares, cash or a combination. Stock awards may include
incentive stock rights as well as grants of restricted stock. Stock awards may
be subject to restrictions and contingencies regarding vesting and eventual
payment that the Committee determines.
Cash Awards--Cash awards are long-term incentive grants denominated in cash
with the eventual payment subject to the restrictions and contingencies that
the Committee establishes.
Any awards made under the 1991 Plan may be subject to vesting and payment
contingencies that require the attainment of specific future business
objectives or other goals, including individual or business unit measures of
performance. Awards may be granted singly, in tandem with or in replacement or
as alternatives for other awards, including awards made under other plans.
Awards, other than cash awards, may earn dividend equivalents.
Generally, all awards under the 1991 Plan are nontransferable except by will or
in accordance with the laws of descent and distribution or pursuant to a
domestic relations order unless the Committee provides otherwise. During the
life of the participant,
19
<PAGE>
awards can be exercised only by him or her unless the Committee provides
otherwise. The Committee may permit a participant to designate a beneficiary to
exercise or receive any rights that may exist under the 1991 Plan upon the
participant's death. Awards granted, and shares issued in conjunction with the
settlement of any award, under the 1991 Plan may be subject to forfeiture back
to the Company and/or restrictions on transferability for such periods that the
Committee determines.
Change In Control
Upon the occurrence of a change in control of the Company, as defined in the
1991 Plan, with certain exceptions, all awards outstanding under the 1991 Plan
become immediately vested and are settled or paid-out at change in control
prices or other amount as defined in the 1991 Plan.
Federal Tax Aspects of the 1991 Plan
The Company believes that, under the present law, the following are the federal
tax consequences generally arising with respect to awards granted under the
1991 Plan. The grant of an option or SAR will create no tax consequences for an
optionee or the Company. The optionee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction when an ISO is exercised. Upon exercising an
option other than an ISO, the optionee must recognize ordinary income equal to
the difference between the exercise price and the fair market value of the
stock on the date of exercise; the Company will be entitled to a deduction for
the same amount. The treatment of an optionee on a disposition of shares
acquired through the exercise of an option depends on how long the shares have
been held and on whether such shares were acquired by exercising an ISO or by
exercising an option other than an ISO. Generally, there will be no tax
consequence to the Company in connection with a disposition of shares acquired
under an option except that the Company may be entitled to a deduction in the
case of a disposition of shares acquired under an ISO before the applicable ISO
holding periods have been satisfied.
With respect to other awards granted under the 1991 Plan that are settled
either in cash or in stock or other property that is either transferable or not
subject to substantial risk of forfeiture, the participant must recognize
ordinary income equal to the cash or the fair market value of shares or other
property received; the Company will be entitled to a deduction for the same
amount. With respect to awards that are settled in stock or other property that
is restricted as to transferability and subject to substantial risk of
forfeiture, the participant must recognize ordinary income equal to the fair
market value of the shares or other property received at the time the shares or
other property become transferable or not subject to substantial risk of
forfeiture, whichever occurs earlier; the Company will be entitled to a
deduction for the same amount. Different tax rules may apply with respect to
participants who are subject to Section 16 of the 1934 Act.
Awards to Covered Employees
Awards made to Covered Employees will be made by the Committee within the time
period required under Section 162(m) of the Code for the establishment of
performance goals. The award will specify, among other things, the performance
period(s) for such award, the performance criteria and the performance targets.
The performance criteria will be any one or more of the following as determined
by the Committee: earnings per share, total shareholder return, return on
shareholders' equity, economic value added measures, return on assets, revenue,
profit before tax, profit after tax, stock price and return on sales. Payment
or vesting of awards to Covered Employees will be contingent upon satisfaction
of the performance criteria and targets as certified by the Committee by
resolution of the Committee. To the extent provided at the time of an award,
the Committee may in its sole discretion reduce any award to any Covered
Employee to any amount, including zero.
THE AMENDMENTS
The proposed amendments to the 1991 Plan are as follows:
o The first sentence of Section 2 is proposed to be amended to read as
follows:
"The Plan shall be effective as of May 16, 1991 and shall remain in
effect until May 20, 2004 unless sooner terminated by the Company's
Board of Directors (the "Board")."
o The first sentence of Section 5 of the 1991 Plan is proposed to be amended
to read as follows:
"For each calendar year from and including 1991 to but excluding 1999, a
number of shares of Common Stock, par value $1.00 per share, of the
Company ("Common Stock") equal in an amount of up to one percent (1%) of
the adjusted average shares of Common Stock outstanding used to
calculate diluted earnings per share (previously known as fully diluted
earnings per share) as reported in the annual report to shareholders for
the preceding year shall become available for issuance under the Plan;
and for the calendar year 1999, and for each calendar year thereafter, a
number of shares of Common Stock equal in an amount to two percent (2%)
of the adjusted average shares of Common Stock outstanding used to
calculate diluted earnings per share (previously known as fully diluted
earnings per share) as reported in the annual report to shareholders for
the preceding year shall become available for issuance under the Plan."
20
<PAGE>
ADDITIONAL INFORMATION
Since awards under the 1991 Plan are at the discretion of the Committee, the
kind and number of awards to any employee cannot now be determined. The number
of options granted during 1998 to Named Officers is set forth in column (G) of
the Summary Compensation Table. During 1998 2,909,102 options were issued to
all current Executive Officers while 7,613,350 were issued to all other
employees.
The closing price of the Company's Common Stock as reported on the New York
Stock Exchange Composite Transactions on March 31, 1999, was $xx.xx.
To be adopted, the proposed amendments must be approved by the holders of a
majority of votes cast at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE 1991
LONG-TERM INCENTIVE PLAN.
Proposal 4--Shareholder Approval of Amendments to the 1996 Non-Employee
Director Stock Option Plan
BACKGROUND
At its meeting held on April 6, 1999, the Board of Directors approved
amendments to the 1996 Non-Employee Director Stock Option Plan (1996 Plan). The
Board has recommended that the shareholders adopt the amendments to the 1996
Plan at this meeting. The purpose of the amendments is to (i) increase the
number of shares for which options are granted annually to the non-employee
Directors to reflect the recent two-for-one stock split as well as provide for
automatic adjustment in the event of future stock splits and (ii) clarify the
vesting period. Since the annual option grants are an integral part of the
compensation of Directors, failure to make such adjustments has the effect of
reducing the value of the option grant and thus reducing the value of total
annual director compensation. The proposed adjustment in the number of shares
to be subject to annual option grants would take effect with this meeting so
that non-employee Directors elected at this meeting will be granted options for
5,000 (instead of 2,500) shares under the 1996 Plan.
The shareholders originally adopted the 1996 Plan at a meeting held on May 16,
1996. The purpose of the 1996 Plan is to increase the ownership interest in the
Company of non-employee Directors whose services are considered essential to
the Company's continued progress, to align such interests with those of the
shareholders of the Company and to provide a further incentive to serve as a
Director of the Company.
SUMMARY
A summary description of the 1996 Plan as proposed to be amended follows. This
description is qualified in its entirety by reference to the full text of the
1996 Plan which has been filed with the SEC.
The 1996 Plan provides for an automatic annual award of options for 5,000
shares of Common Stock to each person who is a non-employee director following
the annual meeting of shareholders. The option exercise price is 100% of the
fair market value per share of Common Stock on the date of grant, as defined in
the 1996 Plan. Persons elected to the Board between annual meetings are awarded
a pro rata portion of the 5,000 annual option share award for the first year of
service.
The 1996 Plan covers "non-employee directors" which means a director of the
Company who is not an employee of the Company or any subsidiary of the Company
(non-employee director). The 1996 Plan authorizes the issuance of up to
2,000,000 shares of the Company's Common Stock, par value $1 per share (Common
Stock), upon the exercise of options granted thereunder. (The 2,000,000 shares
include the effect of the two-for-one stock split distributed on February 23,
1999.) To the extent an outstanding option expires or terminates unexercised or
is canceled or forfeited, the shares subject to the expired, unexercised,
canceled or forfeited portion of such option are available again for grants of
options under the 1996 Plan.
Options become cumulatively exercisable as to 33% of the shares subject to the
option commencing at the end of a waiting period, 33% on the first day of the
first year following the waiting period and 34% on the first day of the second
year following the waiting period. The waiting period for this purpose is the
January 1st next following the annual meeting of shareholders. Options remain
exercisable for a period of 10 years (exercise period). Upon the occurrence of
a change in control, as defined, the waiting period terminates and all
outstanding options become fully exercisable in accordance with the other terms
and conditions of the 1996 Plan.
Upon exercise the holder of the option must pay the full purchase price under
the option in cash as well as the withholding taxes with respect to such
exercise.
The Board of Directors is generally authorized to amend the 1996 Plan from time
to time provided that such amendment may not adversely change the terms and
conditions of an outstanding option without the optionee's consent.
21
<PAGE>
Options awarded under the 1996 Plan are not transferable other than by will or
the laws of descent and distribution except pursuant to a domestic relations
order. During the life of the optionee, options under the 1996 Plan are
exercisable only by him or her.
If an optionee ceases to be a director of the Company other than by reason of
disability, retirement or death, outstanding options can be exercised only to
the extent that they were exercisable on the date of termination and expire on
the earlier of three months from the date of termination or the expiration of
the exercise period. If an optionee ceases to be a director by reason of
disability or retirement, each option continues to be exercisable in accordance
with its terms. If an optionee dies following termination as a director by
reason of disability or retirement, the option continues to be exercisable
until the earlier of one year following death or expiration of the exercise
period. If the optionee ceases to be a director as a result of death after the
expiration of the waiting period, the option becomes immediately vested and
exercisable at any time within one year of the optionee's death but in no event
after the expiration of the exercise period.
The Company believes that under the present law, the following are the federal
tax consequences generally arising with respect to option grants under the 1996
Plan. The grant of an option will create no tax consequences for an optionee or
the Company. Upon exercising an option, the optionee must recognize ordinary
income equal to the difference between the exercise price and the fair market
value of the stock on the date of exercise. The Company will be entitled to a
deduction for the same amount. The tax treatment for an optionee on a
disposition of shares acquired through the exercise of an option depends on how
long the shares have been held. Any gain or loss on a later disposition of
shares acquired through the exercise of an option will constitute capital gain
or loss to the optionee equivalent to the difference between the share proceeds
and the aforementioned fair market value. The applicable holding period to
determine whether such gain is long- or short-term is measured from the date of
the option exercise. There will be no tax consequences to the Company in
connection with a disposition of shares acquired under an option.
In the event of any change in the number of issued shares of Common Stock, such
as stock dividend, stock split, recapitalization, reorganization, exchange of
shares, liquidation, combination or other change in corporate structure
affecting the shares of Common Stock, the total number of shares reserved for
issuance under the 1996 Plan, the number of shares for which options are
automatically granted annually, the number of shares covered by each
outstanding option and the purchase price per share will be appropriately
adjusted. The 1996 Plan will be administered by the Company's Office of
Corporate Secretary.
THE AMENDMENTS
The proposed amendments to the 1996 Plan are as follows:
o The first sentence of Section 8.1 of the 1996 Plan is amended to read in
its entirety as follows:
"On the date of the 1996 Annual Meeting of shareholders of the Company
and, thereafter, on the date of each annual meeting of shareholders of
the Company through 1998 each person who is a Non-Employee Director
immediately after such meeting of shareholders shall be granted an
Option to purchase 2,500 Shares. On the date of each Annual Meeting of
shareholders of the Company (or any adjournment thereof) for the
calendar years 1999 and thereafter, each person who is a Non-Employee
Director immediately after such meeting of shareholders shall be granted
an Option to purchase 5,000 Shares. The number referred to in the
preceding sentence shall be subject to adjustment as provided in Article
XI."
o The first sentence of Section 8.3 of the 1996 Plan is amended to read in
its entirety as follows:
"The Shares subject to an Option may be purchased commencing on the
January 1 next following the annual meeting of shareholders (the
"Waiting Period") as follows:
33% of such Shares commencing at the end of the Waiting Period;
33% of such Shares commencing on the first day of the first year
following the Waiting Period; and
34% of such Shares commencing on the first day of the second year
following the Waiting Period.
o Section 11.1 of the 1996 Plan is amended to read in its entirety as
follows:
"11.1 If the Company shall at any time change the number of issued
Shares without new consideration to the Company (such as by stock
dividend, stock split, recapitalization, reorganization, exchange of
shares, liquidation, combination or other change in corporate
structure affecting the Shares) or make a distribution of cash or
property which has a substantial impact on the value of issued
Shares, the total number of Shares reserved for issuance under the
Plan and the number of Shares subject to Options to be granted under
Section 8.1 shall be appropriately adjusted and the number of Shares
covered by each outstanding Option and the
22
<PAGE>
purchase price per Share under each outstanding Option shall be
adjusted so that the aggregate consideration payable to the Company
and the value of each such Option shall not be changed."
ADDITIONAL INFORMATION
During 1998 no options were granted to Named Officers since they are not
eligible for grants under the 1996 Plan. During 1998 options for 2,500 shares
were granted to each of the non-employee directors at a per share option price
of $54.2188.
On March 31, 1999 the average between the highest and lowest sale prices per
share of Common Stock on the New York Stock Exchange Composite Transaction Tape
was $xx.xx.
To be adopted, the amendments to the 1996 Plan must be approved by the holders
of a majority of votes cast at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE AMENDMENTS TO
THE 1996 PLAN.
Proposal 5--Shareholder Approval of Amendments to Certificate of Incorporation
Regarding Preferred Stock Voting Rights
At its meeting held on September 10, 1989, the Board of Directors approved the
establishment of the Xerox Employee Stock Ownership Plan (ESOP). The ESOP is an
employee benefit plan which holds shares of the Company's stock which are
subsequently allocated to employees. The purpose of the ESOP is to (i) increase
the ownership interest in the Company of the general employee population so as
to closer align their interests with those of the holders of Common Stock and
(ii) provide a further incentive to serve as an employee of the Company.
As part of the process of establishing the ESOP, the Board of Directors fixed
the designations, preferences, privileges and voting rights of a series of the
Company's authorized Cumulative Preferred Stock, called the Series B
Convertible Preferred Stock (the ESOP Shares), all of which was then sold to
State Street Bank and Trust Company, the Trustee for the ESOP. At [February 28,
1999], there were 22,043,067 shares of authorized Cumulative Preferred Stock,
of which [8,749,522] ESOP Shares were issued and outstanding. The ESOP Shares
can be held only by the Trustee. The Trustee holds both the allocated and
unallocated ESOP Shares in trust for the employees of the Company.
The Company's Certificate of Incorporation (the Certificate) provides that the
ESOP Shares have equal voting rights with the Common Stock, one vote per share,
and vote with the Common Stock at any annual or special meeting of shareholders
for the election of directors and on any other matter coming before such
meeting. The Trustee votes the allocated ESOP Shares as directed by the
employees and votes the allocated ESOP Shares for which instructions have not
been given and the unallocated ESOP Shares in the same ratio as the voting
instructions given by employees for the allocated ESOP Shares. Presently, the
ESOP Shares represent approximately 1.3% of the entire voting stock of the
Company.
The ESOP Shares are convertible into shares of Common Stock at any time. The
conversion ratio is established in the Certificate and is subject to adjustment
in the case of stock dividends, stock splits, recapitalizations,
reclassifications, reorganization, exchanges of shares, combination or other
changes in corporate structure affecting shares of Common Stock. Initially, the
ESOP Shares were convertible into shares of Common Stock of the Company at the
rate of one share of Common Stock for one ESOP Share, with the result that the
ESOP Shares and the shares of Common Stock had equal voting rights.
Since the ESOP was established, however, the Company's Common Stock has split
twice (two-for-one and three-for-one). Every ESOP Share is now convertible into
six shares of Common Stock instead of the single share of Common Stock at the
outset. However, due to the one vote per ESOP Share limitation contained in the
Certificate, the holders of the ESOP Shares still have only one vote per share,
not the six votes that they would have if the ESOP Shares were converted into
Common Stock. As a result, the voting power of the ESOP Shares has been
diluted.
In order to provide that the ESOP Shares have the same number of votes which
the shares of Common Stock into which they are convertible are entitled, and to
better align the employees' interests with those of the holders of the Common
Stock, the Board of Directors has recommended that action be taken by
shareholders to amend the Certificate to amend certain voting rights of the
Cumulative Preferred Stock and the ESOP Shares. A copy of the proposed
amendment (the Amendment) is attached to this proxy statement as Exhibit A. The
Amendment will provide employees of the Company who are participants in the
ESOP with the same voting rights they would have if their ESOP Shares were
converted into Common Stock of the Company--one vote per share of Common Stock
(or Common Stock equivalent). The Amendment will also provide the Board of
Directors with future flexibility when fixing the voting rights of any new
series of the Company's authorized Cumulative Preferred Stock which is
convertible into or exchangeable for Common Stock or other voting stock of the
Company, by permitting the Cumulative Preferred Stock to have up to the same
number of votes as the votes of the shares of Common Stock or other voting
stock into which the Cumulative Preferred Stock is convertible or for which it
is exchangeable.
The Amendment provides that, when the ESOP Shares are voting with the Common
Stock, each ESOP Share will have the same number of votes as the aggregate
number of votes which the shares of Common Stock into which it is convertible
are entitled. If future stock dividends, stock splits, recapitalizations,
reclassifications, reorganization, exchanges of shares,
23
<PAGE>
combination or other changes in corporate structure affecting shares of Common
Stock occur, the voting rights of the ESOP Shares will be adjusted so that each
ESOP Share will have the same number of votes which the shares of Common Stock
into which it is then convertible are entitled. Because the ESOP Shares vote
with the Common Stock, increasing the number of votes of the ESOP Shares will
necessarily have a dilutive effect on the current voting power of the Common
Stock, but restores the relative voting power of the ESOP Shares to what was in
effect in September 1989 when the ESOP Shares were issued.
The Company is not seeking the Amendment for anti-takeover purposes. The
Amendment, together with certain other provisions of the Company's charter and
by-laws, could be viewed as having the effect of discouraging certain attempts
to acquire the Company or remove incumbent management. Such provisions include:
(i) if the Amendment were adopted, provisions permitting the shares of any new
series of Cumulative Preferred Stock to have more than one vote per share (if
convertible into or exchangeable for Common Stock or other voting stock of the
Company); (ii) if the Amendment were adopted, the ESOP Shares which, prior to
the Amendment represent approximately 1.3% of the aggregate voting stock of the
Company, would represent approximately 7.4% of the aggregate voting stock of
the Company and are voted by the Trustee for the ESOP as directed by the
employees of the Company on whose behalf such shares are held; (iii) the
Board's authority to issue one or more series of Cumulative Preferred Stock up
to a maximum of approximately 12 million shares presently available; and (iv)
the Company's by-law provisions providing that a special meeting of
shareholders may be called only by the Chairman of the Board or the Board of
Directors. In addition, the Company's shareholder rights plan, the terms and
conditions of which are set forth in the Rights Agreement dated as of April 7,
1997 between the Company and The First National Bank of Boston, as Rights
Agent, as amended by Amendment No. 1 dated as of January 26, 1999, may have
certain anti-takeover effects. These provisions and the rights plan may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the shareholders, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock.
To be adopted, the Amendment must be approved by the holders of a majority of
the outstanding shares of Common Stock and the ESOP Shares entitled to vote at
the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE AMENDMENT.
Other Matters
As of the date of this proxy statement, the Board of Directors does not intend
to present, and has not been informed that any other person intends to present,
any other matter for action at this meeting. If any other matters properly come
before the meeting, it is intended that the holders of the proxies will act in
accordance with their best judgment.
In addition to the solicitation of proxies by mail, certain employees of the
Company, without extra remuneration, may solicit proxies. The Company also will
request brokerage houses, nominees, custodians and fiduciaries to forward
soliciting material to the beneficial owners of stock held of record and will
reimburse such person for the cost of forwarding the material. The Company has
engaged D.F. King & Co., Inc. to handle the distribution of soliciting material
to, and the collection of proxies from, such entities and will pay D.F. King &
Co. a fee of $12,000 plus reimbursement of out-of-pocket expenses. The cost of
all proxy solicitation will be borne by the Company.
As a matter of policy, proxies, ballots and voting tabulations that identify
individual shareholders are kept confidential by the Company. Such documents
are available for examination only by the inspector of election and certain
employees of the Company and the Company's transfer agent who are associated
with processing proxy cards and tabulating the vote. The vote of any
shareholder is not disclosed except in a contested proxy solicitation or as may
be necessary to meet legal requirements.
Copies of the 1998 annual report of the Company have been distributed to
shareholders. Additional copies and additional information, including the
annual report (Form 10-K) filed with the SEC and the consolidated statistical
data contained in the EEO-1 annual report to the U.S. Equal Employment
Opportunity Commission are available without charge from Investor Relations,
Xerox Corporation, P.O. Box 1600, Stamford, Connecticut 06904. The annual
report, proxy statement and Form 10-K are also available on the Company's
website at www.xerox.com/investor.
24
<PAGE>
Shareholder Proposals for 2000 Annual Meeting
In order for shareholder proposals to be included in the proxy statement and
form of proxy for the 2000 Annual Meeting of Shareholders, such proposals must
be received by the Company at its offices at P.O. Box 1600, Stamford,
Connecticut 06904, Attention: Secretary-no later than December 13, 1999.
In addition, the Company's By-Laws provide that any shareholder wishing to make
a nomination for director, or wishing to introduce any business, at the 2000
Annual Meeting of Shareholders must give the Company advance notice as
described in the By-Laws. To be timely, the notice for the 2000 Annual Meeting
must be received at the Company offices mentioned above no earlier than
November 13, 1999 or later than December 13, 1999. Nominations for director
must be accompanied by written consent to being named in the proxy statement as
a nominee and to serving as director if elected.
By Order of the Board of Directors,
Eunice M. Filter
Secretary
April 12, 1999
25
<PAGE>
EXHIBIT A
Certificate of Amendment
of the
Certificate of Incorporation
of
Xerox Corporation
Under Section 805 of the Business Corporation Law
The undersigned, Eunice M. Filter, Vice President of Xerox Corporation (the
"Corporation") hereby certifies that:
1. The name of the Corporation is "XEROX CORPORATION". The name under which the
Corporation was formed is "THE HALOID COMPANY".
2. The Certificate of Incorporation was filed by the Department of State on
April 18, 1906 under the name The Haloid Company.
3. The Certificate of Incorporation of the Corporation is hereby being amended
pursuant to Section 805 of the BCL to (i) expressly provide that the Board of
Directors has the authority to fix the voting rights of Cumulative Preferred
Stock, par value $1.00 per share, of the Corporation at other than one vote per
share and (ii) change the voting rights of the Series B Convertible Preferred
Stock of the Corporation to provide that each such share shall be entitled to
such number of votes per share as is equal to the aggregate number of votes the
shares of Common Stock of the Corporation into which each such share is
convertible are entitled when voting with the holders of Common Stock and Class
B Stock, without distinction as to class, at any annual or special meeting of
shareholders.
4. Subdivision (1)(a)(vii) of Article FOURTH of the Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
"(vii) the voting rights, if any, in addition to those specified herein
(provided, however, that if the series is convertible into or exchangeable
for Common Stock or any other stock of the Corporation having voting rights
and has the right to vote with the Common Stock or such other stock, the
series shall have no greater number of votes per share than the aggregate
number of votes to which the shares into which it is convertible or for
which it is exchangeable and with which it is voting are entitled), and any
other preferences, privileges and restrictions or qualifications of such
series."
5. The last paragraph of Subdivision 7 of Article FOURTH of the Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
"In any case in which the holders of Cumulative Preferred Stock or any series
thereof shall be entitled to vote pursuant to the provisions of the
Certificate of Incorporation or pursuant to law, each holder of Cumulative
Preferred Stock or of such series, as the case may be, shall be entitled (a)
when voting separately as a class or series, to one vote for each share
thereof held, and (b) when voting with the Common Stock or any other stock
of the Corporation having voting rights other than the Cumulative Preferred
Stock, to such number of votes per share as provided in the designations,
preferences, privileges and voting rights of such Cumulative Preferred Stock
or series thereof fixed by the Board of Directors pursuant to paragraph (a)
of subdivision 1 of Article FOURTH of the Certificate of Incorporation."
6. Paragraph (d) of Subdivision 17 of Article FOURTH of the Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
"(d) Except as prescribed by law and in addition to the rights provided for in
subdivision 7 of Article FOURTH of the Certificate of lncorporation, each
holder of Series B Preferred Stock shall be entitled to such number of votes
for each share held as is equal to the aggregate number of votes of the
Common Shares into which each share of Series B Preferred Stock is
convertible pursuant to subsections (g), (h) and (i) of this subdivision 17
(as from time to time adjusted as provided in subsection (i) of this
subdivision 17) and shall be entitled to exercise such voting rights with
the holders of Common Stock and Class B Stock, without distinction as to
class, at any annual or special meeting of shareholders for the election of
directors and on any other matter coming before such meeting. For all other
purposes under the Certificate of Incorporation, each holder of Series B
Preferred Stock, when voting as a class with the holders of Cumulative
Preferred Stock or with the holders of the shares of any series thereof, as
the case may be, shall be entitled to one vote for each share thereof held."
7. The foregoing amendment of the Certificate of Incorporation of the
Corporation was authorized by a majority vote of all outstanding shares
entitled to vote thereon at a meeting of shareholders of the Corporation duly
called and held on May 20, 1999.
IN WITNESS WHEREOF, the undersigned has signed this Certificate on the date set
forth.
Date: May , 1999
----------------------------------------
Name: Eunice M. Filter
Title: Vice President
<PAGE>
As a participant in the Employee Stock Ownership Plan you have the right to
instruct the Trustee on voting the shares allocated to your account!
The enclosed proxy statement provides the background on the proposals being
considered at this year's Annual Meeting to be held May 20, 1999. Read it
carefully and decide how you want to instruct the Trustee to vote your shares.
As an ESOP participant you may direct the Trustee how to vote the shares
allocated to your ESOP account. Based upon this direction the Trustee will vote
a proportion of the shares held in Trust which have not been allocated as well
as shares for which no instructions have been received.
You may mark the boxes on the reverse side of the card, date and sign it and
return it in the enclosed postage paid envelope, or you may instruct the Trustee
on how to vote your shares by telephone or Internet. (See the instructions for
telephone and Internet voting on the reverse side of this card.)
All votes are confidential.
Xerox has a confidential voting policy. Voting tabulations that identify
individual shareholders--including ESOP participants--are kept confidential. See
the section entitled Other Matters in the proxy statement for additional
information on the confidential voting policy.
Sometimes shareholders write comments on their cards. If you choose to write a
comment on your card and if it would be appropriate to forward it to a Xerox
executive, the Trustee will transcribe your comment. No one at Xerox will see
your voting instructions.
Instruct the Trustee on voting your shares now!
Instruct the Trustee on voting your shares by telephone, Internet, or mail as
soon as possible to be sure your instructions are received prior to the Annual
Meeting in time to be counted.
- --------------------------------------------------------------------------------
The Xerox Corporation annual report and proxy statement are available at:
www.eproxyvote.com/xrx
- --------------------------------------------------------------------------------
If you use the phone or Internet, please do not mail back this card.
Detach here if mailing.
VOTING INSTRUCTIONS
XEROX CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
10:00 A.M. THURSDAY, MAY 20, 1999
THE RITZ-CARLTON SAN FRANCISCO, 600 STOCKTON AT CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA
To State Street Bank & Trust Company, Trustee:
As a participant in the Xerox Corporation Employee Stock Ownership
Plan, I hereby instruct the Trustee to vote the shares of Stock allocated to my
Stock Account and a proportion of the shares held in the Trust which have not
yet been allocated as well as shares for which no instructions have been
received (a) in accordance with the following direction and (b) to grant a proxy
to the proxies nominated by the Board of Directors of the Company giving them
discretion in connection with such other business as may come before the
meeting.
Comments:______________________________________________________________________
_______________________________________________________________________________
----------------------------
Important - to be signed and dated on reverse side SEE REVERSE SIDE
----------------------------
XEROX CORPORATION 1999 ESOP VOTING FORM - SIDE 1
<PAGE>
NOW YOU CAN INSTRUCT THE TRUSTEE ON VOTING YOUR SHARES BY
TELEPHONE OR INTERNET !
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Your telephone or Internet vote authorizes the Trustee to vote your shares in
the same manner as if you marked, signed, and returned your proxy card. To vote
by phone or Internet, read the accompanying proxy statement and ballot and then
follow these easy steps:
=========================================================
To Vote By Phone Call toll free 1-877-PRX-VOTE (779-8683) on a touch
tone telephone.
Enter your 13-digit Control Number located above your
name and address in the lower left corner of this form.
Follow the simple recorded instructions.
=========================================================
=========================================================
To Vote By Internet Go to website www.eproxyvote.com/xrx
Enter your 13-digit Control Number located above your
name and address in the lower left corner of this form.
Follow the simple instructions on the screen.
You can also elect to receive future shareholder
materials electronically at this website.
=========================================================
Thank you for voting!
If you vote by phone or Internet, please do not mail back your proxy card.
DETACH HERE IF MAILING
----- Please mark
| X | votes as in
----- this example
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Unless marked otherwise, this proxy will be voted FOR the election of Directors, FOR the election of Auditors, FOR approval of
the amendments to the 1991 Long-Term Incentive Plan, FOR the amendments to the 1996 Non-Employee Director Stock Option Plan,
and FOR amendments to the Certificate of Incorporation regarding Preferred Stock voting rights.
<S> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS NOMINATED BY THE BOARD 3. APPROVAL OF AMENDMENTS TO FOR AGAINST ABSTAIN
(Pages 2 to xx) THE 1991 LONG-TERM INCENTIVE ----- ----- -----
PLAN (Page xx) | | | | | |
Nominees: Paul A. Allaire, B.R. Inman, Antonia Ax:son Johnson, ----- ----- -----
Vernon E. Jordan, Jr., Yotaro Kobayashi, Hilmar Kopper, Ralph S.
Larsen, George J. Mitchell, N.J. Nicholas, Jr., John E. Pepper, 4. APPROVAL OF AMENDMENTS FOR AGAINST ABSTAIN
Patricia F. Russo, Martha R. Seger, Thomas C. Theobald and TO THE 1996 NON-EMPLOYEE ----- ----- -----
G. Richard Thoman. DIRECTOR STOCK OPTION | | | | | |
----- ----- PLAN (Page xx) ----- ----- -----
| | FOR ALL | | WITHHELD
----- NOMINEES ----- FROM ALL NOMINEES
----- 5. APPROVAL OF AMENDMENTS TO THE FOR AGAINST ABSTAIN
| | CERTIFICATE OF INCORPORATION ----- ----- -----
----- ________________________________________ REGARDING PREFERRED STOCK | | | | | |
For all nominees except as noted above. VOTING RIGHTS ----- ----- -----
2. ELECTION OF INDEPENDENT FOR AGAINST ABSTAIN -----
AUDITORS (Page xx) ----- ----- ----- Check here if you have noted comments on the reverse. | |
| | | | | | -----
----- ----- ----- MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT -----
| |
-----
PLEASE SIGN AS IMPRINTED HEREON AND RETURN PROMPTLY.
Signature: _____________________________ Date ____________ Signature: ____________________________ Date _____________
- ----------------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
XEROX CORPORATION 1999 ESOP VOTING FORM - SIDE 2
<PAGE>
ELECTION TO OBTAIN XEROX CORPORATION
PROXY MATERIALS
ELECTRONICALLY INSTEAD OF BY MAIL
Xerox Corporation shareholders may elect to receive the Company's future annual
reports, proxy statements and to vote their shares through the Internet instead
of receiving copies through the mail. Xerox is offering this service to provide
added convenience to its shareholders and to reduce annual report printing and
mailing costs.
To take advantage of this option, shareholders must subscribe to one of the
various commercial services that offer access to the Internet World Wide Web.
Costs normally associated with electronic access, such as usage and telephone
charges, will be borne by the shareholder.
To elect this option, go to website www.eproxyvote.com/xrx. (You may also vote
your shares at this website.) Shareholders who elect this option will be
notified each year by e-mail how to access the proxy materials and how to vote
their shares on the Internet.
If you consent to receive the Company's future proxy materials electronically,
your consent will remain in effect unless it is withdrawn by calling, writing,
or e-mailing our Transfer Agent, BankBoston (Boston EquiServe), at:
1-800-828-6396; P.O. Box 8038, Boston, MA 02266-8038; www.equiserve.com. Also,
if while this consent is in effect you decide you would like to receive a hard
copy of the proxy materials, you may call, write or e-mail our Transfer Agent.
- --------------------------------------------------------------------------------
YOU MAY VOTE YOUR SHARES AND ACCESS THE XEROX CORPORATION ANNUAL REPORT AND
PROXY STATEMENT AT:
www.eproxyvote.com/xrx
- --------------------------------------------------------------------------------
If you vote by phone or Internet, please do not mail back your proxy card.
Detach here if mailing.
PROXY
XEROX CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
10:00 A.M. THURSDAY, MAY 20, 1999
THE RITZ-CARLTON SAN FRANCISCO, 600 STOCKTON AT CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints PAUL A. ALLAIRE, B. R. INMAN, PATRICIA F.
RUSSO and each of them (or, if more than one are present, a majority of those
present), as proxies for the undersigned, with full power of substitution, to
represent the undersigned and to vote the shares of Common Stock of the Company
which the undersigned is entitled to vote at the above annual meeting and at all
adjournments thereof, (a) in accordance with the following ballot, and (b) in
accordance with their best judgment in connection with such other business as
may come before the meeting.
Comments:_______________________________________________________________________
________________________________________________________________________________
------------------------------
Important - to be signed and dated on reverse side SEE REVERSE
SIDE
------------------------------
XEROX CORPORATION 1999 PROXY - SIDE 1
<PAGE>
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET !
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed, and returned your proxy card. To
vote by phone or Internet, read the accompanying proxy statement and ballot and
then follow these easy steps:
=========================================================
To Vote By Phone Call toll free 1-877-PRX-VOTE (779-8683) on a touch
tone telephone.
Enter your 13-digit Control Number located above your
name and address in the lower left corner of this form.
Follow the simple recorded instructions.
=========================================================
=========================================================
To Vote By Internet Go to website www.eproxyvote.com/xrx
Enter your 13-digit Control Number located above your
name and address in the lower left corner of this form.
Follow the simple instructions on the screen.
You can also elect to receive future shareholder
materials electronically at this website.
=========================================================
Thank you for voting!
If you vote by phone or Internet, please do not mail back your proxy card.
DETACH HERE IF MAILING
----- Please mark
| X | votes as in
----- this example
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Unless marked otherwise, this proxy will be voted FOR the election of Directors, FOR the election of Auditors, FOR approval of
the amendments to the 1991 Long-Term Incentive Plan, FOR the amendments to the 1996 Non-Employee Director Stock Option Plan,
and FOR amendments to the Certificate of Incorporation regarding Preferred Stock voting rights.
<S> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS NOMINATED BY THE BOARD 3. APPROVAL OF AMENDMENTS TO FOR AGAINST ABSTAIN
(Pages 2 to xx) THE 1991 LONG-TERM INCENTIVE ----- ----- -----
PLAN (Page xx) | | | | | |
Nominees: Paul A. Allaire, B.R. Inman, Antonia Ax:son Johnson, ----- ----- -----
Vernon E. Jordan, Jr., Yotaro Kobayashi, Hilmar Kopper, Ralph S.
Larsen, George J. Mitchell, N.J. Nicholas, Jr., John E. Pepper, 4. APPROVAL OF AMENDMENTS FOR AGAINST ABSTAIN
Patricia F. Russo, Martha R. Seger, Thomas C. Theobald and TO THE 1996 NON-EMPLOYEE ----- ----- -----
G. Richard Thoman. DIRECTOR STOCK OPTION | | | | | |
----- ----- PLAN (Page xx) ----- ----- -----
| | FOR ALL | | WITHHELD
----- NOMINEES ----- FROM ALL NOMINEES
----- 5. APPROVAL OF AMENDMENTS TO THE FOR AGAINST ABSTAIN
| | CERTIFICATE OF INCORPORATION ----- ----- -----
----- ________________________________________ REGARDING PREFERRED STOCK | | | | | |
For all nominees except as noted above. VOTING RIGHTS (Page xx) ----- ----- -----
2. ELECTION OF INDEPENDENT FOR AGAINST ABSTAIN -----
AUDITORS (Page xx) ----- ----- ----- I plan to attend the Annual Meeting. (A ticket will be | |
| | | | | | sent to you.) -----
----- ----- ----- -----
Check here if you have noted comments on the reverse. | |
-----
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT -----
| |
PLEASE SIGN AS IMPRINTED HEREON AND RETURN PROMPTLY. -----
Signature: _____________________________ Date ____________ Signature: ____________________________ Date ____________
- --------------------------------------------------------------- --------------------------------------------------------------------
</TABLE>
XEROX CORPORATION 1999 PROXY - SIDE 2
