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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[X] Definitive Proxy Statement
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[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
XEROX CORPORATION
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(Name of Registrant as Specified In Its Charter)
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SEC 1913 (3-99)
THE DOCUMENT COMPANY
XEROX
Xerox Corporation
800 Long Ridge Road
P.O. Box 1600
Stamford, Connecticut 06904
July 13, 2001
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of Xerox
Corporation to be held Tuesday, August 28, 2001 at 10:00 a.m. at the Sheraton
Stamford Hotel, 2701 Summer Street, Stamford, Connecticut. As you know our
shareholders meeting was delayed because of an independent review by the
Company's Audit Committee, in cooperation with the Company's auditors, KPMG,
which delayed the issuance of our annual report. Now that the audit has been
completed and the report issued, we are able to schedule the annual meeting.
Your Management looks forward to greeting in person those shareholders able to
attend.
At the Annual Meeting, you will be asked to vote upon the election of 13
Directors. The Board of Directors unanimously recommends that you vote in favor
of this proposal. One shareholder proposal will be acted upon that your Board
believes is not in the best interest of the Company and its shareholders, and
unanimously recommends a vote against this shareholder proposal.
Not standing for reelection as a director is Admiral B. R. Inman, who having
attained his 70/th/ birthday since the last annual meeting has retired from the
Board under the Company's retirement policy. Admiral Inman has served 14 years
as a member of your Board of Directors. We are deeply grateful to him for his
many contributions to our Company. William F. Buehler has also retired and we
appreciate the advice and experience he brought to the Board and the Company.
Patricia F. Russo resigned from the board upon being named Chief Operating
Officer of Eastman Kodak and we thank her for her contributions.
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 using one of the methods described in the
following pages. Voting instructions are set forth in the accompanying voting
instruction and proxy card.
For the Board of Directors,
/s/ Paul A. Allaire
Paul A. Allaire
Chairman and Chief Executive Officer
Notice of Annual Shareholders' Meeting
Date and Time: Tuesday, August 28, 2001 at 10:00 a.m
Location: Sheraton Stamford Hotel
2701 Summer Street
Stamford, CT
Purpose: Election of 13 Directors
Shareholder proposal regarding discretionary voting
Record Date: June 28, 2001--You are eligible to vote if you were a
shareholder of record on this date.
Proxy Voting: (1) Telephone
(2) Internet
(3) Proxy
Please review the accompanying proxy card for voting
instructions.
Importance of
Vote: Whether or not you plan to attend, please submit a proxy
as soon as possible to insure that your shares are
represented.
By order of the Board of Directors,
/s/ Eunice M. Filter
Eunice M. Filter
Secretary
July 13, 2001
TABLE OF CONTENTS
GENERAL..................................................................... 3
The Meeting................................................................ 3
Shares Entitled to Vote.................................................... 3
Proxy Voting and Quorum.................................................... 3
Choices in Voting.......................................................... 3
ESOP Voting Instructions................................................... 3
Required Vote.............................................................. 3
PROPOSAL 1 -- ELECTION OF DIRECTORS......................................... 3
Committee Functions, Membership and Meetings............................... 4
Audit Committee.......................................................... 4
Nominating Committee..................................................... 4
Executive Compensation and Benefits Committee............................ 4
Finance Committee........................................................ 5
Executive Committee...................................................... 5
Attendance and Compensation of Directors................................... 5
Attendance............................................................... 5
Summary of Director Annual Compensation.................................... 5
Terms Used in Biographies.................................................. 6
Biographies................................................................ 6
Ownership of Company Securities............................................ 11
Executive Compensation..................................................... 13
Report of the Executive Compensation and Benefits Committee of the Board. 13
Compensation Committee Interlocks and Insider Participation.............. 16
Summary Compensation Table............................................... 16
Option Grants............................................................ 17
Option Exercises/Year-End Values......................................... 18
Retirement Plans......................................................... 19
Certain Transactions....................................................... 20
Litigation................................................................. 21
Ten-Year Performance Comparison............................................ 22
Directors and Officers Liability Insurance and Indemnity................... 23
Section 16(a) Beneficial Ownership Reporting Compliance.................... 23
INDEPENDENT AUDITORS........................................................ 23
Fees Billed by KPMG........................................................ 23
Audit Committee Report..................................................... 23
PROPOSAL 2 -- SHAREHOLDER PROPOSAL REGARDING DISCRETIONARY VOTING........... 24
BOARD OF DIRECTORS' RECOMMENDATION......................................... 25
OTHER MATTERS............................................................... 25
Other Actions at Meeting................................................... 25
Information About this Solicitation of Proxies............................. 25
Confidential Voting........................................................ 25
Multiple Shareholders Having The Same Address.............................. 26
Availability of Additional Information..................................... 26
REQUIREMENTS FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION OF DIRECTORS
AND OTHER BUSINESS........................................................ 26
Shareholder Proposals for 2002 Meeting..................................... 26
Recommendations to Nominating Committee of Director Candidates............. 26
2
PROXY STATEMENT
GENERAL
The Meeting
The Board of Directors of Xerox Corporation (Xerox, the Company, we or us) is
requesting your proxy for the Annual Meeting of Shareholders on August 28, 2001
beginning at 10:00 a.m., and any adjournments thereof. The meeting will be held
at the Sheraton Stamford Hotel, 2701 Summer Street, Stamford, CT.
Shares Entitled to Vote
Holders of record of the Company's Common Stock, par value $1 per share (Common
Stock) and Series B Convertible Preferred Stock (Preferred Stock) as of the
close of business on June 28, 2001 are entitled to vote. On that date there
were 711,297,400 shares of Common Stock and 7,917,185 of Preferred Stock
outstanding. At the meeting each share of Common Stock is entitled to one vote
on each proposal and each share of Preferred Stock is entitled to six votes on
each proposal.
Proxy Voting and Quorum
Shareholders of record may vote their proxies by telephone, internet or mail.
By using your proxy to vote in one of these ways, you authorize the four
directors whose names are listed on the front of the proxy card accompanying
this Proxy Statement to represent you and vote your shares. Holders of a
majority of the shares entitled to vote at the meeting must be present in
person or represented by proxy to constitute a quorum.
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.
You may revoke or change your proxy at any time before it is exercised, either
in writing to the Secretary of the Company, or through the internet or by
telephone voting.
Choices in Voting
You have several choices in completing your voting.
. You may vote on each proposal, in which case your shares will be voted in
accordance with your choices.
. In voting on directors, you can either vote FOR all the directors or withhold
your vote on all or certain of the directors.
. You may indicate a preference to abstain on any other proposal, in which case
no vote will be recorded.
. You may submit a proxy, without indicating your voting preferences, in which
case the proxies will vote your shares:
--for election of the directors nominated by the Board of Directors
--against the shareholder proposal regarding discretionary voting
ESOP Voting Instruction
Participants in the Company's Employee Stock Ownership Plan can instruct State
Street Bank and Trust Company as Trustee of the Plan how to vote by telephone,
internet or mail. No matter which method is used, the instructions are
confidential and will not be disclosed to the Company. By using the voting
instruction in one of these ways, you instruct the Trustee to vote the shares
allocated to your Stock Account. You also authorize the Trustee to vote a
proportion of the shares held in the ESOP Trust which have not yet been
allocated, as well as shares for which no instructions have been received.
Required Vote
A plurality of the votes cast is required for the election of directors. The
affirmative vote of a majority of the votes cast is required to adopt the
shareholder proposal.
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 have been approved. Abstentions,
broker non-votes and votes withheld are not treated as votes cast 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 13 persons whose
biographies appear on pages 6 through 11 have been proposed by the Board of
Directors based on a recommendation by the Nominating Committee of the Board of
Directors, none of whose members is an officer of the Company.
Nine of the 13 nominees are neither employees nor former employees of Xerox,
its subsidiaries or associated companies. These Board members bring to us
valuable experience from a variety of fields.
3
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.
Committee Functions, Membership and Meetings
Our Board of Directors has several standing committees: the Audit, Nominating,
Executive Compensation and Benefits, Finance and Executive Committees. Here is
a description of each Committee, the number of meetings held during 2000 and
its membership during 2000:
Audit Committee (nine meetings)
Responsibility: reference is made to a complete copy of the charter of the
Audit Committee which is attached to this Proxy Statement as Exhibit A for a
full description of the responsibilities of the Audit Committee.
Briefly, the Committee's responsibilities include:
. annually recommend to the Board for its nomination, for submission to the
shareholders for their election, a firm of independent certified public
accountants (Auditor);
. review periodically the independence of the Auditor;
. review the annual fees of the Auditor;
. review the annual audited financial statements, changes in accounting
policies, financial reporting practices and significant reporting issues and
judgments made in connection with the preparation of such audited financial
statements;
. review with the Auditor the matters required to be discussed by Statement on
Auditing Standards No. 61 relating to communications with audit committees;
. review the comments and recommendations contained in the Auditor's and
Director of Internal Audit's annual summary audit management reports and
executive management's response to those reports;
. review with the management, Auditors and Director of Audit the adequacy of
internal controls that could significantly affect the Company's financial
statements.
. Make a recommendation to the Board with respect to the audited financial
statements to be included in the Company's Annual Report to Shareholders and
the Form 10-K to be filed with the Securities and Exchange Commission;
. examine and make recommendations, if any, with respect to the plans for and
the results of the annual audit conducted by the Auditors and the Director of
Audit.
. Discuss with management and the Auditors the Company's quarterly financial
results prior to the release of earnings and/or the filing of the Company's
quarterly report on Form 10-Q; and
. review at least annually with the Company's Ethics Compliance Officer the
status and results of the annual ethics compliance program.
A Report of the Audit Committee appears below on Page 23 under "Report of the
Audit Committee".
Members: Antonia Ax:son Johnson, Hilmar Kopper, N. J. Nicholas, Jr., John E.
Pepper, Martha R. Seger and Thomas C. Theobald, all non-employee directors.
Chairman: Mr. Theobald
All of the members of the Audit Committee are independent as defined in the
listing standards of the New York Stock Exchange, Inc.
Nominating Committee (one meeting)
Responsibility: 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 their nomination.
Members: Vernon E. Jordan, Jr., Hilmar Kopper, Ralph S. Larsen, George J.
Mitchell and Patricia F. Russo, all non-employee directors.
Chairman: Mr. Jordan
Executive Compensation and Benefits Committee (six meetings)
Responsibility:
. recommends 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 and
4
. consults with the Chief Executive Officer and advises the Board with respect
to senior management succession planning.
Members: B. R. Inman, Antonia Ax:son Johnson, Ralph S. Larsen, John E. Pepper
and Thomas C. Theobald, all non-employee directors.
Chairman: Mr. Larsen
Finance Committee (two meetings)
Responsibility:
. oversees the investment management of the Company's employee savings and
retirement plans and
. reviews the Company's asset mix, capital structure and strategies, financing
strategies, insurance coverage and dividend policy.
Members: B. R. Inman, Vernon E. Jordan, Jr., George J. Mitchell, N. J.
Nicholas, Jr., Patricia F. Russo, and Martha R. Seger, all non-employee
directors.
Chairman: Mr. Nicholas
Executive Committee (one meeting)
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 full Board.
Members: Paul A. Allaire, Vernon E. Jordan, Jr., Ralph S. Larsen and Anne M.
Mulcahy.
Chairman: Mr. Allaire
Attendance and Compensation of Directors
Attendance: 9 meetings of the Board of Directors and 19 meetings of the Board
committees were held in 2000. All incumbent directors other than George J.
Mitchell attended at least 75 percent of the total number of meetings of the
Board of Directors and Board committees on which they served.
We believe 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.
Summary of Director Annual Compensation
The compensation of directors during 2000 was as follows:
Cash............ $40,000
Restricted Stock $25,000 (number of shares based upon market value at time fee is payable-quarterly)
Options......... 5,000 shares
Expenses........ Out-of-pocket expenses in connection with service
The compensation of directors during 2001 will be as follows:
Cash.............. $40,000
Committee Meetings $1,500 (for each meeting attended which is not held in connection with a regular Board meeting)
Committee Chairmen $10,000 (per year for non-employee Chairmen of Board Committees)
Restricted Stock.. $25,000 (number of shares based upon market value at time fee is payable-quarterly)
Options........... 5,000 shares
Expenses.......... Out-of-pocket expenses in connection with service
Eligibility: Directors who are our employees receive no compensation for
service as a director. Directors who are employees of subsidiary companies are
not eligible to receive stock option awards.
Options: Issued at the fair market value on date of grant (generally on the
date of the annual meeting of shareholders). The options vest over a three year
period. Upon the occurrence of a change in control, as defined, all outstanding
options become exercisable.
Restricted Stock: The number of shares issued is based on the market value at
the time the fee is payable, which is in quarterly installments. The shares
held by directors under this Plan are included in the Xerox securities owned
shown in the biographies of the directors beginning on page 6. The shares may
not be sold or transferred except upon death, retirement, disability, change in
control or termination as a director with the consent of the majority of the
Board.
5
Terms Used in Biographies
To help you consider the nominees, we use a biographical format that provides a
ready reference on their backgrounds. Certain terms used in the biographies may
be unfamiliar to you, so we are defining them here.
Xerox securities owned means the Company's Common Stock, including restricted
shares of Common Stock issued under the Restricted Stock Plan For Directors,
and Series B Convertible Preferred Stock. Series B shares are owned through the
individual's account in the Xerox Employee Stock Ownership Plan. None of the
nominees owns any of the Company's other securities.
Options/Rights is the number of the Company's shares of Common Stock subject to
stock options and incentive stock rights held by a nominee.
Immediate family means the spouse, the minor children and any relatives sharing
the same home as the nominee.
Unless otherwise noted, all Xerox securities held are owned beneficially by the
nominee. This means he or she has or shares voting power and/or investment
power with respect to the securities, even though another name--that of a
broker, for example--appears in the Company's records. All ownership figures
are as of May 31, 2001.
For information on compensation for officers, see the compensation section
starting on page 13.
[PHOTO] Paul A. Allaire
Age: 62 Director since: 1986
Xerox securities owned: 390,083 common shares; 381 Series B Convertible
Preferred shares
Options/Rights: 3,563,144 common shares
Occupation: Chairman of the Board and Chief Executive Officer, Xerox Corporation
Education: BS, Worcester Polytechnic Institute; MS, Carnegie-Mellon University
Other Directorships: Lucent Technologies Inc.; priceline.com, Incorporated; Sara Lee
Corporation; and GlaxoSmithKline plc
Other Background: Joined Xerox in 1966. Stepped down as Chief Executive Officer
in April 1999 and returned to the position in May 2000. Chairman of the Board
of the Ford Foundation. Member of the Board of Directors of the Council on
Foreign Relations, the Council on Competitiveness, the New York City Ballet,
Outward Bound and FIRST. Member, Board of Trustees, Carnegie-Mellon University
and Worcester Polytechnic Institute. Member, The Business Roundtable, The
Business Council and the National Academy of Engineering. Chairman of the
Executive Committee of Xerox.
[PHOTO] Antonia Ax:son Johnson
Age: 57 Director since: 1996
Xerox securities owned: 5,751 common shares and an indirect interest in approximately 10,162
common shares through the Deferred Compensation Plan
Options/Rights: 25,000 common shares
Occupation: Chairman, Axel Johnson Group
Education: BA, MA, University of Stockholm
Other Directorships: Axel Johnson AB; Axel Johnson Inc.; Axel Johnson International; Ahlens
AB; Axfood AB; Nordstjernan AB; NCC AB
Other Background: Chairman of the Axel and Margaret Ax:son Johnson Foundation,
City Mission of Stockholm, and The World Childhood Foundation. In 1971 joined
the Axel Johnson Group; became primary stockholder in 1975 and Owner and
Chairman in 1982. Board Member, Royal Swedish Academy of Engineering Sciences.
Member of the Audit and Executive Compensation and Benefits Committees of
Xerox.
6
[PHOTO] Vernon E. Jordan, Jr.
Age: 65 Director since: 1974
Xerox securities owned: 32,066 common shares and an indirect interest in approximately 6,832
common shares through the Deferred Compensation Plan
Options/Rights: 25,000 common shares
Occupation: Senior Managing Director, Lazard Freres & Co. LLC; Of Counsel, Akin, Gump,
Strauss, Hauer & Feld, LLP
Education: BA, DePauw University; JD, Howard University Law School
Other Directorships: America Online Latin America, Inc.; American Express Company;
Callaway Golf Company; Clear Channel Communications, Inc.; Dow Jones & Co., Inc.;
FirstMark Communications International, LLC; J.C. Penney Company, Inc.; Revlon Group;
Ryder System, Inc.; Sara Lee Corporation; Shinsei Bank, Ltd; and Union Carbide Corporation
Other Background: Joined Lazard Freres & Co. LLC in January 2000. 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. Trustee of the Ford Foundation, Howard University and the LBJ
Foundation. Member of the Council on Foreign Relations, The American Law
Institute, the American Bar Association, the National Bar Association, the
Bilderberg Meetings and is on the Board of Governors of the Joint Center for
Political and Economic Studies. Member of the International Advisory Board of
DaimlerChrysler; Fuji Bank and Barrick Gold. 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 Executive and Finance Committees of
Xerox.
Yotaro Kobayashi
[PHOTO] Age: 67 Director since: 1987
Xerox securities owned: 33,335 common shares
Options/Rights: 16,700 common shares
Occupation: Chairman of the Board, Fuji Xerox Co., Ltd.
Education: BA, Keio University; MBA, Wharton Graduate School, University of Pennsylvania
Other Directorships: Fuji Xerox Co., Ltd.; Callaway Golf Company; Nippon Telegraph and
Telephone Corporation; and American Productivity & Quality Center.
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. Chairman, Keizai Doyukai
(Japan Association of Corporate Executives). Pacific Asia Chairman of the
Trilateral Commission. Member, the International Council of JP Morgan; the
International Advisory Board of Booz Allen & Hamilton Inc.; the International
Advisory Board of the Council on Foreign Relations; International Advisory
Panel member of Singapore Technologies; 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.
7
[PHOTO] Hilmar Kopper
Age: 66 Director since: 1991
Xerox securities owned: 23,228 common shares
Options/Rights: 20,050 common shares
Occupation: Chairman of the Supervisory Board, Deutsche BankAG
Education: High school diploma
Other Directorships: Akzo Nobel NV; Bayer AG; DaimlerChrysler AG; Solvay SA;
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. Spokesman of the Board of Managing
Directors, December 1989 to May 1997. Member of the Audit and Nominating
Committees of Xerox.
[PHOTO] Ralph S. Larsen
Age: 62 Director since: 1990
Xerox securities owned: 25,736 common shares and an indirect interest in
approximately 28,034 common shares through the Deferred Compensation Plan
Options/Rights: 25,000 common shares
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. Former Chairman and a member of the Executive Committee 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 Executive and Nominating Committees of Xerox.
[PHOTO] George J. Mitchell
Age: 67 Director since: 1996
Xerox securities owned: 7,841 common shares and an indirect interest in approximately 5,189
common shares through the Deferred Compensation Plan
Options/Rights: 25,000 common shares
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 Hotels & Resorts; UNUM
Provident Corporation; The Walt Disney Company; Casella Waste Systems, Inc.;
Unilever; Staples, Inc.
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, The Peace Negotiations in
Northern Ireland; Chairman, International Fact Finding Committee on Violence in
the Middle East. Member of the Finance and Nominating Committees of Xerox.
8
[PHOTO] Anne M. Mulcahy
Age: 48 Director since: 2000
Xerox securities owned: 80,371 common shares; 569 Series B Convertible Preferred shares and
an indirect interest in approximately 36,419 shares through the Deferred Compensation Plan
Options/Rights: 1,796,848 common shares
Occupation: President and Chief Operating Officer, Xerox Corporation
Education: BA, Marymount College
Other Directorships: Target Corporation; Axel Johnson Inc.; Catalyst; Fannie Mae; Fuji
Xerox Co., Ltd; Xerox (Europe) Limited
Other Background: Joined Xerox in 1976 as a sales representative and held
various sales and senior management positions. Named Vice President for Human
Resources in 1992; Senior Vice President in 1998; and Executive Vice President
in 1999. Elected President and Chief Operating Officer in May 2000. Member of
the Executive Committee of Xerox.
[PHOTO] N. J. Nicholas, Jr.
Age: 61 Director since: 1987
Xerox securities owned: 23,747 common shares and an indirect interest in
approximately 27,666 common shares through the Deferred Compensation Plan
Options/Rights: 25,000 common shares
Occupation: Investor
Education: BA, Princeton University; MBA, Harvard University Graduate School of
Business Administration
Other Directorships: Boston Scientific Corporation; priceline.com, Incorporated; DB Capital
Partners
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, Trustee of Environmental Defense and a member of the Council on
Foreign Relations. Chairman of the Finance Committee and member of the Audit
Committee of Xerox.
[PHOTO] John E. Pepper
Age: 62 Director since: 1990
Xerox securities owned: 60,061 common shares and an indirect interest in
approximately 5,935 common shares through the Deferred Compensation Plan:
immediate family owns 16,000 shares
Options/Rights: 25,000 common shares
Occupation: Chairman of the Board and Chairman of the Executive Committee, The Procter &
Gamble Company
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, Chairman in 1999, retired as an
active employee in September 1999, and re-elected Chairman of the Board in June
2000. Co-Chair, Development Campaign and Member, Executive Committee, National
Underground Railroad Freedom Center. Fellow, Yale Corporation. Trustee, Christ
Church Endowment Fund. Member of Executive Committee, Cincinnati Youth
Collaborative. Member, American Society of Corporate Executives, Partnership
for Drug Free America. Served three years in the U.S. Navy. Member of the Audit
and Executive Compensation and Benefits Committees of Xerox.
9
[PHOTO] Barry D. Romeril
Age: 57 Director since: 1999
Xerox securities owned: 144,021 common shares; 227 Series B Convertible
Preferred shares and an indirect interest in approximately 30,581 shares through the
Deferred Compensation Plan
Options/Rights: 1,193,548 common shares
Occupation: Vice Chairman and Chief Financial Officer, Xerox Corporation
Education: BA, Oxford University
Other Directorships: Billiton plc; The Concours Group Inc; Booktec.com; Fuji Xerox
Co., Ltd.; Xerox (Europe) Limited; Xerox Investments (Nederland) BV
Other Background: Joined Xerox in 1993 as Executive Vice President and Chief
Financial Officer. Elected Vice Chairman of the Board of Directors in 1999.
From 1988 to 1993, he was with British Telecommunications plc as Group Finance
Director; from 1985 to 1988, with BTR, Inc. and BTR plc; and from 1974 to 1988
with Imperial Chemical Industries plc. Member of the Council of Financial
Executives of The Conference Board. Member of the Board of Directors, Private
Sector Council; Statue of Liberty-Ellis Island Foundation, Inc.
[PHOTO] Martha R. Seger
Age: 69 Director since: 1991
Xerox securities owned: 15,325 common shares and an indirect interest in
approximately 10,747 common shares through the Deferred Compensation Plan
Options/Rights: 25,000 common shares
Occupation: Financial economist and Former Governor, Federal Reserve System;
currently Distinguished Visiting Professor of Finance, Arizona State 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; Massey 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.
10
[PHOTO] Thomas C. Theobald
Age: 63 Director since: 1983
Xerox securities owned: 25,159 common shares and an indirect interest in
approximately 10,223 common shares through the Deferred Compensation Plan
Options/Rights: 25,000 common shares
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; Jefferson Wells International; LaSalle U.S.
Realty Income and Growth Fund; Jones, Lane, LaSalle Inc.; The MONY Group; Liberty
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 Executive Compensation and Benefits Committee
of Xerox.
Ownership of Company Securities
We do not know of any person who, or group which, owns beneficially more than
5% of any class of its equity securities as of December 31, 2000, except as set
forth below/(1)/.
-------------------------------------------------------------------------------------------------------------
Amount
Beneficially Percent
Title of Class Name and Address of Beneficial Owner Owned of Class of Class
-------------------------------------------------------------------------------------------------------------
Series B Convertible State Street Bank and Trust Company, as Trustee, 8,256,791 100%
Preferred Stock/(2)/ 225 Franklin Street, Boston, MA 02110/(3)/
Common Stock State Street Bank and Trust Company, as Trustee under 90,912,742/(4)/ 12.7%/(5)/
other plans and accounts
225 Franklin Street, Boston, MA 02110
Common Stock Capital Research and Management Company 36,095,700/(6)/ 5.4%
333 South Hope Street
Los Angeles, CA 90071
Common Stock Dodge & Cox 53,176,018/(7)/ 8.0%
One Sansome Street
San Francisco, CA 94104
-------------------------------------------------------------------------------------------------------------
(1)The words "group" and "beneficial" are as defined in regulations issued by
the Securities and Exchange Commission (SEC). Beneficial ownership under
such definition means 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 except that each
share of Preferred Stock has six votes per share.
(3)Held as Trustee under the Xerox Employee Stock Ownership Plan. Each
participant may direct the Trustee as to the manner in which shares
allocated to his or her 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 in the same proportions
as shares in participants' accounts as to which voting instructions are
received. Shares which have not been allocated are voted in the same
proportion. 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 10,972,321 shares, shared voting power for
78,552,915 shares, sole dispositive power for 12,489,357 shares and shared
dispositive power for 78,423,385 shares.
11
(5)Percentage based upon assumption that all Series B Convertible Preferred
Stock were converted into 49,540,746 shares of Common Stock.
(6)Capital Research has sole dispositive power over all of the shares and no
voting power.
(7)Within this total as to certain of the shares, Dodge & Cox has sole voting
power for 49,638,318 shares, shared voting power for 469,300 shares, sole
dispositive power for 53,176,018 shares and no shared dispositive power for
any of the shares.
Shares of Common Stock and Series B Convertible Preferred Stock (converted to
Common Stock at a ratio of six to one) of the Company owned beneficially by its
directors and nominees for director, each of the current executive officers
named in the Summary Compensation Table below and directors and all current
officers as a group, as of May 31, 2001, were as follows:
Amount Total
Name of Beneficially Stock
Beneficial Owner Owned Interest
-------------------------------------------------------------------------------
Paul A. Allaire....................................... 3,031,790 3,955,514
Allan E. Dugan........................................ 475,111 917,578
Antonia Ax:son Johnson................................ 25,750 40,913
Vernon E. Jordan, Jr.................................. 53,092 64,925
Yotaro Kobayashi...................................... 45,034 50,035
Hilmar Kopper......................................... 38,277 43,278
Ralph S. Larsen....................................... 45,735 78,770
George J. Mitchell.................................... 27,840 38,030
Anne M. Mulcahy....................................... 393,183 1,917,049
N. J. Nicholas, Jr.................................... 43,746 76,413
John E. Pepper........................................ 80,060 90,997
Barry D. Romeril...................................... 549,666 1,369,514
Martha R. Seger....................................... 35,324 51,072
Thomas C. Theobald.................................... 45,158 60,382
Directors and All Officers as a group................. 8,237,205 17,601,629
-------------------------------------------------------------------------------
Percent Owned by Directors and Officers: Less than 1% of the aggregate number
of shares of Common Stock and Series B Stock outstanding at May 31, 2001 is
owned by each director and officer. The amount beneficially owned by all
directors and officers as a group amounted to approximately 1%.
Amount Beneficially Owned: The numbers shown are the shares of Common Stock
considered owned by the directors and officers in accordance with SEC rules.
Shares of Common Stock which officers and directors had a right, within 60
days, to acquire upon the exercise of options or rights are included. All these
are counted as outstanding for purposes of computing the percentage of Common
Stock and Series B Stock outstanding and beneficially owned.
Total Stock Interest: The numbers shown 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. The numbers also include
the interests of officers and directors in the Xerox Stock Fund under the
Profit Sharing and Savings Plan and the Deferred Compensation Plans.
12
Executive Compensation
Report of the Executive Compensation and Benefits
Committee of the Board of Directors
Executive Officer Compensation
The Executive Compensation and Benefits Committee (Committee) of the Board of
Directors determines the compensation paid to the Company's executive officers.
The Committee's members are all independent, non-employee directors of the
Company. The Committee does the following:
. establishes the policies that govern the compensation paid to Xerox executive
officers;
. determines overall and individual compensation goals and objectives;
. makes awards; and
. certifies achievement of performance under the Company's various annual and
long-term incentive plans and approves actual compensation payments.
Under the Committee's established policy, compensation and benefits provided
executive officers are targeted at levels equal to or better than the
compensation paid by a peer group of companies for equivalent skills and
competencies for positions of 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. They also recognize
corporate and individual achievement while supporting the Company objectives of
attracting, motivating and retaining high-performing executives.
In determining compensation levels to meet compensation policy objectives, the
Committee annually reviews, evaluates and compares Xerox executive officer
compensation to relevant external competitive compensation data. During the
year, the Committee reviewed the reported compensation data of firms that were
part of the Business Week Computers and Peripherals Industry Group (included in
the data shown on the performance graph on page 22 below). The Committee also
reviewed 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, global companies in technology,
office equipment and other industries.
The Committee sets base salaries 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 principal variable pay programs used in 2000 to align executive officer pay
with Company and individual performance are briefly described below:
Executive Performance Incentive Plan (EPIP): Approved by shareholders at the
Company's Annual Meeting on May 18, 1995, EPIP provides the Committee with
an incentive vehicle to compensate eligible executives for significant
contributions to the performance of the Company. By design, EPIP permits the
tax deductibility of payments made under EPIP even if an executive's
compensation exceeds $1,000,000 in any year. Under federal tax law under
certain circumstances such excess would not be deductible.
Under EPIP the Committee established a pool of 2% of the Company's Document
Processing profit before tax (PBT) for the 2000 one-year performance period.
For the three-year period commencing in 1998, a pool of 1 1/2% of cumulative
PBT was established. Ten percent (10%) of the resulting PBT pool was made
payable to Mr. Allaire. Five percent (5%) of the pool was made payable to
each of the other participants in EPIP.
EPIP gives the Committee 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 Committee cannot increase
the amount determined by the above formula.
For the full year 2000, Mr. Allaire and 15 other executive officers
participated in EPIP.
For 2000, the PBT pool amounted to $3,960,000 and because of the Company's
failure to meet its performance goals, the Committee exercised its
discretion by reducing total amounts payable to participating executive
officers from the pool from $3,366,000 to $595,050.
13
Annual Performance Incentive Plan (APIP): Under APIP, executive officers of
the Company may be entitled to receive performance-related cash payments.
Payments are only made if Committee-established annual performance
objectives are met.
The Committee approved an annual incentive target and maximum opportunity,
expressed as a percentage of 2000 base salary, for each participating
officer. At its meeting held on February 7, 2000, the Committee also
established overall Document Processing threshold, target and maximum
measures of performance and associated payment schedules.
The performance measures and weightings for 2000 were earnings per share
(35%), revenue growth (25%), cash conversion cycle (20%), and customer
satisfaction (20%). Additional goals were also established 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 2000, the performance against established measures was a significant
disappointment. EPS was below threshold levels, revenue growth was negative,
and both cash conversion and customer satisfaction were below threshold
levels. As a result, no officers received a payment under APIP. The named
officers did not receive a merit salary increase. Certain executive officers
received an adjustment to their base salary levels as a result of new
responsibilities and/or to reflect competitive market levels.
Leveraged Executive Equity Plan (LEEP): Under the terms of the 1991
Long-Term Incentive Plan, the Committee implemented a three-year plan
beginning in 1998 for key management executives, including most executive
officers. The plan 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. The 1998-2000
performance cycle of LEEP required each executive participant to maintain,
directly or indirectly, 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).
In 1998 the Committee granted awards under LEEP to approximately 40 key
executives that provided for non-qualified stock options for shares of
common stock and incentive stock units. The award to each participant was
based on the ratio of ten option shares and two incentive stock units for
each investment share. The options became exercisable in three annual
cumulative installments beginning in the year following the award. The
incentive stock rights are payable in shares of common stock and 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, January 1, 2000 and
January 1, 2001, respectively.
For 2000, the EPS goal was not achieved and none of the incentive stock
units vested.
At its meeting on December 4, 2000, the Committee approved a new three-year
(2001-2003) performance cycle of LEEP (New LEEP). New LEEP is intended to
deliver highly competitive compensation opportunities linked to the
successful implementation of the Company's turnaround plan and to provide
significant retention incentives for participating executives.
New LEEP consists primarily of three equal annual grants of stock options
and restricted stock. Award levels are determined to provide competitive
long-term incentive opportunities if the business turnaround plan is
successfully implemented. Stock options under New LEEP vest fully after
three years and remain exercisable for ten years following their date of
grant. Restricted stock awarded under New LEEP vests 100% after one year.
All executive officers and select other senior executives are eligible for
New LEEP. The first annual grant under New LEEP was made on January 1, 2001.
There is no requirement for investment shares under New LEEP.
CEO Challenge Bonus: At its February 7, 2000 meeting, the Committee
established the CEO Challenge Bonus program for the calendar years 2000 and
2001. The goals of the CEO Challenge Bonus program are to support the
Company's need to retain key executives and provide additional incentives to
improve the financial performance of the Company. Participants in LEEP,
including the executive officers, are eligible to participate in the CEO
Challenge Bonus. The CEO Challenge bonus provides an annual opportunity
equal to one-half of each executive's annual bonus target amount payable
over a period of four quarters if performance targets are met. For 2000, the
CEO Challenge Bonus was based on quarterly EPS targets. The EPS target for
the first quarter was achieved and bonus amounts were paid accordingly. For
the remaining quarters of 2000, EPS targets were not achieved and bonus
opportunities were forfeited. For 2001, the CEO Challenge bonus will also be
based on quarterly EPS targets.
14
In its effort to retain key executives and to provide incentives that focus on
shareholder value, the Committee awarded retention stock options to select key
executives, including the executive officers other than the Chairman and CEO.
The retention stock options vest over two years if EPS targets are met; and
vest 100% on December 31, 2004 if EPS targets are not met. The retention stock
options provide for dividend equivalents paid in cash until the stock options
vest.
Select executive officers also were awarded incentive stock rights that fully
vest on January 1, 2002. Beginning with the third quarter of 2000, the
incentive stock rights also provide for the payment of dividend equivalents.
Incentive stock rights were awarded to a select group of officers who are
critical for the Company to retain in order for the Company to implement its
turnaround plan.
Chief Executive Officer Compensation
The compensation paid to G. Richard Thoman, President and Chief Executive
Officer from January 1, 2000 until May 11, 2000, when he resigned, was
established by the Committee at its December 6, 1999 and February 7, 2000
meetings. The Committee's actions are described below as they relate to Mr.
Thoman's compensation as reported in the charts and tables that accompany this
report.
Base Salary: Mr. Thoman's annualized base salary remained at $900,000.
2000 Bonus: Mr. Thoman's annual target bonus remained at 100% and his
quarterly CEO Challenge bonus target was established at 13%.
Long-Term Incentive: Mr. Thoman was granted a stock option award for 100,000
shares that was scheduled to vest over two years if EPS targets were met and
vest 100% on December 31, 2004, if EPS targets were not met.
At its meeting on February 7, 2000, the Committee awarded Paul A. Allaire a
stock option award for 200,000 shares that vested on January 1, 2001. The stock
option award was made to retain Mr. Allaire in his role as Chairman of the
Board of the Company.
Upon the resignation of Mr. Thoman on May 11, 2000, the Board of Directors
requested Mr. Allaire to assume the additional role of Chief Executive Officer
of the Company. In recognition of Mr. Allaire's additional role, and after
reviewing the compensation levels provided to the Chairmen and Chief Executive
Officers of other companies, the Committee authorized the following
compensation:
Base Salary: Mr. Allaire's base salary was increased to $1,200,000 per year.
2000 Bonus: Mr. Allaire's annual bonus target percentage and quarterly CEO
Challenge Bonus target remained at 100% and 13% respectively.
Long-Term Incentive: Mr. Allaire was granted a stock option award for
250,000 shares, one-half of which vested on January 1, 2001 with the balance
vesting on January 1, 2002; and incentive stock rights for 100,000 shares,
one-half of which vested on January 1, 2001, with the balance vesting on
January 1, 2002. Mr. Allaire received an award under the New LEEP program as
described earlier in the section summarizing Executive Officer Compensation.
Under New LEEP, on January 1, 2001, Mr. Allaire received a stock option
grant for 350,000 shares that will vest on January 1, 2002, and a restricted
stock award of 350,000 shares that will also vest on January 1, 2002. In
addition, effective January 1, 2001, Mr. Allaire was awarded participation
in a cash long-term incentive program that would pay Mr. Allaire $3,000,000
at target levels of Company performance (maximum of $5,000,000), subject to
negative discretion by the Committee, for the performance cycle ending
December 31, 2001.
The Committee made these awards to provide the incentives necessary to retain
and motivate Mr. Allaire to take the actions necessary to implement the
turnaround plan, focus Mr. Allaire on the development of his potential
successor and provide compensation competitive with the Chairmen and Chief
Executive Officers of other companies.
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
Thomas C. Theobald
February 5, 2001
15
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. Until May 18, 2000
Patricia F. Russo, a director of the Company, served on the Executive
Compensation and Benefits Committee of the Company and, at the same time, was
an Executive Vice President of Lucent.
Summary Compensation Table
The Summary Compensation Table below provides certain compensation information
for the Chief Executive Officer and the most highly compensated key executive
officers (Named Officers) serving at the end of the fiscal year ended December
31, 2000 and for G. Richard Thoman who served as Chief Executive Officer until
May 11, 2000 for services rendered in all capacities during the fiscal years
ended December 31, 2000, 1999, and 1998. The table includes the dollar value of
base salary, bonus earned, option awards (shown in number of shares) and
certain other compensation, whether paid or deferred.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
--------------------------------------------------------- ------------------------------------
Annual Bonus
-----------------------------
Total
Annual Other
Cash Bonus Annual Restricted Underlying All Other
Name and Salary Bonus 91 Plan ($) (C) Compensation Stock Options/SARs Compensation
Principal Position Year ($) ($) (A) ($) (B) (= A+B) ($) (D) ($) (E) (#) (F) ($) (G)
------------------------------------------------------------------------------------------------------------------------------
Paul A. Allaire............... 2000 1,125,000 121,875 0 121,875 162,881 2,681,250 450,000 17,055
Chairman and Chief 1999 975,000 0 0 0 118,644 0 54,764 16,290
Executive Officer 1998 975,000 1,600,000 2,924,133 4,524,133 177,310 0 239,082 318,455
Anne M. Mulcahy............... 2000 721,667 45,063 0 45,063 107,659 2,681,250 310,000 34,642
Chief Operating Officer 1999 425,000 0 0 0 88,647 0 15,328 13,578
1998 312,500 263,000 599,804 862,804 62,791 0 49,044 53,929
Barry D. Romeril.............. 2000 641,667 57,500 0 57,500 114,894 804,375 150,000 27,729
Vice Chairman 1999 575,000 0 0 0 170,047 0 24,415 27,141
1998 513,333 488,000 909,740 1,397,740 138,049 1,145,903 178,822 114,853
William F. Buehler............ 2000 641,667 57,500 0 57,500 136,102 804,375 150,000 14,828
Vice Chairman 1999 575,000 0 0 0 100,575 0 23,717 14,374
1998 464,833 450,000 857,704 1,307,704 91,953 1,145,903 174,568 98,868
Allan E. Dugan................ 2000 462,500 37,188 0 37,188 91,746 0 50,000 29,702
Executive Vice President 1999 425,000 0 0 0 109,414 0 16,066 29,085
1998 359,000 306,000 717,719 1,023,719 81,092 0 58,686 95,955
G. Richard Thoman............. 2000 326,087 487,500 0 487,500 107,971 0 100,000 3,950,000
Chief Executive Officer (H) 1999 900,000 0 0 0 189,642 0 293,562 3,827,580
1998 700,000 930,000 2,099,341 3,029,341 374,636 1,793,683 335,128 3,960,560
--------------------------------------------------------------------------------
(A)This column reflects annual cash bonuses earned during the years indicated
under EPIP and for the year 2000, the CEO Challenge Bonus. In addition, the
amount shown for G.R. Thoman for 2000 includes a prorated 2000 bonus that
was agreed to be paid in 2001 under the Letter Agreement entered into with
Company in May 2000 in connection with his separation.
(B)This column reflects amounts earned under the Company's 1991 Long-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 2000 level was
not reached and the final one-third of the units did not vest. The value of
one-third of the incentive stock units, is reported in the column above for
the year 1998 in which the earnings per share objective was 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, CEO Challenge
Award 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. Included in
Other Annual Compensation for 2000 is $55,275 of perquisite compensation for
William F. Buehler, $29,949 of which relates to personal use of corporate
aircraft. Also included in Other Annual Compensation for 1998 is $50,337 of
perquisite compensation for G. Richard Thoman, $34,881 of which relates to
personal use of corporate aircraft.
16
(E)This column reflects incentive stock unit 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, 2000
(based upon the closing market price on that date of $4.625 was as follows:
P.A. Allaire -- 100,000 ($462,500), A.M. Mulcahy -- 153,440 ($709,660), B.D.
Romeril -- 114,453 ($529,345), W.F. Buehler -- 50,000 ($231,250), and A.E.
Dugan -- 63,456 ($293,484) G. R. Thoman -- 80,000 ($370,000). Excludes
grants of restricted stock made on January 1, 2001 under New LEEP (as
described in the Report of the Executive Compensation and Benefits
Committee) as follows: P.A. Allaire -- 350,000 ($1,662,500), A.M. Mulcahy --
250,000 ($1,187,500), B.D. Romeril -- 125,000 ($593,750), A.E. Dugan --
75,000 ($326,250).
(F)The Company no longer grants stock appreciation rights (SARs) in tandem with
stock options. All stock options were awarded under the 1991 Plan. As
discussed under the report of the Executive Compensation and Benefits
Committee, stock options were awarded under a three-year performance cycle
of LEEP that ended on December 31, 2000. Excludes grants of stock options
made on January 1, 2001 under New LEEP as described in the Report of the
Executive Compensation and Benefits Committee as follows: P.A. Allaire --
350,000, A.M. Mulcahy -- 934,600, B.D. Romeril -- 467,300, A.E. Dugan --
280,400.
(G)The total amounts shown in this column consist of the Company's profit
sharing contribution, whether under the Profit Sharing and Savings Plan or
its policy of paying directly to the 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. For 2000 the amounts were: P.A. Allaire: $0 profit
sharing; $17,055 life insurance; A.M. Mulcahy: $0 profit sharing; $34,642
life insurance; B.D. Romeril: $0 profit sharing; $27,729 life insurance;
W.F. Buehler: $0 profit sharing; $14,828 life insurance; and A.E. Dugan: $0
profit sharing; $29,702 life insurance. 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 were
intended to replace the value of forfeited in-the-money vested stock options
from his former employer. Also included in the amount shown for G.R. Thoman
is a $200,000 payment in lieu of continuation of life insurance benefits
agreed to under the Letter Agreement entered into with Company in May 2000
in connection with his separation.
(H)Resigned effective May 11, 2000.
Option Grants
The following table sets forth information concerning awards of stock options
to the Named Officers under the Company's 1991 Plan during the fiscal year
ended December 31, 2000. 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 $35.479 and $56.495 for the
options with the $21.7812 exercise price and $43.980 and $70.031 for the
options with the $27.0000 exercise price. The amounts shown as potential
realizable values for all shareholders represent the corresponding increases in
the market value of 668,576,389 shares outstanding held by all shareholders as
of December 31, 2000. Any gains to the Named Officers and the shareholders will
depend upon future performance of the common stock of the Company as well as
overall market conditions.
17
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Individual Grants (1) (2) Appreciation for Option Term
----------------------------------------------------- -------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($ /Sh) Date 5%($) 10%($)
---------------------------------------------------------------------------------------------------------------
Paul A. Allaire... 200,000/(3)/ 2.28% $21.7812 12/31/09 $ 2,739,616 $ 6,942,725
250,000/(5)/ 27.0000 12/31/09 4,245,039 10,757,762
Anne M. Mulcahy... 60,000/(4)/ 1.57% 21.7812 12/31/09 821,885 2,082,817
250,000/(5)/ 27.0000 12/31/09 4,245,049 10,757.762
Barry D. Romeril.. 50,000/(4)/ 0.76% 21.7812 12/31/09 684,904 1,735,681
100,000/(5)/ 27.0000 12/31/09 1,698,015 4,303,105
William F. Buehler 50,000/(4)/ 0.76% 21.7812 12/31/09 684,904 1,735,681
100,000/(5)/ 27.0000 12/31/09 1,698,015 4,303,105
Allan E. Dugan.... 50,000/(4)/ 0.25% 21.7812 12/31/09 684,904 1,735,681
G. Richard Thoman. 100,000/(4)/ 0.51% 21.7812 12/31/09 1,369,808 3,471,362
---------------------------------------------------------------------------------------------------------------
All Shareholders.. N/A N/A N/A N/A $1,944,646,456 $4,928,115,928
--------------------------------------------------------------------------------
(1)Exercise price is based upon fair market value on the effective date of the
award. Excludes grants of stock options made on January 1, 2001 under New
LEEP as described in the Report of the Executive Compensation and Benefits
Committee as follows: P.A. Allaire -- 350,000, A.M. Mulcahy -- 934,600, B.D.
Romeril -- 467,300, A.E. Dugan -- 280,400.
(2)Options may be accelerated as a result of a change in control as described
under "Option Surrender Rights".
(3)Exercisable 100% on January 1, 2001
(4)Exercisable 100% of January 1, 2005
(5)Exercisable 1/2 on January 1, 2001 and 1/2 on January 1, 2002
Option Exercises/Year-End Values
The following table sets forth for each of the Named Officers the number of
shares underlying options and SARs exercised during the fiscal year ended
December 31, 2000, the value realized upon exercise, the number of options/SARs
unexercised at year-end and the value of unexercised in-the-money options/SARs
at year-end.
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUE
Number of Shares Value of Unexercised In-
Underlying Unexercised the-Money Options /SARs
Value of Options/SARs at at
Shares FY-End(#) FY End($)(B)
Underlying ------------------------- -------------------------
Name Options/SARs Value Exercisable Unexercisable Exercisable Unexercisable
Exercised(#) Realized($)(A)
---------------------------------------------------------------------------------------------------
Paul A. Allaire... 0 $0 2,042,033 771,111 $0 $0
Anne M. Mulcahy... 0 $0 128,682 380,126 $0 $0
Barry D. Romeril.. 0 $0 217,305 309,490 $0 $0
William F. Buehler 0 $0 153,687 304,232 $0 $0
Allan E. Dugan.... 0 $0 283,445 131,481 $0 $0
G. Richard Thoman. 0 $0 777,170 1,052,060 $0 $0
---------------------------------------------------------------------------------------------------
(A)The value realized is based upon the difference between the exercise price
and the average of the high and low prices on the date of exercise.
(B)Excludes grants of stock options made on January 1, 2001 under New LEEP (as
described in the Report of the Executive Compensation and Benefits Committee
as follows: P.A. Allaire -- 350,000, A.M. Mulcahy -- 934,600, B.D. Romeril
-- 467,300, A.E. Dugan -- 280,400.
(C)The 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
29, 2000 of $4.75. Option/SARs may be accelerated as a result of a change in
control as described under "Option Surrender Rights".
18
Retirement Plans
Retirement benefits are provided to the executive officers of the Company
including the Named Officers primarily under unfunded executive supplemental
plans and, due to Internal Revenue Code limitations, to a much lesser extent
under the Company's Retirement Income Guarantee Plan. The table below shows,
under the plans, the approximate annual retirement benefit which would accrue
for the number of years of credited service at the respective salary rates. The
earliest retirement age for benefit commencement is 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 1 2/3% per year of
credited service, but for certain mid-career hire executives the rate is
accelerated to 2 1/2%, including Barry D. Romeril, William F. Buehler and Allan
E. Dugan. No additional benefits are payable for participation in excess of 30
years for those accruing benefits at the rate of 1 2/3% per year and 20 years
for those accruing benefits at 2 1/2% per year.
Annual benefits for years of credited service indicated
Average annual -------------------------------------------------------
compensation for five
highest years 15 years 20 years 25 years 30 years
------------------------------------------------------------------------------
400,000............ 96,000 128,000 161,000 192,000
600,000............ 146,000 195,000 243,000 242,000
800,000............ 196,000 261,000 327,000 392,000
1,000,000............ 246,000 328,000 410,000 492,000
1,200,000............ 296,000 395,000 493,000 592,000
1,400,000............ 346,000 461,000 577,000 692,000
1,600,000............ 396,000 528,000 660,000 792,000
1,800,000............ 446,000 595,000 743,000 892,000
2,000,000............ 496,000 661,000 827,000 992,000
2,200,000............ 546,000 728,000 910,000 1,092,000
2,400,000............ 596,000 795,000 993,000 1,192,000
2,600,000............ 646,000 861,000 1,077,000 1,292,000
2,800,000............ 696,000 928,000 1,160,000 1,392,000
3,000,000............ 746,000 995,000 1,243,000 1,492,000
3,200,000............ 796,000 1,061,000 1,327,000 1,592,000
3,400,000............ 846,000 1,128,000 1,410,000 1,692,000
3,600,000............ 896,000 1,195,000 1,493,000 1,792,000
3,800,000............ 946,000 1,261,000 1,577,000 1,892,000
------------------------------------------------------------------------------
The maximum benefit is 50% of the five highest years' average annual
compensation reduced by 50% of the 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 years of credited service for purposes of
the plans as follows:
Years of
Credited
Name Service (A)
-------------------------------------------------------------------
Paul A. Allaire (B)................................... 30
Anne M. Mulcahy....................................... 24
Barry D. Romeril...................................... 11
William F. Buehler (C)................................ 14
Allan E. Dugan........................................ 16
-------------------------------------------------------------------
(A)Thirty years is the maximum permitted credited service under the plans.
Credited service shown reflects the accelerated accrual for mid-career hire
executives. The years credited service reflected can be applied to the
annual benefit table above to determine the annual benefit. Under the
agreement with the Company in connection with his resignation, G. Richard
Thoman became entitled to a retirement benefit of $800,000 per year
beginning in May 2000.
(B)Upon Mr. Allaire's death, Mr. Allaire's alternate payee will receive a full
and unreduced 50% survivor benefit based on Mr. Allaire's accrued benefits
under the plans.
(C)In connection with his retirement, William F. Buehler became eligible for a
retirement supplement payable in three equal installments of $280,746
commencing January 1, 2002, or in a single lump sum of $842,238 if he elects
prior to December 31, 2001.
19
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 five highest years average compensation for purposes of the plans as of the
end of the last fiscal year for the Named Officers is P. A. Allaire $2,377,485;
A. M. Mulcahy $550,336; B. D. Romeril $875,100; W. F. Buehler $817,451; and A.
E. Dugan $673,651.
Certain Transactions
Severance Agreements
In October, 2000, with the approval of the Executive Compensation and Benefits
Committee and the Board, the Company entered into agreements with five of its
executive officers, including Paul A. Allaire, Anne M. Mulcahy, Barry D.
Romeril, and William F. Buehler, 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). The officer would be entitled to receive
a lump sum severance payment equal to three times the sum of:
. 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
. 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 executive or a substantial alteration in responsibilities
(including ceasing to be an executive officer of a public company),
(ii)a reduction in base salary and/or annual bonus,
(iii)the relocation of the officer's principal place of business, and
(iv)the failure of the Company to maintain compensation plans in which
the officer participates or to continue providing certain other
existing employment benefits.
The agreements provide for the continuation of certain welfare benefits for a
period of 36 months following termination of employment and contain a gross-up
payment (as defined) if the total payments (as defined) are subject to excise
tax imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended.
The agreements 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 two years after a change in control of the Company.
The Company has also entered into agreements with 40 other officers or other
key executives, including Allan E. Dugan, that provide identical benefits
described above, except that these officers and key executives would be
entitled to receive a lump-sum severance payment equal to two times their
annual compensation and they would receive welfare benefits continuance for a
period of 24 months.
Termination Arrangements
In connection with his resignation as President and Chief Executive Officer and
as a Director of the Company in May, 2000, G. Richard Thoman received certain
benefits that had been approved by the Executive Compensation and Benefits
Committee. These included payment of prorated 2000 bonus, a cash payment in
lieu of continuation of life insurance (which are reflected in the Summary
Compensation Table above) and approved an annual retirement benefit (see note
to the table under Retirement Plans above). All of Mr. Thoman's outstanding
options were amended to be exercisable for the life of the options (see
"Aggregate Options/SAR Exercises in the Last Fiscal Year and Fiscal Year-End
Options/SAR Value" above) subject to Mr. Thoman not making any derogatory
remarks about the Company and not disclosing confidential information. The
Company also agreed to provide Mr. Thoman with an office and administrative
support until May 14, 2002.
20
In connection with his retirement and consistent with prior practice, the
Company entered into an agreement with William F. Buehler, Vice Chairman of the
Board and a director. The agreement was approved by the Executive Compensation
and Benefits Committee. Among other things, the agreement provides for salary
continuance for twelve months commencing January 15, 2001 at the rate of
$56,250 per month and a retirement supplement payable in three equal
installments of $280,746 commencing on January 1, 2002, or in a single lump sum
of $842,238, if he elects prior to December 31, 2001.
On April 9, 2001 the Executive Compensation and Benefits Committee adopted a
policy consistent with an existing practice, which authorizes the Chairman of
the Board and CEO to enter into salary continuance agreements with selected
officers who are nearing retirement. The purpose of the policy is to serve as a
retention device. The salary continuance period can range between 12 and 24
months and would commence on a date as determined by the CEO. Salary is based
upon the monthly salary in effect when the salary continuance begins. The
current form of agreement provides that engagement by the officer in any
"Detrimental Activity", as defined, would result in forfeiture of salary
continuance, unfunded retirement benefits and bonuses and the cancellation of
outstanding options. The Company has entered into such agreements with certain
officers, including Barry D. Romeril.
Employment Arrangement
In connection with his continued employment, the Company entered into an
agreement with Carlos Pascual, Executive Vice President. The agreement was
authorized by the Executive Compensation and Benefits Committee. The agreement
arises out of changes made to Xerox Spain's pension plans consistent with
proposed Spanish law requirements. It is designed to mitigate the potential
impact of U.S. income tax on Mr. Pascual's retirement benefit, if any, as a
result of the change in Spanish law. Subject to certain conditions in the
Agreement, the Company has agreed to indemnify Mr. Pascual for U.S. income tax
on his Spanish pension, if necessary. The Agreement also provides that for a
period of three years following Mr. Pascual's employment with the Company he
will be provided with salary continuance at a rate of Spanish Pesetas 4,389,600
per month (approximately $22,300 at current exchange rates) as he serves in the
capacity of Chairman of Xerox Espana, S.A. at the discretion of the CEO of the
Company. He will also be provided with relocation assistance in an amount not
to exceed $100,000.
Option Surrender Rights
All non-qualified options under the 1991 and the 1998 Plans are accompanied by
option surrender rights. If there is a change in control, as defined in the
plans, all such rights which are in the money 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.
Grantor Trusts
The Company has established grantor trusts with a bank for the purpose of
paying amounts due under the deferred compensation plan and the severance
agreements 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.
Legal Services
The law firm of Akin, Gump, Strauss, Hauer & Feld, of which Vernon E. Jordan,
Jr. is of counsel, was retained by and rendered services to the Company in
2000.
Litigation
Two putative shareholder derivative actions are pending in the Supreme Court of
the State of New York, County of New York on behalf of the Company against all
current members of the Board of Directors (with the exception of Anne M.
Mulcahy) and G. Richard Thoman (in one of the actions) and the Company, as a
nominal defendant. Another, now dismissed, putative shareholder derivative
action was pending in the United States District Court for the District of
Connecticut. Plaintiffs claim breach of fiduciary duties and/or gross
mismanagement related to certain of the alleged accounting practices of the
Company's operations in Mexico. The complaints in all three actions alleged
that the individual named defendants breached their fiduciary duties and/or
mismanaged the Company by, among other things, permitting wrongful
business/accounting practices to occur and inadequately supervising and failing
to instruct employees and managers of the Company. In one of the New York
actions it is claimed that the individual defendants disseminated or permitted
the dissemination of misleading information. In the other New York action it is
also alleged that the individual defendants failed to vigorously investigate
potential and known problems relating to accounting, auditing and financial
functions and to take affirmative steps in good faith to remediate the alleged
problems. In the federal action in Connecticut it was also alleged that the
individual defendants failed to take steps to institute
21
appropriate legal action against those responsible for unspecified wrongful
conduct. Plaintiffs claim that the Company has suffered unspecified damages.
Among other things, the pending complaints seek unspecified monetary damages,
removal and replacement of the individuals as directors of the Company and/or
institution and enforcement of appropriate procedural safeguards to prevent the
alleged wrongdoing. Defendants filed a motion to dismiss in one of the New York
actions. Subsequently, the parties to the federal action in Connecticut agreed
to dismiss that action without prejudice in favor of the earlier-filed New York
action. The parties also agreed, subject to court approval, to seek
consolidation of the New York actions and a withdrawal, without prejudice, of
the motion to dismiss. On May 10, 2001 the court entered an order which, among
other things, approved that agreement. The individual defendants deny the
wrongdoing alleged in the complaints and intend to vigorously defend the
actions.
A putative shareholder derivative action is pending in the Supreme Court of the
State of New York, Monroe County against certain current and former members of
the Board of Directors, namely G. Richard Thoman, Paul A. Allaire, B.R. Inman,
Antonia Ax:son Johnson, Vernon E. Jordan Jr., Yotaro Kobayashi, Ralph S.
Larsen, Hilmar Kopper, John D. Macomber, George J. Mitchell, N.J. Nicholas,
Jr., John E. Pepper, Patricia L. Russo, Martha R. Seger and Thomas C. Theobald
(collectively, the "Individual Defendants"), and the Company, as a nominal
defendant. Plaintiff claims the Individual Defendants breached their fiduciary
duties of care and loyalty to the Company and engaged in gross mismanagement by
allegedly awarding former CEO, G. Richard Thoman, compensation including
elements that were unrelated in any reasonable way to his tenure with the
Company, his job performance, or the Company's financial performance. The
complaint further specifically alleges that the Individual Defendants failed to
exercise business judgment in granting Thoman lifetime compensation, a special
bonus award, termination payments, early vesting of stock compensation, and
certain transportation perquisites, all which allegedly constituted gross,
wanton and reckless waste of corporate assets of the Company and its
shareholders. Plaintiff claims that the Company has suffered damages and seeks
judgment against the Individual Defendants in an amount equal to the sum of the
special bonus, the present value of the $800 thousand per year lifetime
compensation, the valuation of all options unexercised upon termination, the
cost of transportation to and from France, and/or an amount equal to costs
incurred under the various compensation programs, cancellation of unpaid
balances of these obligations, and/or cancellation of unexercised options and
other deferred compensation at the time of his resignation, plus the cost and
expenses of the litigation, including reasonable attorneys', accountants' and
experts' fees and other costs and disbursements. On May 31, 2001 defendants
filed a motion to dismiss the complaint. The Individual Defendants deny the
wrongdoing alleged in the complaint and intend to vigorously defend the action.
Ten-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).
[CHART]
Base
Period
Company/Index Name Dec 90 Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 Dec 96 Dec 97 Dec 98 Dec 99 Dec 00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
XEROX CORPORATION $100 $203 $244 $286 $326 $463 $546 $781 $1286 %550 $105
S&P 500 100 131 141 155 157 215 265 353 454 496 499
BUSINESS WEEK COMPUTERS
& PERIPHERALS 100 97 83 92 118 161 226 304 554 805 570
22
The Peer Group consists of the following companies as of December 31, 2000:
Apple Computer, Compaq Computer, Data General, Dell Computer, EMC, Gateway,
Hewlett-Packard, International Business Machines, Iomega, Lexmark International
Group, Micron Electronics, NCR, Quantum, Seagate Technology, Sequent, Silicon
Graphics, Storage Technology, Sun Microsystems, Unisys and Western Digital.
This graph assumes the investment of $100 on December 31, 1990 in Xerox Common
Stock, the S&P 500 Index and the Peer Group Common Stock, and reinvestment of
quarterly dividends at the monthly 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.
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 Form 3, 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 Herve J. Gallaire and Rafik O. Loutfy with respect to
Incentive Stock Rights which were part of each of their respective initial
holdings, and on behalf of Thomas J. Dolan with respect to his initial position
in the Xerox Stock Fund. An amended Form 3 was filed as soon as the omissions
were discovered; for Mr. Gallaire and Mr. Loutfy on March 8, 2000 and for Mr.
Dolan on August 9, 2000.
INDEPENDENT AUDITORS
KPMG LLP acted as independent auditors of the Company for 2000 and continues to
so act. KPMG 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.
Fees Billed by KPMG
Audit Fees
The aggregate fees billed by KPMG LLP for audit services for the year ended
December 31, 2000, including for reviews of the financial statements included
in the Company's Quarterly Reports on Form 10-Q for such year, were $11.3
million.
Financial Information Systems Design And Implementation Fees
KPMG LLP did not render any services related to financial information systems
design and implementation for the year ended December 31, 2000.
All Other Fees
Aggregate fees billed for all other services rendered by KPMG LLP for the year
ended December 31, 2000 were $7.5 million.
Audit Committee Report
The responsibilities of the Audit Committee are discussed under "Committee
Functions, Membership and Meetings" on page 4 and a copy of the charter of the
Audit Committee is attached to this Proxy Statement as Exhibit A.
Management is responsible for the Company's internal controls and the financial
reporting process. The independent accountants are responsible for performing
an independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and to issue a report
thereon. The Committee's responsibility is to monitor and oversee these
processes.
23
Consistent with the foregoing the Audit Committee:
. Reviewed and discussed the audited consolidated financial statements of the
Company for the year ended December 31, 2000 with the management of the
Company and KPMG LLP;
. Discussed with KPMG LLP the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication With Audit Committees); and
. Received and reviewed the written disclosures and the letter from KPMG LLP
required by Independence Standards Board Standard No. 1 (Independence
Discussions With Audit Committees) and discussed with KPMG LLP that firms
independence.
The filing of the Company's 2000 Form 10-K was delayed in order to permit
completion of an independent review by the Audit Committee of the Company's
accounting policies and practices and a fuller audit review by KPMG LLP to
satisfy its auditing responsibilities. The Committee engaged the law firm of
Paul, Weiss, Rifkind, Wharton & Garrison, which engaged PricewaterhouseCoopers
LLP, to assist in the review which was conducted with the full cooperation of
KPMG.
Earlier the Audit Committee had conducted an independent review of the
accounting issues which arose in the Company's Mexican operation. The Committee
was aided in this review by the law firm of Akin, Gump, Strauss, Hauer & Feld,
which engaged PricewaterhouseCoopers LLP to assist in such review.
As a result of these reviews, it was determined that certain accounting
practices or the application thereof misapplied Generally Accepted Accounting
Principles and certain accounting errors and irregularities were identified.
The Company addressed the accounting errors and irregularities in its
consolidated financial statements as at December 31, 2000 and for the three
year period then ended.
Based upon the foregoing review and discussions, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 for filing by the Company with the SEC.
Thomas C. Theobald, Chairman
Antonia Ax:son Johnson
Hilmar Kopper
N. J. Nicholas
John E. Pepper
Martha R. Seger
PROPOSAL 2 -- SHAREHOLDER PROPOSAL REGARDING DISCRETIONARY VOTING
Mr. George W. Withrow, P.O. Box 1491, Fort Benton, Montana 59442-1491, who
states that he owns 1,200 shares of the common stock of the Company, has
indicated that he will cause a resolution to be introduced from the floor. The
text of the proposal and the supporting statement submitted by Mr. Withrow is
as follows:
WHEREAS, the common practice of designing a proxy which automatically, when
signed by the shareholder, grants authority to cast that shareowner's vote on
"such other business as may properly come before the meeting or any adjournment
thereof" is an assumption that is completely unwarranted. Such votes should be
cast according to the best judgement of the shareowner, not that of the
designated corporate representative.
RESOLVED, that shareholders direct the Board of Directors of the Corporation to
delete any such automatic assumption of the shareowners' prerogatives from all
future proxy forms used by the corporation.
SUPPORTING STATEMENT
"Corporate proxy voting is primarily for the benefit of the corporation. Few
companies would be able to attain a quorum and qualify to conduct business
without it. I appreciated the opportunity to participate in the important
decisions of the corporate board.
However, I believe the corporate proxy vote should be restricted to those items
specifically authorized by the shareholder.
The now common practice of assuming that signing the proxy automatically
confers the authority to act on "such other business as may properly come
before the meeting or any adjournment thereof" is, in my opinion, totally
unacceptable. I, at least, have no intention of granting it to persons whom I
do not know.
24
Presumably this authority is seldom used. That, however, does not justify
usurping the shareholder's rights.
I have no objection if that request for authority is listed as a regular item
on the proxy so that the shareholder has the power to approve or disapprove
it."
BOARD OF DIRECTORS' RECOMMENDATION
The form of voting instruction and proxy card used by the Company to solicit
proxies from shareholders grants the named proxies the authority to vote in
accordance with instructions given by the shareholder on the voting instruction
and proxy card and otherwise in accordance with the best judgment of the named
proxies in connection with such other business as may come before the meeting.
Your Board of Directors believes that the discretionary authority provides the
Company, through the named proxies, with an important mechanism for ensuring
the orderly and efficient conduct of shareholders' meetings and, at the same
time, does not abrogate shareholder rights because of significant restrictions
placed by the SEC on the discretionary authority that may be accorded to named
proxies in the voting instruction and proxy card.
Generally, the SEC proxy rules limit the use of discretionary authority to vote
for matters not specified in the voting instruction and proxy card to matters
incident to the conduct of the meeting, shareholder proposals unknown to the
Company and shareholder proposals properly omitted from the proxy statement. In
addition, the rules permit the grant of discretionary voting when a bona fide
nominee is named in the proxy statement and the nominee is unable to serve or
for good cause will not serve.
Supporting the limited nature of the grant of discretionary voting authority is
the statement set forth below under "Other Actions at Meeting" which has always
appeared in the Company's proxy statements: "The Board of Directors does not
intend to present any other matters at this meeting. If other matters properly
come before the meeting, the persons named in the accompanying proxy intend to
vote the proxies in accordance with their best judgment."
We believe that the grant of discretionary voting authority to named proxies in
respect of the limited matters provides the Company with an important mechanism
to deal with issues that may arise in the course of a meeting. In addition, we
believe that the SEC rules impose reasonable limitations on the exercise of
discretionary authority by us, through the named proxies. By retaining the
authority for discretionary voting the conduct of the meeting is facilitated
while at the same time the interests of shareholders are protected by the
limitations imposed by the SEC rules.
In light of the foregoing, your Board believes that the actions proposed by the
shareholder proponent are unnecessary and could unduly impede the orderly
conduct of the meeting.
To be adopted, the proposal must be approved by a majority of the votes cast.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE PROPOSAL.
OTHER MATTERS
Other Actions at Meeting
The Board of Directors does not intend to present any other matters at this
meeting. The Board 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, the persons named in the accompanying proxy
intend to vote the proxies in accordance with their best judgment.
Information About this Solicitation of Proxies
In addition to the solicitation of proxies by mail, certain of our employees
may solicit proxies without extra remuneration. We 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. We have engaged D.F. King & Co., Inc.
to handle the distribution of soliciting material to, and the collection of
proxies from, such entities. We will pay D.F. King & Co. a fee of $10,000 plus
reimbursement of out-of-pocket expenses for this service. We will bear the cost
of all proxy solicitation.
Confidential Voting
As a matter of policy, we keep confidential proxies, ballots and voting
tabulations that identify individual shareholders. Such documents are available
for examination only by the inspector of election and certain of our employees
and our transfer agent
25
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.
Multiple Shareholders Having the Same Address
If you and other residents at your mailing address own shares of Common Stock
through a broker, you may have received a notice from the broker notifying you
that your household will be sent only one Annual Report and Proxy Statement. If
you did not return the "opt-out" card attached to such notice you were deemed
to have consented to such process. The broker or other holder of record will
send at least one copy of the Annual Report and Proxy Statement to your
address. You may revoke your consent at any time upon written request with your
name, the name of your brokerage firm and your account number to Householding
Department, 51 Mercedes Way, Edgewood, NY 11717. The revocation will be
effective 30 days following its receipt. In any event, the Company will send a
copy of the Annual Report and Proxy Statement to you if you address your
written request to Xerox Corporation, Shareholder Services, P.O Box 1600,
Stamford CT 06904 or by calling Shareholder Services at (203) 968-3034. If you
are receiving multiple copies of annual reports and proxy statements at your
address and would like to receive only one copy in your household, please
contact us at the foregoing address and telephone number.
Availability of Additional Information
Copies of the 2000 annual report of the Company have been distributed to
shareholders (unless you have consented to electronic delivery). 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.
REQUIREMENTS FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION OF DIRECTORS AND
OTHER BUSINESS
Shareholder Proposals for 2002 Meeting
We expect to hold our 2002 Annual Meeting of Shareholders during the second
half of May and to issue our proxy statement for that meeting during the first
half of April.
Under the SEC proxy rules if a shareholder wants us to include a proposal in
our proxy statement and form of proxy for the 2002 Annual Meeting of
Shareholders, the proposal must be received by us at P.O. Box 1600, Stamford,
Connecticut 06904, Attention: Secretary-no later than December 14, 2001.
Under our By-Laws any shareholder wishing to make a nomination for director, or
wishing to introduce any business, at the 2002 Annual Meeting of Shareholders
must give the Company advance notice as described in the By-Laws. To be timely,
we must receive your notice for the 2002 Annual Meeting at our offices
mentioned above no earlier than November 14, 2001 or later than December 14,
2001. 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.
Recommendations to Nominating Committee of Director Candidates
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. The submission must be accompanied by 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, 2001 will be considered for nomination at the 2002
Annual Meeting of Shareholders. Recommendations received after December 31,
2001 will be considered for nomination at the 2003 Annual Meeting of
Shareholders.
By Order of the Board of Directors,
/s/ Eunice M. Filter
Eunice M. Filter
Secretary
July 13, 2001
26
Exhibit A
Xerox Corporation
Charter of the Audit Committee of the Board of Directors
Purpose
The Audit Committee (the "Committee") shall provide oversight on matters
relating to accounting, financial reporting, internal control, auditing and
regulatory compliance matters, consistent with legal and regulatory
requirements as hereinafter set forth and such other matters as the Board of
Directors of the Company (the "Board") shall from time to time direct, and
shall periodically report to the Board with respect thereto.
Structure
The Committee shall consist of not less than three members of the Board who
shall be appointed by, and serve at the pleasure of, the Board, all of whom
shall meet the independence requirements of the New York Stock Exchange all of
whom shall have such financial literacy or become financially literate within a
reasonable period of time after appointment and at least one of whom shall have
such financial expertise as required by the New York Stock Exchange as
determined by the Board in its business judgment.
Three members of the Committee shall constitute a quorum and the act of a
majority of the members present at a meeting at which a quorum is present shall
be the act of such Committee.
The Secretary of the Company, or in his or her absence such person as may be
designated by the Chairman of the Committee, shall act as Secretary and keep
the minutes of all meetings of the Committee.
Responsibilities of the Committee
1. Annually review and reassess the adequacy of the Committee's purpose and
responsibilities as herein set forth and recommend any proposed changes to
the Board for approval.
2. Annually recommend to the Board for its nomination, for submission to the
shareholders for their election, a firm of independent certified public
accountants to audit the books, records and accounts of the Company (the
"Auditors"), which firm is ultimately accountable to the Committee and the
Board. The Committee and the Board shall have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
Auditor (or to nominate the Auditor to be proposed for shareholder
approval).
3. Receive and review periodic written reports from the Auditor regarding the
Auditor's independence, discuss such reports with the Auditor, and if so
determined by the Committee, recommend that the Board take appropriate
action to satisfy itself of the independence of the Auditor.
4. Review the annual fees of the Auditor.
5. Review with management, the Director of Corporate Audit of the Company
("Audit Director") and the Auditors the annual audited financial
statements, changes in accounting policies, financial reporting practices
and significant reporting issues and judgments made in connection with the
preparation of such audited financial statements.
6. Review with the Auditor the matters required to be discussed by Statement
on Auditing Standards No. 61 relating to communications with audit
committees ("SAS 61").
7. Examine and review with the Auditors, the Director of Audit and the
Company's chief accounting officer, the comments and recommendations
contained in the Auditor's and Director of Audit's annual summary audit
management reports and executive management's response to those reports and
advise the Board with respect thereto.
8. Review with the management, Auditors and Director of Audit the adequacy of
internal controls that could significantly affect the Company's financial
statements.
9. Make a recommendation to the Board with respect to the audited financial
statements to be included in the Company's Annual Report to Shareholders
which financial statements are to be incorporated by reference in the
Company's Form 10-K to be filed with the Securities and Exchange Commission
(the "SEC").
10. Review and approve the report from the Committee required by the rules of
the SEC to be included in the Company's annual proxy statement.
27
11. Examine and make recommendations, if any, with respect to the plans for and
the results of the annual audit conducted by the Auditors and the Director
of Audit.
12. Discuss with management and the Auditors the Company's quarterly financial
results prior to the release of earnings and/ or the filing of the
Company's quarterly report on Form 10-Q, including a discussion of any
items required to be communicated by the Auditors under SAS 61. The
Chairman of the Committee may conduct this discussion either alone or
together with the participation of other members of the Committee in the
form of a teleconference.
13. Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquiries received from regulators or
government agencies.
14. Review at least annually with the Company's Ethics Compliance Officer the
status and results of the annual ethics compliance program.
15. Review the annual report by the Auditors with respect to officer expense
reports and perquisites.
16. Meet with the Company's chief financial officer, the Director of Audit and
the Auditors, as the Committee shall deem necessary, and meet with the
Auditors in separate executive session in which management of the Company
does not participate, as the Committee shall deem necessary.
Receive reports on such matters from the Auditors and Director of Audit and the
Company's General Counsel as may be required under the Private Securities
Litigation Reform Act of 1995 and Section 10A under the Securities Exchange Act
of 1934, as amended, and with the assistance of management, review and
investigate any such matter to the extent deemed appropriate.
28
2980-PS-01A
XEROX CORPORATION
ELECTION TO OBTAIN PROXY MATERIALS
ELECTRONICALLY INSTEAD OF BY MAIL
Xerox Corporation shareholders may elect to receive the Company's future
annual reports and 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 http://www.econsent.com/xrx. 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, Fleet National Bank
(EquiServe), at: 1-800-828-6396; P.O. Box 43016, Providence, RI 02940-3016;
http://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 ACCESS THE XEROX CORPORATION ANNUAL REPORT AND PROXY STATEMENT AT:
http://www.xerox.com/investor
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL BACK YOUR PROXY CARD.
DETACH HERE IF MAILING.
VOTING INSTRUCTION AND PROXY CARD
XEROX CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
10:00 A.M. TUESDAY, AUGUST 28, 2001
SHERATON STAMFORD HOTEL, 2701 SUMMER STREET
STAMFORD, CONNECTICUT
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FROM SHAREHOLDERS
OF COMMON STOCK
The undersigned appoints PAUL A. ALLAIRE, RALPH S. LARSEN, N. J. NICHOLAS,
JR., ANNE M. MULCAHY 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.
NOTICE TO PARTICIPANTS IN THE EMPLOYEE STOCK OWNERSHIP PLAN
This card also constitutes voting instructions for participants in the Xerox
Corporation Employee Stock Ownership Plan. A Participant who signs below hereby
instructs State Street Bank & Trust Company, Trustee, to vote the shares of
Stock allocated to his or her Stock Account and a proportion of the shares held
in the ESOP Trust which have not yet been allocated, as well as shares for which
no instructions have been received in accordance with the following direction.
Comments:
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IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE
------------ ------------
SEE REVERSE SEE REVERSE
SIDE SIDE
----------- ------------
XEROX CORPORATION
c/o EquiServe
P.O. Box 9398
Boston, MA 02205-9398
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 or Trustee to vote
your shares in the same manner as if YOU marked, signed, and returned your card.
To vote by phone or Internet, read the accompanying proxy statement and ballot
--------------------
and then follow these easy steps:
--------------------------------
To Vote By Phone To Vote By Internet
---------------- -------------------
. Read the accompanying Proxy Statement and Card. . Read the accompanying Proxy Statement and
Card.
. Call toll free 1-877-PRX-VOTE (779-8683) on a
touch-tone telephone. For shareholders . Go to the Website
residing outside the United States call http://www.eproxyvote.com/xrx
collect on a touch-tone phone 1-201-536-8073. -----------------------------
. Enter your 14-digit Voter Control Number . Enter your 14-digit Voter Control Number
located on your Card above your name. located on your Card above your name.
. Follow the recorded instructions. . Follow the instructions provided.
RECEIVE FUTURE MATERIALS VIA THE INTERNET.
You may elect to receive future proxy and
other materials over the Internet if you
have an e-mail account and access to the
Internet. To take advantage of this offer,
please access http://www.econsent.com/xrx
and then simply follow the instructions.
YOUR VOTE IS IMPORTANT!
IF YOU VOTE BY PHONE OR INTERNET,
PLEASE DO NOT MAIL BACK YOUR CARD.
[X] Please mark votes as in this example DETACH HERE IF MAILING
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Unless marked otherwise, this voting instruction and proxy card will be voted
FOR the election of Directors and AGAINST the shareholder proposal regarding
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discretionary voting.
1. ELECTION OF DIRECTORS NOMINATED BY THE BOARD
(Pages 6 to 11)
Nominees: (01) Paul A. Allaire, (02) Antonia FOR AGAINST ABSTAIN
Ax:son Johnson, (03) Vernon E. Jordan, Jr., 2. SHAREHOLDER PROPOSAL [_] [_] [_]
(04) Yotaro Kobayashi, (05) Hilmar Kopper, REGARDING DISCRETIONARY
(06) Ralph S. Larsen, (07) George J. Mitchell, VOTING (Pages 24 to 25)
(08) Anne M. Mulcahy, (09) N.J. Nicholas, Jr.,
(10) John E. Pepper, (11) Barry D. Romeril,
(12) Martha R. Seger and (13) Thomas C.
Theobald.
[_] FOR ALL [_] WITHHELD
NOMINEES FROM ALL NOMINEES
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For all nominees except as noted above. I plan to attend the Annual Meeting. (A ticket
will be sent to you). [_]
Check here if you have noted comments on the
reverse side. [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
PLEASE SIGN AS IMPRINTED HEREON AND RETURN
PROMPTLY.
Signature: Date: Signature: Date:
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